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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
---------------
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended JANUARY 2, 2000.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to _________
Commission File Number: 0-25848
SLI, INC.
(Exact Name of Registrant as Specified in Its Charter)
OKLAHOMA 73-1412000
(State of Incorporation) (IRS Employer Identification No.)
500 CHAPMAN STREET, CANTON, MASSACHUSETTS, 02021
(Address of Principal Executive Offices, Zip Code)
(781) 828-2948
(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
--- ---
Indicate 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. [ ]
As of January 2, 2000, there were approximately 34,566,388 shares
outstanding of the registrant's Common Stock, par value $.01 per share, its
only class of common stock, and the aggregate market value of the Common Stock
held by non-affiliates of the registrant (approximately 12,500,000 shares) was
approximately $168,750,000, as computed by reference to the NYSE closing price
of such common equity, $13.50, as of the same date.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy statement pursuant to Section 14(a) of the Securities Exchange
Act of 1934 for use in connection with the registrant's 2000 Annual Meeting of
Shareholders.
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
The discussion in this Report contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
significantly from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," as well as those discussed elsewhere
in this Report. Statements contained in this Report that are not historical
facts are forward-looking statements that are subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. A number of
important factors could cause the Company's actual results for 2000 and beyond
to differ materially from those expressed in any forward-looking statements
made by, or on behalf of, the Company. These factors include, without
limitation, those listed below in "Risk Factors."
RISK FACTORS
INTERNATIONAL OPERATIONS
At January 2, 2000, the Company had 32 manufacturing facilities, as
well as sales offices and distribution facilities in more than 30 countries and
sells its products worldwide. For Fiscal 1999, approximately 71% and 80% of the
Company's net sales and operating income, respectively, were derived from
operations outside the United States. As a result of its international
operations, the Company is subject to risks associated with operating in
foreign countries, including limitations on remittance of dividends and other
payments by foreign subsidiaries, hyperinflation in certain foreign countries,
imposition of investment and other restrictions by foreign governments, trade
barriers, the effects of income and withholding taxes and governmental
expropriation. Although such risks have not had a material adverse effect on
the Company to date, no assurance can be given that such risks will not have a
material adverse effect on the Company in the future.
FOREIGN CURRENCIES AND INTEREST RATE RISK
A significant amount of the Company's net sales are generated in
foreign currencies. For Fiscal 1999, approximately 55% of the Company's net
sales were denominated in European currencies, 31% in U.S. dollars, and the
remaining 14% in other currencies. Costs of the Company are primarily incurred
in the same currencies and in percentages which are not materially different
from the net sales percentages. Since the Company's financial statements are
denominated in U.S. dollars, devaluation and changes in exchange rates between
the dollar and other currencies have had and will have an impact on the
reported results of the Company. To date, this impact has not been material;
however, no assurance can be given that such impact will not have a material
adverse effect on the Company in the future. The Company may, from time to
time, hedge specifically identified committed cash flows in foreign currencies
using forward currency sale or purchase contracts. In addition, international
operations are subject to a number of other currency risks, including, among
others, currency exchange controls, transfer restrictions and rate
fluctuations.
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COMPETITION
The global lighting industry in which the Company operates is highly
competitive. The Company competes primarily on the basis of brand awareness,
price, product quality, design and engineering, customer service and
distribution strength. Competitors range from large global diversified
companies such as Philips Electronics N.V. ("Philips"), General Electric Corp.
("General Electric"), Siemens A.G. ("Siemens") and its North American
subsidiary, Osram-Sylvania, Inc. ("Osram"), Matsushita Corp. and Toshiba Corp.
to small brokers representing Pacific Rim manufacturers. Many of these
competitors offer products which are substantially identical to those offered
by the Company. In addition, certain of the Company's competitors are
significantly larger than the Company and devote a substantial amount of money
to research and development. As a result of these competitive pressures, there
can be no assurance that the Company will be able to compete effectively or
increase prices in the future. Price increases by the Company, price reductions
by competitors, decisions by the Company with regard to maintaining profit
margins rather than market share, or other competitive or market factors or
strategies could adversely affect the Company's market share or results of
operations. Competition could prevent the institution of price increases or
could require price reductions or increased spending on research and
development and marketing and sales which could adversely effect the Company's
results of operations.
SOURCES OF RAW MATERIALS
For Fiscal 1999, the Company purchased approximately 90% of its
incandescent glass shells from a joint venture consisting of Philips and Osram
and approximately 80% of its fluorescent glass tubing from Osram. The joint
venture agreement automatically renews for a two-year term unless notice of
termination is provided by either party 12 months prior to the automatic
renewal date. The Osram agreement automatically renews for a one-year term
unless notice of termination is provided by either party 24 months prior to the
automatic renewal date. As of the date hereof, the Company has not received
notice of termination for either agreement. There can be no assurance that such
agreements will be renewed in the future. The termination of either agreement
could have a material adverse effect on the Company. The Company purchases
certain of its other raw materials, including plastic, metals, glass, copper,
filaments, gases, electrodes, electronic components, wire and resistors for use
in the manufacture of lamps, fixtures, ballasts and miniature lighting
assemblies. All such raw materials are readily available and are generally
purchased from a variety of independent, non-competing suppliers. Substantially
all light emitting diodes ("LEDs") used by the Company in its miniature
lighting assemblies are currently imported from the Pacific Rim. The Company
recently acquired a European company primarily engaged in the production of
LEDs which now supplies the Company with a small portion of its LED
requirements. Any interruption in the supply of incandescent glass shells,
fluorescent glass tubing, LEDs or significant fluctuations in the prices of
other raw materials could have an adverse effect on the Company's operations.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, local and
foreign laws and regulations relating to the storage, handling, generation,
treatment, emission, release, discharge
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and disposal of certain substances and wastes. While the Company believes that
it is currently in material compliance with those laws and regulations, there
can be no assurance that the Company will not incur significant costs to
remediate violations of such laws and regulations, particularly in connection
with the Company's acquisitions of existing operating facilities or to comply
with changes in existing laws and regulations (or the enforcement thereof).
Such costs could have a material adverse effect on the Company's results of
operations.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent to a significant extent upon the efforts and
abilities of its President, Chief Executive Officer and principal shareholder,
Mr. Frank M. Ward. The loss of the services of Mr. Ward could have a material
adverse effect on the Company.
OWNERSHIP AND SIGNIFICANT INFLUENCE OF PRINCIPAL SHAREHOLDERS
Mr. Ward and trusts established for members of his immediate family
own in the aggregate approximately 35% of the outstanding shares of Common
Stock of the Company. As a result of such concentration of ownership, Mr. Ward
and such trusts will have the ability to exert significant influence on the
policies and affairs of the Company and corporate actions requiring shareholder
approval, including the election of the members of the Board of Directors. This
concentration of ownership could have the effect of delaying, deferring or
preventing a change of control of the Company, including any business
combination with an unaffiliated party, and could also affect the price that
investors might be willing to pay for shares of Common Stock.
VOLATILITY OF MARKET PRICE FOR COMMON STOCK
From time to time, there may be significant volatility in the market
price for the Common Stock. Operating results of the Company, changes in
general economic conditions and the financial markets, or other developments
affecting the Company or its competitors could cause the market price for the
Common Stock to fluctuate substantially.
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PART I
ITEM 1. BUSINESS
GENERAL
The Company believes that it is one of the six largest full-line
lighting companies in the world and one of only two major international
producers offering lamps, fixtures and ballasts. Primarily through its
acquisition-based growth strategy, the Company has developed from a specialized
U.S. manufacturer and supplier of neon lamps and miniature lighting products
into one of the world's largest vertically integrated manufacturers and
suppliers of lighting systems and services to the industrial, commercial and
consumer markets. The Company has completed 23 acquisitions since 1992 as part
of its growth strategy, with its most significant acquisition, Sylvania
Lighting International, B.V. ("SLI, B.V."), being consummated in the year ended
November 30, 1997 ("Fiscal 1997").
Primarily as a result of the Company's acquisition strategy, net sales
increased from $94.2 million for the year ended December 1, 1996 ("Fiscal
1996") to $874.8 million for the year ended January 2, 2000 ("Fiscal 1999"). In
addition, operating income increased from $18.5 million to $58.7 million over
the same period. For Fiscal 1999, approximately 71% and 80% of the Company's
net sales and operating income, respectively, were derived from operations
outside the United States.
The Company offers a complete range of lighting products throughout
the world. The Company's product categories include lamps, fixtures, miniature
lighting assemblies and ballasts. The lamp products produced by the Company
include incandescent, fluorescent, compact fluorescent, high intensity
discharge ("HID"), halogen, and special and miniature lamps. The Company's
commercial and industrial fixture lines consist primarily of fluorescent
ceiling mounted fixtures; its accent and decorative fixture lines range from
simple downlights and spotlights to high performance lighting fixtures for art
galleries and museums. Miniature lighting assemblies manufactured by the
Company are used in various product applications, including automobile message
centers, and aviation and telecommunications status arrays. Magnetic and
electronic ballasts designed and manufactured by the Company supply power to
start and operate fluorescent and HID lamps and signage products (neon
displays). In addition, the Company also operates the third largest U.S.
lighting maintenance service provider.
The Company's strategy is to operate as a vertically integrated,
highly automated, manufacturer providing "one stop" lighting solutions for its
customers' lighting requirements by offering discrete lighting components,
value-added integrated products and specialized lighting services. The Company
is able to offer its global customers extensive design, engineering and
manufacturing capabilities, while at the same time providing local, responsive
service. The Company has 32 manufacturing facilities, as well as sales offices
and distribution facilities, in more than 30 countries. The Company's customers
include wholesalers, original equipment manufacturers ("OEMs"), retailers,
architects, designers and contractors.
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The Company is incorporated under the laws of the State of Oklahoma.
Its executive offices are located at 500 Chapman Street, Canton, Massachusetts,
02021, and its telephone number is (781) 828-2948.
GROWTH STRATEGY
The Company believes that it is well positioned to continue its growth
internally and through acquisitions. Management believes that its industry
knowledge, experience in consummating and integrating acquisitions and its
access to capital will facilitate the Company's external growth through future
acquisitions both domestically and internationally.
Internal growth is expected to be driven by:
o increasing sales to existing and new customers,
o introducing new lighting technologies, and
o continuing to diversify geographic operations.
Increase Sales to Existing and New Customers. The Company focuses on
expanding its markets by designing, developing and marketing "one stop"
lighting solutions, a strategy through which the Company seeks to capitalize on
cross-selling opportunities between customers of existing and acquired
businesses. The Company seeks to use its global distribution networks and
recognized brand names, including Sylvania (outside the United States, Canada,
Mexico and Puerto Rico), to market and sell the Company's products worldwide.
Moreover, the Company's international operations have broad product lines of
consumer and industrial lamps and fixtures which the Company plans to market
domestically. In addition, the Company plans to aggressively market
complementary products such as ballasts which can be offered with linear and
compact fluorescent and HID lighting products manufactured by SLI, B.V.
Introduce New Lighting Technologies. Through the introduction of new
lighting technologies, the Company has been able to participate in the high
growth and high margin segment of the lighting market. Further, because
lighting products and the related manufacturing technology are becoming
increasingly sophisticated, the Company has sought to enhance its technological
capabilities in order to fulfill its customers' outsourcing and "just-in-time"
requirements and adjust to shifts in demand. Through the acquisition of various
niche businesses operating within the lighting industry, the Company's
technological expertise has expanded, thus enabling it to manufacture more
sophisticated products. As a result of its technical know-how, the Company
believes that it can expand its business by developing new products and
entering new niche markets in which it can be one of a few leading suppliers.
For example, the Company is currently exploring opportunities for the
development and integration of fiber optic products for the automotive,
aviation and consumer markets.
Diversify Geographic Operations. An important element of the Company's
growth strategy is to continue to establish highly automated manufacturing
operations in areas of high customer density or where manufacturing
efficiencies can be realized. The Company's operations
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are currently located in the Americas, Europe and the Pacific Rim. The Company
intends to continue to selectively expand its operations internationally to
better serve its existing customers and to develop new customers.
The Company plans to continue to use strategic acquisitions and
alliances to effect its vertical and horizontal integration strategies.
Acquisitions are selected based upon their potential to:
o augment the Company's technology, engineering and design
capabilities,
o broaden the Company's product offerings and channels of
distribution,
o provide additional manufacturing facilities,
o access global markets, and/or
o effect cost reduction opportunities and other operational
synergies.
Acquisitions generally involve synergies of centralized
administration, intercompany product transfer, sales and designs. For example,
the acquisition of SLI, B.V., a large user of ballasts with no ballast
manufacturing capability, produced synergistic effects for the Company and its
Power Lighting Products subsidiary, a major producer of ballasts. The Company
believes that its extensive knowledge of the lighting industry, combined with
its experience in consummating numerous acquisitions and its access to capital,
provides an important competitive advantage in identifying domestic and
international acquisition opportunities and integrating the acquired operations
into the Company. Further, because of the fragmented nature of many sectors of
the lighting industry, the Company believes that there are many opportunities
available for future acquisitions.
OPERATING STRATEGY
The Company's operating strategy is designed to enhance the Company's
position as a leading international designer, manufacturer and supplier of
lighting products, while at the same time increasing profitability through:
o continued vertical integration and automation,
o improved operating efficiencies, and
o continued focus on responsiveness and product quality.
Continue Vertical Integration and Automation. The Company intends to
continue to vertically integrate its operations by broadening the range of
components which it manufactures and uses in its lighting products. The
Company's ability to manufacture a wide array of components facilitates the
production of more complex, value-added lighting products, which generally have
higher average selling prices per unit and higher margins than discrete
lighting
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components. The Company intends to further increase its manufacturing
capabilities and continue to expand the automation at its facilities in order
to increase production and reduce production costs.
Improve Operating Efficiencies. The Company has realized cost savings
in connection with the integration of its acquired businesses. Cost reduction
initiatives have included the consolidation of certain administrative
functions, vertical integration with existing operations and leveraging of
combined purchasing power. Certain of these acquired businesses had been
operating at significantly lower margins than the Company's base business,
resulting in a temporary contraction of consolidated margins.
Continue Focus on Responsiveness and Product Quality. The Company's
ability to conceive, design and engineer new products in a short period of time
is a significant competitive advantage. Management has developed "Competency
Centers" within its manufacturing facilities to optimize the expertise of the
Company's design, engineering, manufacturing and technical sales support teams.
In addition, the Company has developed technology to monitor and control its
production performance. As a result of various quality initiatives, the Company
has achieved a preferred supplier designation for its miniature lighting
products from several of its OEM customers, including Q-1 certification from
Ford Motor Company and a Quality Excellence award from Chrysler Corp. In
addition, certain of the Company's facilities have received QS-9000, ISO 9001
and Euro-Net ISO 9000 and 9001 certifications. Such certifications in many
instances are a pre-requisite for contractual orders, particularly with large
industrial users of the Company's products.
ACQUISITIONS
The following table sets forth the 23 acquisitions which have been
consummated by the Company since October 1992:
<TABLE>
<CAPTION>
Date of
Business Acquisition Type of Operation Location
- -------- ----------- ----------------- --------
<S> <C> <C> <C>
Chicago Miniature October 1992 Supplier of miniature Buffalo Grove,
Lamp, Inc. lighting components Illinois, USA
(CML-Delaware)(a)
Glolite Sales, Ltd April 1993 Manufacturer of miniature Pauls Valley,
neon and incandescent bulb Oklahoma, USA
and string lighting products
Industrial Devices, Inc. May 1994 Designer and manufacturer Hackensack,
(IDI) of miniature lighting products New Jersey, USA
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Plastomer, Inc. March 1995 Manufacturer and Barrie, Ontario,
(CML Canada) supplier of miniature Canada
lighting assemblies and
bulb sockets
Fredon Industrial August 1995 Manufacturer of machine Newton,
Development, Inc. tools and dies New Jersey, USA
(Fredon)
STT Holdings Limited November 1995 Engineer and designer of Byfleet, Surrey,
(Badalex)(b) lamp-making equipment United Kingdom
Electro Fiberoptics, Inc. December 1995 Manufacturer of fiber optic Marlborough,
(CML Fiberoptics) lighting products Massachusetts, USA
Phoenix Lighting December 1995 Manufacturer of halogen and Coalville,
(U.K.) Limited specialty lamps Leicestershire,
(CML Europe) United Kingdom
W. Albrecht GmbH u. May 1996 Manufacturer of miniature Bamberg,
Co. KG (Alba)(c) lighting products Germany
Gustav Bruckner GmbH January 1997 Engineer, designer and Coburg,
(Bruckner) manufacturer of automated Germany
lamp-making equipment
Valmont Electric, Inc. January 1997 Manufacturer of magnetic El Paso,
(Power Lighting Products and electronic ballasts Texas, USA
("PLP"))
Sylvania Lighting September 1997 Designer and manufacturer Haarlem,
International, B.V. (SLI, of integrated lighting systems Netherlands
B.V.) including lamps and fixtures
Solium, Inc. (Solium) November 1997 Designer and manufacturer of Randolph,
electronic ballasts Massachusetts,USA
ELECTRO-MAG March 1998 Ballast technology El Paso, Texas,
Industrial, Inc USA
Topluz S.A. March 1998 Manufacturer of lamps Bogota, Colombia
OSA Elektronik GmbH May 1998 Manufacturer of light Berlin, Germany
emitting diodes
</TABLE>
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<TABLE>
<S> <C> <C> <C>
VCH International May 1998 Manufacturer of miniature Bury St. Edmund,
Limited lamps and systems United Kingdom
SOCOP S.A. July 1998 Manufacture of miniature Besancon, France
lighting products
IllumElex Corporation November 1998 Lighting maintenance Raleigh, North
Carolina, USA
Lighting Partner B.V. January 1999 Manufacturer of lighting Goes, Netherlands
fixtures
Supreme Corporation April 1999 Manufacturer of lamps Mullins, South
Carolina, USA
Parke Industries July 1999 Lighting maintenance Cary, North
Carolina, USA
Marvel Lighting October 1999 Lamp distributor Mullins, South
Corporation Carolina, USA
</TABLE>
- --------
(a) In 1985, Mr. Frank Ward acquired all of the outstanding shares of capital
stock of Xenell, which had been engaged primarily in the business of
manufacturing neon lighting bulbs and assemblies since 1976. Mr. Ward
caused Chicago Miniature Lamp, Inc., an Oklahoma corporation ("CML") to be
organized in October 1992 for the purpose of acquiring Chicago Miniature
Lamp, Inc., a Delaware corporation ("CML-Delaware"). From 1992 to 1993,
CML and Xenell were under the common control of Mr. Ward and effective
January 4, 1994, Xenell was merged into CML.
(b) The Company acquired substantially all of the assets of (i) STT Holdings
Limited, which included two of its subsidiaries (STT Badalex Limited and
STI Lighting Limited), and (ii) PRT Shipping Limited.
(c) In connection with the Alba acquisition, the Company acquired (i) W.
Albrecht GmbH u. Co. KG ("Alba-Germany"), (ii) Alba Light Design GmbH
("Alba-Light Design"), (iii) Alba Lamps, Inc. ("Alba-USA"), and (iv)
certain other affiliated entities. The Company also acquired a majority
interest in A&S Electric, spol.s.r.o. ("Alba-CZ") and Alba Technology (M)
Sdn. Bhd. ("Alba-Malaysia").
INDUSTRY OVERVIEW
The lighting industry is a large, mature market, which is
characterized by the long life cycle of its lighting products. The global
lighting industry consists of many firms, ranging from large, multinational,
multiproduct, publicly owned companies to small, single-product, private firms.
The industry includes three dominant firms, General Electric, Osram and
Philips. While these three companies are active in all of the major sectors of
the global lighting industry,
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concentration levels vary by sector and region. The lamp market is highly
concentrated whereas the fixture and miniature lighting markets are highly
fragmented. The ballast market is concentrated and consists of several large
companies including Power Lighting Products. Smaller firms have found or
created niches in certain markets which have been defined by specific
competencies, technologies or differentiated products. Some specialized areas,
such as normal line voltage halogens, compact fluorescents and metal halides,
have recently experienced a rapid rate of growth.
The lamp market, which is estimated at approximately $7.6 billion
annually, is relatively stable because much of the demand is generated by
replacement needs. Increased usage and applications will depend largely on
economic growth, especially housing starts and new vehicle sales. However,
economic development in areas such as Eastern Europe and Central and South
America is expected to provide accelerated growth opportunities. Aggregate
sales of lamps have demonstrated moderate cyclicality and seasonality. The
fourth quarter tends to be the industry's strongest demand period, given
abbreviated daylight hours and increased holiday light usage.
The fixture market, which is estimated at approximately $14.0 billion
annually, is highly fragmented since barriers to entry to the market are low in
comparison to the lamp manufacturing business. A large number of suppliers are
active in certain segments of the market, where they offer products for
specific applications. However, several companies offer a complete range of
interior, exterior and display and decorative fixtures for commercial and
industrial applications. Competition is based primarily on product design,
quality, brand recognition and distribution outlets. Interior fixtures
constitute the largest part of the fixture market, followed by exterior
fixtures and display and decorative fixtures. Interior fixture applications
include offices, department stores, shops, hotels, schools, factories and
warehouses. Exterior fixtures include all types of fixtures used in
professional outdoor applications such as street lighting, amenity and public
lighting, port, tunnels and security lighting. The display and decorative
fixtures market includes applications for shop window displays and other public
buildings. Continued demand will be dependent upon economic growth, especially
industrial and commercial construction. As with lamps, economic development in
Eastern Europe and Central and South America is expected to provide accelerated
growth opportunities.
The miniature lighting market exhibits slow product obsolescence,
stable underlying demand and moderate growth. Purchasers for miniature lighting
assemblies are primarily OEMs in the automotive, electronics and
communications, appliance and aviation industries, whose products require a
wide variety of illumination and status indicators. Miniature lamps are
inserted in lighting assemblies that may be used in circuit board and panel
mount applications that can be incorporated into a wide variety of OEM
products. There has been increased acceptance by OEMs of the use of lighting
manufacturers for the production of miniature lighting assemblies. Many OEMs
have adopted and are becoming increasingly reliant upon the outsourcing of
customized assemblies, and the Company believes that this trend will continue
as OEMs attempt to (i) reduce time to market, (ii) reduce capital investment,
(iii) gain access to leading technological solutions, and (iv) improve
inventory management.
The ballast market is estimated at approximately $3.2 billion annually
and is experiencing growth due to an increasing need to conserve energy, better
luminescence output,
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increased lamp life and less color shift. Ballasts are used to supply power to
start and operate fluorescent, compact fluorescent and HID lamps and signage
products.
Management believes that the following trends may also lead to
increased global use of lighting products: (i) increased lighting usage by
manufacturing and service companies, operating overtime or second and third
shifts, (ii) development of more energy-efficient and user-friendly lamps,
despite an increase in cost, and (iii) increased demand by developing
countries, including Eastern Europe, Central and South America and Asia, for
lighting products.
PRODUCTS AND MARKETS
The Company's product category profile has changed significantly with
the addition of SLI, B.V. in September 1997. The following table sets forth the
percentage of net sales by product category for Fiscal 1997, Fiscal 1998 and
Fiscal 1999.
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
Products 11/30/97 1/03/99 1/02/00
- -------- -------- ------- -------
<S> <C> <C> <C>
Lamps ....................... 38% 51% 48%
Fixtures .................... 15 23 22
Miniature Lighting Assemblies 21 9 8
Ballasts .................... 23 10 9
Service ..................... -- -- 7
Other ....................... 3 7 6
--- --- ---
Total .............. 100% 100% 100%
</TABLE>
The Company's manufacturing and developmental activities are focused
as follows:
Lamps. The Company intends to continue to address the market's demands
for affordable, energy-efficient lamps with longer life cycles. In this regard,
the Company has produced and is continuing to develop, among other lighting
products, (i) compact fluorescent lamps with novel features and performance
characteristics, (ii) tungsten halogen lamps using line voltage, which have the
capability of replacing standard incandescent lamps, (iii) twin-arc high
pressure sodium ("SHP") and mercury-free SHP lamps for general lighting as well
as special applications such as film and theater use, (iv) triphosphor
fluorescent lamps with improved lumen maintenance, and (v) metal halide lamps
that combine energy efficient illumination, long lamp life, excellent color
rendition and compact lamp size. Through the introduction of a new range of
"high voltage" halogen reflector lamps, known as "Hi-Spot," which has been
supplemented with a miniature 50 millimeter line voltage lamp, SLI, B.V. has
demonstrated leadership in product development in this area.
Fixtures. Trend setting accent fixtures track both the requirements of
the marketplace and the emergence of new concept lamps, notably line voltage
halogen, metal halide and compact fluorescents. New low glare fixture
development by the Company has been launched in response to guidelines
recommended by certain international engineering industry groups for reducing
the potential harmful effects in the area of visual display units, as well as
lower wattage per square meter of illuminated surface. In addition, the Company
intends to continue to focus its
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efforts on providing industrial and commercial lighting fixtures that will meet
the changing performance and aesthetic requirements of its customers.
Miniature Lighting Assemblies. The Company's miniature lighting
assemblies are used mainly as visual fault or status indicators. Because of
competition and rapid technological change, the Company believes that many OEMs
are motivated to work with lighting manufacturers, such as the Company, in
order to gain access to advanced manufacturing facilities without an increase
in their overall capital requirements.
Ballasts. Magnetic and electronic ballasts supply power to start and
operate fluorescent, compact fluorescent and HID lamps and signage products.
Patented technology acquired by the Company in connection with the acquisition
of Solium in Fiscal 1997 has provided the Company with new three way switching
and dimming capabilities for its fluorescent lamps. A portion of the ballasts
produced by Power Lighting Products is being used throughout the Company's
subsidiaries as a lamp component for manufacturing and service.
The Company sells its products under a variety of brand names in over
30 countries. Its flagship brand, Sylvania, is one of the world's leading
lighting brands and covers a full line of lamps, industrial and commercial
fixtures, and specialty products. Other lamp and fixture lines include Concord,
architectural and display lighting; Claude, consumer and industrial and
commercial lamps and fixtures; Lumiance, display lighting fixtures; Linolite,
residential and commercial task lighting fixtures; and Le Dauphin, high fashion
table fixtures. Ballasts are sold under the Power Lighting Products brand label.
Miniature lighting assemblies are sold under the Chicago Miniature Lamp and SLI
Miniature Lighting labels. While the Company generally sells its products under
its own brand names, it also sells under its customers' private brand labels, a
practice which is common in the retail sector. The Company also sells its
products to other lighting companies under such companies' brand labels.
CUSTOMERS
The Company's customers include wholesalers, OEMs, retailers,
architects, designers and contractors. For Fiscal 1999, the Company's main
customer base for lamps and industrial and commercial fixtures was the
wholesale channel (approximately 38% of the Company's revenue, of which more
than 10% was through international electrical wholesalers such as Rexel,
Sonepar and Hagemeyer). The retail market for lamps is characterized by a small
number of large customers which contributes to competitive and pricing pressure
from suppliers located in the Pacific Rim, especially in compact fluorescent
lamps, which provide an attractive combination of high unit price and low
freight cost. The professional installer market is important to the Company for
lamps and accent fixture products. These products, which the Company sells
under the Concord and Lumiance brands, are often designed pursuant to customer
specifications. The Company does not believe that any one customer accounted
for more than 5% of net sales in Fiscal 1999.
13
<PAGE> 14
MANUFACTURING
The Company has 32 manufacturing facilities in 13 countries, including
5 facilities in the U.S. The manufacturing operations of the Company are
vertically integrated through design, engineering, manufacturing, assembly and
sales. This integration enables the Company to control product cost more
effectively, helps ensure quality and allows the Company to offer its customers
a wide array of products and services. The Company's manufacturing capabilities
include lamp forming and cutting, socket manufacturing, glass and plastic fiber
drawing, lamp equipment manufacturing, plastic injection molding, and the
production of complex molds and dies, as well as various assembly operations.
In Fiscal 1999, the Company manufactured approximately 90% of the products
sold.
The Company's manufacturing operations are based on a number of
"Competency Centers." The production activities of each manufacturing facility
are generally specialized in the manufacturing of a particular line of related
lighting products. For example, the Company produces fluorescent lamps in
Germany, accent fixtures in the United Kingdom, ballasts in Texas, U.S.A., and
miniature lighting products in New Jersey, U.S.A. The design, engineering,
manufacturing and technical support sales teams associated with each product
line are located at the related manufacturing facility.
The Company has specialized design and engineering capabilities which
it uses to improve its manufacturing process by automating single, labor
intensive operations within a product assembly line, as well as automating
entire product assembly lines. Most of the Company's automated manufacturing
equipment is custom designed by its own engineers. The Company fabricates most
of its own equipment and many parts are machined in-house and customized to
perform specific functions. The Company develops and uses automated material
handling, testing and packaging systems and has automated the manufacture of
its various lamps, fixtures and miniature lighting assemblies. By automating
its operations, the Company has been able to reduce its manufacturing costs,
thereby enabling it to be competitive with many products produced worldwide.
For Fiscal 1999, the Company purchased approximately 90% of its
incandescent glass shells from a joint venture consisting of Philips and Osram
and approximately 80% of its fluorescent glass tubing from Osram. The joint
venture agreement automatically renews for a two-year term unless notice of
termination is provided by either party 12 months prior to the automatic
renewal date. The Osram agreement automatically renews for a one-year term
unless notice of termination is provided by either party 24 months prior to the
automatic renewal date. As of the date hereof, the Company has not received
notice of termination for either agreement. There can be no assurance that such
agreements will be renewed in the future. The termination of either agreement
could have a material adverse effect on the Company. The Company purchases
certain of its other raw materials, including plastic, metals, glass, copper,
filaments, gases, electrodes, electronic components, wire and resistors for use
in the manufacture of lamps, fixtures, ballasts and miniature lighting
assemblies. All such raw materials are readily available and are generally
purchased from a variety of independent, non-competing suppliers. Substantially
all LED's used by the Company in its miniature lighting assemblies are
currently imported from the Pacific Rim. The Company recently acquired a
European company engaged in
14
<PAGE> 15
the production of LED's which now supplies the Company with a small portion of
its LED requirements. Any interruption in the supply of incandescent glass
shells, fluorescent glass tubing, LED's or significant fluctuations in the
prices of other raw materials could have an adverse effect on the Company's
financial condition and operations.
RESEARCH AND DEVELOPMENT
The Company's research and development expenditures were $7.4 million
for Fiscal 1999. The Company's research and development, in recent years, has
been focused on product and process innovation, applying tested lighting
technologies, rather than in the exploration of new lighting techniques. Much
of the focus has been directed toward improvements in material science to
improve lamp photometric performance, energy-efficiency and miniaturization as
well as to lengthen the life of its products and reduce or eliminate the use of
environmentally hazardous materials. Through a technical agreement, in effect
from January 1993 to September 1997, SLI, B.V. was entitled to royalty-free use
of Osram's worldwide intellectual property including patents, research and
development, product and process know-how for use outside the United States,
Canada, Mexico and Puerto Rico. The agreement provides that, as of September
1997, SLI, B.V. no longer had the right to receive new Osram technology and
know-how although SLI, B.V. continues to have the right to use all of the
information and know-how acquired up to 1997 within its existing business
outside the United States, Canada, Mexico and Puerto Rico. This restriction
does not prohibit the Company from selling a broad range of lighting products,
which are not dependent upon Osram technology, in such areas. Since the
expiration of the arrangements, the Company has continued to devote substantial
resources to research and development and has not therefore experienced a
material adverse effect in its operations. Certain of the Company's competitors
are significantly larger than the Company and devote a substantial amount of
money to research and development.
SALES AND MARKETING
The Company sells its lighting products through a direct sales force,
sales representatives and distribution companies. The Company currently employs
approximately 1,055 people in sales and marketing, with 682 in Europe, 129 in
the U.S., 7 in Canada, 83 in Australia, 125 in Central and South America and 29
in Asia. In addition, the Company's sales force is augmented with 246
independent sales representative organizations, with designated geographic
territories in the United States, Canada and Europe.
The Company advertises in most major electronic and electrical trade
publications. To help ensure positive results of its advertising programs, the
Company has developed a lead fulfillment and tracking program that monitors
opportunities for the internal sales force, the sales representatives and
distributors. The Company also publishes a full-line of catalog/data books and
CD-ROMs for use by its customers.
15
<PAGE> 16
INTERNATIONAL OPERATIONS
Approximately 71% of the Company's net sales for Fiscal 1999 were
derived from outside the United States. The Company currently operates in more
than 30 countries located in the Americas, Europe, and the Pacific Rim. As a
result of its foreign sales and facilities, the Company's operations are
subject to the risks of doing business internationally.
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
11/30/97 1/03/99 1/02/00
-------- ------- -------
(in thousands)
<S> <C> <C> <C>
Net Sales:
United States ........... $129,120 $159,565 $255,348
Canada .................. 14,605 18,426 20,891
Europe .................. 135,719 463,491 477,949
Pacific Rim ............. 15,621 47,535 47,626
Central and South America 34,894 84,051 73,009
-------- -------- --------
Total ................... $329,959 $773,068 $874,823
======== ======== ========
Total Assets:
United States ................ $127,777 $160,172 $242,468
Canada ....................... 10,459 10,937 11,177
Europe ....................... 429,418 491,042 504,842
Pacific Rim .................. 32,602 25,783 25,969
Central and South America .... 51,405 87,529 82,428
-------- -------- --------
Total ........................ $651,661 $775,463 $866,884
======== ======== ========
</TABLE>
THE SLI, B.V. ACQUISITION
In September 1997, the Company consummated the purchase of all of the
outstanding shares of capital stock of SLI, B.V., a privately held company
headquartered in Geneva, Switzerland for $161.5 million cash, financed with the
Company's internal cash and borrowings under its revolving credit facility.
SLI, B.V. originally formed part of Sylvania Lighting, which has been in the
business of producing lamps since 1900. GTE acquired the business in 1959, at
which time Sylvania Lighting did business exclusively in the United States.
Under GTE's ownership, Sylvania Lighting expanded into Europe in 1961,
initially with its camera "flash cube" product. Between 1966 and 1985, GTE grew
the worldwide operations of Sylvania Lighting, setting up plants in Central and
South America between 1966 and 1979 and opening operations in Australia and
Asia during the 1970's. In the 1980's, Sylvania Lighting made two acquisitions;
Claude Lamp Company, a French lamp and fixture manufacturer, and Rotaflex Plc,
a European fixture manufacturer. In 1993, GTE sold the international operations
of Sylvania Lighting, excluding the North American business, to a group of
private investors and sold the North American business, including the trademark
Sylvania for use in the United States, Canada, Mexico and Puerto Rico, to Osram
GmbH.
16
<PAGE> 17
SLI, B.V. is an integrated designer and manufacturer of lighting
systems which are comprised of lamps and fixtures. SLI, B.V. manufactures and
offers a wide range of lamps (incandescent, fluorescent, compact fluorescent,
HID, halogen, and special lamps) and a substantially complete range of fixtures
to meet the lighting needs of its customers, which include wholesalers, OEMs,
retailers, architects, designers and contractors. SLI, B.V.'s product portfolio
is sold under several brands, most notably the Sylvania name, for which SLI,
B.V. has rights in all regions with the exception of the United States, Canada,
Mexico and Puerto Rico. SLI, B.V. manufactures approximately 90% of all its
product requirements in-house through 13 plants in nine countries; seven plants
are in Europe, four are in Central and South America and two are in Australia.
SLI, B.V. conducts its operations in over 30 countries through sales and
distribution facilities.
COMPETITION
The industry in which the Company operates is highly competitive. Most
of the Company's competitors offer products in some but not all of the markets
served by the Company. The Company competes primarily on the basis of brand
awareness, price, product quality, design and engineering, customer service and
distribution strength. The lamp manufacturing industry is dominated by Philips,
Osram and General Electric. The Company believes that it is the third largest
lighting company in Europe, behind Philips and Osram. The fixture and miniature
lighting assembly markets are highly fragmented with many suppliers. The
ballast market is dominated by several large companies including Power Lighting
Products. PLP's competitors in the ballast market include MagneTek, Advance
Transformer (a division of Philips) and Osram Sylvania. Some of the Company's
competitors have substantially greater resources than the Company.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to federal, state, local and
foreign laws and regulations relating to the storage, handling, generation,
treatment, emission, release, discharge and disposal of certain substances and
wastes. While the Company believes that it is currently in material compliance
with these laws and regulations, there can be no assurance that the Company
will not incur significant costs to remediate violations thereof or to comply
with changes in existing laws and regulations (or the enforcement thereof).
Such costs could have a material adverse effect on the Company's results of
operations.
The Company uses a radioactive gas in its manufacture of neon bulbs in
the United States, and maintains a U.S. Nuclear Regulatory Commission license
for the use of such gas. The Company must comply with federal, state and local
regulations pertaining to the storage and discharge of radioactive materials. In
view of the low dosage of radioactivity in the gas used, the requirements for
compliance with these regulations do not, and the Company anticipates will not,
have any material adverse effect upon its capital expenditures, results of
operations or financial condition.
17
<PAGE> 18
PATENTS, LICENSES AND TRADEMARKS
The Company owns and has obtained licenses to various domestic and
foreign patents, patent applications and trademarks related to its products,
processes and business. While these patents and patent applications in the
aggregate are important to the Company's competitive position, no single patent
or patent application is material to the Company. The trademark Sylvania is
owned by Osram-Sylvania, Inc. in the United States, Canada, Mexico and Puerto
Rico and by the Company in all other jurisdictions where the name is
registered. The Company's license agreements generally have a duration which
coincides with either the patents or the trademarks (which have an indefinite
life) covered thereby. SLI, B.V.'s intellectual property rights are licensed
from Osram, which is a competitor of the Company, and there is no assurance
that the Company's licenses may not be subject to challenge by Osram arising
out of any future sales by the Company in the United States, Canada, Mexico and
Puerto Rico.
EMPLOYEES
As of January 2, 2000, the Company employed approximately 9,526
employees of whom 4,410 were employed in Europe, 1,392 in the U.S., 86 in
Canada, 3,357 in Central and South America, 221 in Australia and 60 in Asia.
Manufacturing and engineering operations employed 7,877 people, sales and
marketing employed 1,055 people, and administration and finance employed 594
people. Union recognition and collective bargaining arrangements are in place
in 9 countries (including the United States), covering a total of approximately
3,346 persons (170 in the United States). These agreements are with various
labor unions and consortiums and expire at various dates. Management believes
that it generally has a good relationship with its unionized and non-unionized
employees.
18
<PAGE> 19
ITEM 2. PROPERTIES
At January 2, 2000, the Company's manufacturing operations were being
carried on at the following locations:
<TABLE>
<CAPTION>
Location Square Footage Product
-------- -------------- -------
<S> <C> <C>
UNITED STATES:
Texas(a)................................ 108,000* magnetic and electronic ballasts
Oklahoma(b)............................. 30,000* miniature neon lamps and assemblies
New Jersey(a)........................... 59,200* miniature lighting assemblies, injection
molding of housings and lenses
New Jersey(b)........................... 7,000* molds, tool and die
South Carolina(c)....................... 530,000* incandescent lamps
CANADA:
Ontario(b).............................. 75,000* socket and socket lamp assemblies
EUROPE:
Besancon, France(b)..................... 44,000 miniature lighting, stamping and tooling
Besancon, France(b)..................... 37,000 lighting systems
Besancon, France(b)..................... 12,000 lampholder assemblies
Lyon, France(a)......................... 235,000 specialty incandescent lamps
St. Etienne, France(a).................. 105,000 industrial/commercial fluorescent fixtures
St. Marcellin, France(b)................ 42,000 table lighting fixtures
Erlangen, Germany(c).................... 255,000* linear fluorescent lamps
Bamberg, Germany(b)..................... 54,400* miniature lamp manufacturing and assembly
Berlin, Germany(a)...................... 12,000 LED manufacturing
Coburg, Germany(a)...................... 17,000* manufacturer of automated lamp making
equipment
Hranice u Ase, Czech Republic(b)........ 7,500* miniature lamp assembly
Newhaven, United Kingdom(a)............. 7,900* architectural fixtures
Shipley, United Kingdom(b).............. 110,000* miniature linear fluorescent and compact
lamps
Bury St. Edmunds, United Kingdom(b)..... 59,000 miniature lamp manufacturing and assembly
Tienen, Belgium(b)...................... 308,000* HID lamps, halogen lamps for low and line
voltage and general lighting service ("GLS")
lamps
Goes, Netherlands(a).................... 7,700* display fixtures
Haarlem, Netherlands(a)................. 45,000* display fixtures
AUSTRALIA:
Gosford, Australia(b)................... 72,000 high bay industrial fixtures
Brookvale, Australia(a)................. 17,000 suspended linear fixtures
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
Location Square Footage Product
-------- -------------- -------
<S> <C> <C>
CENTRAL AND SOUTH AMERICA:
Vinhedo, Brazil(b)...................... 74,000* incandescent glass shells and fluorescent
glass tubes
Santo Amaro, Brazil(b).................. 390,000 incandescent and fluorescent low and line
voltage and GLS lamps
Juarez, Mexico(b)....................... 163,000* magnetic and electronic ballasts
Bogota, Colombia(b)..................... 55,000* linear fluorescent and incandescent lamps
Bogota, Colombia(b)..................... 155,000 Incandescent and fluorescent glass and
lamps
San Jose, Costa Rica(b)................. 75,000* starters and glow bottles
San Jose, Costa Rica(b)................. 19,000* miniature lighting assemblies
</TABLE>
- -------
(a) Leased or subleased. Such leases expire on various dates from the current
year to 2010. Lease payments for Fiscal 2000 will be approximately $10.0
million. See Note 9 to Notes to the Company's Consolidated Financial
Statements.
(b) Owned.
(c) Manufacturing facility owned, warehouse space leased.
(*) Includes warehouse space.
The Company has sales offices and distribution facilities in over 30
countries.
The Company-owned facilities in the United States, Canada, Germany,
the United Kingdom, Belgium and Costa Rica are subject to mortgages which were
entered into in connection with the Company's revolving credit facility.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in legal proceedings
from time to time in the ordinary course of its business. As of the date of the
filing neither the Company nor any of its subsidiaries are a party to any law
suits or proceedings which individually or in the aggregate, in the opinion of
management, is likely to have a material adverse effect on the financial
condition, results of operations or cash flow of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no meetings of shareholders during the fourth quarter of
the fiscal year covered by this report.
20
<PAGE> 21
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth the names and ages of all executive
officers of the Registrant, including all positions and offices with the
Registrant held by him, and the period during which he has served as such.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Frank M. Ward...................... 56 President and Chief Executive Officer
Frederick B. Howard................ 64 Executive Vice President
Richard F. Parenti................. 46 Vice President-Finance, Secretary and
Chief Financial Officer
Robert J. Mancini.................. 44 Treasurer
</TABLE>
Each of the executive officers listed above serves at the pleasure of
the Board of Directors for a term until his or her successor is duly elected
and qualified. The following is a summary of the business experience during the
past five years of each of the Company's executive officers.
Frank M. Ward has served as President and Chief Executive Officer and
Director of the Company and its predecessor, Xenell Corporation, since 1985.
Mr. Ward received a Bachelor of Science degree in Electrical Engineering from
Northeastern University and has completed post graduate studies in physics and
metallurgy.
Frederick B. Howard had been, until his retirement in June 1997, vice
president and general manager of Electronic Control Systems, a division of
Osram-Sylvania Inc., since its formation in June 1996. From 1994 until 1996, he
had been vice president and general manager of Osram Sylvania Glass
Technologies. Other positions held during his 35 year tenure with GTE Sylvania
Lighting include vice president of marketing for the Sylvania Lighting Division
- -- U.S., vice president of Lighting Special Products and vice president, Latin
America, for International Lighting. Mr. Howard was elected a director of the
Company in February 1998 and appointed executive vice-president in September
1998. Mr. Howard holds a Bachelor of Arts degree in economics from Babson
College, serves as a member of the Advisory Board of Directors, Mayer Electric
Supply Company, and is a member of the National Electric Manufacturers
Association.
Richard F. Parenti joined the Company in October 1987, and held the
position of Controller from 1988 to 1992. He was appointed Vice President
Finance in 1992 and Secretary of the Company in March 1998. Since 1992 he has
served as a senior financial officer of the Company and was appointed Chief
Financial Officer in May, 1999. Mr. Parenti has a Bachelor of Business
Administration degree in accounting from Loyola University, Chicago.
Robert J. Mancini joined the Company in February 1998 and was
appointed treasurer in September 1998. Prior to joining the Company he was
Assistant Treasurer of Hasbro, Inc. (1986 to 1998), a toy manufacturing
company, where he was responsible for foreign exchange, cash management and
capital markets. Mr. Mancini has a Bachelor of Science degree in accounting
from Boston College.
21
<PAGE> 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Until May 4, 1998, the Company's Common Stock traded on the Nasdaq
National Market. Since that date, the Common Stock has traded on The New York
Stock Exchange. The following table sets forth the range of high and low sales
prices for the Company's Common Stock for each period indicated (adjusted for
stock splits).
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1998:
First Quarter(1) ........................ 40.63 22.17
Second Quarter .......................... 41.87 24.50
Third Quarter ........................... 27.13 9.25
Fourth Quarter .......................... 27.75 10.13
Fiscal 1999:
First Quarter ........................... 28.25 18.12
Second Quarter .......................... 35.00 22.00
Third Quarter ........................... 28.25 19.38
Fourth Quarter .......................... 21.75 8.31
Fiscal 2000:
First Quarter (through February 29, 2000) 16.25 10.75
</TABLE>
- -----
(1) Includes transition month of December 1997.
Such market quotations reflect inter-dealer prices, without retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
As of January 2, 2000, the approximate number of holders of record of
the Company's Common Stock was 132 and the number of beneficial holders,
including individual participants in security position listings with clearing
agencies, was estimated at approximately 6600.
DIVIDENDS
In January, the Company authorized an annualized cash dividend of $.40
per share. A quarterly dividend of $.10 is payable March 24, 2000 to
stockholders of record as of March 15, 2000. Future dividends, if any, will be
at the discretion of the Company's Board of Directors and will be dependent
upon the Company's results of operations, financial condition, contractual
restrictions and other factors deemed relevant at that time by the Company's
Board of Directors.
22
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except per Share Data)
The following table presents selected historical financial information
of the Company, as of the dates and for the periods indicated and was derived
from the audited consolidated financial statements of the Company. The selected
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's audited consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
One
Year Year Year Month Year Year
Ended Ended Ended Ended Ended Ended
12/3/95 12/1/96 11/30/97 1/4/98(a) 1/3/99 1/2/00
------- ------- -------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(b):
Net sales ............................. $ 57,402 $ 94,171 $ 329,959 $ 53,866 $773,068 $ 874,823
Cost of products sold ................. 36,726 61,147 231,933 40,199 533,484 630,106
-------- --------- --------- --------- -------- ---------
Gross margin ..................... 20,676 33,024 98,026 13,667 239,584 244,717
Selling, general and
administrative expenses .......... 8,462 14,552 65,549 14,004 178,235 183,632
Restructuring costs ................... -- -- 5,115 -- 2,022 2,300
-------- --------- --------- --------- -------- ---------
Operating income (loss) .......... 12,214 18,472 27,362 (337) 59,327 58,785
Interest expense, net ............ 803 301 1,156 1,206 16,892 15,353
Other (income) expense, net ........... (47) (1,294) (2,326) (471) 1,247 (1,765)
-------- --------- --------- --------- -------- ---------
Income (loss) before income taxes ..... 11,458 19,465 28,532 (1,072) 41,188 45,197
Income taxes .......................... 2,993 6,029 7,591 (525) 8,156 6,888
-------- --------- --------- --------- -------- ---------
Net Income (loss) ................ $ 8,465 $ 13,436 $ 20,941 $ (547) $ 33,032 $ 38,309
======== ========= ========= ========= ======== =========
Net Income (loss)
per common share-basic(c) .... $ 0.41 $ 0.55 $ 0.73 $ (0.02) $ 1.14 $ 1.19
======== ========= ========= ========= ======== =========
Weighted average shares
outstanding-basic(c) ............. 20,880 24,357 28,761 28,659 28,898 32,290
======== ========= ========= ========= ======== =========
Net Income
per common share-diluted(c) .. $ 0.41 $ 0.55 $ 0.71 $ (0.02) $ 1.10 $ 1.14
======== ========= ========= ========= ======== =========
Weighted average shares
outstanding-diluted(c) ....... 20,899 24,488 29,331 29,298 30,132 $ 33,501
======== ========= ========= ========= ======== =========
BALANCE SHEET DATA AT END OF PERIOD(b):
Working capital ....................... $ 9,923 $ 98,308 $ 117,606 $ 97,790 $ 145,074
Total assets .......................... 59,630 212,002 651,661 775,463 866,884
Short-term debt ....................... 65 25,174 14,821 29,874 61,265
Long-term debt, less current portion .. 3,147 5,607 185,434 238,530 164,160
Stockholders' equity .................. 34,921 151,164 166,051 217,810 374,017
- ---------
</TABLE>
23
<PAGE> 24
(a) In January 1998, the Company changed its financial reporting year-end from
the Sunday nearest December 1 to the Sunday nearest December 31. As a
result of this change, the Company had a one-month transition period
ending January 4, 1998.
(b) Revenues, expenses, assets and liabilities have been significantly
affected by the number and timing of acquisitions made by the Company.
(c) The Company effected a stock split effected in the form of a dividend of
0.716-for-1 in February 1995. In August 1996 and February 1998, the
Company effected 3-for-2 stock splits in the form of 50% stock dividends.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is a leading, vertically integrated manufacturer and
supplier of lighting systems, which include lamps, fixtures and ballasts.
Through its 23 acquisitions completed since 1992, the Company has grown from a
specialized manufacturer of neon lamps and miniature lighting products into a
manufacturer, supplier and lighting service provider of a wide variety of
lighting products, including lamps (incandescent, fluorescent, compact
fluorescent, HID, halogen, miniature incandescent, neon, LED's and special
lamps), fixtures, magnetic and electronic ballasts and fiber optic lighting
systems. The Company believes that it is one of the six largest global lighting
companies and one of only three major international producers to offer an
integrated package of lamps, fixtures and ballasts. The Company serves a
diverse, international customer base and at January 2, 2000 had 32
manufacturing plants in 13 countries. SLI, Inc. acquired 4 companies in 1999, 6
companies in 1998 and 4 companies in 1997, which has an impact on year to year
comparisons of revenues and earnings.
In January 1998, the Company changed its financial reporting year-end
from the Sunday nearest December 1 to the Sunday nearest December 31. The
Company has included financial results for the one-month ended January 4, 1998
herein.
For the year ended January 2, 2000, January 3, 1999, November 30, 1997
and the one month ended January 4, 1998, 70.8%, 79.4%, 60.9% and 81.5%,
respectively, of the Company's worldwide net revenue was generated from
international operations. International operations are subject to currency
fluctuations and government actions, such as devaluations. The Company monitors
its currency exposure in each country and can not predict future foreign
currency fluctuations, which have and can continue to affect the Company's
balance sheet and results of operations.
The following discussion and analysis of the results of operations for
the year ended January 2, 2000 should be read in conjunction with the Company's
Consolidated Financial Statements and accompanying notes. Except for historical
matters contained herein, the matters discussed herein are forward-looking
statements and are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
reflect assumptions and involve risks and uncertainties, which may affect the
Company's business and prospects and cause actual results to differ materially
from these forward-looking statements and should be read in conjunction with
the "Risk Factors" section of this Report on Form 10-K.
24
<PAGE> 25
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items
in the Company's Consolidated Statements of Income expressed as a percentage of
net sales:
<TABLE>
<CAPTION>
YEAR ENDED
11/30/97 1/3/99 1/2/00
-------- ------ ------
<S> <C> <C> <C>
Net sales .................................. 100.0% 100.0% 100.0%
Cost of products sold ...................... 70.3 69.0 72.0%
----- ----- -----
Gross margin ............................... 29.7 31.0 28.0
Selling, general and administrative expenses 19.8 23.0 21.0
Restructuring costs ........................ 1.6 .3 .3
----- ----- -----
Operating income ........................... 8.3 7.7 6.7
Interest (income) expense, net ............. .4 2.2 1.7
----- ----- -----
Other (income) expense ..................... (.7) .2 (0.2)
----- ----- -----
Income before income taxes ................. 8.6 5.3 5.2
Income taxes ............................... 2.3 1.0 0.8
----- ----- -----
Net income ................................. 6.3 4.3 4.4
===== ===== =====
</TABLE>
Year ended January 2, 2000 compared to the year ended January 3, 1999.
Net sales. Net sales increased 13.2% from $773.1 million for the year
ended January 3, 1999 to $874.8 million for the year ended January 2, 2000 This
increase was primarily due to generic growth generated from the integration of
the 1998 and 1999 acquisitions into ongoing operations. The generally higher
value of the US dollar compared to other currencies worldwide decreased net
sales by approximately 6% for the year ended January 2, 2000 as compared to the
year ended January 3, 1999. In addition, net sales is effected by decreases in
average selling prices due to market pricing pressure, primarily within the
European lamp market.
Gross Margin. Gross margin increased 2.1% from $239.6 million for the
year ended January 3, 1999 to $244.7 million for the year ended January 2,
2000; due primarily to the increase in sales volume, partially offset by
decreases in average selling prices. Gross margin, as a percentage of net
sales, decreased from 31% for the year ended January 3, 1999 to 28%, for the
year ended January 2, 2000. This decrease is primarily due to a decrease in
average selling prices in the European lamp market and the effects of the
changes in product mix as caused by the addition of the 1998 and 1999
acquisitions. The gross margin of the Company is expected to improve as further
integration of recent acquisitions into the Company evolves and further cost
reductions are achieved.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $178.2 million for the year ended
January 3, 1999 to $183.6 million for the year ended January 2, 2000. This
increase is primarily as a result of acquisitions. As a percentage of net
sales, selling, general and administrative expenses decreased from 23.1% for
the year ended January 3, 1999 to 21% for the year ended January 2, 2000 as a
result of the
25
<PAGE> 26
Company's strategy to decrease selling, general and administrative expenses at
recent acquisitions through implementation of reorganization plans developed
and accrued for at the time of such acquisitions. Non-recurring charges for the
year ended January 2, 2000 totaled $1.0 million and relate to the restructuring
activity in France and the integration of the 1999 acquisitions, as compared to
non-recurring charges for the year ended January 3, 1999 totaling $1.8 million.
Fiscal 1998 one-time charges include $525,000 related to a proposed public
offering withdrawn in May 1998, severance costs totaling $543,000 and one-time
charges related to the closure of one of the Company's Columbia manufacturing
operations and the United Kingdom machine making operation totaling $709,000.
Additionally, the Company seeks to continue to decrease selling, general and
administrative expenses as a percentage of net sales by utilizing the
infrastructure of its recent acquisitions as a base for further sales growth.
Restructuring costs. In the year ended January 2, 2000, the Company
developed and approved a restructuring plan for existing operations, which
resulted in charges of $2.3 million. The restructuring plan included severance
costs of $1.8 million and $500,000 of other costs. Severance costs relate to
the elimination of 26 employees at the Company's France operations. The other
costs associated with the restructuring plan are associated with the closure of
sales and administrative facilities. These costs represent the write-off of the
remaining book value of leasehold improvements, costs to return the facilities
to the condition at the outset of the lease and the cost to relocate employees.
This restructuring plan was completed in 1999 with cash provided from
operations used to cover the costs incurred. The Company expects to realize
approximately $1 million in annualized cost savings over the next year as a
result of reduced employee expense.
In fiscal 1998, the Company developed and approved restructuring plans
for existing operations, which resulted in charges of $2.0 million. The
restructuring plans included closure costs associated with the Company's
Colombia lamp manufacturing operation and the Company's United Kingdom
machinery making operation. Included in these costs were the net effect of
severance costs totaling $600,000 and the write-off of lamp making equipment
disposed of totaling $1.1 million. This restructuring plan was completed in
1998 with cash provided from operations used to cover the costs incurred.
In connection with the purchase price accounting for the acquisition
of SLI, B.V., the Company approved a restructuring plan, which resulted in
reorganization accruals of $25 million. As part of the finalization of the
reorganization accruals, $8 million of the amounts initially recorded were
reversed to property, plant and equipment in 1998 leaving recorded
reorganization accruals of $17 million. The reorganization plan affected
employee terminations in Europe, Latin America, Australia and Asia and includes
the closure of leased warehouses and administrative facilities. The warehouse
closures occurred in Scandinavia and the administrative office closures
occurred in Switzerland, France, Austria and Benelux. The purchase liabilities
include severance costs, remaining payments on non-cancelable operating leases,
costs to return the facilities to the condition at the outset of the lease, the
write-off of the remaining net book value of leasehold improvements and the
cost to relocate employees. Accrued lease costs are for costs incurred
subsequent to the Company vacating facilities. The costs in connection with
these reorganization plans were incurred through 1999 and were paid from cash
provided by operations.
26
<PAGE> 27
The Company believes that these restructuring plans are a necessary
action based on the termination of certain activities and are required to
maintain a competitive position. See Note 8 of Notes to the Company's
Consolidated Financial Statements.
Interest (income) expense, net. Interest expense, net, decreased from
$16.9 million for the year ended January 3, 1999 to $15.4 million for the year
ended January 2, 2000, primarily as a result of a decrease in the overall
average interest rate from 7.4% to 5.9%. The interest rate decrease is largely
due to a shift in borrowings to foreign denominated debt at lower interest
rates.
Other (income) expense. Other expense was $1.2 million for the year
ended January 3, 1999 as compared to other (income) of ($1.8) million for the
year ended January 2, 2000. For the year ended January 2, 2000, substantially
all of the other (income) resulted from recording the effects of foreign
exchange. Included in other expense for the year ended January 3, 1999 was a
loss on sale of assets totaling $408,000. Substantially all of the other
expense in the year ended January 3, 1999 resulted from recording the effects
of foreign exchange transactions. The Company, which has substantial foreign
operations and activity, enters into foreign currency contracts to protect the
Company from the risk that sales and purchases of products in foreign
currencies will be adversely affected by changes in exchange rates. The Company
does not hold or issue financial instruments for trading purposes. Reference
Note 13 of the Company's Consolidated Financial Statements.
Income before income taxes. As a result of the above factors, income
before income taxes increased from $41.2 million for the year ended January 3,
1999 to $45.2 million for the year ended January 2, 2000. As a percentage of
net sales, income before provision for income taxes decreased from 5.3% for the
year ended January 3, 1999 to 5.2% for the year ended January 2, 2000.
Income taxes. For the year ended January 2, 2000, the Company recorded
a tax provision of $6.9 million on pretax income of $45.2 million, for an
effective rate of approximately 15.2%, compared to an effective rate of 19.8%
for the year ended January 3, 1999. The lower than U.S. statutory tax rate is
due to the impact of income in countries with effective tax rates lower than
those in the U.S. and realization of tax attributes, including net operating
loss carry forwards. An effective tax rate lower than the U.S. statutory
effective tax rate is expected to continue for several years due to the
significant international operations of the Company. Reference Note 5 of the
Company's Consolidated Financial Statements.
Year ended January 3, 1999 compared to the year ended November 30, 1997.
Net sales. Net sales increased 134.3% from $330.0 million for the year
ended November 30, 1997 to $773.1 million for the year ended January 3, 1999.
The acquisition of SLI, B.V. accounted for 119.1% of the net sales increase.
Included in the year ended January 3, 1999 was a full year of sales
contribution from SLI, B.V., totaling $542.2 million, compared to three months
in the year ended November 30, 1997, totaling $149.2 million. The remaining
increase in net sales of 15.2% was primarily due to generic growth generated
from the integration of the 1998 acquisitions into ongoing operations.
27
<PAGE> 28
Gross Margin. Gross margin increased 144.5% from $98.0 million for the
year ended November 30, 1997 to $239.6 million for the year ended January 3,
1999, due primarily to the increase in sales volume attributed to the SLI, B.V.
acquisition. Gross margin, as a percentage of net sales, increased from 29.7%
for the year ended November 30, 1997 to 31.0%, for the year ended January 3,
1999. The SLI, B.V. gross margin, as a percentage of SLI, B.V. sales, was 31.3%
for the year ended January 3, 1999. The Company's gross margin percentage is
subject to the impact of seasonality and product mix.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $65.5 million for the year ended
November 30, 1997 to $178.2 million for the year ended January 3, 1999. This
increase was largely due to the impact of the SLI, B.V. acquisition. As a
percentage of net sales, selling, general and administrative expenses increased
from 19.8% for the year ended November 30, 1997 to 23.0% for the year ended
January 3, 1999, primarily as a result of the SLI, B.V. acquisition. Included
in the year ended January 3, 1999 are one time charges totaling $525,000
related to a proposed public offering withdrawn in May 1998, severance costs
totaling $543,000 and one time charges related to the closure of one of the
Company's Colombia manufacturing operations and the United Kingdom machinery
making operations totaling $709,000.
Interest (income) expense, net. Interest expense, net, increased from
$1.2 million for the year ended November 30, 1997 to interest expense, net, of
$16.9 million for the year ended January 3, 1999, primarily as a result of the
bank debt incurred in connection with the SLI, B.V. acquisition. Interest
income of approximately $4.1 million was generated, for the year ended November
30, 1997, primarily from the investment of unused proceeds from the Company's
secondary offering in October 1996. Interest income for the year ended January
3, 1999 totaled $917,000.
Other (income) expense. The other income for the year ended November
30, 1997 includes the effects of foreign exchange transactions and a $985,000
gain for the sale of 49% interest in CML Fiberoptics to Schott Corporation in
connection with the formation of the Schott-CML Fiberoptic joint venture.
Included in other (income) expense for the year ended January 3, 1999 was a
loss on sale of assets totaling $408,000. Substantially all of the remainder of
other (income) expense resulted from recording the effects of foreign exchange
transactions. The Company, which has substantial foreign operations and
activity, enters into foreign currency contracts to protect the Company from
the risk that sales and purchases of products in foreign currencies will be
adversely affected by changes in exchange rates. The Company does not hold or
issue financial instruments for trading purposes. Reference Note 13 of the
Company's Consolidated Financial Statements.
28
<PAGE> 29
Income before income taxes. As a result of the above factors, income
before income taxes increased 44.2%, from $28.5 million for year ended November
30, 1997 to $41.2 million for the year ended January 3, 1999. As a percentage
of net sales, income before provision for income taxes decreased from 8.6% for
the year ended November 30, 1997 to 5.3% for the year ended January 3, 1999.
Income taxes. For the year ended January 3, 1999, the Company recorded
a tax provision of $8.2 million on pretax income of $41.2 million, for an
effective rate of 19.9%, compared to an effective rate of 26.6% for the year
ended November 30, 1997. The lower than U.S. statutory tax rate is due to the
impact of income in countries with effective tax rates lower than those in the
U.S. and realization of tax attributes, including net operating loss carry
forwards. An effective tax rate lower than the U.S. statutory effective tax
rate is expected to continue for several years due to the significant
international operations of the Company. Reference Note 5 of the Company's
Consolidated Financial Statements.
FISCAL YEAR TRANSITION PERIOD
As a result of the change in the Company's fiscal year end from the
Sunday nearest to December 1 to the Sunday nearest to December 31, the Company
is presenting financial results for the one-month period ended January 4, 1998.
Revenues were effected in the month of December by a natural slow down in the
trade cycle in the countries where the Company operates due to the holiday
season. The net loss for this transition period was due primarily to the
seasonally low revenues and increases in selling, general and administrative
expenses resulting from the acquisition of SLI, B.V. See the Company's
Condensed Consolidated Financial Statements included elsewhere herein. For the
period ended January 4, 1998, the Company recorded a tax provision benefit of
$525,000 on a pre-tax loss of $1.1 million, for an effective benefit rate of
49%. This rate was affected by business results for the one-month period and
the resultant effects of the Company's operating in many tax jurisdictions with
varied rates and special tax agreements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's major uses of cash have historically been for
acquisitions, working capital to support sales growth and ongoing capital
expenditures. Sources of cash have typically included operating cash flow, bank
borrowings and proceeds from the sale of Common Stock. Effective, July 6, 1999,
the Company completed a public offering pursuant to which the Company issued
and sold 6,000,000 shares of its Common Stock and received net proceeds of
approximately $153.5 million. The Company used the net proceeds from the
offering to reduce debt.
As of January 2, 2000, the Company's cash on hand was $25.8 million.
For Fiscal 1999, net cash used in operating activities was $18.4 million and
cash used in investing activities totaled $58.5 million. The investing
activities included (i) capital expenditures, primarily for production
equipment, totaling $51.0 million and (ii) acquisitions with which the Company
paid an aggregate amount of approximately $8.3 million, net of cash acquired.
Net cash provided by financing activities in Fiscal 1999 aggregated $77.4
million, which included $153.5 million in
29
<PAGE> 30
net proceeds from the issuance of common stock, $57.5 in net debt payments,
repurchases of Common Stock totaling $25 million and proceeds from the exercise
of stock options totaling $6.5 million.
As of January 2, 2000, the Company had available borrowings of
approximately $345 million under the Existing Credit Facility, and the face
amount of letters of credit issued and outstanding under the Existing Credit
Facility totaled approximately $1.7 million.
On October 29, 1999 the Company completed a restatement and amendment
of its existing credit facility, with a syndicate of banks led by Bank Boston,
N.A., as administrative agent, providing to the Company a $500 million
multi-currency revolving credit facility including a $200 million 364 day
revolving credit facility maturing on October 28, 2000 and subject to extension,
a $15 million swing-line loan facility and a $50 million letter of credit
facility. There are no scheduled amortization payments or repayment penalties
and no limitations on non-U.S.-dollar borrowings. The facility terminates and is
repayable in full on October 29, 2004.
At the Company's option, the interest rates per annum applicable to
the revolving credit facility are either adjusted LIBOR plus a margin ranging
from .75% to 1.75%, or, with respect to U.S.-dollar-denominated loans only, an
adjusted base rate plus a margin ranging from zero to .25%.
The Company's revolving credit facility contains a number of covenants
typical in senior credit facilities that, among other things, restricts the
ability of the Company to dispose of assets (including the stock of
subsidiaries), incur additional indebtedness, create additional liens on
assets, enter into certain leases, investments or acquisitions and engage in
mergers or consolidations. In addition the Company is also required to comply
with certain financial covenants including maximum leverage, minimum interest
coverage, minimum fixed charge coverage and minimum net worth.
The Company conducts business in countries outside of the United
States, which exposes the Company to fluctuations in foreign currency exchange
rates. The Company may enter into short-term forward exchange contracts to
hedge this risk; nevertheless, fluctuations in foreign currency exchange rates
could have an adverse effect on the Company's business. The Company does not
hold or issue financial instruments for trading or speculative purposes. The
Company has significant operations in Europe and, to a lesser extent, in Latin
America. The introduction of a single European currency is expected to reduce
the currency risks associated with inter-European transactions. However, risks
will remain with respect to transactions with customers or suppliers outside of
the zone covered by the single European currency. The Company's operations in
Latin America are carried out primarily in Brazil, Costa Rica and Colombia.
Although currently not classified as a hyper-inflationary country, Brazil has
been classified as such in the past.
The Company believes that cash from operations and borrowings
available under the Company's credit facilities, as well as other committed and
uncommitted facilities, will be sufficient to meet the Company's working
capital and capital expenditures needs for the next
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<PAGE> 31
twelve months and the foreseeable future thereafter. Capital expenditures
during the next twelve months are expected to approximate $45 million.
NET OPERATING LOSS CARRY FORWARDS
The Company had net operating loss carryforwards for tax purposes of
approximately $101.9 million at January 2, 2000, of which approximately $26.2
million expire through 2018 and $75.7 million do not expire.
SEASONALITY
The Company's operations will experience certain seasonal patterns.
Generally sales have been highest in the fourth quarter of each year due to
abbreviated daylight hours and increased holiday light usage.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company expensed approximately $400,000 during 1999 in connection with
remediating its systems. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, its internal
systems, or the products and services of third parties. The Company will
continue to monitor its mission critical computer applications and those of its
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
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<PAGE> 32
ITEM 7A. MARKET RISK
The tables below summarize information on instruments and transactions
that are sensitive to foreign currency exchange rates including foreign
currency forward exchange agreements and foreign currency denominated debt
obligations. Reference is made to Notes 4 and 13 of the Notes to the Company's
Consolidated Financial Statements.
Debt Denominated in Foreign Currencies is as follows:
<TABLE>
<CAPTION>
Fair
There- Value
2000 2001 2002 2003 2004 after Total 1/2/00
------ ---- ---- ---- ---- ------ ----- ------
(Dollar Equivalents in Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Belgium Francs
Variable Rate Loan .. 3.0 -- -- -- -- -- 3.0 3.0
Avg. Interest Rate .. 4.4% -- -- -- -- -- -- --
Avg. Forward Currency
Exchange Rate ... 0.025 -- -- -- -- -- -- --
Deutsche Marks
Variable Rate Loan .. 6.7 -- -- -- -- -- 6.7 6.7
Avg. Interest Rate .. 4.4% -- -- -- -- -- -- --
Avg. Forward Currency
Exchange Rate ... 0.514 -- -- -- -- -- -- --
UK Pounds
Variable Rate Loan .. 4.9 -- -- -- -- -- 4.9 4.9
Avg. Interest Rate .. 6.5% -- -- -- -- -- -- --
Avg. Forward Currency
Exchange Rate ... 1.617 -- -- -- -- -- -- --
Euro
Variable Rate Loan .. 8.0 -- -- -- -- -- 8.0 8.0
Avg. Interest Rate .. 4.5% -- -- -- -- -- -- --
Avg. Forward Currency
Exchange Rate ... 1.004 -- -- -- -- -- -- --
Japanese Yen
Variable Rate Loan .. 13.7 -- -- -- -- -- 13.7 13.7
Avg. Interest Rate .. 1.3% -- -- -- -- -- -- --
Avg. Forward Currency
Exchange Rate ... 0.009 -- -- -- -- -- -- --
</TABLE>
32
<PAGE> 33
Foreign Currency Forward Exchange Contracts are as follows:
<TABLE>
<CAPTION>
Av. Fair
Functional There- Cont. Value
Buy Contracts Currency 2000 2001 2002 2003 2004 after Total Rate 1/2/00
- ------------- ---------- ---- ---- ---- ---- ---- ----- ----- ----- ------
(Dollar equivalents in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Euro Dollar ........ British Pound Sterling 12.1 -- -- -- -- -- 12.1 1.478 13.6
United States Dollar British Pound Sterling 2.3 -- -- -- -- -- 2.3 1.618 2.3
</TABLE>
The Company uses interest rate swaps to reduce the impact on interest expense of
fluctuating interest rates on its variable rate debt. Under the Company's
amended interest rate swap agreement, which expires August 2, 2000, the Company
agreed with the counterparty to exchange, at quarterly intervals, the difference
between the Company's fixed pay rate and the counterparty's variable pay rate of
three-month LIBOR. At January 2, 2000, the notional principal amounts of fixed
interest rate swap agreements were $40 million having a fixed rate of 5.82%.
The fair value of the swap at January 2, 2000 was $299,000.
In connection with the interest swap agreement, the Company sold an option to
the counterparty, whereby the counterparty had the right to terminate the swap
agreement on January 29, 1999. This option was not exercised by the
counterparty. The fair value of the option at January 3, 1999 was $672,000.
The Company also has a Euro interest rate swap agreement whereby the Company
agreed with the counterparty to exchange, at quarterly intervals, the difference
between the Company's fixed pay rate and the counterparty's variable pay rate of
three-month EURIBOR. The agreement, as amended, expires April 1, 2001. At
January 2, 2000, the notional principal amount of the swap agreement was $45
million having a fixed rate of 3.835%. The fair value of the swap at January 2,
2000 was $282,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is found immediately following
the signature page of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Reference is made to the Company's definitive proxy statement for the
2000 annual shareholders meeting involving the election of directors, which
will be filed with the Commission within 120 days after the end of the fiscal
year covered by this Report. The information required by this Item and
contained in such definitive proxy statement is incorporated herein by
reference. Reference is also made to Item 4A in Part I of this Report with
respect to the executive officers of Registrant.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the Company's definitive proxy statement for the
2000 annual shareholders meeting involving the election of directors, which
will be filed with the Commission within 120 days after the end of the fiscal
year covered by this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the Company's definitive proxy statement for the
2000 annual shareholders meeting involving the election of directors, which
will be filed with the Commission within 120 days after the end of the fiscal
year covered by this Report.
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<PAGE> 34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Company's definitive proxy statement for the
2000 annual shareholders meeting involving the election of directors, which
will be filed with the Commission within 120 days after the end of the fiscal
year covered by this Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. Financial Statements filed as part of this Report:
(a) SLI, Inc. and subsidiaries
Report of Independent Auditors -- Ernst & Young LLP
Consolidated Balance Sheets of Registrant dated January 2, 2000 and
January 3, 1999
Consolidated Statements of Operations of Registrant for the fiscal
years ended January 2, 2000, January 3, 1999 and November 30, 1997 and
the month ended January 4, 1998
Consolidated Statements of Stockholders' Equity for the fiscal years
ended January 2, 2000, January 3, 1999 and November 30, 1997 and the
month ended January 4, 1998
Consolidated Statements of Cash Flows of Registrant for the fiscal
years ended January 2, 2000, January 3, 1999 and November 30, 1997 and
the month ended January 4, 1998
Notes to Consolidated Financial Statements of Registrant
(b) CML Canada, Inc.
Report of Hards Pearson
Balance Sheets of CML Canada dated January 2, 2000 and January 3, 1999
Statements of Income for years ended January 2, 2000, January 3, 1999
and November 30, 1997 and the month ended January 4, 1998
Statements of Retained Earnings for years ended January 2, 2000,
January 3, 1999 and November 30, 1997 and the month ended January 4,
1998
Statements of Cash Flows for the years ended January 2, 2000, January
3, 1999 and November 30, 1997 and the month ended January 4, 1998
Notes to Financial Statements
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<PAGE> 35
2. Schedules.
All schedules other than Schedule II, Valuation and Qualifying
Accounts, set forth below, are omitted as the required information is
inapplicable or is presented in the financial statements or related notes which
are incorporated herein by reference.
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1(b) Amended and Restated Certificate of Incorporation(1)
3.1(c) Amendment to Company's Certificate of Incorporation changing
the name of the Company to SLI, Inc.(1)
3.2 Bylaws(2)
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Form of Common Stock Certificate(2)
10.1 Copy of Company's Incentive and Non-Statutory Stock Option Plan(2)
10.1(a) Copy of Amendment to Company's Incentive and Non-Statutory Stock
Option Plan(2)
10.1(b) Copy of Amendment to Company's Incentive and Non-Statutory Stock
Option Plan(1)
10.1(c) Copy of Special 1997 Stock Option Plan(1)
10.2 Copy of Share Purchase Agreement by and between Xenell Corp. and VCH
International Limited dated October 1, 1992(2)
10.3 Copy of Agreement for the Sale of Assets and Intellectual Property
Rights by and between VCH International Limited, VCH Limited, Xenell
Corp. and CML-Delaware dated October 20, 1992(2)
10.4 Copy of Asset Purchase Agreement by and between Glolite Sales, Ltd.
and the Company dated March 1, 1993(2)
10.5 Copy of Contract for Purchase and Sale of Stock by and between the
shareholders of Industrial Devices, Inc. and the Company dated March
31, 1994(2)
10.6 Copy of Agreement of Merger by and between Xenell Corp. and its
shareholders and the Company and its shareholders dated December 15,
1993(2)
10.13 Copy of Contract for Purchase and Sale of Stock by between the
shareholders of Plastomer, Inc. and the Company dated March 28,
1995(2)
10.17 Copy of Contract for Purchase and Sale of Stock by and between the
shareholders of Fredon Development Industries, Inc. and the Company
dated August 11, 1995(3)
10.18 Copy of Agreement for purchase of certain assets among STT Holdings
Limited, STT Badalex Limited, STI Lighting Limited, PRT Shipping
Limited, CML-Badalex Limited, PRT Industrial Holdings Limited and PRT
Group Limited dated November 10, 1995(5)
10.19 Copy of Contract for Purchase and Sale of stock by and between the
shareholders of Electro Fiberoptics, Inc. and the Company dated
December 1, 1995(3)
10.20 Copy of Agreement for purchase of assets of Phoenix Lighting (UK)
Limited by and among Phoenix Lighting (UK) Limited, Lynn Robert
Bailey, Christopher John Barlow and the Company dated December 18,
1995(4)
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C>
10.23 Copy of Agreement on the Sale and Transfer of Shares and Interests in
the Alba/Albrecht Group dated May 15, 1996(6)
10.24 Copy of Contract for Exchange of Stock by and between Werner A. Arnold
and the Company dated May 15, 1996(6)
10.25 Copy of Contract for Purchase and Sale of Stock of Alba Lamps, Inc. by
and between Werner A. Arnold and the Company dated May 15, 1996(6)
10.26 Copy of Contract for Purchase and Sale of Stock of Alba-Malaysia by
and between Werner A. Arnold and the Company dated May 15, 1996(6)
10.28 Copy of Contract for Purchase and Sale of Stock of Valmont Electric,
Inc. by and between Valmont Industries, Inc. and the Company dated
January 3, 1997(8)
10.29 Copy of Joint Venture Agreement by and among Schott Corporation, CML
Fiberoptics, Inc., Electro Fiberoptics Corp., Schott CML Fiberoptics
LLC, and the Company dated January 28, 1997(9)
10.30 Copy of Stock Purchase Agreement between the Sylvania Lighting
International B.V. and the Company dated September 8, 1997(10)
10.31 Asset Purchase and Security Agreement dated November 21, 1997 by and
among the Company and Solium, Inc. and Pacific Scientific Company(1)
10.32 Acquisition Agreement dated January 7, 1997 between Gustav Bauckner
GmbH and Alba Speziallampen Holding GmbH(1)
10.33 Amended and Restated Credit Agreement dated as of October 30, 1997 and
amendments thereto(1)
10.34 Framework Agreement for Supply Contracts between Osram GmbH and EDIL
International Lighting B.V.(1)
10.35 Amended and Restated Intellectual Property Allocation and License
Agreement dated August 6, 1992 among EDIL International Lighting B.V.
and Osram Acquisition Corporation and Osram GmbH(1)
10.36 Supply contract dated February 19, 1985 between Osram and Sylvania(1)
10.37 Purchase Agreement dated March 4, 1996 between Philips Lighting B.V.
and Sylvania N.V.(1)
10.38 Settlement Agreement dated August 14, 1997 between Sylvania Lighting
International B.V. and Osram GmbH(1)
10.39 Framework Agreement dated as of January 29, 1997 between Osram
Sylvania Products, Inc. and Osram Sylvania and Sylvania Lighting
International B.V.(1)
10.40 Agreement dated June 6, 1982 between Emgo and GTE Sylvania(1)
10.41 Employment agreement between the Company and Mr. Frank Ward(1)
10.42 Employment agreement between the Company and Mr. Richard Parenti(1)
10.48 Employment agreement between the Company and Mr. Fredrick Howard(1)
21.1 List of subsidiaries*
23.1(a) Consent of Ernst & Young LLP*
23.1(b) Consent of Hards Pearson*
27.1 Financial Data Schedule (for SEC use only)*
</TABLE>
- ---------
* Filed herewith
(1) Incorporated by reference to the Exhibits included in the Company's
Registration Statement on Form S-1, File No. 333-49287
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<PAGE> 37
(2) Incorporated by reference to the Exhibits included in the Company's
Registration Statement on Form S-1, File No. 33-90416.
(3) Incorporated by reference to the Exhibits included in the Company's
Form 10-K for the year ended December 3, 1995, File No. 0-25848.
(4) Incorporated by reference to the Exhibits included in the Company's
Form 10-Q for the quarter ended March 3, 1996, File No. 0-25848.
(5) Incorporated by reference to the Exhibits included in the Company's
Form 8-K dated November 10, 1995, File No. 0-25848.
(6) Incorporated by reference to the Exhibits included in the Company's
Form 8-K dated June 14, 1996, File No. 0-25848.
(7) Incorporated by reference to the Exhibits included in the Company's
Form 8-K dated November 10, 1995, File No. 0-25848.
(8) Incorporated by reference to the Exhibits included in the Company's
Form 8-K dated January 30, 1997, File No. 0-25848.
(9) Incorporated by reference to the Exhibits included in the Company's
Form 10-K dated December 1, 1996, File No. 0-25848.
(10) Incorporated by reference to the Exhibits included in the Company's
Form 8-K dated September 10, 1997, File No. 0-25848.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 15, 2000 SLI, INC.
By: /s/ Frank M. Ward
-------------------------------------
Name: Frank M.Ward
Title: President
By: /s/ Richard F. Parenti
-------------------------------------
Name: Richard F. Parenti
Title: Vice President-Finance
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Frank M. Ward Director March 21, 2000
- -------------------------------
Frank M. Ward
/s/ Donald S. Dewsnap Director March 14, 2000
- -------------------------------
Donald S. Dewsnap
/s/ Maurice B. Hare Director March 14, 2000
- -------------------------------
Maurice B. Hare
/s/ Frederick B. Howard Director March 14, 2000
- -------------------------------
Frederick B. Howard
/s/ Richard Ingram Director March 14, 2000
- -------------------------------
Richard Ingram
Director March ___, 2000
- -------------------------------
Andy Smith
</TABLE>
38
<PAGE> 39
Report of Independent Auditors
The Board of Directors and Shareholders
SLI, Inc.
We have audited the accompanying consolidated balance sheets of SLI, Inc. and
subsidiaries as of January 2, 2000 and January 3, 1999 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended January 2, 2000, January 3, 1999, and November 30, 1997, and for
the month ended January 4, 1998. Our audits also included the financial
statement schedule for the years ended January 2, 2000, January 3, 1999, and
November 30, 1997, and for the one month ended January 4, 1998, listed in the
index at Item 14 (2). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits. We did
not audit the financial statements of Chicago Miniature Lamp (Canada), Inc., a
wholly owned subsidiary, which statements reflect net sales and income before
income taxes of approximately $20,891,000 and $3,422,000 and $18,426,000, and
$3,406,000, $14,605,000, and $2,671,000, for the years ended January 2, 2000,
January 3, 1999, and November 30, 1997, respectively, and $1,087,000 and $83,000
for the month ended January 4, 1998. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Chicago Miniature Lamp (Canada), Inc., is based
solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of SLI, Inc. and subsidiaries at January 2,
2000 and January 3, 1999, and the consolidated results of their operations and
their cash flows for the years ended January 2, 2000, January 3, 1999, and
November 30, 1997, and for the month ended January 4, 1998 in conformity with
accounting principles generally accepted in the United States. Also in our
opinion, the related financial statement schedule for the years ended January 2,
2000, January 3, 1999, and November 30, 1997, and for the month ended January 4,
1998, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
/s/ Ernst & Young LLP
Chicago, Illinois
February 11, 2000
F-1
<PAGE> 40
SLI, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
January 2 2000 January 3 1999
------------------------------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 25,848 $ 27,390
Accounts receivable, less allowances for doubtful accounts of
$6,785 in 2000 and $9,369 in 1999 195,881 160,582
Inventories 180,910 149,453
Prepaid expenses and other 19,222 15,735
------------------------------------
Total current assets 421,861 353,160
Property, plant, and equipment, net 350,478 341,210
Other assets:
Goodwill, net of accumulated amortization 49,887 38,353
Other intangible assets, net of accumulated amortization 29,444 29,091
Other 15,214 13,649
------------------------------------
Total assets $866,884 $775,463
====================================
Liabilities and stockholders' equity:
Current liabilities:
Short-term notes payable $ 60,505 $ 28,086
Current portion of long-term debt 760 1,788
Accounts payable 113,673 121,484
Accrued expenses 92,118 100,778
Income taxes payable 9,731 3,234
------------------------------------
Total current liabilities 276,787 255,370
Long-term debt, less current portion 164,160 238,530
Other liabilities:
Deferred income taxes 5,815 10,952
Pension liability 27,723 25,558
Other long-term liabilities 18,382 27,243
------------------------------------
Total other liabilities 51,920 63,753
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value - Authorized - 5,000,000 shares, none
issued and outstanding - -
Common stock, $.01 par value - Authorized - 100,000,000 shares - Issued
- 34,566,388 and 29,346,498 shares in 2000 and 1999, respectively 346 293
Common stock to be issued 15,287 8,419
Additional paid-in capital 278,947 131,399
Retained earnings 116,012 77,703
Cumulative translation adjustment (31,741) 4,080
Less: Treasury stock at cost, 450,000 and 315,900 shares in 2000
and 1999 (4,834) (4,084)
------------------------------------
Total stockholders' equity 374,017 217,810
------------------------------------
Total liabilities and stockholders' equity $866,884 $775,463
====================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 41
SLI, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year ended
------------------------------------------------------ Month ended
January 2 January 3 November 30 January 4
2000 1999 1997 1998
----------------------------------------------------------------------
(Note 2)
<S> <C> <C> <C> <C>
Net sales $ 874,823 $ 773,068 $ 329,959 $ 53,866
Cost of products sold 630,106 533,484 231,933 40,199
----------------------------------------------------------------------
Gross margin 244,717 239,584 98,026 13,667
Selling, general, and administrative
expenses 183,632 178,235 65,549 14,004
Restructuring costs 2,300 2,022 5,115 -
----------------------------------------------------------------------
Operating income (loss) 58,785 59,327 27,362 (337)
Other (income) expenses:
Interest expense 16,266 17,809 5,238 1,312
Interest income (913) (917) (4,082) (106)
Other, net (1,765) 1,247 (2,326) (471)
----------------------------------------------------------------------
Income (loss) before income taxes 45,197 41,188 28,532 (1,072)
Income taxes 6,888 8,156 7,591 (525)
----------------------------------------------------------------------
Net income (loss) $ 38,309 $ 33,032 $ 20,941 $ (547)
======================================================================
Net income (loss) per common share -
Basic $ 1.19 $ 1.14 $ .73 $ (.02)
======================================================================
Weighted-average shares outstanding -
Basic 32,289,924 28,898,124 28,760,505 28,658,634
======================================================================
Net income (loss) per common share -
Dilutive $ 1.14 $ 1.10 $ .71 $ (.02)
======================================================================
Weighted-average shares outstanding -
Dilutive 33,501,453 30,131,604 29,330,889 29,298,133
======================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 42
SLI, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock
----------------------
Common
Number stock Additional Cumulative
of Par to be Paid-in Treasury Retained Translation
Shares Value issued Capital Stock Earnings Adjustment Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 1, 1996 29,186,690 $292 $ - 126,005 $ - $ 24,277 $ 590 $151,164
Net income - - - - - 20,941 - 20,941
Translation adjustment - - - - - - 1,787 1,787
-----------
Comprehensive income - - - - - - - 22,728
Issuance of common stock:
Additional offering costs - - - (212) - - - (212)
Acquisition 4,500 - - 100 - - - 100
Exercise of stock options 111,606 1 - 942 - - - 943
Purchase of 643,345 shares for
treasury - - - - (8,672) - - (8,672)
---------------------------------------------------------------------------------
Balance at November 30, 1997 29,301,979 293 - 126,835 (8,672) 45,218 2,377 166,051
Net income - - - - - (547) - (547)
Translation adjustment - - - - - - (3,210) (3,210)
-----------
Comprehensive income (loss) - - - - - - - (3,757)
---------------------------------------------------------------------------------
Balance at January 4, 1998 29,302,796 293 - 126,835 (8,672) 44,671 (833) 162,294
Net income - - - - - 33,032 - 33,032
Translation adjustment - - - - - - 4,913 4,913
-----------
Comprehensive income - - - - - - - 37,945
Issuance of common stock:
Acquisitions 680,000 7 8,419 12,591 - - - 21,017
Exercise of stock options 295,947 2 - 3,770 - - - 3,772
Purchase 604,800 shares for
treasury - - - - (7,218) - - (7,218)
Retire treasury shares (932,245) (9) - (11,797) 11,806 - - -
---------------------------------------------------------------------------------
Balance at January 3, 1999 29,346,498 293 8,419 131,399 (4,084) 77,703 4,080 217,810
Net income - - - - - 38,309 - 38,309
Translation adjustment - - - - - - (35,821) (35,821)
-----------
Comprehensive income - - - - - - - 2,488
Issuance of common stock:
Public offering, net
of offering costs 6,000,000 60 - 153,403 - - - 153,463
Acquisitions 480,189 5 6,868 12,572 - - - 19,445
Exercise of stock options 542,118 6 - 5,766 - - - 5,772
Purchase 1,936,517 shares for
treasury - - - - (24,961) - - (24,961)
Retire treasury shares (1,802,417) (18) - (24,193) 24,211 - - -
---------------------------------------------------------------------------------
Balance at January 2, 2000 34,566,388 $346 $15,287 $278,947 $(4,834) $116,012 $(31,741) $374,017
=================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 43
SLI, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended
------------------------------------------- Month ended
January 2 January 3 November 30 January 4
2000 1999 1997 1998
---------------------------------------------------------
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss) $ 38,309 $33,032 $ 20,941 $ (547)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 23,404 17,280 7,252 1,462
Deferred income taxes (3,260) 470 (3,094) (566)
Changes in operating assets and liabilities:
Accounts receivable (32,812) 2,361 (15,597) 7,141
Inventories (28,700) (14,009) 695 (2,709)
Prepaid expenses and other (2,096) 1,715 (182) (12,628)
Accounts payable (9,180) 2,084 21,051 (8,292)
Accrued expenses (9,957) (14,555) (4,669) (988)
Income taxes payable 7,032 1,268 (1,825) (45)
Stockholder payable/receivable - (53) 594 303
Other long-term liabilities (1,161) (12,012) 5,617 (1,778)
---------------------------------------------------------
Net cash (used in) provided by operating activities (18,421) 17,581 30,783 (18,647)
Investing activities:
Purchases of property, plant, and equipment (51,018) (48,970) (23,116) (1,966)
Proceeds from disposal of property, plant, and
equipment 481 2,529 - -
Proceeds from sale of other investments 332 - - -
Acquisitions, net of cash acquired (8,285) (27,721) (165,325) -
---------------------------------------------------------
Net cash used in investing activities (58,490) (74,162) (188,441) (1,966)
Financing activities:
Net borrowings (repayments) of short term debt 27,997 313 (4,541) 858
Net borrowings (repayments) of revolving credit
line (78,561) 50,494 183,375 -
Proceeds from long-term debt 412 7,214 5,730 (1,089)
Payments of long-term debt (5,820) (22,967) (52,128) -
Payment of deferred financing costs (1,556) - (2,616) -
Proceeds from issuance of common stock - Net
of offering costs 153,475 - (212) -
Repurchase of shares for treasury (24,962) (7,218) (8,672) -
Exercise of stock options 6,451 3,079 943 -
---------------------------------------------------------
Net cash provided by (used in) financing activities 77,436 30,915 121,879 (231)
Effect of exchange rate changes on cash (2,067) 484 168 -
---------------------------------------------------------
Net decrease in cash and cash equivalents (1,542) (25,182) (35,611) (20,844)
Cash and cash equivalents, beginning of year 27,390 52,572 109,027 73,416
---------------------------------------------------------
Cash and cash equivalents, end of year $ 25,848 $27,390 $ 73,416 $ 52,572
=========================================================
Supplemental disclosure of cash flow information
Cash paid for:
Interest $ 16,306 $18,120 $ 2,097 $ -
Income taxes $ 3,229 $ 4,138 $ 7,447 $ 1,510
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 44
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization and Acquisitions
SLI, Inc. (an Oklahoma corporation) and subsidiaries (collectively, the Company)
operates in a single business segment and is a vertically integrated
manufacturer and supplier of lighting systems, which include lamps, fixtures,
and ballasts. Through its 23 acquisitions completed since 1992, the Company has
grown from a specialized manufacturer of neon lamps and miniature lighting
products into a manufacturer and supplier of a wide variety of lighting
products, including lamps, (incandescent, fluorescent, compact fluorescent, HID,
halogen, miniature incandescent, neon, LED's, and special lamps), fixtures,
magnetic and electronic ballasts, and fiber optic lighting systems. The Company
serves a diverse, international customer base and at January 2, 2000, had 32
manufacturing plants in 13 countries.
SLI, Inc. acquired 4 companies in 1999 for approximately $7.5 million in cash
and 428,182 common shares newly issued and 417,384 common shares to be issued
(common shares valued at a total of approximately $21.1 million) and the
assumption of approximately $2.5 million of liabilities. Two of these purchase
agreements require contingent purchase price adjustments if certain conditions
are met, including management retention for a period of time, increased pre-tax
income and new business revenue. These amounts will be recorded as additional
purchase price when the related contingency is resolved. No contingent purchase
price had been paid or recorded at January 2, 2000. Additionally, the Company
acquired the remaining outstanding common stock of a 1998 acquisition for $3.0
million in cash.
In 1998, the Company acquired 6 companies for approximately $31.9 million in
cash and 680,000 common shares newly issued in 1998 and 112,500 common shares
newly issued in 1999 and 112,500 common shares to be issued, valued at
approximately $21.0 million and the assumption of approximately $27 million in
liabilities. In connection with one of the 1998 acquisitions, 100,000 shares
(valued at approximately $2.5 million) were held in escrow pending the
completion of an audit of the net working capital of the acquired company. Upon
finalization in 1999 of the purchase accounting, 42,107 shares were issued
(valued at approximately $900,000) and the adjustment was recorded as a
reduction in goodwill. In 1997, the Company acquired 4 companies for
approximately $187.1 million in cash and the assumption of approximately $1.4
million of liabilities.
F-6
<PAGE> 45
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Organization and Acquisitions (continued)
These acquisitions were accounted for as purchases, and accordingly, the assets
and liabilities of the acquired entities have been recorded at their estimated
fair values at the dates of acquisition. The excess of purchase price over the
estimated values of the net assets acquired, in the amount of $14.6 million,
$33.7 million and $800,000 in 1999, 1998 and 1997, respectively, has been
recorded in goodwill and is to be amortized over the estimated useful lives.
The largest acquisition occurred in 1997, when the Company acquired all the
outstanding capital stock of Sylvania Lighting International, B.V. and its
subsidiaries (SLI B.V.) for $161.5 million in cash financed with the Company's
cash and the Company's credit facility (Note 4).
Based on unaudited data, the following table presents selected financial
information for the Company and its subsidiaries on a pro forma basis, assuming
the companies acquired in 1997 had been consolidated since December 2, 1996
(dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year ended
November 30
1997
----------------
<S> <C>
Net sales $755,364
Net income 22,264
Net income per share .77
</TABLE>
The pro forma results are not necessarily indicative of future operations or the
actual results that would have occurred had the acquisitions been made as of
December 2, 1996. Pro forma data has not been presented for 1999 and 1998
because the effect of the 1999 and 1998 acquisitions on operations was not
significant.
F-7
<PAGE> 46
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated from the consolidated financial statements.
Fiscal Year
In January 1998, the Company changed its financial reporting year-end to the
Sunday nearest to December 31 of each year. Previously, the fiscal year ended
the Sunday nearest December 1. Accordingly, the accompanying statements of
operations, stockholders' equity and cash flows include results for the one
month transition period ending January 4, 1998. All references herein for the
years 1997, 1998, and 1999 represent the fiscal years ended November 30, 1997,
January 3, 1999, and January 2, 2000.
Reclassifications
Certain amounts in the fiscal 1998 and 1997 financial statements have been
reclassified to conform with the fiscal 1999 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
Revenues from product sales are recognized at the time of shipment. Revenue
under long-term contracts is accounted for using the percentage of completion
method. Under this method, revenue is recognized as work progresses in the ratio
that costs incurred bear to estimated total costs. The excess of amounts billed
are classified as current assets and amounts billed in excess of revenues
recognized to date are classified as current liabilities. Any anticipated losses
on contracts are charged to earnings when identified.
F-8
<PAGE> 47
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost, determined by the first in, first
out (FIFO) method, or market. Inventories consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
January 2 January 3
2000 1999
--------------------------------
<S> <C> <C>
Raw materials $ 46,358 $ 35,638
Work in process 14,995 17,389
Finished goods 119,557 96,426
--------------------------------
$180,910 $149,453
================================
</TABLE>
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. The Company provides for
depreciation using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements 25-39 years
Machinery and equipment 12-25 years
Molds 10-20 years
Furniture and fixtures 5-10 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the shorter
of the estimated useful lives of the assets or the remaining lease term.
F-9
<PAGE> 48
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
identifiable net assets acquired related to the business acquisitions described
in Note 1. Goodwill is amortized on a straight-line basis over the estimated
useful life which ranges from 25 to 40 years. Accumulated amortization is
approximately $2,359,000 and $855,000 at January 2, 2000 and January 3, 1999,
respectively. Amortization expense was approximately $1,703,000, $253,000, and
$216,000, for fiscal 1999, 1998, and 1997, respectively and $9,000 for the one
month ended January 4, 1998. The Company continually reviews its goodwill for
impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable. In performing the review for collectibility, the
Company estimates the future cash flows expected to result from the use of the
goodwill. If the sum of the expected future cash flow (undiscounted and without
interest charges) is less than the carrying amount of the goodwill, an
impairment loss is recognized. Measurement of an impairment loss for goodwill
that the Company expects to hold and use is based on the excess of the carrying
value over its fair value. To date, there have been no adjustments to the
carrying amounts of goodwill resulting from these evaluations.
Other Intangible Assets
Other intangible assets include the fair value of engineering technology,
patents, noncompete, and other agreements associated with the acquisitions
described in Note 1. The intangibles are being amortized using the straight-line
method over their respective useful lives or contract periods, which range from
3 to 25 years. Amortization expense was approximately $1,431,000, $684,000, and
$480,000, for fiscal 1999, 1998, and 1997, respectively and $57,000 for the one
month ended January 4, 1998. Other intangible assets, net of accumulated
amortization consists of (dollars in thousands):
<TABLE>
<CAPTION>
January 2 January 3
2000 1999
----------------------------
<S> <C> <C>
Engineering technology $25,346 $24,433
Patents and non-compete agreements 7,139 7,763
----------------------------
32,485 32,196
Less: Accumulated amortization 3,041 3,105
----------------------------
$29,444 $29,091
============================
</TABLE>
F-10
<PAGE> 49
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Financial Instruments
The Company uses derivative financial instruments to reduce its exposure to
adverse fluctuations in interest and foreign exchange rates. Financial
instruments are not used for trading purposes.
The Company and its subsidiaries utilize forward foreign currency exchange
contracts to minimize the impact of currency movements, principally on
anticipated intercompany inventory purchases and loans denominated in currencies
other than their functional currencies.
The Company may enter into interest rate swap agreements to limit the effect of
increases in the interest rates on any floating rate debt. The differential is
accrued as interest rates change and is recorded in interest expense. Upon
termination of interest rate swap agreements, any resulting gain or loss is
recognized over the shorter of the remaining original term of the hedging
instrument or the remaining life of the underlying debt obligation.
Research and Development
Research and development costs are charged to operations in the year incurred
and totaled $7,355,000, $7,533,000, and $1,926,000 for fiscal 1999, 1998, and
1997, respectively and $628,000 for the one month ended January 4, 1998.
Advertising Costs
Advertising costs are charged to expense in the period incurred. Advertising
expense for 1999, 1998, and 1997 was approximately $9,995,000, $10,500,000, and
$4,535,000, respectively.
F-11
<PAGE> 50
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Income Taxes
Deferred income taxes are recognized based on the expected future tax
consequences of differences between the financial statement and tax bases of
assets and liabilities, calculated using enacted tax rates in effect for the
year in which the differences are expected to be reflected in the tax return.
Tax benefits subsequently realized which are related to deferred tax assets with
a valuation allowance recorded in connection with a business acquisition will
first reduce goodwill and other noncurrent assets related to the acquisition to
zero and any remaining tax benefit will be accounted for in the current
statement of operations.
Foreign Currency Translation
Transactions arising in foreign currencies have been translated at rates of
exchange in effect at the dates of the transactions. Gains or losses during the
year have been included in net income. Assets and liabilities of foreign
affiliates are translated at current exchange rates, and income statement
accounts are translated at the average rates during the period. Related
translation adjustments are reported as a component of comprehensive income.
Treasury Stock
The board of directors has authorized, subject to certain business and market
conditions, the repurchase of shares of the Company's stock. At January 2, 2000,
a total of 3,184,662 shares have been repurchased under these plans. Retirements
of treasury stock totaled 2,734,662 shares as of January 2, 2000.
Stock Split
On February 11, 1998, the Company approved a three-for-two stock split of its
outstanding common stock to be effected in the form of a 50% stock dividend. The
dividend was paid on March 6, 1998 to shareholders of record February 23, 1998.
All share and per share data have been adjusted to reflect this stock split as
of the earliest period presented.
F-12
<PAGE> 51
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Earnings Per Share
Basic earnings per share is computed by dividing income available to common
stockholders (the numerator) by the weighted-average number of common shares
outstanding (the denominator) for the period. The computation of the diluted
earnings per share is similar to the basic earnings per share, except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potentially dilutive common shares had been
issued.
The numerator in calculating both basic and diluted earnings per share for each
year is reported net income. The denominator is based on the following
weighted-average number of common shares:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------
<S> <C> <C> <C>
Basic 32,289,924 28,898,124 28,760,505
Diluted 33,501,453 30,131,604 29,330,889
</TABLE>
The difference between basic and diluted weighted-average common shares results
from the assumption that dilutive stock options outstanding were exercised.
The following stock options are not included in the diluted earnings per share
calculation since in each case the exercise price is greater than the average
market price:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Stock options 795,302 181,606 -
</TABLE>
F-13
<PAGE> 52
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Adoption of Accounting Principles
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (Statement 133) is required to be adopted in
fiscal years beginning after June 15, 2000. Statement 133 requires all
derivatives to be recognized in the balance sheet as either assets or
liabilities at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings, or recognized in other comprehensive income
until the hedged item is recognized in income. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company has not yet determined what the effect of Statement 133 will be on
the earnings and financial position of the Company.
3. Property, Plant, and Equipment
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
January 2 January 3
2000 1999
------------------------------
(Dollars in Thousands)
<S> <C> <C>
Land $ 10,398 $ 11,810
Buildings and improvements 67,396 70,545
Machinery and equipment 284,130 268,442
Molds 22,839 14,460
Furniture and fixtures 5,640 6,058
------------------------------
390,403 371,315
Less: Accumulated depreciation 39,925 30,105
------------------------------
$350,478 $341,210
==============================
</TABLE>
Depreciation expense was approximately $20,270,000, $16,175,000, and $6,500,000
for fiscal 1999, 1998, and 1997, respectively, and $1,167,000 for the one month
ended January 4, 1998, respectively.
F-14
<PAGE> 53
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Debt
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 2 January 3
2000 1999
------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Revolving credit facility $156,436 $229,749
Other debt 8,484 10,569
------------------------------------
164,920 240,318
Less: Current portion 760 1,788
------------------------------------
Total long term debt $164,160 $238,530
====================================
</TABLE>
The Company has an existing credit facility which provides for a $500 million
multi-currency revolving credit facility, including a $200 million 364-day
revolving credit facility, a $15 million swing-line loan facility and a $50
million letter of credit facility. Borrowings under this agreement are limited
to a borrowing base as defined in the agreement and totaled $156,436,000 at
January 2, 2000. Available borrowings at January 2, 2000 were $115,414,000. The
364 day revolving credit facility matures October 28, 2000 and the remaining
facility terminates and is payable in full October 29, 2004. At the Company's
option, the U.S. dollar loans bear interest at LIBOR (6.50% at January 2, 2000)
plus a margin, or an adjusted base rate (8.50% at January 2, 2000) plus a
margin, payable quarterly. Foreign-denominated loans bear interest at local spot
rates. The interest margin of 1.0% for LIBOR loans and 0.0% for prime loans at
January 2, 2000 fluctuates on the Company's leverage ratio. The agreement
provides for a quarterly commitment fee, based on the Company's leverage ratio
as it relates to the available portion of the commitment (25.0 basis points on
the revolver and 20.0 basis points on the 364-day revolving credit facility at
January 2, 2000). Mandatory prepayments are required upon the occurrence of
additional debt, or offering of equity, as defined in the agreement.
The Company is required to comply with a number of affirmative and negative
covenants under its credit agreements. Among other things, the credit agreements
require the Company to satisfy certain financial tests and ratios (including
minimum interest coverage ratios, minimum fixed charge coverage, maximum
leverage ratios, and minimum net worth requirements).
F-15
<PAGE> 54
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Debt (continued)
At January 2, 2000, long-term debt includes $8,038,000 denominated in Euro,
$3,001,000 denominated in Belgian Francs, $6,740,000 denominated in Deutsche
Marks (all bearing interest at 4.45% per annum), $4,935,000 denominated in
British Pounds (bearing interest at 6.85% per annum) and $13,722,000 in Japanese
Yen (bearing interest at 1.323% per annum) under the credit agreement.
At January 2, 2000, the Company had outstanding letters of credit totaling
$1,651,000.
The Company uses interest rate swaps to reduce the impact on interest expense of
fluctuating interest rates on its variable rate debt (Note 13).
Interest expense was $16,266,000, $17,809,000, and $5,238,000, for fiscal 1999,
1998, and 1997, respectively and $1,312,000 for the one month period ended
January 4, 1998.
As of January 2, 2000, annual debt principal payments required were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 760
2001 2,553
2002 711
2003 328
2004 157,935
Thereafter 2,633
--------
$164,920
========
</TABLE>
Short-Term Debt
Short-term borrowings in the amounts of approximately $60.5 million and $28.1
million at January 2, 2000 and January 3, 1999, respectively, primarily
consisted of borrowings under the terms of uncommitted lines of credit or other
short-term borrowing arrangements. The weighted-average interest rate on
short-term borrowings outstanding at January 2, 2000 and January 3, 1999 was
6.2% and 8.4%, respectively. No material compensating balances are required or
maintained.
F-16
<PAGE> 55
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Taxes
The following is a summary of income (loss) before income taxes (dollars in
thousands):
<TABLE>
<CAPTION>
Year ended
----------------------------------------------- Month ended
January 2 January 3 November 30 January 4
2000 1999 1997 1998
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic operations $(7,289) $(5,249) $14,005 $(1,170)
Foreign operations 52,486 46,437 14,527 98
---------------------------------------------------------------
$45,197 $41,188 $28,532 $(1,072)
===============================================================
</TABLE>
The following is a summary of the provision (benefit) for income taxes (dollars
in thousands):
<TABLE>
<CAPTION>
Year ended
------------------------------------------------------ Month ended
January 2 January 3 November 30 January 4
1999 1999 1997 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal:
Current $ 572 $(1,050) $ 7,729 $(307)
Deferred 105 390 (3,002) (28)
-----------------------------------------------------------------------
677 (660) 4,727 (335)
State:
Current 30 (295) 1,005 (27)
Deferred 5 16 (413) (3)
-----------------------------------------------------------------------
35 (279) 592 (30)
Foreign:
Current 6,355 7,800 1,951 (249)
Deferred (179) 1,295 321 89
-----------------------------------------------------------------------
6,176 9,095 2,272 (160)
-----------------------------------------------------------------------
$ 6,888 $ 8,156 $ 7,591 $(525)
=======================================================================
</TABLE>
The Company's manufacturing facility in Costa Rica is operated under a tax
holiday, which expires in 2005. The impact of this tax holiday was an increase
to net income of $1,385,000 or $.04 per share-basic for fiscal 1999, $905,000 or
$.03 per share-basic for fiscal 1998, and $1,393,000 or $.05 per share-basic for
fiscal 1997.
F-17
<PAGE> 56
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Taxes (continued)
A reconciliation between the provision (benefit) for income taxes computed at
statutory rates and the amount reflected in the accompanying consolidated
statements of operations is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year ended Month ended
-------------------------------------------
January 2 January 3 November 30 January 4
2000 1999 1997 1998
<S> <C> <C> <C> <C>
Computed federal tax provision (benefit) at
U.S. statutory rates $ 15,819 $14,416 $9,986 $(375)
Increase (decrease) in taxes resulting from:
Amortization of goodwill 567 70 118 30
Nonstatutory stock options (575) (880) (185) -
State income taxes (benefit), net of
federal benefit (taxes) - (130) 396 (70)
Effect of different income taxes of other
countries (6,238) (2,400) (573) (381)
Net operating losses not benefited 2,451 1,276 - 271
Utilization of net operating loss carryforwards (5,136) (4,196) (2,211) -
Other - - 60 -
---------------------------------------------------------
$ 6,888 $ 8,156 $7,591 $(525)
=========================================================
</TABLE>
The significant items comprising net deferred tax liabilities are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
January 2 January 3
2000 1999
------------------------------------
<S> <C> <C>
Assets:
Net operating loss carryforwards $ 35,861 $ 45,565
Reserves 263 1,063
Accruals 2,559 1,019
Other 2,003 1,717
------------------------------------
Total assets 40,686 49,364
Liabilities:
Accelerated tax depreciation (11,879) (11,521)
Other (1,080) (4,391)
------------------------------------
Total liabilities (12,959) (15,912)
------------------------------------
27,727 33,452
Less: Valuation allowance for net operating loss carryforwards (33,542) (44,404)
------------------------------------
Net deferred tax liabilities $ (5,815) $(10,952)
====================================
</TABLE>
F-18
<PAGE> 57
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Taxes (continued)
For tax purposes, the Company had available at January 2, 2000, net operating
loss carryforwards for foreign tax purposes of approximately $101,956,000.
The expiration dates of operating loss carryforwards at January 2, 2000, are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 5,208
2001 4,162
2002 2,114
2003 5,193
2004 1,571
Thereafter 7,979
No expiration date 75,729
--------------
$101,956
==============
</TABLE>
6. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
January 2 January 3
2000 1999
----------------------------------
(Dollars in Thousands)
<S> <C> <C>
Payroll and related expenses $ 24,618 $ 29,013
Warranty and customer rebates 18,728 22,159
Restructuring expenses 896 6,552
Value-added taxes payable 7,654 5,327
Other 40,222 37,727
----------------------------------
$ 92,118 $ 100,778
==================================
</TABLE>
7. Related Party Transactions
At January 2, 2000, the Company has a note receivable of $3,773,000 due from
Schott-Fostec LLC a joint venture in which the Company holds 40%. The note
matures on April 30, 2004 and bears interest at the rate of 7% per annum. The
balance of the note receivable is included in other assets in the consolidated
balance sheet at January 2, 2000.
F-19
<PAGE> 58
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Restructuring
Restructuring of existing operations
In fiscal 1997, the Company approved restructuring plans which resulted in
charges of approximately $5.1 million, including $3.5 million of severance
costs. This restructuring included the plant closure, personnel termination, and
asset liquidation of a lamp-making operation in the United Kingdom (U.K.), which
became redundant due to the SLI B.V. acquisition. The facility's land and
building were sold, and the equipment was sold or scrapped. Employee severance
cost at the Company's U.K. machinery making operation resulted from the
downsizing due to the duplication of functions after the SLI B.V. acquisition.
Additionally, the Company's leased Chicago, Illinois warehouse and distribution
location was closed and personnel were terminated. Also, the Company's Pauls
Valley, Oklahoma manufacturing operation was considered redundant in light of
the SLI B.V. acquisition and the lamp making equipment was disposed of and the
building held pending rehabilitation for an undesignated future use. Severance
costs of $3.5 million included the elimination of redundancies of 92 employees
at the U.K. lamp making location, 67 employees at the U.K. machinery making
location, and 23 employees at the Chicago, Illinois location. The restructuring
plan was completed in 1998 and restructuring accruals were fully utilized.
In fiscal 1998, the Company developed and approved restructuring plans for
existing operations which resulted in charges of $2.0 million. The restructuring
plans included closure costs associated with the Company's Colombia lamp
manufacturing operations and the Company's U.K. machinery making operation.
Included in these costs were the net effect of severance costs totaling $600,000
and the write-off of lamp making equipment disposed of totaling $1.1 million.
Severance costs relate to the elimination of 171 employees at the Company's
Colombia operation. This restructuring plan was completed in 1998 and
restructuring accruals were fully utilized. The results of operations of the
activities which will not be continued were not significant to the consolidated
financial statements.
F-20
<PAGE> 59
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Restructuring (continued)
In fiscal 1999, the Company developed and approved a restructuring plan for
existing operations which resulted in charges of $2.3 million. The restructuring
plan included severance of $1.8 million and $500,000 of other costs. Severance
costs related to the elimination of 26 employees at the Company's France
operations. The other costs associated with the restructuring plan are related
to the closure of sales and administrative facilities. These costs represent the
write-off of the remaining book value of leasehold improvements, costs to return
the facilities to the condition at the outset of the lease and the cost to
relocate employees. The restructuring plan was completed in 1999 and the
restructuring accruals were fully utilized.
Restructuring of acquired operations
In connection with the purchase price accounting for the acquisition of SLI
B.V., effective September 1, 1997, the Company approved a restructuring plan,
which resulted in reorganization accruals of $25.0 million ($16.8 million of
severance costs and $8.2 million of other costs). Approximately $8 million ($3.9
million of severance costs and $4.1 million of other costs) of the amount
initially recorded was reversed in fiscal 1998 through an adjustment to
property, plant, and equipment. The remaining purchase liabilities recorded
include the following:
(i) Severance costs of $12.9 million include the termination of 180 employees
in Europe, 268 employees in Latin America, 19 employees in Australia, and
28 employees in Asia. Approximately $12.3 million of severance costs were
paid as of January 2, 2000.
(ii) Costs of $4.1 million are associated with the closure of leased warehouse
and administrative facilities. These costs represent remaining payments on
non-cancelable operating leases (which expire in fiscal 2000), costs to
return the facilities to the condition at the outset of the lease, the
write-off of the remaining net book value of leasehold improvements, and
the cost to relocate employees. Accrued lease costs are for costs to be
incurred subsequent to the Company vacating the facilities. The warehouse
closures occurred in France, Belgium, and Scandinavia and the
administrative office closures occurred in Switzerland, France, Austria,
and Benelux. The accrual had been fully utilized as of January 2, 2000.
F-21
<PAGE> 60
9. Commitments and Contingencies
Leases
The Company leases certain facilities and equipment under operating lease and
sublease agreements that expire at various dates from the current year to 2010.
As of January 2, 2000, the aggregate minimum future commitments under operating
leases are as follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $10,081
2001 6,888
2002 4,874
2003 4,253
2004 2,863
Thereafter 3,855
----------
$32,814
==========
</TABLE>
Rent expense for fiscal 1999, 1998, and 1997, was approximately $10,600,000,
$10,622,000, and $2,846,000, respectively, and $238,000 for the one month ended
January 4, 1998.
10. Stock Option Plans
The Company's Board of Directors has approved amended stock option plans for up
to 6,000,000 shares of common stock. The first plan provides for the granting of
both incentive stock options (as defined in section 422 of the Internal Revenue
Code) and nonqualified stock options. The second plan provides for the granting
of incentive stock options to employees outside the U.S. and Canada, and certain
other persons. Options may be granted under the plans on such terms and at such
prices as determined by the Board of Directors, except that the per share
exercise price of incentive stock options cannot be less than the fair market
value of the common stock on the date of grant. Each option will be exercisable
after the period or periods specified in the option agreement, but no option may
be exercisable after the expiration of 10 years from the date of grant.
The Company has elected to follow APB No. 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB No. 123 requires use
of option valuation models that were not developed for the use in valuing
employee stock options. Pro forma
F-22
<PAGE> 61
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
information regarding net income is required by FASB No. 123, which also
requires that the information be determined as if the Company had accounted for
the employee stock options granted subsequent to December 3, 1995, under the
fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for fiscal 1999, 1998, and 1997,
respectively: weighted-average risk-free interest rates of 5.9%, 5.3%, and 6.1%,
no dividend yield; and a weighted-average expected life of the option of 7
years. The volatility factor was assumed to be .8. for fiscal 1999 and and .3
for fiscal 1998 and 1997.
The Black-Scholes option valuation model was developed for the use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
option, the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the respective
option. Because FASB No. 123 is applicable only to options granted subsequent to
December 3, 1995, its pro forma impact will not be fully reflected until 2001.
The Company's pro forma net income and pro forma net income per share - basic
and net income per share - dilutive would be $30,435,000, $.94, and $.91,
$21,912,000, $.76, and $.73; and $18,248,000, $.63, and $.62 for the years ended
January 2, 2000, January 3, 1999, and November 30, 1997, respectively.
F-23
<PAGE> 62
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Stock Option Plans (continued)
The table below summarized option activity through January 2, 2000:
<TABLE>
<CAPTION>
Weighted-Average
Range of Exercise
Number of Options Exercise Price
Prices
---------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 1, 1996 553,351 $ 5.555-15.554 $10.474
Options granted during 1997 3,297,700 12.917-19.917 17.822
Options exercised during 1997 (111,606) 5.555-12.667 8.449
Options canceled during 1997 (46,802) 12.667-15.167 14.125
------------------
Outstanding at November 30, 1997 3,692,643 5.555-19.917 17.051
Options canceled during the month
ended January 4, 1998 (15,000) 13.000 13.000
------------------
Outstanding at January 4, 1998 3,677,643 5.555-19.917 17.067
Options granted during 1998 2,912,100 9.938-33.688 12.520
Options exercised during 1998 (295,947) 5.555-18.667 11.877
Options canceled during 1998 (2,599,001) 9.938-33.688 18.054
------------------
Outstanding at January 3, 1999 3,694,795 5.555-32.417 13.206
Options granted during 1999 871,923 9.938-32.380 20.338
Options exercised during 1999 (542,118) 5.555-29.625 10.616
Options canceled during 1999 (237,600) 9.938-29.625 15.504
------------------
Outstanding at January 3, 2000 3,787,000 5.555-32.417 15.064
==================
</TABLE>
Information with respect to stock options outstanding and stock options
exercisable at January 2, 2000 follows:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------------------------------------
Number Outstanding at Weighted-Average
January 2, 2000 Remaining Contractual Weighted-Average
Range of Exercise Prices Life Exercise Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 5.555-10.000 2,085,000 8.83 years $ 9.833
10.250-16.000 350,000 6.40 years 11.430
17.158-24.313 746,000 7.93 years 19.297
25.500-32.417 606,000 9.14 years 29.947
--------------------
5.555-32.417 3,787,000 8.66 years 15.064
====================
</TABLE>
F-24
<PAGE> 63
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Stock Option Plans (continued)
<TABLE>
<CAPTION>
Options Exercisable
-----------------------------------------
Number Weighted-
Exercisable at Average
Range of Exercise Prices January 2, 2000 Exercise Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
$5.555-10.000 616,100 $ 9.579
10.250-16.000 85,000 11.937
17.158-24.313 231,860 18.839
25.500-32.417 34,700 29.770
----------------------
5.555-32.417 967,660 12.726
======================
</TABLE>
The weighted-average grant date fair value of the options granted during fiscal
1999 was $14.836.
11. Employee Benefit Plans
The Company sponsors separate, noncontributory, defined-benefit pension plans
(the Plans) covering eligible employees, including employees in foreign
countries. The domestic plans cover union employees of SLI, Inc. As a result of
the SLI B.V. acquisition in 1997, the Company also has plans covering employees
in various foreign locations. The principal locations are Germany, the United
Kingdom, and Switzerland. Benefits are based on years of service and
compensation. The Company's funding policy is consistent with the funding
requirements of Federal law and regulations in the United States and regulations
of foreign jurisdictions.
F-25
<PAGE> 64
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Employee Benefit Plans (continued)
The Plans' fiscal 1999 and 1998 combined funded status (based on the most recent
valuations) and the amounts recognized in the accompanying consolidated balance
sheets are as follows (dollars in thousands):
<TABLE>
<CAPTION>
January 2 January 3
2000 1999
------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 63,223 $ 55,586
Service cost 2,163 2,011
Interest cost 3,552 3,820
Actuarial loss (gain) 558 4,207
Translation difference (6,442) 1,142
Benefits paid (3,753) (3,543)
------------------------------------
Benefit obligation at end of year $ 59,301 $ 63,223
====================================
Change in plan assets:
Fair value of plan assets at beginning of year $ 48,701 $ 41,880
Actual return on plan assets 7,102 6,951
Translation difference (4,727) 332
Employer contribution 2,867 3,081
Benefits paid (3,753) (3,543)
------------------------------------
Fair value of plan assets at end of year $ 50,190 $ 48,701
====================================
</TABLE>
<TABLE>
<CAPTION>
January 2 January 3
2000 1999
------------------------------------
<S> <C> <C>
Funded status of the plan (underfunded) $ (9,111) $(14,522)
Unrecognized transition amount - 80
Unrecognized net actuarial gain (loss) (2,799) 822
Unrecognized prior service cost - 16
------------------------------------
Accrued benefit cost $(11,910) $(13,604)
====================================
</TABLE>
F-26
<PAGE> 65
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Employee Benefit Plans (continued)
The components of net periodic pension cost are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Service cost $2,163 $2,011 $ 608
Interest cost 3,553 3,820 1,149
Expected return on plan assets (3,551) (3,266) (814)
Net amortization and deferral (8) - -
---------------------------------------------------
Net pension cost $2,157 $2,565 $ 943
===================================================
</TABLE>
Assumptions
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 6.0% 6.0% 6.5%
Expected return on plan assets 5.0% to 7.5% 5.0% to 7.5% 5.0% to 8.5%
Assumed rate of compensation increase
2.5% to 10.5% 2.5% to 15% 2.5% to 19%
</TABLE>
The aggregate benefits obligation for those plans where the accumulated benefits
obligation exceeded the fair value of plan assets was $14,871,000 and
$16,451,000 at January 2, 2000 and January 3, 1999, respectively.
The Company also maintained a separate defined-benefit plans for which actuarial
valuation was not obtained. This plan was terminated and the net assets of the
plan were distributed to the participants in 1999.
Defined-Contribution Plans
The Company sponsors a number of defined-contribution plans. Participation in
these plans is available to all U.S. nonunion employees and employees in various
other countries. Company contributions to these plans are based on either a
percentage of employee contributions or on a specified amount per hour based on
the provisions of each plan. The Company's expense under these plans was
approximately $1,773,000, $2,674,000, and $650,000, for fiscal 1999, 1998, and
1997, respectively.
F-27
<PAGE> 66
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Capital Stock
In December 1996, the Company amended its Articles of Incorporation to increase
the authorized shares of common stock to 100,000,000 shares.
In July 1999, the Company completed a sale of 6,000,000 shares of common stock
and received net proceeds of $153,463,000 which were used to reduced long-term
debt.
At January 2, 2000, 3,787,000 shares of common stock have been reserved for
future issuance upon the exercise of stock options.
13. Fair Value of Financial Instruments
Interest Rate Risk Management
The Company uses interest rate swaps to reduce the impact on interest expense of
fluctuating interest rates on its variable rate debt. Under the Company's
amended interest rate swap agreement, which expires August 2, 2000, the Company
agreed with the counterparty to exchange, at quarterly intervals, the difference
between the Company's fixed pay rate and the counterparty's variable pay rate of
three-month LIBOR. At January 2, 2000, the notional principal amounts of fixed
interest rate swap agreements were $40 million having a fixed rate of 5.82%.
The fair value of the swap at January 2, 2000 was $299,000.
In connection with the interest swap agreement, the Company sold an option to
the counterparty, whereby the counterparty had the right to terminate the swap
agreement on January 29, 1999. This option was not exercised by the
counterparty. The fair value of the option at January 3, 1999 was $672,000.
The Company also has a Euro interest rate swap agreement whereby the Company
agreed with the counterparty to exchange, at quarterly intervals, the difference
between the Company's fixed pay rate and the counterparty's variable pay rate of
three-month EURIBOR. The agreement, as amended, expires April 1, 2001. At
January 2, 2000, the notional principal amount of the swap agreement was $45
million having a fixed rate of 3.835%. The fair value of the swap at January 2,
2000 was $282,000.
F-28
<PAGE> 67
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Fair Value of Financial Instruments (continued)
Foreign Exchange Risk Management
The Company hedges certain foreign currency transactions and firm foreign
currency commitments by entering into forward exchange contracts (forward
contracts). Gains and losses associated with currency rate changes on forward
contracts hedging foreign currency transactions are recorded currently in
income. Gains and losses on forward contracts hedging firm foreign currency
commitments are deferred off-balance-sheet and included as a component of the
related transaction when recorded; however, a loss is not deferred if deferral
would lead to the recognition of a loss in future periods. The aggregate foreign
exchange (losses) gains recorded in fiscal 1999, 1998, and 1997, were
approximately $1,549,000, ($330,000), and $1,664,000, respectively.
The forward contracts have maturities of one to 12 months. The counterparties to
the Company's forward contracts consist of a number of major international
financial institutions. The credit ratings and concentration of risk of these
financial institutions are monitored on a continuing basis, and management
believes they present no significant credit risk to the Company.
The following table summarizes by major currency the contractual amounts of the
Company's forward contracts in U.S. dollars. Foreign currency amounts are
translated at year-end rates at the respective reporting date. The "buy" amounts
represent the U.S. equivalent of commitments to purchase foreign currencies, and
"sell" amounts represent the U.S. equivalent of commitments to sell foreign
currencies according to local needs in foreign subsidiaries. Some of the forward
contracts involve the exchange of two foreign currencies according to local
needs in foreign subsidiaries.
At January 2, 2000 and January 3, 1999, the contractual amounts were:
<TABLE>
<CAPTION>
January 2, 2000 January 3, 1999
------------------------------------------------------
Buy Sell Buy Sell
------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. dollars $ 2,302 $ - $ 5,096 $ -
Euro 12,166 - 20,174 -
------------------------------------------------------
$14,468 $ - $25,270 $ -
======================================================
</TABLE>
F-29
<PAGE> 68
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Fair Value of Financial Instruments (continued)
Fair Value of Financial Instruments
All financial instruments are held for purposes other than trading. The carrying
amount of cash and cash equivalents, accounts receivable, short-term borrowings,
accounts payable, and accruals are a reasonable estimate of their fair value due
to the short-term nature of these instruments. The estimated fair value for
long-term debt at January 2, 2000 and January 3, 1999, was approximately equal
to the carrying amounts at those dates. At January 2, 2000 and January 3, 1999,
the carrying value of forward exchange contracts was $(822,000) and $359,000,
respectively, and fair value was approximately equal to the carrying amounts.
14. Selected Quarterly Financial Data
The following is a summary of unaudited quarterly financial data for fiscal 1999
and 1998.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
1999
Net sales $218,865 $206,047 $216,669 $233,242
Gross margin 62,854 61,274 58,206 62,383
Net income 12,772 9,360 6,952 9,225
Net income per common share - Basic .44 .32 .20 .26
Net income per common share - Diluted .42 .30 .19 .26
Equity 205,906 215,832 390,042 374,017
1998
Net sales $192,420 $185,669 $181,957 $213,022
Gross margin 58,827 56,572 55,996 68,189
Net income 9,117 7,518 6,661 9,736
Net income per common share - Basic .32 .26 .23 .34
Net income per common share - Diluted .30 .25 .23 .32
</TABLE>
F-30
<PAGE> 69
SLI, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Selected Quarterly Financial Data (continued)
Equity differs from the amounts previously reported in 1999 as a result of the
Company reporting the translation adjustment net of tax which is not in
accordance with FASB Statement 109. The impact on amounts in 1998 was not
material.
15. Geographic Segment Information
Financial Information for the fiscal years 1999, 1998, and 1997 and for the
month ended January 4, 1998 summarized by geographic area is as follows (dollars
in thousands):
<TABLE>
<CAPTION>
Month
ended
1999 1998 1997 1/4/98
---------------------------------------------------------------------------------------
Revenues Assets Revenues Assets Revenues Assets Revenues
<S> <C> <C> <C> <C> <C> <C> <C>
United States $255,348 $242,468 $159,565 $160,172 $129,120 $127,777 $ 9,986
Canada 20,891 11,177 18,426 10,937 14,605 10,459 1,687
Europe 477,949 504,842 463,491 491,042 135,719 429,418 31,383
Latin America 73,009 82,428 84,051 87,529 34,894 51,405 6,580
Other 47,626 25,969 47,535 25,783 15,621 32,602 4,230
---------------------------------------------------------------------------------------
$874,823 $866,884 $773,068 $775,463 $329,959 $651,661 $53,866
=======================================================================================
</TABLE>
16. Noncash Activities
The following discloses noncash investing activities during fiscal 1999, 1998
and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Common shares issued in connection with acquisitions $12,577 $ 12,591 $ -
Liabilities assumed in connection with acquisitions 2,553 27,000 1,400
</TABLE>
17. Subsequent Event
In January 2000, the board of directors announced the declaration of a $0.10 per
share cash dividend payable March 24, 2000 to shareholders of record on March
15, 2000.
F-31
<PAGE> 70
[LETTERHEAD]
AUDITORS' REPORT
To the Shareholders of
Chicago Miniature Lamp (Canada) Inc.
We have audited the balance sheets of Chicago Miniature Lamp (Canada) Inc. as
at January 2, 2000, January 3, 1999, January 4, 1998 and November 30, 1997 and
the statements of income, retained earnings and cash flows for the periods then
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at January 2, 2000, January
3, 1999, January 4, 1998, and November 30, 1997 and the results of its
operations and the changes in its financial position for the periods then ended
in accordance with generally accepted accounting principles in the United
States.
Hards Pearson
/s/ Hards Pearson
----------------------------------
Chartered Accountants
Barrie, Canada,
January 28, 2000.
F-32
<PAGE> 71
CHICAGO MINIATURE LAMP (CANADA) INC.
BALANCE SHEET
As at January 2, 2000
(with comparative figures as at January 3, 1999)
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3, JANUARY 4, NOVEMBER 30,
2000 1999 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash 77,877 99,571 808,245 1,036,934
Accounts receivable 3,084,748 2,659,159 2,313,983 2,104,393
Inventory (note 3) 2,338,330 1,899,128 1,088,520 955,192
Prepaid expenses 70,900 24,555 34,448 32,094
Due from related parties (note 4) 2,743,418 782,093 -- --
---------- ---------- ---------- ----------
Total current assets 8,315,273 5,464,506 4,245,196 4,128,613
Property, plant and equipment (note 5) 5,035,829 5,522,261 5,639,268 5,623,908
Goodwill (note 6) 705,058 716,194 797,430 802,976
---------- ---------- ---------- ----------
14,056,160 11,702,961 10,681,894 10,555,497
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued charges 2,101,331 1,434,172 1,108,763 1,056,300
Due to related parties (note 4) -- -- 1,202,409 1,182,769
Income taxes payable 91,022 585,107 83,278 51,483
---------- ---------- ---------- ----------
Total current liabilities 2,192,353 2,019,279 2,394,450 2,290,552
Deferred income taxes 1,427,455 1,372,369 1,347,202 1,348,274
---------- ---------- ---------- ----------
Total liabilities 3,619,808 3,391,648 3,741,652 3,638,826
---------- ---------- ---------- ----------
SHAREHOLDER'S EQUITY
Capital stock (note 7) 3,565,000 3,565,000 3,565,000 3,565,000
Unrealized foreign currency translation adjustment (note 8) (1,040,610) (1,040,936) (314,223) (282,731)
Retained earnings 7,911,962 5,787,249 3,689,465 3,634,402
---------- ---------- ---------- ----------
Total shareholder's equity 10,436,382 8,311,313 6,940,242 6,916,671
---------- ---------- ---------- ----------
14,056,160 11,702,961 10,681,694 10,555,497
========== ========== ========== ==========
</TABLE>
See accompanying notes
F-33
<PAGE> 72
CHICAGO MINIATURE LAMP (CANADA) INC.
STATEMENT OF INCOME
Period ended January 2, 2000
(with comparative figures for the period ended January 3, 1999)
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3, JANUARY 4, NOVEMBER 30,
2000 1999 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 20,890,913 18,149,336 1,027,757 14,136,871
Cost of product sold 16,487,678 13,820,376 849,480 10,607,134
---------- ---------- --------- ----------
Gross margin 4,403,235 4,328,960 178,277 3,529,737
Selling, general and administrative expenses 480,921 416,974 56,018 494,418
---------- ---------- --------- ----------
Income before management fee and income taxes 3,922,314 3,911,986 122,259 3,035,319
Management fee 500,000 533,015 30,519 381,291
---------- ---------- --------- ----------
Income before provision for income taxes 3,422,314 3,378,971 91,740 2,654,028
---------- ---------- --------- ----------
Provision for income taxes
Current 1,260,000 1,146,325 31,519 856,998
Deferred 37,601 134,862 5,158 123,466
---------- ---------- --------- ----------
1,297,601 1,281,187 36,677 980,464
---------- ---------- --------- ----------
Net income for the period 2,124,713 2,097,784 55,063 1,673,564
========== ========== ========= ==========
</TABLE>
See accompanying notes
F-34
<PAGE> 73
CHICAGO MINIATURE LAMP (CANADA) INC.
STATEMENT OF RETAINED EARNINGS
Period ended January 2, 2000
(with comparative figures for the period ended January 3, 1999)
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3, JANUARY 4, NOVEMBER 30,
2000 1999 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retained earnings, beginning of period 5,787,240 3,689,465 3,634,402 1,960,838
Net income for the period 2,124,713 2,097,784 55,063 1,673,564
--------- --------- --------- ---------
Retained earnings, end of period 7,911,962 5,787,249 3,689,465 3,634,402
========= ========= ========= =========
</TABLE>
See accompanying notes
F-35
<PAGE> 74
CHICAGO MINIATURE LAMP (CANADA) INC.
STATEMENT OF CASH FLOWS
Period ended January 2, 2000
(with comparative figures for the period ended January 3, 1999)
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3, JANUARY 4, NOVEMBER 30,
2000 1999 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income for the period 2,124,713 2,097,784 55,063 1,673,564
Add charges not resulting in a current
outlay of cash
Depreciation and amortization 501,019 462,552 39,059 426,456
Deferred income taxes 37,601 134,862 5,158 123,466
Net loss on sale of fixed assets 9,654 -- -- 3,613
---------- ---------- ---------- ----------
2,672,987 2,695,198 99,280 2,227,099
Net change in non-cash working capital balances (note 9) (738,062) (318,653) (261,014) (485,003)
---------- ---------- ---------- ----------
Cash provided by operating activities 1,934,925 2,376,545 (161,734) 1,742,096
---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Net change in due (from) to related parties (1,961,325) (1,984,502) 19,640 (167,571)
---------- ---------- ---------- ----------
INVESTING ACTIVITIES
Adjustment to deferred taxes recorded upon amalgamation -- -- -- 49,277
Adjustment to goodwill recorded upon amalgamation -- -- -- 73,011
Purchase of property, plant and equipment (373,840) (374,004) (55,103) (1,175,243)
Proceeds on disposal of property, plant and equipment 378,220 -- -- 25,714
---------- ---------- ---------- ----------
Cash provided by investing activities 4,380 (374,004) (55,103) (1,027,241)
---------- ---------- ---------- ----------
Effect of exchange rate changes on cash 326 (726,713) (31,492) (239,538)
---------- ---------- ---------- ----------
Net increase (decrease) in cash during the period (21,694) (708,674) (228,689) 307,746
Cash, beginning of period 99,571 808,245 1,036,934 729,188
---------- ---------- ---------- ----------
Cash, end of period 77,877 99,571 808,245 1,036,934
========== ========== ========== ==========
</TABLE>
See accompanying notes
F-36
<PAGE> 75
CHICAGO MINIATURE LAMP (CANADA) INC.
NOTES TO FINANCIAL STATEMENTS
January 2, 2000
(with comparative figures as at January 3, 1999)
1. OPERATIONS
The company is a manufacturer and supplier of miniature light socket assemblies
to the automotive industry. The assemblies are used primarily for instrument
clusters, warning lights, climate control modules and courtesy lights.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the company have been prepared in accordance with
generally accepted accounting principles, on a basis consistent with that of the
preceding period. The following is a summary of the more significant
accounting policies:
INVENTORY
Inventory is valued at the lower of cost or net realizable value. Cost has been
determined on the first-in, first-out basis. Net realizable value for finished
goods has been defined as standard selling price less normal profit margin. Net
realizable value for raw materials has been defined as net replacement cost.
PROPERTY, PLANT AND EQUIPMENT
Based on purchase accounting, the property, plant and equipment are stated at
the lower of appraised value, as determined by appraisals dated April 5, 1995
and May 3, 1995, less accumulated depreciation and net recoverable amount.
Additions after these dates are stated at the lower of cost less accumulated
depreciation and net recoverable value. Depreciation is provided on the
straight-line basis, with half rates applied in the year of acquisition, over
the following years:
Buildings 35 years
Machinery and equipment 5 - 20 years
Moulds and dies 10 years
Software 5 years
GOODWILL
Goodwill is recorded at cost less accumulated amortization. Amortization is
provided on the straight-line basis over a period of 40 years.
F-37
<PAGE> 76
CHICAGO MINIATURE LAMP (CANADA) INC.
NOTES TO THE FINANCIAL STATEMENTS
January 2, 2000
(with comparative figures as at January 3, 1999)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FINANCIAL INSTRUMENTS
The company's financial instruments consist of cash, accounts receivable,
accounts payable and amounts due from (to) related parties. Unless otherwise
noted, it is management's opinion that the company is not exposed to significant
interest, currency or credit risks arising from those financial instruments. The
fair value of these financial instruments approximate their carrying values,
unless otherwise noted.
3. INVENTORY
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3, JANUARY 4, NOVEMBER 30,
2000 1999 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Raw materials 1,324,224 995,977 576,495 576,610
Work-in-progress and finished goods 966,639 799,718 476,590 342,981
Capitalized vacancies 44,033 34,716 (34,470) (34,633)
Tooling 3,434 68,717 69,905 70,234
--------- --------- --------- -------
2,338,330 1,899,128 1,088,520 955,192
========= ========= ========= =======
</TABLE>
4. DUE FROM (TO) RELATED PARTIES
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3, JANUARY 4, NOVEMBER 30,
2000 1999 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SLI Power Lighting Products, Inc. 38,633 15,850 17,275 8,867
Due to Badalex Ltd. -- -- (54,320) (54,320)
SLI Supreme Lighting 29,293 -- -- --
SLI, Inc. (U.S. Miniature Lighting Division) 4,706,437 3,129,787 240,491 224,533
Socop Industries 544,933 9,899 -- --
SLI Miniature Lighting Limited (159,688) (481,300) -- --
Due to SLI, Inc. (2,416,250) (1,892,143) (1,405,855) (1,361,849)
---------- ---------- ---------- ----------
2,743,418 782,093 (1,202,409) (1,182,769)
========== ========== ========== ==========
</TABLE>
F-38
<PAGE> 77
CHICAGO MINIATURE LAMP (CANADA) INC.
NOTES TO THE FINANCIAL STATEMENTS
January 2, 2000
(with comparative figures as at January 3, 1999)
4. DUE FROM (TO) RELATED PARTIES (CONT'D)
The following is a summary of the related party transactions for the current
year:
<TABLE>
<CAPTION>
$
- -----------------------------------------------------------------------
<S> <C>
Intercompany Sales (in United States dollars)
Sales to SOCOP Industries 20,017
Sales to SLI Miniature Lighting Limited 546,445
Sales to SLI, Inc. (U.S. Miniature Lighting Division) 322,742
---------
Total sales to related parties 889,204
=========
Lamps purchased from SLI Miniature Lighting Limited 2,443,495
Die work performed by Socop Industries 5,800
Lamps purchased from Alba 2,561
Insurance premiums paid to SLI, BV (General Lighting Europe) 13,050
Management fees paid to Alba 6,045
Rework performed for IDI Internacional, S.A. (Costa Rica) 8,554
Management fees paid to SLI, Inc. (U.S. Miniature Lighting
Division) 500,000
---------
Total purchases from related parties 2,979,505
=========
</TABLE>
The above corporations deal on terms that are substantially the same as
independent customers. SLI, Inc. pays certain expenditures on behalf of the
company and purchases finished goods. They also provide executive, information
system and marketing services for which they receive a yearly management fee.
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3, JANUARY 4, NOVEMBER 30,
2000 1999 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Land 49,004 48,387 52,429 52,676
Buildings 854,257 873,501 969,591 977,026
Machinery and equipment 2,946,141 3,080,796 3,375,776 3,259,860
Moulds and dies 725,065 838,828 972,667 885,393
Software 20,011 31,386 21,150 22,022
Construction-in-progress 441,351 649,363 247,655 426,931
--------- --------- --------- ---------
5,035,829 5,522,261 5,639,268 5,623,908
========= ========= ========= =========
</TABLE>
F-39
<PAGE> 78
CHICAGO MINIATURE LAMP (CANADA) INC.
NOTES TO THE FINANCIAL STATEMENTS
January 2, 2000
(with comparative figures as at January 3, 1999)
6. GOODWILL
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3, JANUARY 4, NOVEMBER 30,
2000 1999 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cost 790,300 790,300 856,301 860,331
Less accumulated amortization (85,242) (74,106) (58,871) (57,355)
------- ------- ------- -------
705,058 716,194 797,430 802,976
======= ======= ======= =======
</TABLE>
7. CAPITAL STOCK
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3, JANUARY 4, NOVEMBER 30,
2000 1999 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUTHORIZED
Unlimited voting, 6% non-cumulative, redeemable, retractable
Class AA special shares
Unlimited common shares
Issued and fully paid
5,000,000 common shares 3,565,000 3,565,000 3,565,000 3,565,000
========= ========= ========= =========
</TABLE>
8. UNREALIZED FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Effective January 3, 1999, management determined that the U.S. dollar should be
designated as functional currency for the company's operations to properly
reflect that substantially all of the company's business activity was in the
United States. Accordingly, the assets and liabilities of the company, presented
prior to January 3, 1999 have been translated into United States dollars at the
exchange rate in effect at the balance sheet dates. Revenue and expense items
have been translated at the average exchange rate in effect during the fiscal
year. Exchange gains and losses arising on translation are included as a
separate component in shareholder's equity.
F-40
<PAGE> 79
CHICAGO MINIATURE LAMP (CANADA) INC.
NOTES TO THE FINANCIAL STATEMENTS
January 2, 2000
(with comparative figures as at January 3, 1999)
9. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3, JANUARY 4, NOVEMBER 30,
2000 1999 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable (425,589) (345,176) (209,590) (157,838)
Inventory (439,202) (810,608) (133,328) 274,593
Prepaid expenses (46,345) 9,893 (2,354) (9,141)
Accounts payable and accrued charges 667,159 325,409 52,463 (189,338)
Income taxes payable (494,085) 501,829 31,795 (403,279)
-------- -------- -------- --------
(738,062) (318,653) (261,014) (485,003)
======== ======== ======== ========
</TABLE>
Decreases in assets and increases in liabilities result in a source of funds.
Increases in assets and decreases in liabilities result in a use of funds and
are indicated by brackets.
10. PENSION PLAN
Prior to July 31, 1997 the company maintained a defined benefit pension plan of
which substantially all employees were members. Current and past service costs
were charged to income as incurred and funded as required by actuarial
valuations.
The pension expense, all for current service costs, was $62,579 (Canadian
dollars) in 1997. Effective July 1, 1997 the company introduced a Group
Registered Retirement Savings Plan and began the process of winding-up the
defined benefit plan. The accumulated net assets of the defined benefit plan
were distributed to the members for transfer to a "locked-in" Registered
Retirement Savings Plan.
F-41
<PAGE> 80
CHICAGO MINIATURE LAMP (CANADA) INC.
NOTES TO THE FINANCIAL STATEMENTS
January 2, 2000
(with comparative figures as at January 3, 1999)
11. CONTINGENT LIABILITIES
(a) GUARANTEES
The company has pledged an unlimited guarantee in favour of BANKBOSTON, N.A.
over the indebtedness of its parent company, SLI, Inc.
(h) INCOME TAXES
In April 1998 Revenue Canada issued a Notice of Assessment with respect to the
year ended December 30, 1994 and Notices of Reassessment for the periods ended
March 29th and December 3rd, 1995.
The effect of these Notices is to disallow certain deductions an Investment Tax
Credits pursuant to Section 37 of the Income Tax Act. The Company has not paid
any amount in respect of the notices and has responded by filing Notices of
Objection for each of the tax periods in question.
Based on the information currently available, if these assessments were to be
upheld, the Company's exposure would be approximately $190,000 (Canadian
dollars) less any amount recovered under certain warranties.
If any payment is ultimately required, it will be recorded in the period paid.
F-42
<PAGE> 81
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SLI, INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Deductions Other(1) Period
- ----------- ------------ ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year ended January 2, 2000:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible accounts 9,369 672 (1,932) (1,324) 6,785
Inventory reserves for excess and obsolete 16,099 949 (4,171) (1,496) 11,381
Year ended January 3, 1999:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible accounts 7,677 616 (1,372) 2,448 9,369
Inventory reserves for excess and obsolete 13,727 835 (2,553) 4,090 16,099
Month ended January 4, 1998:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible accounts 7889 26 (46) (192) 7,677
Year ended November 30, 1997:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible accounts 524 771 (367) 6,961 7,889
</TABLE>
(1) Represents allowance for doubtful accounts and inventory reserves for
excess and obsolete acquired as a result of acquisitions, and the currency
translation adjustments in these accounts during the period.
F-43
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
State or Jurisdiction Type of Percent
Subsidiary or Partnership of Incorporation Interest* Owned Owned by
------------------------- --------------------- --------- ------- --------
<S> <C> <C> <C> <C>
Chicago Miniature Lamp (Canada) Inc. Ontario C 100% SLI
IDI International S.A. Costa Rica C 100% SLI
Chicago Miniature Lamp -
Sylvania Lighting
International, Inc.
("CML/SLI") Delaware C 100% SLI
Sylvania Lighting
International, B.V. Netherlands C 100% CML/SLI
Alba Speciallampen Holding
GmbH ("Alba Holding") Germany LLC 100% SLI
Gustav Bruckner GmbE Germany C 100% Alba Holdings
SLI Miniature Lighting SARL ("SARL") France C 100% Alba Holdings
Socop S.A. France C 100% SARL
Badalex Limited England C 100% CML/SLI
Chicago Miniature Lamp Europe
Limited England C 100% Badalex
CML Ballast, Inc. ("CML Ballast") Oklahoma C 100% SLI
Power Lighting Products, Inc. Delaware C 100% CML Ballast
CML Fiberoptics, Inc. Massachusetts C 100% SLI
CML Air, Inc. New Hampshire C 100% SLI
SLI Lighting Solutions, Inc. North Carolina C 100% SLI
Supreme Corporation South Carolina C 100% SLI
Newmar Inc. ("Newmar") Delaware C 100% SLI
Marvel Lighting Corporation Delaware C 100% Newmar
</TABLE>
* C=Corporation, LLC=Limited Liability Company, LP LP=Limited Partnership
Interest, GP=General Partnership Interest
<PAGE> 1
Exhibit 23.1(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-99070) pertaining to the Chicago Miniature Lamp, Inc. 1995
Incentive and Non-Statutory Stock Option Plan of our report dated February 11,
2000, with respect to the consolidated financial statements and schedule of
SLI, Inc. included in the Annual Report (Form 10-K) for the year ended
January 2, 2000.
Ernst & Young LLP
/s/ Ernst & Young LLP
Chicago, Illinois
March 15, 2000
<PAGE> 1
EXHIBIT 23.1(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-99070) pertaining to the Chicago Miniature Lamp, Inc. 1995
Incentive and Non-Statutory Stock Option Plan of our report dated January 28,
2000, with respect to the financial statements of Chicago Miniature Lamp
(Canada), Inc. included in the Annual Report (Form 10-K) of SLI, Inc. for the
year ended January 2, 2000.
Hards Pearson
Barrie, Ontario, Canada
Chartered Accountants
March 17, 2000
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JAN-02-2000
<EXCHANGE-RATE> 1
<CASH> 25,848
<SECURITIES> 0
<RECEIVABLES> 202,666
<ALLOWANCES> (6,785)
<INVENTORY> 180,910
<CURRENT-ASSETS> 421,861
<PP&E> 390,403
<DEPRECIATION> (39,925)
<TOTAL-ASSETS> 866,884
<CURRENT-LIABILITIES> 276,787
<BONDS> 164,160
0
0
<COMMON> 346
<OTHER-SE> 373,671
<TOTAL-LIABILITY-AND-EQUITY> 866,884
<SALES> 874,823
<TOTAL-REVENUES> 874,823
<CGS> 630,106
<TOTAL-COSTS> 816,038
<OTHER-EXPENSES> (1,765)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,353
<INCOME-PRETAX> 45,197
<INCOME-TAX> 6,888
<INCOME-CONTINUING> 38,309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,309
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.14
</TABLE>
