<PAGE>
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, 1999
|_| 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
-------------------------------
Syratech Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-3354944
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
175 McClellan Highway
East Boston, Massachusetts 02128-9114
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code - 617-561-2200
-----------------------------------------------------------------
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 __ NO X
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 30, 2000 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.
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 66% of net
sales for the year ended December 31, 1999. 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 34% of net sales for the year ended
December 31, 1999.
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.
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.
1
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<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Tabletop and Giftware ............. $202,563 $184,545 $182,886
Seasonal .......................... 102,707 105,861 107,976
-------- -------- --------
Total ............................. $305,270 $290,406 $290,862
======== ======== ========
</TABLE>
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.
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 license agreements, the
tradenames Cuisinart(R) and Hoffritz(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.
2
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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.
Candles. The Company designs, markets and distributes a line of candles and
candle accessories. The candle product offerings include a range of basic pillar
candles as well as fashion and novelty candles and gift sets. Candle accessories
include candle holders produced in glass, ceramic, metal, and other mediums. The
Company markets these products under the tradename Potpourri Designs(R). The
Company's products in this category are imported from the Company's third-party
vendors located primarily in the Asia Pacific Rim, with a small portion of
product produced in Mexico. The channels of distribution of the Company's candle
line include mass-market merchandisers, department stores, warehouse clubs and
specialty 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.
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) and Holiday Workshop(R). 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) and
Holiday Workshop(R). 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.
3
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Sales, Marketing and Distribution
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, 1999, consisted
of approximately 125 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.
The Company operates an 886,000 square foot facility located in Mira Loma,
California, which serves as its primary warehouse and distribution center.
Retailing Customers
During 1999, 20 customers accounted for approximately 48% of the Company's net
sales. Sales to Wal-mart Stores, Inc. and subsidiaries represented approximately
10.6% of the Company's 1999 net sales.
<TABLE>
<CAPTION>
% of
1999 Net
1999 Channels of Distribution Sales
- ----------------------------- ---------
<S> <C>
Mass Market Merchandisers, Catalogue Showrooms, Warehouse Clubs, Drug Stores and Supermarkets .... 36 %
Department Stores ................................................................................ 26 %
Specialty Stores, Jewelry Stores, Specialty Catalog Companies, Premium and Incentive Marketers ... 38 %
</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 and receive electronic invoicing and shipping notices.
4
<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 provides manufacturing support to C.J. Vander. The
Company also manufactures 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, 1999, the closing price of silver as quoted by
Handy & Harman Inc. has ranged from $4.21 per troy ounce to $7.31 per troy
ounce ($5.17 at March 15, 2000).
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 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 1999, the Company purchased an aggregate of approximately $133 million of
products from approximately 700 foreign manufacturers. No vendor accounted
for 10% or more of such purchases in 1999. 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 1999 approximately 83% were from vendors located in the Far
East; approximately 4% were from vendors located in India, approximately 4%
were from vendors located in Canada and Mexico, and approximately 9% 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.
5
<PAGE>
The Company continues to invest in capital equipment, training and process
control efforts to improve efficiencies, reduce costs and enhance quality
related to its manufactured Christmas ornament operations. The Company maintains
adequate manufacturing, warehousing and distribution facilities in Gastonia, NC
and Chester, SC to service the business. Adequate capacity exists to meet
anticipated growth and the non-union labor supply is adequate in both locations.
The Christmas decoration manufacturing processes at Rauch Industries uses three
primary raw materials: (i) glass ornament blanks, (ii) cardboard, corrugated and
polystyrene packaging materials, and (iii) silver and lacquers. The Company has
not experienced difficulty in obtaining raw materials or other supplies from its
vendors and does not anticipate any such difficulty in the foreseeable future.
The Company imports ornament hangers, decorated glass balls, and assorted tree
and off-the-tree decorations from China, India and Mexico.
In 1999, the Company closed and sold the Rauch Industries manufacturing facility
in El Paso, TX (Holiday Products) where it manufactured Christmas stockings,
tree-skirts and Santa Claus hats and suits. These items are now purchased from
vendors in Mexico and the Far East.
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 category, 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.
6
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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. An important aspect of service
is the ability to meet customers' "Floor-Ready" standards, including store-level
distribution, pre-pricing, electronic invoicing and shipping notices. 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 to effectively 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 to effectively 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.
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 a backlog of approximately $39.7
million as of December 31, 1999, compared to approximately $30.1 million as of
December 31, 1998. 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, 1999, returns and allowances
amounted to approximately 3.3% of sales.
7
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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.
Employees
As of December 31, 1999, the Company had approximately 1,550 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 February 23, 2000 a union election was held at the Company's subsidiaries
Wallace International de P.R., Inc. and International Silver de P.R., Inc. (the
"P.R. Subsidiaries"). On March 6, 2000, the National Labor Relations Board
(NLRB) issued a "Certification of Results of Election" stating that no
collective bargaining representative had been selected and that no timely
objections had been filed.
Approximately 32 employees of C.J. Vander are represented by the Union of
Manufacturing, Science & Finance (MSF). Management believes its employee
relations is satisfactory.
8
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ITEM 2 Properties
The following table sets forth information with respect to the Company's
properties as of March 30, 2000:
<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, SC Warehouse/Manufacturing/Showroom 828,000 Owned
Revere, MA Warehouse/Distribution 238,900 Leased
Gastonia, NC Office/Manufacturing/Distribution 387,441 Owned
East Boston, MA Office/Showroom 292,000 Owned
El Paso, TX Office/Warehouse 101,000 Leased
North Dighton, MA Office/Manufacturing/Warehouse 193,682 Leased
Crisfield, MD Office/Manufacturing/Warehouse 71,754 Owned
San German, PR Manufacturing/Office 87,239 Leased
Hong Kong Office/Showroom 6,809 Leased
Atlanta, GA Showrooms 18,291 Leased
Dallas, TX Showrooms 8,563 Leased
Los Angeles, CA Showrooms 4,115 Leased
Cramerton, NC Land 34.1 Acres Owned
Sheffield, England Office 2,230 Owned
London, England Office/Showroom 4,000 Leased
China Warehouse/Office 164,566 Leased
Taiwan Office 1,725 Leased
New York, NY Warehouse 3,800 Leased
Tianjin, PRC Office 2,799 Leased
New York, NY Showrooms 45,611 Leased
Ecclesfield, England Manufacturing/Warehouse/Showroom 39,950 Owned
</TABLE>
In November 1999 the Company sold its primary east coast distribution facility
in Revere, MA for $29,500,000. The sale of this facility resulted in a net gain
of approximately $17,140,000. The Company simultaneously entered into a
short-term leaseback of approximately 40% of the distribution facility.
9
<PAGE>
ITEM 3. Legal Proceedings
The Company and Leonard Florence are the defendants in a lawsuit filed by a
former employee alleging certain causes of action, including but not limited
to, breach of contract, tortious misrepresentation, defamation and a
violation of Massachusetts General Laws ch. 93A arising out of an alleged
promise to grant stock to the employee in connection with his employment.
While the matter is currently in preliminary stages of discovery, the Company
and Mr. Florence intend to vigorously defend the matter and have asserted
certain defenses and counterclaims. The Company has been named as a defendant
in certain other 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.
ITEM 4. Submission of Matters to A Vote of Security Holders
During the fourth quarter of 1999, 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
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"). 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
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.
10
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ITEM 6. Selected Financial Data
The following selected consolidated financial information as of December 31,
1999 through 1995 and for each of the years in the five-year period ended
December 31, 1999 has been derived from the consolidated financial statements of
the Company. The consolidated balance sheets of the Company as of December 31,
1999 and 1998 and the consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999, 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,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data (1):
Net sales ........................................... $ 305,270 $ 290,406 $ 290,862 $ 270,931 $ 169,520
Cost of sales ....................................... 221,199 212,968 214,881 193,480 120,354
--------- --------- --------- --------- ---------
Gross profit ........................................ 84,071 77,438 75,981 77,451 49,166
Selling, general and administrative expenses ........ 69,079 65,017 72,740 57,664 34,239
Asset dispositions, impairment of long-lived
assets and restructuring costs (2) ............... (15,596) 5,170
Other operating income (3) .......................... (3,358) (5,662) (2,366) (3,948)
--------- --------- --------- --------- ---------
Income from operations .............................. 33,946 12,913 5,607 23,735 14,927
Interest expense .................................... (24,643) (23,709) (16,027) (3,150) (287)
Interest income ..................................... 137 34 257 771 4,881
Other income (4) .................................... 2,184 11,900
--------- --------- --------- --------- ---------
Income (loss) before income taxes ................... 9,440 (10,762) (7,979) 33,256 19,521
Provision (benefit) for income taxes ............... 4,251 (2,690) (2,306) 12,471 6,686
--------- --------- --------- --------- ---------
Income (loss) from continuing operations ............ 5,189 (8,072) (5,673) 20,785 12,835
Discontinued operations:
Income from discontinued operations, net
of income taxes ................................ 2,572
Gain on sale of Syroco, Inc , net of income
taxes .......................................... 30,451
--------- --------- --------- --------- ---------
Net income (loss) ................................... 5,189 (8,072) (5,673) 20,785 45,858
Preferred stock dividend ............................ 2,624 2,344 1,530
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stockholders . $ 2,565 $ (10,416) $ (7,203) $ 20,785 $ 45,858
========= ========= ========= ========= =========
Basic earnings (loss) per share:
Continuing operations ........................... $ 0.68 $ (2.75) $ (1.38) $ 2.39 $ 1.10
Discontinued operations ......................... 2.82
--------- --------- --------- --------- ---------
Net income (loss) per common share ............ $ 0.68 $ (2.75) $ (1.38) $ 2.39 $ 3.92
========= ========= ========= ========= =========
Weighted-average number of shares outstanding 3,784 3,784 5,216 8,695 11,707
========= ========= ========= ========= =========
Diluted earnings (loss) per share:
Continuing operations ............................... $ 0.68 $ (2.75) $ (1.38) $ 2.36 $ 1.09
Discontinued operations ............................. 2.80
--------- --------- --------- --------- ---------
Net income (loss) per common share .................. $ 0.68 $ (2.75) $ (1.38) $ 2.36 $ 3.89
========= ========= ========= ========= =========
Shares:
Weighted-average number of shares outstanding 3,784 3,784 5,216 8,695 11,707
Effect of dilutive stock options ............ 104 96
--------- --------- --------- --------- ---------
Adjusted weighted-average number of shares
outstanding ............................ 3,784 3,784 5,216 8,799 11,803
========= ========= ========= ========= =========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
BALANCE SHEET DATA (1): (in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Working capital $ 123,439 $ 105,117 $ 114,106 $ 121,244 $ 122,980
Total assets 266,517 285,220 266,249 228,580 221,496
Total debt (5) 187,669 211,201 183,900 6,636 51,735 (6)
Stockholders' equity 21,337 16,538 25,153 171,574 147,526
Book value per common share (0.84) (1.41) 1.49 19.73 17.02
</TABLE>
(1) The Company changed its method of pricing certain inventories from the
last-in, first-out (LIFO) to the first-in, first out (FIFO) method in
1999. All prior periods have been restated to reflect this change as if it
occurred as of the earliest period presented. See Note 4 to the Company's
Financial Statements. The data for 1995 has also been restated to reflect
Syroco, Inc. as a discontinued operation.
(2) Consists of a gain on disposal of the Company's primary east coast
distribution facility in 1999 and the write down of the value of certain
assets in 1999 and 1998. See Note 3 to the Company's Financial Statements.
(3) Consists primarily of revenue related to licensing the Farberware name.
The years prior to 1998 also include income from the sale of Farberware
inventory net of certain selling, general and administrative expenses.
(4) 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.
(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.
12
<PAGE>
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.
Results of Operations
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,
--------------------------
1999 1998 (1) 1997 (1)
---- ---- --- ---- ---
<S> <C> <C> <C>
Net sales ..................................... 100.0 % 100.0 % 100.0 %
Cost of sales ................................. 72.5 73.3 73.9
------ ------ ------
Gross profit .................................. 27.5 26.7 26.1
Selling, general and administrative expenses .. 22.6 22.4 25.0
Asset dispositions, impairment of long-lived
assets and restructuring costs (2) .......... (5.1) 1.8 --
Other operating income (3) .................... (1.1) (1.9) (0.8)
------ ------ ------
Income from operations ...................... 11.1 4.4 1.9
Interest expense, net ......................... (8.0) (8.1) (5.4)
Other income (4) .............................. 0.8
------ ------ ------
Income (loss) before income taxes ........... 3.1 (3.7) (2.7)
Provision (benefit) for income taxes .......... 1.4 (0.9) (0.8)
------ ------ ------
Income (loss) from continuing operations .... 1.7 % (2.8)% (1.9)%
====== ====== ======
</TABLE>
(1) The Company changed its method of pricing certain inventories from the
last-in, first-out (LIFO) to the first-in, first out (FIFO) method in
1999. All prior periods have been restated to reflect this change as if it
occurred as of the earliest period presented. See Note 4 to the
Company's Consolidated Financial Statements.
(2) Consists of a gain on disposal of its primary east coast distribution
facility in 1999 and the write down of the value of certain assets in 1999
and 1998. See Note 3 to the Company's Consolidated Financial Statements.
(3) Consists of income from the sale of Farberware inventory and other
operating income, net of certain selling, general and administrative
expenses.
(4) Consists of non-recurring pre-tax income related to the sale of certain
equipment associated with the Farberware settlement in 1997.
13
<PAGE>
The following results of operations for years 1998 and prior have been restated
for a change in accounting principal from the LIFO inventory cost method to the
FIFO inventory cost method for certain inventories. See Note 4 to the Company's
Financial Statements.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales increased 5.1% to $305.3 million for the year ended December 31,
1999 from $290.4 million for the year ended December 31, 1998. This increase
is primarily due to increased sales of a new line of licensed giftware
products to specialty retailers and increased sales of candle giftware,
partially offset by decreased sales of certain seasonal products. Changes in
normal product prices did not materially impact net sales.
Gross profit increased 8.6% to $84.1 million for the year ended December 31,
1999 from $77.4 million for the year ended December 31, 1998. Gross profit as
a percentage of sales was 27.5% for the year ended December 31, 1999 compared
to 26.7% for the comparable 1998 period. The 0.8 percentage point increase
primarily reflects the higher margin carried by the new line of licensed
giftware which was offset by the increased royalty expense related to this
line. The change in gross profit as a percentage of sales was not materially
impacted by change in product pricing.
Selling, general and administrative expenses ("S, G & A expenses") of $69.1
million or 22.6% as a percentage of net sales for the year ended December
31, 1999 compared to 22.4% or $65.0 million for the comparable 1998 period. The
0.2 percentage point increase in S, G & A expenses to sales for the year ended
December 31, 1999 reflects increased bad debt expense, and the higher royalty
expense noted above.
Income from operations was $33.9 million and $12.9 million for the year ended
December 31, 1999 and 1998, respectively, and included other operating income
of $3.4 million and $5.7 million in 1999 and 1998, respectively. The decrease
in 1999 other operating income is primarily due to one-time income of $2.6
million recorded in 1998 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 also included asset dispositions in 1999 and charges
for impairment of long-lived assets in 1999 and 1998. In November 1999 the
Company sold its primary east coast distribution facility for $29.5 million.
The sale of this facility resulted in a net gain of approximately $17.1
million. The Company simultaneously entered into a short-term leaseback of
approximately 40% of the distribution facility. In connection with the
disposition of the facility the Company recorded separation benefits of
approximately $0.5 million for 42 hourly employees and three salaried
employees, all of which is accrued at December 31, 1999 and expected to be
fully paid by the end of the first quarter of 2001. Earlier in the year, the
Company sold undeveloped land adjacent to this facility for a gain of
approximately $0.8 million.
In the fourth quarter of 1999, the Company wrote down the value of certain
assets by approximately $1.2 million. These write-downs relate to abandonment of
certain manufacturing equipment at its Gastonia, North Carolina facility with a
book value of approximately $1.1 million. The remaining asset write-downs relate
to the finalization of amounts relative to the shutdown of the El Paso facility
discussed above. Other less significant asset write-downs and adjustments
aggregated a net charge of $0.6 million.
Interest expense, net was $24.5 million for the year ended December 31, 1999
compared to $23.7 million in the same period of 1998. This increase results from
increased borrowings for working capital purposes and higher interest rates on
the Company's Revolving Credit Facilities and notes payable.
The provision for income taxes was $4.3 million for the year ended December
31, 1999 compared to a benefit of $2.7 million for the year ended December
31, 1998. The estimated effective income tax rate of 45% for the year ended
December 31, 1999 compares to a 25% rate for the same period in the prior
year. The increase in tax rate reflects the impact of recognizing the gain on
the east coast distribution facility sale which in 1999 increased the
proportion of income taxed at higher U.S. tax rates compared with lower
foreign tax rates, in comparison to 1998.
Net income applicable to common stockholders for the year ended December 31,
1999 was $2.6 million or $0.68 per share compared to a net loss applicable to
common stockholders for the year ended December 31, 1998 of $(10.4) million
or ($2.75) per share on adjusted weighted average shares of 3,784,018 in both
years.
14
<PAGE>
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 $77.4 million for the year ended December 31, 1998 compared
with $76.0 million for the year ended December 31, 1997. Gross profit as a
percentage of net sales was 26.7% for the year ended December 31, 1998 compared
to 26.1% for the year ended December 31, 1997. The increase in the gross profit
percentage of 0.6 percentage points, reflects a 0.7 percentage point improvement
related to converting from LIFO to FIFO accounting for certain inventories (see
Note 4 to the consolidated financial statements). The gross profit percentage
also reflects a 0.1 point decrease due to 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.
Income from operations of $12.9 million and $5.6 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.
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 $4.3 million after management's decision to shut down and sell the
facilities. The El Paso facility was sold in December of 1999 and was leased
back for six months pending location of alternate warehousing facilities. The
Gastonia facility was shut down on June 15, 1999. Also included in the fourth
quarter charge is $0.6 million related to impaired equipment and tooling that
was abandoned at other Company facilities and $0.2 million 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 $2.7 and $2.3 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 ($10.4) million or ($2.75) (diluted) per share, on adjusted weighted average
shares outstanding of 3,784,018 (diluted) compared to net loss applicable to
common stockholders of ($7.2) million or ($1.38) (diluted) per share, on
adjusted weighted average
15
<PAGE>
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.
Liquidity and Capital Resources
Net cash used in operating activities for the year ended December 31, 1999 was
$9.9 million. The primary uses of cash were for increases in operating working
capital needs. Inventories ended the year at a higher level due to the increased
level of customer demand expected in the first quarter of 2000.
The Company's working capital requirements are seasonal and tend to be highest
in the period from September through 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 $6.5 million for the year ended December
31, 1999. These expenditures include computer equipment and systems for the
warehouse and distribution facility in Mira Loma, CA, computer equipment and
systems for the Company's East Boston office 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 and under its
operating leases) and fund planned capital expenditures through December 31,
2000.
See Note 10 for a description of the dividend and liquidation terms of the
Company's Cumulative Redeemable Preferred Stock.
See Note 6 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
The Company modified key systems to comply with Year 2000 and the expenditures
were not material to its financial condition or results of operations in any
given year.
The Company's critical computer systems were successfully transitioned to the
year 2000. However, there may be latent problems that surface at key dates in
the future. The Company has not experienced, and does not anticipate, any
significant problems related to the transition to the year 2000. In addition,
the Company has not experienced or been notified of any significant year 2000
issues relating to its significant customers, vendors, suppliers and others.
Furthermore, the Company does not anticipate any significant expenditure in the
future related to year 2000 compliance.
16
<PAGE>
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board Issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The new standard requires that all
companies record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. Management is currently assessing
whether there will be any impact of SFAS No. 133 on the Company's consolidated
financial statements upon adoption, which is required in the first quarter of
2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
The Company will adopt SAB No. 101 as required in the second quarter of 2000
and does not expect that such adoption will have a material impact on the
consolidated financial statements.
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 $113,850 as of December 31, 1999 based upon recent private market
trades. There is inherent rollover risk for these borrowings upon maturity and
are renewed at current market rates. The extent of this risk is not quantifiable
or predictable because of the variability of future interest rates and the
Company's future financing requirements. Currently, the Company does not enter
into financial instruments transactions for trading or other speculative
purposes or to manage interest rate exposure and does not have investments in
debt or equity securities.
The Company transacts sales and purchases primarily in U.S. Dollars and
maintains minimum cash balances denominated in foreign currencies. The Company
does not enter into foreign currency hedge transactions. Through December 31,
1999, foreign currency fluctuations have not had a material impact on the
Company's consolidated financial position or results of operations or cash flows
in any one year and the Company does not believe that its exposure to foreign
currency rate fluctuations is material.
17
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors.............................................................................. 19
Consolidated Financial Statements:
Consolidated balance sheets as of December 31, 1999 and 1998............................................. 20
Consolidated statements of operations for the years ended December 31, 1999, 1998 and 1997............... 21
Consolidated statements of stockholders' equity for the years ended December 31, 1999, 1998 and 1997..... 22
Consolidated statements of cash flows for the years ended December 31, 1999, 1998 and 1997............... 23
Notes to consolidated financial statements............................................................... 24
</TABLE>
18
<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, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1999. Our audits also included the consolidated financial
statement schedule listed in the Index at Item 14. These consolidated
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999 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 4 to the consolidated financial statements, the Company
has given retroactive effect to a change in method of pricing certain
inventory from the last-in, first-out method to the first-in, first-out
method in 1999. As discussed in Note 2, the Company completed a merger
accounted for as a recapitalization in 1997.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 10, 2000
19
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
--------- ---------
(As Restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ................................................ $ 1,451 $ 9,009
Accounts receivable, net ............................................ 69,267 70,128
Inventories ......................................................... 94,096 87,611
Deferred income taxes ............................................... 13,187 15,713
Prepaid expenses and other .......................................... 3,273 1,673
Properties held for sale ............................................ 2,292
--------- ---------
Total current assets ............................................ 181,274 186,426
Property, plant and equipment, net ..................................... 71,689 83,611
Purchase price in excess of net assets acquired, net ................... 6,308 6,549
Other assets, net ...................................................... 7,246 8,634
--------- ---------
Total ........................................................... $ 266,517 $ 285,220
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable ......................... $ 22,669 $ 46,201
Accounts payable .................................................... 11,673 13,883
Accrued expenses .................................................... 11,697 10,802
Accrued interest .................................................... 3,999 4,108
Accrued compensation ................................................ 3,012 2,844
Accrued advertising ................................................. 3,569 3,053
Income taxes payable ................................................ 1,216 418
--------- ---------
Total current liabilities ....................................... 57,835 81,309
Long-term debt ......................................................... 165,000 165,000
Deferred income taxes .................................................. 19,671 19,409
Pension liability ...................................................... 2,674 2,964
Commitments and contingencies (Notes 2, 8 and 13)
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized;
(25,000 designated as cumulative redeemable preferred stock,
18,000 shares issued and outstanding, liquidation value of $18,000,
and includes accrued and unpaid dividends of $6,498 and $3,874
in 1999 and 1998, respectively) ................................... 24,498 21,874
Common stock, $.01 par value, 20,000,000 shares
authorized; 3,784,018 shares issued and outstanding .............. 38 38
Deficit ............................................................. (3,308) (5,873)
Accumulated other comprehensive income .............................. 109 499
--------- ---------
Total stockholders' equity ...................................... 21,337 16,538
--------- ---------
Total ........................................................... $ 266,517 $ 285,220
========= =========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(As Restated) (As Restated)
<S> <C> <C> <C>
Net sales ........................................................ $ 305,270 $ 290,406 $ 290,862
Cost of sales .................................................... 221,199 212,968 214,881
--------- --------- ---------
Gross profit ................................................ 84,071 77,438 75,981
Selling, general and administrative expenses ..................... 69,079 65,017 72,740
Asset dispositions, impairment of long-lived assets and
restructuring costs ........................................... (15,596) 5,170 --
Other operating income ........................................... (3,358) (5,662) (2,366)
--------- --------- ---------
Income from operations ...................................... 33,946 12,913 5,607
Interest expense ................................................. (24,643) (23,709) (16,027)
Interest income .................................................. 137 34 257
Other income ..................................................... 2,184
--------- --------- ---------
Income (loss) before provision (benefit) for income taxes ... 9,440 (10,762) (7,979)
Provision (benefit) for income taxes ............................. 4,251 (2,690) (2,306)
--------- --------- ---------
Net income (loss) ........................................... 5,189 (8,072) (5,673)
Preferred stock dividends accrued ................................ 2,624 2,344 1,530
--------- --------- ---------
Net income (loss) applicable to common stockholders ......... $ 2,565 $ (10,416) $ (7,203)
========= ========= =========
Basic and diluted income (loss) per share:
Net income (loss) per common share ............................. $ 0.68 $ (2.75) $ (1.38)
========= ========= =========
Weighted average number of shares outstanding ................ 3,784 3,784 5,216
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(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, 1997 .............. 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 (as Restated)............
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 (as Restated) ...........
Total comprehensive income .......
---------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ............ 3,784,018 38 18,000 21,874 --
Accrued preferred stock dividend ...... 2,624
Comprehensive income:
Translation adjustment .............
Net income .........................
Total comprehensive income .......
---------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 ............ 3,784,018 $ 38 18,000 $ 24,498 $ --
========== =========== =========== =========== ===========
<CAPTION>
Accumulated
Retained Other
Earnings Comprehensive Treasury
(Deficit) Income Stock Total
----------- ----------- ----------- -----------
(as Restated) (as Restated)
<S> <C> <C> <C> <C>
Balance, January 1, 1997 .............. $ 158,443 $ 567 $ (3) $ 171,574
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 (as Restated) ........... (5,673) (5,673)
-----------
Total comprehensive income ....... (5,471)
----------- ----------- ----------- -----------
Balance, December 31, 1997 ............ 4,816 769 -- 25,153
Other ................................. (273) (273)
Accrued preferred stock dividend ...... (2,344) --
Comprehensive income:
Translation adjustment ............. (270) (270)
Net income (as Restated) ........... (8,072) (8,072)
-----------
Total comprehensive income ....... (8,342)
----------- ----------- ----------- -----------
Balance, December 31, 1998 ............ (5,873) 499 -- 16,538
Accrued preferred stock dividend ...... (2,624) --
Comprehensive income:
Translation adjustment ............. (390) (390)
Net income ......................... 5,189 5,189
-----------
Total comprehensive income ....... 4,799
----------- ----------- ----------- -----------
Balance, December 31, 1999 ............ $ (3,308) $ 109 $ -- $ 21,337
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(As Restated) (As Restated)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................... $ 5,189 $ (8,072) $ (5,673)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization ............................ 8,582 7,857 6,199
Deferred income taxes .................................... 2,788 (4,059) (458)
Pension liability ........................................ (291) (171) (152)
Compensation related to stock options .................... 209
Other long-term liability ................................ (207)
Impairment of long-lived assets .......................... 1,747 5,170
Gain on sale of property ................................. (17,988)
(Gain) loss on disposal of assets and other .............. (22) 42 50
Increase (decrease) in assets and liabilities:
Accounts receivable .................................. 434 (6,235) (3,873)
Inventories .......................................... (7,491) (2,999) (3,425)
Prepaid expenses and other ........................... (1,629) 719 726
Other assets ......................................... (10,800)
Accounts payable and accrued expenses ................ (1,976) (346) 5,736
Income taxes payable ................................. 798 418 (930)
--------- --------- ---------
Net cash used in operating activities ....................... (9,859) (7,676) (12,598)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment ................. (6,519) (13,166) (24,461)
Proceeds from disposal of assets ........................... 32,591 1 23
Other ...................................................... 67 194 101
--------- --------- ---------
Net cash provided by (used in) investing activities ......... 26,139 (12,971) (24,337)
--------- --------- ---------
Cash flows from financing activities:
Change in revolving loan facilities and notes payable ..... (23,532) 27,301 12,264
Proceeds from borrowings .................................. 165,000
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)
Exercise of stock options ................................. 91
Deferred financing costs and other ........................ (356) (19)
--------- --------- ---------
Net cash provided by (used in) financing activities ......... (23,532) 26,945 36,086
--------- --------- ---------
Effect of exchange rate changes on cash and equivalents ... (306) (270) 225
--------- --------- ---------
Net increase (decrease) in cash and equivalents ............. (7,558) 6,028 (624)
Cash and equivalents, beginning of year ..................... 9,009 2,981 3,605
--------- --------- ---------
Cash and equivalents, end of year ........................... $ 1,451 $ 9,009 $ 2,981
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
23
<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"), 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 1997 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 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. 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 1999 or 1998.
Comprehensive Income (Loss)
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 (loss) as
defined in SFAS 130 are cumulative translation adjustments, which are recorded
as components of stockholders' equity.
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.
24
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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., were comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
------ ------
<S> <C> <C>
Sales returns and allowances ................... $7,405 $6,120
Doubtful accounts .............................. 1,606 836
------ ------
$9,011 $6,956
====== ======
</TABLE>
Customers
Substantially all customers are retailers. No base of customers in one
geographic area constitutes a significant portion of sales. Sales to Wal-mart
Stores, Inc. and subsidiaries represented 10.6% of 1999 consolidated net
sales. No single customer represented 10% or greater of consolidated net
sales in 1998 or 1997.
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
first-in, first-out ("FIFO") method. See note 4.
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.
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 ........ 2 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 cash flows of the operations to which the assets
relate to the carrying amount, including associated intangible assets of such
operations.
25
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. This goodwill is a result from the Company's
purchase of its Rauch subsidiary in 1996. 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 $3,685 and $2,345 at
December 31, 1999 and 1998, respectively.
Advertising Costs
Advertising costs are charged to operations when incurred. These costs are
recorded in selling, general and administrative expenses and totaled $4,196,
$4,417 and $4,156 in the years ended December 31, 1999, 1998 and 1997,
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 $113,850 as of December 31, 1999, 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.
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.
26
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Recent Accounting Pronouncements
Effective January 1, 1999, the Company adopted the provisions of 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 did not
have a material effect on 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, 2000. The new standard requires that all
companies record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. Management is currently assessing
whether there will be any impact of SFAS No. 133 on the Company's consolidated
financial statements upon adoption, which is required in the first quarter of
2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
The Company will adopt SAB No. 101 as required in the second quarter of 2000
and does not expect that such adoption will have a material impact on the
consolidated financial statements.
Reclassification
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
Cash Flow Information
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Interest .................. $23,318 $22,653 $11,716
======= ======= =======
Income taxes .............. $ 1,118 $ 1,045 $ 2,654
======= ======= =======
</TABLE>
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.
27
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. Asset Dispositions, Impairment of Long-lived Assets and Restructuring Costs
In November 1999 the Company sold its primary east coast distribution
facility for $29,500. The sale of this facility resulted in a net gain of
approximately $17,140. The Company simultaneously entered into a short-term
leaseback of approximately 40% of the distribution facility. In connection
with disposition of the facility, the Company recorded separation benefits of
approximately $532 for 42 hourly employees and three salaried employees, all
of which is accrued at December 31, 1999 and expected to be fully paid by the
end of the first quarter of 2001. Earlier in the year, the Company sold
undeveloped land adjacent to this facility for a gain of approximately $756.
In the fourth quarter of 1999, the Company wrote down the value of certain
assets by approximately $1,157. These write-downs relate to abandonment of
certain manufacturing equipment at its Gastonia, North Carolina facility with a
book value of approximately $1,057. The remaining asset write-downs relate to
the finalization of amounts relative to the shutdown of the El Paso facility
discussed below. Other less significant asset write-downs and adjustments
aggregated a net charge of $611.
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 was sold in December of 1999 and was leased
back for six months pending location of alternate warehousing facilities. The
Gastonia facility was shut down on June 15, 1999. Also included in the fourth
quarter of 1998 is a charge for $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.
28
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. Change in Method of Inventory Valuation
The Company has changed its method for valuing certain inventories and cost
of goods sold from the LIFO to the FIFO method in fiscal year 1999. Prior to
fiscal year 1999, approximately 9% of the Company's inventories had been
valued using the LIFO method. The change in the inventory valuation method
reflects management's belief that the FIFO method provides a better
measurement of operating results and will provide a more uniform system for
valuing all inventories company-wide. The financial statements of prior years
have been retroactively restated to apply the new method. The effect of the
accounting change, net of the tax effects on net loss, and earnings per
share, as previously reported for fiscal years, 1998, 1997 and cumulatively
for all prior years is:
<TABLE>
<CAPTION>
Effect on: Increase / (Decrease)
----------------------------------
1998 1997 Prior
------- ------- -------
<S> <C> <C> <C>
Net Income (Loss) ...................... $ 254 $(1,077) $ 1,326
Earnings (Loss) Per Share:
Basic and Diluted .................... $ 0.07 $ (0.21)
</TABLE>
Inventories by major classification are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
------- -------
<S> <C> <C>
Raw materials .......................... $11,137 $12,953
Work-in-process ........................ 6,115 6,484
Finished goods ......................... 76,844 68,174
------- -------
Total ........................ $94,096 $87,611
======= =======
</TABLE>
5. Property, Plant and Equipment
Property, plant and equipment was comprised of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Land and improvements ...................... $ 6,524 $ 10,260
Buildings and improvements ................. 50,021 58,298
Tools and dies ............................. 17,928 17,187
Machinery and equipment .................... 37,039 33,073
Other ...................................... 3,290 2,882
Construction in progress ................... 910 3,613
--------- ---------
Total ................................. 115,712 125,313
Less accumulated depreciation .............. (44,023) (41,702)
--------- ---------
Net ...................................... $ 71,689 $ 83,611
========= =========
</TABLE>
29
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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, 1999.
6. 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 (8.08% using the 30 day Eurodollar rate at December
31, 1999) or the Prime Rate plus 50 basis points (9.0% at December 31, 1999).
The weighted-average interest rate on borrowings outstanding under this facility
for the year ended December 31, 1999 was 7.79%. 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 15). The Revolving Credit Facility, as amended,
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, 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, 1999 and for the year then
ended. At December 31, 1999, there was $21,642 outstanding under this facility
and of these borrowings $7,500 were at the Eurodollar rate. Availability under
the Revolving Credit Facility, net of outstanding letters of credit, was $66,935
at December 31, 1999.
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") (see note 15). 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 $937 under one of Wallace's Puerto
Rican subsidiaries' $1,000 facility (the "Facility"), expiring on May 30, 2000.
The Facility bears interest at a rate equal to, at the Company's option, the
Eurodollar Rate plus 175 basis points (7.58% using the 30-day Eurodollar rate at
December 31, 1999) or the bank's Prime Rate less 25 basis points (8.25% at
December 31, 1999). Availability under the Facility was $63 at
30
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1999. The weighted-average interest rate on borrowings outstanding
under this facility for the year ended December 31, 1999 was 7.77%.
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.
The Company's C.J. Vander Ltd. subsidiary has an overdraft facility entered into
on March 16, 1998 ("Overdraft Facility") which provides for borrowings of
(pound)250. Borrowings made under the Overdraft Facility bear interest at the
bank's base rate plus 1% (6.5% at December 31, 1999). 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, March 19, 1999 and March 10, 2000 is due on demand and expires on
September 6, 2000. Availability under the Overdraft Facility was (pound)90 at
December 31, 1999. The weighted-average interest rate on borrowings outstanding
under this facility for the year ended December 31, 1999 was 6.45%.
7. Income Taxes
The provisions (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal .................. $ 87 $ -- $(3,121)
State .................... 579 489 448
Foreign .................. 797 880 825
------- ------- -------
1,463 1,369 (1,848)
------- ------- -------
Deferred:
Federal .................. 3,198 (4,042) (442)
State .................... (410) (17) (16)
Foreign .................. -- -- --
------- ------- -------
2,788 (4,059) (458)
------- ------- -------
Total ................ $ 4,251 $(2,690) $(2,306)
======= ======= =======
</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,
----------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate ................................... 35.0% (35.0)% (35.0)%
State taxes, net of federal income tax benefit ........... 2.4% 1.4 % 1.2 %
Foreign income taxes (including Puerto Rico) ............. 6.2% 5.1 % 2.0 %
Other .................................................... 1.4% 3.5 % 2.9 %
-------------- ------------- -------------
Effective income tax rate 45.0% (25.0)% (28.9)%
============== ============= =============
</TABLE>
31
<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,
-------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Domestic .................. $ 3,859 $(15,090) $(11,741)
Foreign ................... 5,581 4,328 3,762
-------- -------- --------
Total ................. $ 9,440 $(10,762) $ (7,979)
======== ======== ========
</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 income in 1999
would have decreased by $985 and the net loss in 1998 and 1997 would have
increased by approximately $1,105 and $1,685, respectively, and earnings per
share would have been decreased by approximately $0.26, $0.29, and $0.32,
respectively.
The tax effects of significant items comprising the Company's net deferred tax
asset (liability) are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Accounts receivable ............................ $ 3,803 $ 2,896
Inventory ...................................... 1,576 2,389
Reserves and accruals .......................... 1,794 1,189
Foreign operating loss carryforwards ........... 7,353 10,305
Other .......................................... 845 501
-------- --------
Total ....................................... 15,371 17,280
Valuation allowance ............................ (2,184) (1,567)
-------- --------
Net current deferred tax asset ................... $ 13,187 $ 15,713
======== ========
Property, plant and equipment ................... $(11,928) $(14,391)
Deferred compensation ........................... 1,021 1,139
Foreign earnings to be remitted ................. (8,764) (6,157)
-------- --------
Net non-current deferred tax liability ........... $(19,671) $(19,409)
======== ========
</TABLE>
The valuation allowance relates primarily to the potential unusable portion of
foreign tax loss carryforwards.
32
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. 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>
2000 .................................. $4,485
2001 .................................. 2,208
2002 .................................. 1,761
2003 .................................. 1,101
2004 .................................. 503
Subsequent to 2004 .................... 895
</TABLE>
Rent expense for all operating leases was approximately $3,951, $4,570 and
$6,254 in 1999, 1998 and 1997, respectively.
Certain subsidiaries were contingently obligated for outstanding letters of
credit, trade acceptances and similar instruments aggregating $8,722 at December
31, 1999 (Note 6). The assets of Syratech H.K. are pledged as collateral for
certain of these contingent obligations.
9. 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 the 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 $510,
$617 and $463 to all of these Plans in 1999, 1998 and 1997.
Officers Retirement Plan
The Company has employment agreements with certain officers for terms ranging
from three to five years.
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. 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
33
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 years
ended December 31, 1998 and 1999. As of July 8, 1999, the Company entered into
an additional employment agreement with an executive officer.
These agreements provide for minimum annual salaries aggregating $2,580 and
certain other benefits. 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
1999, 1998, and 1997, and a rate of future increases in benefit compensation of
3%.
Change in projected benefit obligation:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Benefit obligation at beginning of year .... $ 3,261 $ 3,529 $ 3,612
Service cost ............................... 198 265 279
Interest cost .............................. 160 185 195
Plan Amendments ............................ -- -- (1,010)
Actuarial loss/(gain) ...................... (10) 174 453
Payments ................................... (892) (892) --
------- ------- -------
Benefit obligation at end of year .......... $ 2,717 $ 3,261 $ 3,529
======= ======= =======
Components of net periodic benefit costs:
1999 1998 1997
---- ---- ----
Service cost for benefits earned ........... $ 198 $ 265 $ 279
Interest cost benefit obligation ........... 160 185 195
Amortization of prior service cost ......... (34) (34) (33)
Amortization of loss ....................... 26 37 4
----- ----- -----
Net periodic pension cost .................. $ 350 $ 453 $ 445
===== ===== =====
</TABLE>
34
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Funded status as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Actuarial present value of obligations:
Vested benefit obligation ................................ $ 2,479 $ 2,927
======= =======
Projected benefit obligation ............................. $ 2,717 $ 3,261
Fair value of plan assets ................................ -- --
------- -------
Projected benefit obligation in excess of plan assets .... 2,717 3,261
Unrecognized prior service cost .......................... 298 332
Unrecognized gain/(loss) ................................. (341) (629)
------- -------
Net accrued pension liability ............................ $ 2,674 $ 2,964
======= =======
</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.
10. 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, 1999, $6,498 was 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.
35
<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, 1997 ........................ 229,500 $14.68
Canceled .............................................. (221,500) $14.71
Granted ............................................... --
Exercised ............................................. (8,000) $13.90
--------
Outstanding at December 31, 1997 ...................... --
========
</TABLE>
There were no stock options granted or outstanding in 1999 or 1998.
11. 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 paid and expensed $450 in 1999 and 1998 under
this arrangement.
12. 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 one 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.
36
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following presents information in accordance with SFAS No. 131:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
---- ---- ----
(As Restated) (As Restated)
<S> <C> <C> <C>
Product Offerings:
Net sales:
Tabletop and Giftware ............. $ 202,563 $ 184,545 $ 182,886
Seasonal .......................... 102,707 105,861 107,976
--------- --------- ---------
Total .......................... $ 305,270 $ 290,406 $ 290,862
========= ========= =========
Geographic Location:
Net sales:
United States ..................... $ 250,454 $ 230,762 $ 231,152
Hong Kong ......................... 48,124 55,070 54,950
Other foreign ..................... 6,692 4,574 4,760
--------- --------- ---------
Total ........................... $ 305,270 $ 290,406 $ 290,862
========= ========= =========
Income (loss) from operations:
United States ..................... $ 28,355 $ 8,525 $ 1,491
Hong Kong ......................... 6,794 4,924 4,686
Other foreign ..................... (1,203) (536) (570)
--------- --------- ---------
Total ........................... $ 33,946 $ 12,913 $ 5,607
========= ========= =========
Identifiable assets:
United States ..................... $ 249,299 $ 268,133 $ 250,354
Hong Kong ......................... 6,108 7,867 7,039
Other foreign ..................... 11,110 9,220 8,856
--------- --------- ---------
Total ........................... $ 266,517 $ 285,220 $ 266,249
========= ========= =========
</TABLE>
13. Litigation
The Company and Leonard Florence are the defendants in a lawsuit filed by a
former employee alleging certain causes of action, including but not limited
to, breach of contract, tortious misrepresentation, defamation and a
violation of Massachusetts General Laws ch. 93A arising out of an alleged
promise to grant stock to the employee in connection with his employment.
While the matter is currently in preliminary stages of discovery, the Company
and Mr. Florence intend to vigorously defend the matter and have asserted
certain defenses and counterclaims. While the outcome of the matter cannot be
predicted, the Company does not believe that the matter will have a material
adverse affect on its financial position. In addition, the Company and Mr.
Florence are pursuing certain insurance coverages, although there can be no
assurance as to the adequacy or sufficiency.
The Company has been named as a defendant in certain other 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.
37
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. 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, 1999:
Net sales .................................................... $ 42,726 $ 42,064 $ 112,587 $ 107,893
Gross profit ................................................. 12,839 12,002 31,875 27,355
Income (loss) from operations ................................ (2,990) (1,788) 13,507 25,217
Income (loss) before provision (benefit) for income taxes .... (8,663) (6,983) 7,021 18,065
Net income (loss) applicable to common stockholders .......... (7,154) (5,892) 4,608 11,003
Basic earnings (loss) per share:
Net income (loss) per share ............................... $ (1.89) $ (1.56) $ 1.22 $ 2.91
========= ========= ========= =========
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) $ (1.56) $ 1.22 $ 2.91
========= ========= ========= =========
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, 1998 (1):
Net sales .................................................... $ 37,758 $ 42,248 $ 104,617 $ 105,783
Gross profit ................................................. 11,015 12,082 29,028 25,313
Income (loss) from operations ................................ (4,116) (2,045) 13,169 5,905
Income (loss) before provision (benefit) for income taxes .... (9,097) (7,788) 6,831 (708)
Net income (loss) applicable to common stockholders .......... (7,136) (6,194) 4,336 (1,422)
Basic earnings (loss) per share:
Net income (loss) per share ............................... $ (1.89) $ (1.64) $ 1.15 $ (0.37)
========= ========= ========= =========
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 $ (0.38)
========= ========= ========= =========
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
========= ========= ========= =========
</TABLE>
(1) Restated see note 4.
During the fourth quarter of 1999, the Company adjusted the income tax rate to
45% for the full year, which is higher than the estimated effective income tax
rate of 25% recorded through September 30, 1999. The increased income tax rate
reflects the impact from the gain recorded from the sale of the Company's
primary east coast warehouse (See Note 3).
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.
38
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. Supplemental Condensed Consolidating Financial Statements
The following supplemental condensed consolidating financial statements as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999, present separate financial information for the Company
("Issuer/Guarantor Parent"), the Guarantor Subsidiaries (Note 6), and the
Non-Guarantor Subsidiaries (Note 6). 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.
39
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 1999
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents ........................... $ 587 $ 864 $ 1,451
Accounts receivable, net ....................... 64,087 5,180 69,267
Inventories .................................... 88,181 5,874 $ 41 94,096
Deferred income taxes .......................... $ 5,399 7,788 13,187
Prepaid expenses and other ..................... 113 2,319 841 3,273
--------- --------- --------- --------- ---------
Total current assets ....................... 5,512 162,962 12,759 41 181,274
Property, plant and equipment, net ................ 68,073 3,664 (48) 71,689
Purchase price in excess of net assets acquired ... 6,308 6,308
Other assets, net ................................. 7,117 129 7,246
Investment ........................................ 49,665 (49,665)
--------- --------- --------- --------- ---------
Total ...................................... $ 62,294 $ 237,472 $ 16,423 $ (49,672) $ 266,517
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable .... $ $ 22,579 $ 90 $ 22,669
Accounts payable ............................... 7,259 4,414 11,673
Accrued expenses ............................... 37 11,337 323 11,697
Accrued interest ............................... 3,832 167 3,999
Accrued compensation ........................... 2,726 286 3,012
Accrued advertising ............................ 3,569 3,569
Income taxes payable ........................... (10,644) 11,284 570 $ 6 1,216
--------- --------- --------- --------- ---------
Total current liabilities .................. (6,775) 58,921 5,683 6 57,835
Long-term debt .................................... 165,000 165,000
Deferred income taxes ............................. 8,764 10,907 19,671
Pension liability ................................. 2,674 2,674
Intercompany (receivable) payable ................. (25,545) 42,800 (17,255) --
Commitments and contingencies
Stockholders' equity .............................. (79,150) 122,170 27,995 (49,678) 21,337
--------- --------- --------- --------- ---------
Total ...................................... $ 62,294 $ 237,472 $ 16,423 $ (49,672) $ 266,517
========= ========= ========= ========= =========
</TABLE>
40
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 1998
(As Restated)
<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 .................................... 82,336 5,234 $ 41 87,611
Deferred income taxes .......................... $ 9,009 6,704 15,713
Prepaid expenses and other ..................... 113 1,089 471 1,673
Properties held for sale ....................... 1,838 454 2,292
--------- --------- --------- --------- ---------
Total current assets ....................... 9,122 164,723 12,540 41 186,426
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 $ 251,357 $ 16,293 $(179,451) $ 285,220
========= ========= ========= ========= =========
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 .............................. 52,385 118,650 23,599 (178,096) 16,538
--------- --------- --------- --------- ---------
Total ...................................... $ 197,021 $ 251,357 $ 16,293 $(179,451) $ 285,220
========= ========= ========= ========= =========
</TABLE>
41
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales ........................................................ $ $ 250,550 $ 94,864 $ (40,144) $ 305,270
Cost of sales .................................................... 186,145 75,198 (40,144) 221,199
--------- --------- --------- --------- ---------
Gross profit ................................................ 64,405 19,666 -- 84,071
Selling, general and administrative expenses ..................... 450 54,541 14,119 (31) 69,079
Asset dispositions, impairment of long-lived assets and
restructuring costs ........................................... (15,552) (44) (15,596)
Other operating income ........................................... (3,358) (3,358)
--------- --------- --------- --------- ---------
Income (loss) from operations ............................... (450) 28,774 5,591 31 33,946
Interest expense ................................................. (19,573) (5,019) (51) (24,643)
Interest income .................................................. 96 41 137
Dividend income .................................................. 14,390 -- (14,390)
--------- --------- --------- --------- ---------
Income (loss) before provision (benefit) for income taxes ... (5,633) 23,851 5,581 (14,359) 9,440
Provision (benefit) for income taxes ............................. (4,625) 8,080 796 4,251
--------- --------- --------- --------- ---------
Net income (loss) ........................................... (1,008) 15,771 4,785 (14,359) 5,189
Preferred stock dividends accrued ................................ 2,624 2,624
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stockholders ......... $ (3,632) $ 15,771 $ 4,785 $ (14,359) $ 2,565
========= ========= ========= ========= =========
</TABLE>
42
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(As Restated)
<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 .................................................... 173,373 71,205 (31,610) 212,968
--------- --------- --------- --------- ---------
Gross profit ................................................ 57,409 20,029 -- 77,438
Selling, general and administrative expenses ..................... 450 49,304 15,406 (143) 65,017
Asset dispositions and impairment of long-lived assets ........... 4,935 235 5,170
Other operating income ........................................... (5,662) (5,662)
--------- --------- --------- --------- ---------
Income (loss) from operations ............................... (450) 8,832 4,388 143 12,913
Interest expense ................................................. (19,569) (4,048) (92) (23,709)
Interest income .................................................. 1 1 32 34
Other income ..................................................... -- --
--------- --------- --------- --------- ---------
Income (loss) before provision (benefit) for income taxes ... (20,018) 4,785 4,328 143 (10,762)
Provision (benefit) for income taxes ............................. (4,850) 1,280 880 (2,690)
--------- --------- --------- --------- ---------
Net income (loss) ........................................... (15,168) 3,505 3,448 143 (8,072)
Preferred stock dividends accrued ................................ 2,344 2,344
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stockholders ......... $ (17,512) $ 3,505 $ 3,448 $ 143 $ (10,416)
========= ========= ========= ========= =========
</TABLE>
43
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED ENDED DECEMBER 31, 1997
(As Restated)
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales .................................................. $ 231,160 $ 89,903 $ (30,201) $ 290,862
Cost of sales .............................................. 175,433 69,651 (30,203) 214,881
---------- ---------- ---------- ---------- ----------
Gross profit .......................................... 55,727 20,252 2 75,981
Selling, general and administrative expenses ............... $ 3,719 53,040 16,136 (155) 72,740
Other operating income ..................................... (2,366) (2,366)
---------- ---------- ---------- ---------- ----------
Income from operations ................................ (3,719) 5,053 4,116 157 5,607
Interest expense ........................................... (13,864) (2,119) (44) (16,027)
Interest income ............................................ 208 49 257
Other income ............................................... 2,184 2,184
---------- ---------- ---------- ---------- ----------
Income before provision for income taxes .............. (17,583) 5,326 4,121 157 (7,979)
Provision for income taxes ................................. (6,565) 3,434 825 (2,306)
---------- ---------- ---------- ---------- ----------
Net income (loss) ..................................... (11,018) 1,892 3,296 157 (5,673)
Preferred stock dividends accrued .......................... 1,530 1,530
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to common stockholders ... $ (12,548) $ 1,892 $ 3,296 $ 157 $ (7,203)
========== ========== ========== ========== ==========
</TABLE>
44
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
<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) ........................................... $ (1,008) $ 15,771 $ 4,785 $ (14,359) $ 5,189
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization ............................ 1,422 6,527 633 8,582
Deferred income taxes .................................... 6,217 (3,429) 2,788
Pension liability ........................................ (291) (291)
Impairment of long-lived assets
and other asset dispositions .......................... 1,791 (44) 1,747
Dividend income .......................................... (14,390) 14,390
Gain on sale of property ................................. (17,988) (17,988)
(Gain) loss on disposal of assets and other .............. (32) 10 (22)
Increase (decrease) in assets and liabilities:
Accounts receivable .................................. 746 (312) 434
Inventories .......................................... (6,851) (640) (7,491)
Prepaid expenses and other ........................... (1,259) (370) (1,629)
Accounts payable and accrued expenses ................ (3,808) 1,832 (1,976)
Income taxes payable ................................. (10,842) 11,488 152 798
Intercompany account ................................. 18,684 (12,998) (5,655) (31)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating activities ......... 83 (10,333) 391 (9,859)
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment ................ (5,551) (968) (6,519)
Proceeds from disposal of assets .......................... 32,089 502 32,591
Other ..................................................... (83) 150 67
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) investing activities ......... (83) 26,688 (466) -- 26,139
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Change in revolving loan facilities ....................... (23,264) (268) (23,532)
Other .....................................................
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities ......... (23,264) (268) (23,532)
---------- ---------- ---------- ---------- ----------
Effect of exchange rate changes on cash and equivalents ... (306) (306)
---------- ---------- ---------- ---------- ----------
Net decrease in cash and equivalents ........................ (6,909) (649) (7,558)
Cash and equivalents, beginning of year ..................... 7,496 1,513 9,009
---------- ---------- ---------- ---------- ----------
Cash and equivalents, end of year ........................... $ -- $ 587 $ 864 $ -- $ 1,451
========== ========== ========== ========== ==========
</TABLE>
45
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
(As Restated)
<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) $ 3,505 $ 3,448 $ 143 $ (8,072)
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) (2,036) (154) (4,059)
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 .......................................... (2,519) (480) (2,999)
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 operating activities ......... 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 year ..................... 18 91 2,872 2,981
---------- ---------- ---------- ---------- ----------
Cash and equivalents, end of year ........................... $ -- $ 7,496 $ 1,513 $ -- $ 9,009
========== ========== ========== ========== ==========
</TABLE>
46
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(As Restated)
<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) $ 1,892 $ 3,296 $ 157 $ (5,673)
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) 2,091 (458)
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 ........................................ (3,851) 426 (3,425)
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 operating activities ....... (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 year ................... 18 146 3,441 3,605
---------- ---------- ---------- ---------- ----------
Cash and equivalents, end of year ......................... $ 18 $ 91 $ 2,872 $ -- $ 2,981
========== ========== ========== ========== ==========
</TABLE>
47
<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>
Name Age Principal Occupation Since
---- --- -------------------- -----
<S> <C> <C> <C>
Leonard Florence 68 Chairman of the Board, Chief Executive Officer 1986
and President of the Company
E Merle Randolph 67 Executive Vice President, International Manufacturing, Director 1989
Michael S. Krause 59 Executive Vice President and Chief Operating Officer -
Ami A. Trauber 60 Executive Vice President of Finance, Administration, -
Strategic Planning and Chief Financial Officer and
Treasurer
Melvin L. Levine 68 Vice President of Purchasing of the Company, Director 1989
Alan R. Kanter 47 Vice President of Sales of the Company, Director 1997
Faye A. Florence 43 Vice President and General Counsel; Secretary of the -
Company
David V. Harkins 59 Director 1997
Thomas M. Hagerty 37 Director 1997
Scott A. Schoen 41 Director 1997
Kent R. Weldon 32 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 has held the position of Executive Vice President,
International Manufacturing since 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 in
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.
48
<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 Conseco, Inc., Cott
Corporation, First Security Services, Corp., Fisher Scientific International,
Inc., Freedom Securities Corporation, Metris Companies. Inc., and Stanley
Furniture Company, Inc.
Thomas M. Hagerty, Managing Director joined the 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, and Metris
Companies, Inc.
Scott A. Schoen, Managing Director joined the Thomas H. Lee Company 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, TransWestern Publishing, United Industries Corporation and Wyndham
International, Inc.
Kent R. Weldon, Vice President joined the Thomas H. Lee Company, 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., and MJD Communications, Inc.
Meetings Of The Board Of Directors
The Board of Directors consists of Leonard Florence, E. Merle Randolph, Melvin
L. 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.
49
<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, 1999, 1998 and 1997 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 ........................... 12/31/1999 $1,150,000 $ -- $ 181,310
Chairman of the Board, President 12/31/1998 $1,150,000 $ -- $ 19,496
and Chief Executive Officer 12/31/1997 $1,150,000 $ -- $ 19,717
Melvin L. Levine ........................... 12/31/1999 $ 390,000 $ 55,000 $ 3,104
Vice President of Purchasing 12/31/1998 $ 350,000 $ -- $ 3,104
12/31/1997 $ 350,000 $ -- $ 151,550
Alan R. Kanter ............................. 12/31/1999 $ 390,000 $ 55,000 $ 3,104
Vice President of Sales 12/31/1998 $ 350,000 $ -- $ 3,104
12/31/1997 $ 350,000 $ -- $ 151,550
Ami A. Trauber (3) ......................... 12/31/1999 $ 355,000 $ 50,000 $ 2,433
Executive Vice President of Finance, 12/31/1998 $ 302,500 $ -- $ 34,771
Administation, Strategic Planning and 12/31/1997 N/A N/A N/A
Chief Financial Officer and Corporate
Treasurer
E. Merle Randolph .......................... 12/31/1999 $ 325,000 $ 25,000 $ 3,104
Executive Vice President, International 12/31/1998 $ 325,000 $ -- $ 3,104
Manufacturing 12/31/1997 $ 325,000 $ -- $ 92,070
</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.
50
<PAGE>
(2) During the year ended December 31, 1999 a life insurance policy with
benefits payable to both Leonard Florence and the Company was cancelled
and the Company's interest in such benefits totaling $177,206 was
transferred to Mr. Florence. The estimated dollar value benefit of
insurance premiums paid by the Company with respect to this policy for the
years ended December 31, 1998 and 1997 was $16,392 and $16,867,
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 10 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
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 1999. 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 1999 and there are no unexercised
options at December 31, 1999.
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.
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.
51
<PAGE>
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 Company
does not currently have any such plans in place.
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 1999. 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. Further, an employment agreement was
entered into as of July, 1998 with an additional officer.
Upon consummation of the Merger (See Note 2 to the Company's consolidated
financial statements), 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.
52
<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. The
Florence Employment Agreement provided that 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. Upon the consummation of the Merger, the Florence Employment
Agreement ("the Amended and Restated Agreement" 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 prior 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 ("the Amendment") 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 established fixed payment amounts
and provided for the acceleration of payments (the first of which was made upon
execution of the Amendment) related to the 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 $0.390 million
per annum. As of May 1995 the Employment Agreement with Mr. Levine was amended
with respect to the computation and payment of the retirement benefit.
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. Upon the consummation of the Merger,
the Employment Agreement with Melvin L. Levine was further amended, to change
his term of full-time employment from a rolling five-year term to a fixed
five-year term.
The Employment Agreement with Mr. Levine, as amended, provides for retirement
benefit payments determined and payable in accordance with the agreements. The
following table shows the estimated annual benefits payable to Mr. Levine upon
retirement based upon various compensation levels and years of service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------
REMUNERATION 10 15 20
- ------------ -- -- --
<S> <C> <C> <C>
400,000 80,000 120,000 160,000
500,000 100,000 150,000 200,000
600,000 120,000 180,000 240,000
</TABLE>
Mr. Levine has completed 13 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.
53
<PAGE>
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.
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.
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.
54
<PAGE>
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, 2000. 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
------------ ----------
<S> <C> <C>
Name
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.
55
<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.
56
<PAGE>
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.
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.
57
<PAGE>
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.
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.
58
<PAGE>
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. Incorporated by reference
from Exhibit 10.34 from 10-K dated March 31, 1999.
10.35 Advice of Borrowing Terms between C. J. Vander Ltd. And Nat West
Bank P.L.C., dated March 19, 1999. Incorporated by reference from
Exhibit 10.35 from 10-K dated March 31, 1999.
10.36 Advice of Borrowing Terms between C. J. Vander Ltd. And Nat West
Bank P.L.C., dated August 5, 1999. Incorporated by reference from
Exhibit 10.2 from 10-Q dated June 30, 1999.
59
<PAGE>
10.37 Letter Agreement between Banco Popular and Wallace International de
Puerto Rico, Inc. dated June 1, 1999. Incorporated by reference from
Exhibit 10.1 from 10-Q dated June 30, 1999.
10.38 Employment Agreement dated as of July 8, 1999 between Ami A. Trauber
and the Company. Incorporated by reference from Exhibit 10.3 from
10-Q dated June 30, 1999.
10.39 Lyme Properties LLC. Incorporated by reference from Exhibit 10.2
from 10-Q dated September 30, 1999.
10.40 Advice of Borrowing Terms between C.J. Vander Ltd/International
Silver Company Ltd and Nat West P.L.C., dated March 10, 2000.
10.41 Letter Agreement dated as of December 31, 1998 between Farberware
Inc. Excel Importing Corp. Incorporated by reference from Exhibit
10.36 from 10-K dated March 31, 1999.
10.42 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. Incorporated by reference from Exhibit 10.37 from 10-K dated
March 31, 1999.
11 Statement re: computation of per share earnings.
12 Computation of ratio of earnings before fixed charges to fixed
charges.
18.1 Letter regarding change in accounting principle
22 List of Subsidiaries. Incorporated by reference from Exhibit 22 to
Form S-4 Registration Statement No. 333-16917.
27.1 Financial Data Schedule
27.2 Financial Data Schedule
(b) Financial Statement Schedule:
Schedule II: Valuation and Qualifying Accounts
(c) Reports on Form 8-K:
The Company filed a Current Report on Form 8K for the quarter ended
December 31, 1999, with the Securities and Exchange Commission which
reported the sale of the Company's property in Revere, Massachusetts.
60
<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 30th day of March, 2000.
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 30, 2000
- -------------------- Directors, Chief Executive
Officer and President (Principal
Leonard Florence Executive Officer)
/s/ Ami A. Trauber Executive Vice President, Chief March 30, 2000
- ------------------ Financial Officer and Treasurer
(Principal Financial and
Ami A. Trauber Accounting Officer)
/s/ Thomas M. Hagerty Director March 30, 2000
- ---------------------
Thomas M. Hagerty
/s/ David V. Harkins Director March 30, 2000
- --------------------
David V. Harkins
/s/ Alan R. Kanter Director March 30, 2000
- ------------------
Alan R. Kanter
/s/ Melvin L. Levine Director March 30, 2000
- --------------------
Melvin L. Levine
/s/ E. Merle Randolph Director March 30, 2000
- ---------------------
E. Merle Randolph
/s/ Scott A. Schoen Director March 30, 2000
- -------------------
Scott A. Schoen
/s/ Kent R. Weldon Director March 30, 2000
- ------------------
Kent R. Weldon
</TABLE>
61
<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, 1999
Allowance for doubtful accounts $ 836 $ 2,236 $ (1,466)(a) $ 1,606
Sales returns and allowances 6,120 12,003 (10,718)(b) 7,405
------------ ------------ ------------ ------------ ------------
$ 6,956 $ 14,239 $ -- $ (12,184) $ 9,011
============ ============ ============ ============ ============
Year Ended December 31, 1998
Allowance for doubtful accounts $ 1,231 $ 467 $ (862)(a) $ 836
Sales returns and allowances 5,977 10,295 (10,152)(b) 6,120
------------ ------------ ------------ ------------ ------------
$ 7,208 $ 10,762 $ -- $ (11,014) $ 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
============ ============ ============ ============ ============
</TABLE>
- ---------------------------------
(a) Doubtful accounts written off
(b) Sales returns and other
<PAGE>
Exhibit 10.40
Advice of Borrowing Terms
Relationship Office: South Yorkshire Corporate Business Date: 10 March 2000
Centre
Borrower(s) Registered Number:
C J Vander limited 763852
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 6
September 2000 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:
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 Lombard Natwest Commercial Services to have undertaken debtor book
review by April 2000.
o Facilities remain available subject to our agreed lending formula
calculated on the following basis:
[Debtors < 3 months + Stock x 40%] to cover utilised facilities in a
ratio of minimum 2:1
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}, we
will continue to extend existing levels of support on the basis of the clear
integrity of the parent undertaking.
o Receipt of a board resolution confirming:
o certification by the chairman of the meeting that a valid quorum was
present
o agreement to give security (if applicable)
o acceptance of the terms and conditions of the facility
o who is authorised to take action necessary (i.e. enter into the
facility documentation on behalf of the company) for the purpose of
the Advice of Borrowing Terms
Interest Set Off:
Cleared debit and cleared credit balances in the same currency on non-interest
bearing current accounts and loan accounts repayable on demand specified below
(the "Interest Set Off Accounts will be used to calculate, on a daily
<PAGE>
basis, the net cleared debit balance of the Interest Set Off Accounts. The
Interest Set Off Accounts, which we have agreed are to be set off for interest
calculation purposes, are detailed in the attached Facility Schedule which also
specifies the frequency at which interest will be payable and the rate or rates
at which it will be charged on the net cleared debit balance.
Cleared debit balances which are set off on a daily basis by cleared credit
balances on the Interest Set Off Accounts will incur interest at the Set Off
Rate specified in the attached Facility Schedule.
/s/ A. Tyas
Corporate Manager
For and on behalf of
National Westminster Bank Plc
Acceptance:
o 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/ Peter H. Minchin, Director of Finance Date 3/21/200
For and on behalf of: C J Vander Limited
<PAGE>
Exhibit 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,
-------------------------------------
1999 1998 1997
---- ---- ----
BASIC EARNINGS (LOSS) PER SHARE: (As Restated) (As Restated)
<S> <C> <C> <C>
Net income (loss) per common share .................... $ 0.68 $ (2.75) $ (1.38)
========== ========== ==========
Weighted average number of shares outstanding ......... 3,784 3,784 5,216
========== ========== ==========
DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss) per common share .................... $ 0.68 $ (2.75) $ (1.38)
========== ========== ==========
Shares:
Weighted average number of shares outstanding ... 3,784 3,784 5,216
========== ========== ==========
</TABLE>
<PAGE>
Exhibit 12
SYRATECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS
BEFORE FIXED CHARGES TO FIXED CHARGES
(in thousands, except ratios)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
---------- ---------- ----------
(As Restated) (As Restated)
<S> <C> <C> <C>
Excess (deficiency) of earnings
available to cover fixed charges (1)
Earnings:
Income (loss) before income taxes ...... $ 9,440 $ (10,762) $ (7,979)
Add: Fixed charges ........................... 25,960 25,232 18,112
---------- ---------- ----------
Earnings, as adjusted .................. 35,400 14,470 10,133
---------- ---------- ----------
Fixed charges:
Interest on indebtness ................. 23,220 22,290 15,019
Amortization of debt issuance costs .... 1,423 1,419 1,008
Portion of rents representative of the
interest factor ...................... 1,317 1,523 2,085
---------- ---------- ----------
Fixed charges .......................... 25,960 25,232 18,112
---------- ---------- ----------
Excess (deficiency) of earnings to fixed
charges .............................. $ 9,440 $ (10,762) $ (7,979)
========== ========== ==========
Ratio of earnings to fixed charges ..... 1.36 -- --
</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.
<PAGE>
Exhibit 18.1
Letter regarding change in accounting principle
March 10, 2000
Syratech Corporation
175 McClellan Highway
East Boston, MA 02128-9114
Dear Sirs/Madams:
We have audited the consolidated financial statements of Syratech Corporation
and subsidiaries as of December 31, 1999 and 1998, and for each of the three
years in the period ended December 31, 1999, included in your Annual Report
on Form 10-K to the Securities and Exchange Commission and have issued our
report thereon dated March 10, 2000, which report expresses an unqualified
opinion and includes an explanatory paragraph referring to a change in the
method of certain inventory pricing, from the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method in 1999 and a Merger
accounted for as a recapitalization in 1997. Note 4 to such consolidated
financial statements contains a description of your adoption during the year
ended December 31, 1999 of a change in the method of inventory pricing, from
the LIFO method to the FIFO method. In our judgment, such change is to an
alternative accounting principle that is preferable under the circumstances.
Yours truly,
/s/ Deloitte & Touche LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS 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 ENTIREY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,451
<SECURITIES> 0
<RECEIVABLES> 78,278
<ALLOWANCES> 9,011
<INVENTORY> 94,096
<CURRENT-ASSETS> 181,274
<PP&E> 115,712
<DEPRECIATION> 44,023
<TOTAL-ASSETS> 266,517
<CURRENT-LIABILITIES> 57,835
<BONDS> 165,000
24,498
0
<COMMON> 38
<OTHER-SE> (3,199)
<TOTAL-LIABILITY-AND-EQUITY> 266,517
<SALES> 305,270
<TOTAL-REVENUES> 305,270
<CGS> 221,199
<TOTAL-COSTS> 221,199
<OTHER-EXPENSES> 69,079
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,643
<INCOME-PRETAX> 9,440
<INCOME-TAX> 4,251
<INCOME-CONTINUING> 5,189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,565
<EPS-BASIC> 0.68
<EPS-DILUTED> 0.68
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 9,009 2,981
<SECURITIES> 0 0
<RECEIVABLES> 77,084 71,101
<ALLOWANCES> 6,956 7,208
<INVENTORY> 87,611 84,612
<CURRENT-ASSETS> 186,426 166,983
<PP&E> 125,313 119,783
<DEPRECIATION> 41,702 37,379
<TOTAL-ASSETS> 285,220 266,249
<CURRENT-LIABILITIES> 81,309 52,877
<BONDS> 165,000 165,000
21,874 19,530
0 0
<COMMON> 38 38
<OTHER-SE> (5,374) 5,585
<TOTAL-LIABILITY-AND-EQUITY> 285,220 266,249
<SALES> 290,406 290,862
<TOTAL-REVENUES> 290,406 290,862
<CGS> 212,968 214,881
<TOTAL-COSTS> 212,968 214,881
<OTHER-EXPENSES> 65,017 72,740
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 23,709 16,027
<INCOME-PRETAX> (10,762) (7,979)
<INCOME-TAX> (2,690) (2,306)
<INCOME-CONTINUING> (8,072) (5,673)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,416) (7,203)
<EPS-BASIC> (2.75) (1.38)
<EPS-DILUTED> (2.75) (1.38)
</TABLE>
