UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________ to ___________________
Commission File Number: 1-12624
-------------------------------
Syratech Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-3354944
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
175 McClellan Highway
East Boston, Massachusetts 02128-9114
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code - 617-561-2200
-----------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act: Name
of each exchange on which registered:
None
Securities registered pursuant to Section 12(g) of the act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES NO X
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates is not
applicable as no public market for the voting stock of the registrant exists.
Number of the registrant's Shares of Common Stock, Par Value $0.01 per share,
outstanding at March 31, 2001 3,784,018.
DOCUMENTS INCORPORATED BY REFERENCE
None.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Except for the historical information contained
or incorporated by reference in this Annual Report on Form 10-K, the matters
discussed or incorporated by reference herein are forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, general economic
and business conditions; industry capacity; industry trends; overseas expansion;
the loss of major customers; changes in demand for the Company's products; the
timing of orders received from customers; cost and availability of raw
materials; dependence on foreign sources of supply; changes in business strategy
or development plans; availability and quality of management; availability,
terms and deployment of capital; and the seasonal nature of the business.
PART I
ITEM 1. BUSINESS
Overview
Syratech Corporation (the "Company") designs, manufactures, imports and markets
a diverse portfolio of tabletop, giftware and seasonal products for home
entertaining and decoration. The Company is one of the leading domestic
manufacturers and marketers of sterling silver flatware and sterling silver and
silver-plated hollowware. The Company also offers a number of other
complementary tabletop and giftware items, including stainless steel flatware,
picture frames, photo albums, photo storage, candles, glassware, crystal, and
ceramics. Tabletop and giftware products generated approximately 65% of net
sales for the year ended December 31, 2000. The Company is also a leading
domestic manufacturer and marketer of seasonal products including Christmas
ornaments, as well as a distributor of Christmas trim, lighting and tree skirts.
Seasonal products generated approximately 35% of net sales for the year ended
December 31, 2000.
The Company has positioned itself as a single-source supplier to retailers by
offering a wide assortment of products across multiple price points through its
"good-better-best" strategy. This strategy enables the Company to sell its
products through a broad array of distribution channels, including retail
specialty stores, department stores, specialty mail order catalogue companies,
mass market merchandisers, catalogue showrooms, warehouse clubs, premium and
incentive marketers, drug store chains and home centers. The Company markets its
products under numerous and well-recognized tradenames including the
Company-owned Towle Silversmiths(R), Wallace Silversmiths(R) and International
Silver Company(R) tradenames which are used in connection with the sale of
tabletop and giftware items, and the Rauch(R) and Silvestri(R) tradenames which
are used in connection with the sale of Christmas and other seasonal
merchandise.
Products
The Company designs, manufactures, imports and markets a diverse offering of
quality tabletop, giftware and seasonal products for home entertaining and
decoration. For purposes of the information presented below, the Company
identifies seasonal products as Christmas tree ornaments, other Christmas
decorations and a variety of other products sold for Halloween, Easter,
Thanksgiving, Mother's Day and Valentine's Day. Seasonal products are marketed
under a variety of the Company's tradenames. Seasonal products are also included
in the Tabletop and Giftware product category and are marketed under the
Wallace, Towle, and International Silver tradenames. For example, the Company
considers picture frames a tabletop and giftware item and also considers it
seasonal just by changing the packaging slightly (e.g., a red colored box at
Christmas time). Therefore, a certain number of the Company's products and/or
product lines are sold as both Tabletop and Giftware and as Seasonal products.
The Company has identified only one distinct and reportable segment: Home
Entertaining and Decorative Products. This segment generates revenue from two
types of product offerings: Tabletop and Giftware, and Seasonal. The following
table presents a breakdown of the Company's net sales by these product
categories for the periods presented.
1
Year Ended December 31,
-------------------------------------------
2000 1999 1998
------------ ------------ -------------
Tabletop and Giftware ............ $230,076 $202,563 $184,545
Seasonal ......................... 126,522 102,707 105,861
----------- ------------ -------------
Total ............................ $356,598 $305,270 $290,406
=========== ============ =============
The majority of the Company's products are sold through the same distribution
channels. Customers in each distribution channel purchase a wide range of the
Company's products and may purchase on a single purchase order Tabletop,
Giftware or Seasonal products.
A significant portion of the Company's products are also sourced overseas. This
function is also not performed by product or product lines and is therefore not
reasonably allocable by product category.
The Company's products include those shown below; all of which are marketed
under one of the Company's many well-recognized tradenames as follows:
Tabletop and Giftware
Sterling Silver and Silver-plated Flatware and Hollowware. The Company designs,
markets and distributes a variety of products in these categories, including
flatware, serving pieces, cosmetic accessories and hollowware, such as
candlesticks, casseroles and coffee and tea services under the tradenames
Wallace Silversmiths(R), Towle Silversmiths(R), International Silver Company(R),
C.J. Vander(TM) and Tuttle Sterling(R). A majority of the Company's products in
this category are manufactured at the Company's plants in Puerto Rico, England,
and Massachusetts. These products are sold primarily to specialty stores,
including jewelry stores and gift stores, and department stores and are
generally included in bridal registries.
Stainless Steel Flatware. The Company designs, markets and distributes several
lines of stainless steel flatware ranging from premium mass-produced sets to
high-end flatware place settings. The Company markets these products under
tradenames such as Wallace Silversmiths(R), Towle Silversmiths(R), International
Silver Company(R), 1847 Rogers Bros.(R) and, under license agreements, the
tradenames Cuisinart(R) and Hoffritz(R). The Company's products in this category
are imported from the Company's third-party vendors located primarily in the
Asia Pacific Rim. The primary channels of distribution include department
stores, mass-market merchandisers, warehouse clubs and specialty stores and
these products are also included in bridal registries.
Picture Frames, Photo Storage and Photo Albums. The Company designs, markets and
distributes several lines of picture frames and photo albums. The picture frames
range from sterling silver on the high end to a variety of other frames produced
in wood, resin, ceramic, metal and other mediums. The photo albums are produced
in metal, fabric and resin. The Company has introduced new photo storage
products including wooden cabinets, compact disk holders and wooden collage
boxes. The Company markets these products under tradenames such as Melannco
International(R), International Silver Company(R), Wallace Silversmiths(R) and
Towle Silversmiths(R). The Company's products in this category are imported from
the Company's third-party vendors located primarily in the Asia Pacific Rim. The
channels of distribution include department stores, including stationery
departments, specialty stores and mass market merchandisers.
2
Glassware, Crystal and Ceramics. The Company designs, markets and distributes
several lines of glassware and crystal products, including beverageware, glass
dinnerware, serveware and accessories, glass vases, candle lighting and salad
sets. The Company markets these products under the tradenames Towle(R) Crystal,
International Silver Company(R), Elements(R), Farberware(R), Ambrosia(R),
International Bazaar(TM) and under a license agreement, the tradename
Cuisinart(R). The Company designs, markets and distributes a line of ceramic
serveware and storage. The Company markets these products under the
Farberware(R) tradename. The Company's products in this category are imported
from the Company's third-party vendors located primarily in the Asia Pacific
Rim. The channels of distribution of the Company's glassware line include
mass-market merchandisers, department stores, warehouse clubs and specialty
stores.
Porcelain Boxes. The Company designs, markets and distributes a diverse range of
high-end, hand-painted porcelain boxes under the Rochard(TM) and Limoges
Imports(TM) tradenames which are primarily manufactured by third-party vendors
located primarily in France. The channels of distribution include specialty
stores, including jewelry stores and department stores.
Other Tabletop and Giftware. The Company designs, markets and distributes a wide
range of other tabletop and giftware products, including premium products such
as picture frames and cosmetic accessories as "gift with purchase" items,
stainless steel kitchen and bath accessories, lighting and candles including
candle holders produced in glass, ceramic, metal, and other mediums, brassware,
napkin rings, decorative clocks and decorative nautical items. The majority of
the Company's products in this category are imported from the Company's
third-party vendors located primarily in the Asia Pacific Rim. The Company
markets these products under certain of its tradenames including International
Silver Company(R), International Bazaar(TM), and Potpourri Designs(R). The
primary channels of distribution include department stores, mass-market
merchandisers, warehouse clubs and specialty stores.
Licensing Activities. The Company owns certain intellectual property rights
related to the tradename Farberware and grants licenses to third parties for
which the Company receives royalties.
Seasonal Products
Christmas Ornaments. The Company designs, manufactures, markets and distributes
Christmas tree ornaments made of glass, satin, metal, ceramic and resin. The
Company's products are distributed through specialty stores, department stores,
jewelry stores, mass market merchandisers and warehouse clubs. These products
are marketed under the tradenames Rauch(R), and Silvestri(R). The Company also
manufactures limited edition, sterling silver Christmas ornaments that are
marketed under the tradenames Wallace Silversmiths(R) and Towle Silversmiths(R).
Other Christmas Decorations. The Company designs, markets and distributes a
diverse product offering of other Christmas decorations including figurines,
waterglobes, collectibles, trim, lighting, tree skirts and other decorative
items produced in wood, resin, metal, paper, textiles, glass and ceramic. These
products are marketed under the tradenames Silvestri(R), Wallace
Silversmiths(R), International Bazaar(TM), and Rauch(R). These products are
distributed through specialty stores, department stores, mass market
merchandisers and warehouse clubs.
Other Seasonal Products. The Company designs, markets and distributes a variety
of other seasonal products for Halloween, Easter, Thanksgiving, Mother's Day and
Valentine's Day. These products include figurines, vases, bowls, trays and other
items comprised of metal, resin, wood, ceramic and glass. These products are
distributed through specialty stores, department stores, mass market
merchandisers and warehouse clubs.
3
Sales, Marketing and Distribution
The Company sells many different types of products, with a variety of price
points and target customers. Accordingly, the Company sells its products through
a variety of distribution channels including department and specialty stores,
mass market merchandisers, and warehouse clubs, catalogue showrooms, drugstores,
supermarkets, incentive marketers and jewelry stores. The Company maintains
separate sales forces for its product lines so as to provide the specialized
expertise and attention necessary to service its customer base. The Company's
sales and marketing staff coordinates with individual retailers to devise
marketing strategies and merchandising concepts and to furnish advice on
advertising and product promotion. The Company has developed several promotional
programs for use in the ordinary course of business to promote sales throughout
the year.
The Company's various sales and marketing efforts are supported from its
principal office and showroom in East Boston, Massachusetts and, for certain of
its products, from its offices and showrooms in Hong Kong and London. The
Company maintains additional showrooms in New York, Los Angeles, Atlanta and
Dallas. The Company's sales and marketing staff at December 31, 2000, consisted
of approximately 159 employees who are salaried, paid commissions based on sales
or, in some instances, paid a base salary plus commissions. The Company also
distributes certain of its products through independent sales representatives
who work on a commission basis only.
The Company operates an 886,000 square foot facility located in Mira Loma,
California, which serves as its primary warehouse and distribution center.
Retailing Customers
During 2000, 20 customers accounted for approximately 47% of the Company's
net sales. Sales to one customer represented approximately 12.2% of the
Company's 2000 net sales.
% of
2000 Net
2000 Channels of Distribution Sales
-----------
Mass Market Merchandisers, Catalogue Showrooms, Warehouse Clubs, Drug Stores and Supermarkets . ............. 42%
Department Stores ........................................................................................... 27%
Specialty Stores, Jewelry Stores, Specialty Catalog Companies, Premium and Incentive Marketers. ............. 31%
In order better to service its customers, the Company has invested in equipment
and software to allow its customers to transmit their orders electronically
throughout the EDI system and receive electronic invoicing and shipping notices.
4
Manufacturing and Raw Materials
The Company produces its sterling silver flatware at its manufacturing facility
in San German, Puerto Rico, where it fabricates and manufactures sterling silver
into finished products for the Wallace, International, Towle and Tuttle lines,
and provides manufacturing support to its C. J. Vander subsidiary. The company
also manufactures at its facility in Sheffield, England for C.J. Vander, Ltd.
and Roberts and Belk. The Company also designs, produces and maintains the tools
required for manufacturing sterling silver flatware.
The Company has maintained, in the aggregate, approximately six months of
inventory. The Company's silver fabrication operation in its Puerto Rico
manufacturing plant became fully operational during 1994. This process reduces
the need for purchasing fabricated silver from outside vendors. The Company uses
fabricated silver in its manufacturing operations. Fabricated sterling silver
made from fine silver purchased by the Company may be readily obtainable from
outside resources as well. The Company purchases fine silver in the spot market
in quantities the Company believes are adequate to meet reasonably foreseeable
consumer demand for its silver products. The Company does not engage in
speculative purchases of fine silver. During the five-year period ended December
31, 2000, the closing price of silver as quoted by Handy & Harman Inc. has
ranged from $4.21 per troy ounce to $7.31 per troy ounce. At March 15, 2001 the
closing price was $4.42.
The Company manufactures silver-plated giftware and tabletop products, including
hollowware, at its manufacturing and silver-plating facilities in North Dighton,
Massachusetts and in Sheffield, England. These facilities have stamping,
processing, soldering, finishing, polishing, silver-plating and packaging
capabilities necessary to turn unfinished metal into finished products.
The Company's imported products originate as designs created by its internal
design staff or by independent designers, in each case in conjunction with the
Company's product development and marketing staffs. Products based on these
designs are manufactured to the Company's specifications in various countries
including Hong Kong, India, Korea, Taiwan, the People's Republic of China and
Japan.
In 2000, the Company purchased an aggregate of approximately $159 million of
products from approximately 800 foreign manufacturers. No vendor accounted for
10% or more of such purchases in 2000. The Company does not have information on
the financial condition of its major foreign vendors, which are primarily
privately held, but is not aware of any unfavorable information related to their
respective financial condition. Of the Company's foreign purchases in 2000
approximately 90% were from vendors located in the Far East; approximately 5%
were from vendors located in Europe, approximately 4% were from vendors located
in Canada and Mexico, and approximately 1% in the aggregate from vendors in
other locations. The Company's arrangements with its manufacturers are subject
to the risks of doing business abroad, including risks associated with foreign
currency and potential import restriction. The Company also is subject to risks
associated with the availability of, and time required for, the transportation
of products from foreign countries, including shipping losses or lost sales that
may result from delays or interruptions in shipping. The Company does not
believe that the loss of any single foreign supplier would have a material
long-term adverse impact on the Company's source of supply, as other suppliers
with whom the Company does business would be able to increase production to
fulfill the Company's requirements.
5
The Company continues to invest in capital equipment, training and process
control efforts to improve efficiencies, reduce costs and enhance quality
related to its manufactured Christmas ornament operations. The Company maintains
adequate manufacturing, warehousing and distribution facilities in Gastonia, NC
and Chester, SC to service the business. Adequate capacity exists to meet
anticipated growth and the non-union labor supply is adequate in both locations.
The Christmas decoration manufacturing processes at Rauch Industries use three
primary raw materials: (i) glass ornament blanks, (ii) cardboard, corrugated and
polystyrene packaging materials, and (iii) silver and lacquers. The Company has
not experienced difficulty in obtaining raw materials or other supplies from its
vendors and does not anticipate any such difficulty in the foreseeable future.
The Company imports ornament hangers, decorated glass balls, and assorted tree
and off-the-tree decorations from China, India and Mexico.
In 1999, the Company closed and sold the Rauch Industries manufacturing facility
in El Paso, TX (Holiday Products) where it manufactured Christmas stockings,
tree-skirts and Santa Claus hats and suits. These items are now purchased from
vendors in Mexico and the Far East.
Competition
The tabletop, giftware and seasonal product lines which the Company sells are
highly competitive. Not only does the large number of domestic manufacturers
affect competition, but also the large volume of foreign imports. Several of the
Company's competitors are larger and have greater financial resources than the
Company. The Company's products compete indirectly with a broad range of
household products not offered by the Company. Within the overall tabletop
products category, the production of sterling silver flatware in the United
States is relatively concentrated, with five manufacturers, including the
Company, accounting for substantially all of the sterling silver flatware
manufactured and sold in the United States. The other principal manufacturers
and marketers of sterling silver flatware are Gorham, Inc. and its affiliate The
Kirk Steiff Company, Reed & Barton Corp. and Lunt Silversmiths, all of which
have been in business for many years. The giftware and seasonal products
industries, however, are very fragmented with numerous small manufacturers and
marketers of a limited number of products. The Company is not aware of any
competitor having the same product line breadth.
The Company's diverse product lines allow it to target a wide range of customers
and to respond more effectively to changes in retail distribution and consumer
preferences. Furthermore, the trend towards vendor consolidation and increasing
electronic communications and complex logistical requirements of the retail
industry increases demand for vendors, like the Company, who can meet these
requirements and make timely deliveries of a broad range of quality products and
provide advertising and other sales support.
6
A number of factors affect competition in the sale of products of the type
manufactured, imported and sold by the Company. Among these are brand
identification, style, design, packaging, price, quality, promotion, sales staff
and the level of service provided to customers. An important aspect of service
is the ability to meet customers' "Floor-Ready" standards, including store-level
distribution, pre-pricing, electronic invoicing and shipping notices. The
importance of these competitive factors varies from customer to customer and
from product to product and no one of these factors is dominant in all cases.
The Company believes that its ability to compete effectively can be attributed
to its performance in all of these areas.
Trademarks, Copyrights and Patents
The success of the Company's various businesses depends in part on the Company's
ability to exploit certain proprietary designs, trademarks and brand names on an
exclusive basis and reliance upon the protections afforded by applicable
copyright, patent and trademark laws and regulations. The loss of certain of the
Company's rights to such designs, trademarks and brand names or the inability of
the Company to effectively protect or enforce such rights could adversely affect
the Company. The Company does not believe that there is a significant danger
that it will lose its rights to any of its material trademarks and tradenames or
be unable to effectively protect or enforce such rights. Although the loss of
any right to designs, trademarks and tradenames could have negative effects, any
such effects are unlikely to be material.
Seasonality
Sales are generally higher in the third and fourth quarters and are strongly
influenced by the buying patterns associated with the Christmas season. The
Company's needs for working capital accelerate in the second half of the year
and, accordingly, total debt levels tend to peak in the third and fourth
quarters, falling off again in the first quarter of the following year. The
amount of the Company's sales generated during the second half of the year
generally depends upon a number of factors, including general economic
conditions, and other factors beyond the Company's control. The Company's
results of operations would be adversely affected and disproportionately
affected if the Company's sales were substantially lower than those normally
expected during the second half of the year. The Company continues to introduce
products appropriate to other holidays and seasons in order to increase sales
during the first and second quarters.
Backlog and Warranty
Orders for the Company's products are generally subject to cancellation until
shipment. As a result, the Company's backlog consists of cancelable orders and
is dependent upon trends in consumer demand throughout the year. Customer order
patterns vary from year to year, largely because of annual differences in
consumer acceptance of product lines, product availability, marketing
strategies, inventory levels of retailers and differences in overall economic
and weather conditions. As a result, comparison of backlog as of any date in a
given year with backlog at the same date in a prior year is not necessarily
indicative of sales trends. The Company had a backlog of approximately $36.5
million as of December 31, 2000, compared to approximately $39.7 million as of
December 31, 1999. See "Seasonality." At December 31, 1999 the Company's backlog
included $9.9 million related to a license agreement with a specialty
retail/licensing organization which has been replaced by a sourcing arrangement
under which the Company does not receive customer orders and the associated
backlog. See Management's Discussion and Analysis of Financial Condition and
Results of Operations. The Company does not believe that backlog is necessarily
indicative of the Company's future results of operations or prospects.
The Company's warranty policy is to accept returns of products with defects in
materials or workmanship. The Company will also accept returns of incorrectly
shipped goods where the Company has been notified on a timely basis and, in
certain cases, to maintain customer goodwill. In accordance with normal retail
industry practice, the Company ordinarily accepts returns only from its
customers and does not ordinarily accept returns directly from consumers.
Certain of the products returned to the Company by its customers, however, may
have been returned to those customers by consumers. The Company will routinely
accept returns for imported products that are received late by the customer. The
majority of the returned products are resold into the same distribution channel.
During the three year period ended December 31, 2000, returns and allowances
amounted to approximately 3.5% of sales.
7
Environmental Regulation
The Company's manufacturing operations, including silverplating, chrome plating,
tool making and painting operations routinely involve the handling of waste
materials that are classified as hazardous. The Company also refabricates
certain materials used in its silverplating operations. The Company is subject
to certain domestic federal, state and local laws and regulations concerning the
containment and disposal of hazardous materials and, therefore, in the ordinary
course of its business, the Company incurs compliance costs and may be required
to incur clean-up costs. The Company's C.J. Vander facility is also subject to
many environmental regulations related to its plating operations in the United
Kingdom. Based upon currently available information, the Company does not expect
that the costs of such compliance and clean-up will be material. Actions by
federal, state and local governments concerning environmental matters could
result in laws or regulations that could increase the cost of producing the
products manufactured by the Company or otherwise adversely affect the demand
for its products. In addition, the future costs of compliance with environmental
laws and regulations and liabilities resulting from currently unknown
circumstances or developments could be substantial and could have a material
adverse effect on the Company. For example, certain laws and regulations could
impose liability upon the Company for any historic releases of hazardous
substances from facilities that it has owned or operated, or, from facilities to
which its waste materials have been transported for treatment or disposal.
Employees
As of December 31, 2000, the Company had approximately 1,500 employees. The
Company believes that its relationship with its employees is good.
The Company's employees located in the U.S. and Puerto Rico are not represented
by labor unions.
On February 23, 2000 a union election was held at the Company's subsidiaries
Wallace International de P.R., Inc. and International Silver de P.R., Inc. (the
"P.R. Subsidiaries"). On March 6, 2000, the National Labor Relations Board
(NLRB) issued a "Certification of Results of Election" stating that no
collective bargaining representative had been selected and that no timely
objections had been filed.
Approximately 30 employees of C.J. Vander are represented by the Union of
Manufacturing, Science & Finance (MSF). Management believes its employee
relations is satisfactory.
8
ITEM 2. Properties
The following table sets forth information with respect to the Company's
properties as of February 28, 2001:
APPROXIMATE
SQUARE
FOOTAGE OR
LOCATION TYPE OF FACILITY ACREAGE STATUS
-------- ---------------- ----------- ------
Mira Loma, CA Warehouse/Distribution/Land 886,000 Owned
Chester, SC Warehouse/Manufacturing/Showroom 828,000 Owned
Gastonia, NC Office/Manufacturing/Distribution 387,441 Owned
East Boston, MA Office/Showroom 292,000 Owned
El Paso, TX Office/Warehouse 85,000 Leased
North Dighton, MA Office/Manufacturing/Warehouse 333,198 Leased
Crisfield, MD Office/Manufacturing/Warehouse 71,754 Owned
San German, PR Manufacturing/Office 87,239 Leased
Hong Kong Office/Showroom 6,809 Leased
Atlanta, GA Showrooms 18,707 Leased
Dallas, TX Showrooms 8,568 Leased
Los Angeles, CA Showrooms 4,115 Leased
Commerce, CA Office/Showroom 37,117 Leased
London, England Office/Showroom 4,000 Leased
China Warehouse/Office 168,052 Leased
Taiwan Office/Warehouse 1,725 Leased
New York, NY Warehouse 3,800 Leased
Tianjin, PRC Office 24,327 Leased
New York, NY Showrooms 46,228 Leased
Sheffield, England Manufacturing/Warehouse/Showroom 42,000 Owned
ITEM 3. Legal Proceedings
The Company has been named as a defendant in certain legal actions arising from
its normal business activities, including routine copyright and trademark
litigation, which actions are considered normal in the businesses in which the
Company is engaged.
9
ITEM 4. Submission of Matters to A Vote of Security Holders
During the fourth quarter of 2000, no matters were submitted to a vote of the
Company's shareholders through the solicitation of proxies or otherwise.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Absence of Public Market
On April 16, 1997, THL Transaction I Corp., ("THL I"), a Delaware corporation,
controlled by affiliates of Thomas H. Lee Company ("THL"), was merged with and
into the Company (the "Merger"). Syratech Common Stock, which was traded on the
NYSE under the symbol "SYR", was de-listed from the NYSE upon consummation of
the Merger. From the effective time of the Merger, the Company has had less than
100 stockholders. The Company filed a report on Form 15 Certification and Notice
of Termination of Registration under Section 12(g) of the Securities Exchange
Act of 1934 or Suspension of Duty to File Reports under Sections 13 and 15 (d)
of the Securities Exchange Act of 1934 on December 7, 1998.
Dividends Paid
The Company has never paid cash dividends on its common stock and does not
expect to do so in the foreseeable future. The Company's ability to pay
dividends is restricted by terms of the Senior Revolving Credit Facility and the
Senior Notes. The Company intends to retain all earnings to provide funds for
the operation and expansion of its businesses.
ITEM 6. Selected Financial Data
The following selected consolidated financial information as of December 31,
2000 through 1996 and for each of the years in the five-year period ended
December 31, 2000 has been derived from the consolidated financial statements of
the Company. The consolidated balance sheets of the Company as of December 31,
2000 and 1999 and the consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2000, together with the notes thereto and the related report of Deloitte &
Touche LLP, independent auditors, are included elsewhere herein. The information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto of the Company included elsewhere in this
Annual Report on Form 10-K.
10
Year Ended December 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
(in thousands, except per share data)
Income Statement Data:
Net sales ........................................... $ 356,598 $ 305,270 $ 290,406 $ 290,862 $ 270,931
Cost of sales ....................................... 259,729 221,199 212,968 214,881 193,480
------------- ------------- ------------- ------------- -------------
Gross profit ........................................ 96,869 84,071 77,438 75,981 77,451
Selling, general and administrative expenses ........ 77,524 69,079 65,017 72,740 57,664
Asset dispositions, impairment of
long-lived assets and restructuring costs (1) .... (532) (15,596) 5,170 - -
Other operating income (2) .......................... (1,982) (3,358) (5,662) (2,366) (3,948)
------------- ------------- ------------- ------------- -------------
Income from operations .............................. 21,859 33,946 12,913 5,607 23,735
Interest expense .................................... (24,223) (24,643) (23,709) (16,027) (3,150)
Interest income ..................................... 70 137 34 257 771
Other income (3) .................................... - - - 2,184 11,900
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes ................... (2,294) 9,440 (10,762) (7,979) 33,256
Provision (benefit) for income taxes ................ (575) 4,251 .(2,690) (2,306) 12,471
------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations
before extraordinary gain ........................ (1,719) 5,189 (8,072) (5,673) 20,785
Extraordinary gain on early extinguishment of debt,
net of income taxes of $2,527 .................... 3,636 - - - -
------------- ------------- ------------- ------------- -------------
Net income (loss) ................................... 1,917 5,189 (8,072) (5,673) 20,785
Preferred stock dividend accrued .................... 2,940 2,624 2,344 1,530 -
------------- ------------- ------------- ------------- -------------
Net income (loss) applicable to common stockholders . $ (1,023) $ 2,565 $ (10,416) $ (7,203) $ 20,785
============= ============= ============= ============= =============
Basic earnings (loss) per share:
Income (loss) from continuing operations
before extraordinary gain ..................... $ (0.45) $ 1.37 $ (2.13) $ (1.09) $ 2.39
Extraordinary gain on early extinguishment of
debt, net of income taxes of $2,527 ........... 0.96 - - - -
Preferred stock dividend accrued ................. (0.78) (0.69) (0.62) (0.29)
------------- ------------- ------------- ------------- -------------
Net income (loss) per common share ............ $ (0.27) $ 0.68 $ (2.75) $ (1.38) $ 2.39
============= ============= ============= ============= =============
Weighted-average number of shares outstanding . 3,784 3,784 3,784 5,216 8,695
============= ============= ============= ============= =============
Diluted earnings (loss) per share:
Income (loss) from continuing operations
before extraordinary gain ..................... $ (0.45) $ 1.37 $ (2.13) $ (1.09) $ 2.36
Extraordinary gain on early extinguishment of
debt, net of income taxes ..................... 0.96 - - - -
Preferred stock dividend accrued ................. (0.78) (0.69) (0.62) (0.29)
------------- ------------- ------------- ------------- -------------
Net income (loss) per common share .................. $ (0.27) $ 0.68 $ (2.75) $ (1.38) $ 2.36
============= ============= ============= ============= =============
Shares:
Weighted-average number of shares outstanding . 3,784 3,784 3,784 5,216 8,695
Effect of dilutive stock options .............. - - - - 104
------------- ------------- ------------- ------------- -------------
Adjusted weighted-average number of shares
outstanding ................................ 3,784 3,784 3,784 5,216 8,799
============= ============= ============= ============= =============
11
December 31,
------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA: (in thousands, except per share data)
Working capital.................. $ 110,101 $ 123,439 $ 105,117 $ 114,106 $ 121,244
Total assets..................... 301,090 266,517 285,220 266,249 228,580
Total debt (4)................... 215,868 187,669 211,201 183,900 6,636
Stockholders' equity............. 22,224 21,337 16,538 25,153 171,574
Book value per common share...... (1.38) (0.84) (1.41) 1.49 19.73
(1) Consists of a gain on disposal of the Company's primary east coast
distribution facility in 1999 and the write down of the value of certain
assets in 1999 and 1998. See Note 2 to the Company's Financial Statements.
(2) Consists primarily of revenue related to licensing the Farberware name. The
years prior to 1998 also include income from the sale of Farberware
inventory net of certain selling, general and administrative expenses.
(3) Consists of nonrecurring pre-tax income related to the sale of certain
equipment in 1997 and licensing the Farberware name on cookware and
bakeware in 1996.
(4) Consists of long-term debt, notes payable and current maturities of
long-term debt.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Except for the historical information contained
or incorporated by reference in this Annual Report on Form 10-K, the matters
discussed or incorporated by reference herein are forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, general economic
and business conditions; industry capacity; industry trends; overseas expansion;
the loss of major customers; changes in demand for the Company's products; the
timing of orders received from customers; cost and availability of raw
materials; dependence on foreign sources of supply; changes in business strategy
or development plans; availability and quality of management; availability,
terms and deployment of capital; and the seasonal nature of the business.
SPECIAL ATTENTION SHOULD BE PAID TO SUCH FORWARD-LOOKING STATEMENTS INCLUDING,
BUT NOT LIMITED TO, STATEMENTS RELATING TO (i) THE COMPANY'S ABILITY TO OBTAIN
SUFFICIENT RESOURCES TO FINANCE ITS WORKING CAPITAL AND CAPITAL EXPENDITURE
NEEDS AND PROVIDE FOR ITS KNOWN OBLIGATIONS AND (ii) THE CONTINUATION OF, AND
THE COMPANY'S ABILITY TO BENEFIT FROM, THE VENDOR CONSOLIDATION TREND IN THE
RETAIL INDUSTRY DESCRIBED ELSEWHERE IN THE ANNUAL REPORT ON FORM 10-K.
12
Results of Operations
The following table sets forth certain financial data as a percentage of net
sales of the Company for each of the years presented.
Percentage of Net Sales
-----------------------------------------------------
Year Ended December 31,
-----------------------------------------------------
2000 1999 1998
---- ---- ----
Net sales................................................ 100.0% 100.0% 100.0%
Cost of sales............................................ 72.8 72.5 73.3
---------------- -------------- ---------------
Gross profit............................................. 27.2 27.5 26.7
Selling, general and administrative expenses............. 21.7 22.6 22.4
Impairment of long-lived assets and other
assets disposition (1) ................................ (0.1) (5.1) 1.8
Other operating income (2)............................... (0.5) (1.1) (1.9)
---------------- -------------- ---------------
Income from operations................................... 6.1 11.1 4.4
Interest expense, net.................................... (6.7) (8.0) (8.1)
---------------- -------------- ---------------
Income (loss) before income taxes........................ (0.6) 3.1 (3.7)
Provision (benefit) for income taxes..................... (0.1) 1.4 (0.9)
---------------- -------------- ---------------
Income (loss) from continuing operations................. (0.5)% 1.7% (2.8)%
================ ============== ===============
(1) Consists of a gain on disposal of its primary east coast distribution
facility in 1999 and the write down of the value of certain assets in 1999
and 1998. See Note 2 to the Company's consolidated financial statements.
(2) Consists primarily of licensing income including licenses of the Farberware
tradename.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net sales increased 16.8% to $356.6 million for the year ended December 31, 2000
from $305.3 million for the year ended December 31, 1999. This increase reflects
the continued strong demand for housewares products designed by the Company
including fountains, stainless steel flatware, lighting, candles and
accessories. Giftware sales also increased versus the prior year including sales
of licensed giftware to specialty retailers. Changes in normal product prices
did not materially impact net sales.
Gross profit increased 15.2% to $96.9 million for the year ended December 31,
2000 from $84.1 million for the year ended December 31, 1999. Gross profit as a
percentage of sales was 27.2% for the year ended December 31, 2000 compared to
27.5% for the comparable 1999 period. The 0.3 percentage point decrease in
percentage gross profit primarily reflects the mix of the products sold during
the period including sales of discontinued products and additional provisions
for slow moving inventories. The change in gross profit as a percentage of sales
was not materially impacted by change in normal product pricing.
13
Selling, general and administrative expenses ("S, G & A expenses") was $77.5
million or 21.7% as a percentage of net sales for the year ended December 31,
2000 compared to 22.6% or $69.1 million for the comparable 1999 period. The $8.4
million increase in S,G & A expenses reflects higher royalties, commissions, and
advertising related to the increased sales volume and investment in additional
sales, marketing staff as well as higher spending for information technology.
The 0.9 percentage point improvement in S, G & A expenses to sales for the year
ended December 31, 2000 reflects spending controls put into place to reduce the
growth in S, G & A below the rate of growth in sales volume. In 2001, the
Company has entered into a sourcing arrangement with a specialty
retail/licensing organization, replacing an arrangement in which the Company had
previously sold their licensed products. The effect of the new arrangement will
be to reduce sales and royalty expense and increase commission revenue. The
Company does not expect an adverse impact on financial results as a result of
the new arrangement.
Income from operations was $21.9 million and $33.9 million for the years ended
December 31, 2000 and 1999, respectively. During 1999, income from operations
included $15.6 million relating to the recording of asset dispositions and
impairments including a $.5 million severance expense accrual. During 2000 the
separation benefits were not required and the $.5 million accrual was reversed
in the fourth quarter with a corresponding benefit to income from operations.
Excluding these adjustments, income from operations increased $3.1 million or
16.9% to $21.4 from $18.3 million for the years ended December 31, 2000 and
1999, respectively.
Interest expense, net was $24.2 million for the year ended December 31, 2000
compared to $24.5 million in the same period of 1999. This decrease in interest
expense primarily reflects the effect in 2000 of the November 1999 receipt of
proceeds from the sale of the Company's Revere, MA property and the subsequent
pay down of debt, offset by increased borrowings for working capital purposes
due to higher sales volume and higher interest rates on the Company's Revolving
Credit Facilities.
The benefit for income taxes was $0.6 million for the year ended December 31,
2000 compared to a provision of $4.3 million for the year ended December 31,
1999. The estimated effective income tax rate of 25% for the year ended December
31, 2000 compares to a 45% rate for the same period in the prior year. The tax
rate in 1999 reflected the impact of recognizing the gain on the east coast
distribution facility sale which increased the proportion of income taxed at
higher U.S. tax rates compared with lower foreign tax rates, in comparison to
2000. The Company estimates the 2001 effective tax rate will be 25%.
During the fourth quarter of 2000, the Company purchased an aggregate of $16,450
of its Notes on the open market resulting in an extraordinary gain on early debt
extinguishment of $3,636, net of $2,527 in income taxes.
Net loss applicable to common stockholders for the year ended December 31, 2000
was $(1.0) million or $(0.27) per share compared to net income applicable to
common stockholders for the year ended December 31, 1999 of $2.6 million or
$0.68 per share on adjusted weighted average shares of 3,784,018 in both years.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales increased 5.1% to $305.3 million for the year ended December 31, 1999
from $290.4 million for the year ended December 31, 1998. This increase is
primarily due to increased sales of a new line of licensed giftware products to
specialty retailers and increased sales of candle giftware, partially offset by
decreased sales of certain seasonal products. Changes in normal product prices
did not materially impact net sales.
Gross profit increased 8.6% to $84.1 million for the year ended December 31,
1999 from $77.4 million for the year ended December 31, 1998. Gross profit as a
percentage of sales was 27.5% for the year ended December 31, 1999 compared to
26.7% for the comparable 1998 period. The 0.8 percentage point increase
primarily reflects the higher margin carried by the new line of licensed
giftware which was offset by the increased royalty expense related to this line.
The change in gross profit as a percentage of sales was not materially impacted
by change in product pricing.
Selling, general and administrative expenses ("S, G & A expenses") of $69.1
million or 22.6% as a percentage of net sales for the year ended December 31,
1999 compared to 22.4% or $65.0 million for the comparable 1998 period. The 0.2
percentage point increase in S, G & A expenses to sales for the year ended
December 31, 1999 reflects increased bad debt expense, and the higher royalty
expense noted above.
14
Income from operations was $33.9 million and $12.9 million for the year ended
December 31, 1999 and 1998, respectively, and included other operating income of
$3.4 million and $5.7 million in 1999 and 1998, respectively. The decrease in
1999 other operating income is primarily due to one-time income of $2.6 million
recorded in 1998 in connection with the granting of a license and extending
certain existing licenses relating to Farberware intellectual property to one of
its existing licensees.
Income from operations also included asset dispositions in 1999 and charges for
impairment of long-lived assets in 1999 and 1998. In November 1999 the Company
sold its primary east coast distribution facility for $29.5 million. The sale of
this facility resulted in a net gain of approximately $17.1 million. The Company
simultaneously entered into a short-term leaseback of approximately 40% of the
distribution facility. In connection with the disposition of the facility the
Company recorded separation benefits of approximately $0.5 million for 42 hourly
employees and three salaried employees, all of which is accrued at December 31,
1999 and was expected to be fully paid by the end of the first quarter of 2001.
During 2000 the separation benefits were not required and the $.5 million
accrual was reversed in the fourth quarter of 2000 with a corresponding benefit
to income from operations in that year. In April, 1999, the Company sold
undeveloped land adjacent to this facility for a gain of approximately $0.8
million.
In the fourth quarter of 1999, the Company wrote down the value of certain
assets by approximately $1.2 million. These write-downs relate to abandonment of
certain manufacturing equipment at its Gastonia, North Carolina facility with a
book value of approximately $1.1 million. The remaining asset write-downs relate
to the finalization of amounts relative to the shutdown of the El Paso facility
discussed above. Other less significant asset write-downs and adjustments
aggregated a net charge of $0.6 million.
Interest expense, net was $24.5 million for the year ended December 31, 1999
compared to $23.7 million in the same period of 1998. This increase results from
increased borrowings for working capital purposes and higher interest rates on
the Company's Revolving Credit Facilities and notes payable.
The provision for income taxes was $4.3 million for the year ended December 31,
1999 compared to a benefit of $2.7 million for the year ended December 31, 1998.
The estimated effective income tax rate of 45% for the year ended December 31,
1999 compares to a 25% rate for the same period in the prior year. The increase
in tax rate reflects the impact of recognizing the gain on the east coast
distribution facility sale which in 1999 increased the proportion of income
taxed at higher U.S. tax rates compared with lower foreign tax rates, in
comparison to 1998.
Net income applicable to common stockholders for the year ended December 31,
1999 was $2.6 million or $0.68 per share compared to a net loss applicable to
common stockholders for the year ended December 31, 1998 of ($10.4) million or
($2.75) per share on adjusted weighted average shares of 3,784,018 in both
years.
Liquidity and Capital Resources
Net cash used in operating activities for the year ended December 31, 2000 was
$24.2 million. The primary use of cash was the increase in accounts receivable
related to the higher sales volume during the fourth quarter compared with the
prior year. Inventories decreased from $94.1 million at December 31, 1999 to
$92.7 million at December 31, 2000 due to improved procedures to control
inventory levels and the timing of inventory purchases, and to lower projected
sales for the first quarter of 2001, due to the change to a sourcing arrangement
for certain previously licensed products noted above.
The Company's working capital requirements are seasonal and tend to be highest
in the period from September through December due to the Christmas selling
season. Accounts receivable tend to decline during the first quarter as
receivables generated during the third and fourth quarters are collected and
remain lower until the next peak season beginning in September.
Capital expenditures were approximately $7.9 million for the year ended December
31, 2000. These expenditures relate primarily to computer equipment and systems,
and machinery, equipment and tools and dies for the Company's manufacturing and
distribution facilities, including capital expenditures to add distribution
capabilities to the Company's East Boston and North Dighton facilities due to
the relocation of activities formerly located at the
15
Company's Revere, MA facility which was sold in November, 1999. See Note 2 to
the accompanying consolidated financial statements.
At December 31, 2000, the Company had a Senior Revolving Credit Facility (the
"Revolving Credit Facility") which provided for $123,000 of borrowings,
including a $30,000 sublimit for the issuance of standby and commercial letters
of credit. In accordance with the terms of its Senior Notes Indenture, the
Revolving Credit Facility was reduced by $7,000 effective as of November 21,
2000 as a result of the permanent application of certain proceeds from the
November 22, 1999 sale of its primary east coast facility.
The Company also has debt financing in the form of $148.55 million of 11% Senior
Notes (the "Notes") which are due April 15, 2007 and require interest payments
to be made semi-annually on April 15 and October 15. During the fourth quarter
of 2000, the Company purchased an aggregate of $16.45 million of its Notes on
the open market resulting in an extraordinary gain of $3,636, net of $2,527 in
income taxes.
The Company's level of indebtedness will have several important effects on its
future operation, including (i) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of interest on its indebtedness
and will not be available for other purposes, (ii) covenants contained in the
Revolving Credit Facility and the Indenture governing the Senior Notes will
require the Company to meet certain financial tests, and other restrictions may
limit its ability to borrow additional funds or to dispose of assets and may
affect the Company's flexibility in planning for, and reacting to, changes in
its business, including possible acquisition activities, and (iii) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes
may be impaired.
The Company believes that borrowings available under the Revolving Credit
Facility, as amended, will be sufficient to finance the Company's working
capital requirements, provide for all known obligations of the Company
(including the obligations of the Company under the $148.55 million Notes and
under its operating leases) and fund planned capital expenditures through
December 31, 2001.
See Note 5 to the accompanying consolidated financial statements for additional
discussion on borrowings, availability, covenants and dividend restrictions of
the Company under its Revolving Credit Facilities and its Notes due April 15,
2007.
See Note 9 for a description of the dividend and liquidation terms of the
Company's Cumulative Redeemable Preferred Stock.
16
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The standard
requires that all companies record derivatives in the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The Company will
adopt SFAS No. 133, as required, the first quarter of fiscal year 2001, and such
adoption will not have a material impact on the consolidated financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin, or SAB, No. 101, "Revenue Recognition in Financial Statements," as
amended by SAB 101A and 101B, which is effective no later than the quarter ended
December 31, 2000. SAB 101 clarifies the SEC's views regarding the recognition
of revenue. The Company adopted SAB 101 during 2000. The adoption of SAB 101 did
not have a significant impact on the Company's consolidated financial
statements.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate risk primarily through its borrowing
activities. The Company's short-term borrowings are substantially all
denominated in U.S. dollars and bear interest at variable rates primarily based
on either a prime rate or Eurodollar rate. The effect of a 10% change in the
prime or the Eurodollar rate would not have a material impact on the Company's
financial results. The Company also has fixed debt financing of $148,550 of 11%
Senior Notes due April 15, 2007 that had a fair value of $89,130 as of December
31, 2000 based upon recent private market trades. There is inherent rollover
risk for these borrowings upon maturity and are renewed at current market rates.
The extent of this risk is not quantifiable or predictable because of the
variability of future interest rates and the Company's future financing
requirements. Currently, the Company does not enter into financial instruments
transactions for trading or other speculative purposes or to manage interest
rate exposure and does not have investments in debt or equity securities.
The Company transacts sales and purchases primarily in U.S. dollars and
maintains minimum cash balances denominated in foreign currencies. The Company
does not enter into foreign currency hedge transactions. Through December 31,
2000, foreign currency fluctuations have not had a material impact on the
Company's consolidated financial position or results of operations or cash flows
in any one year and the Company does not believe that its exposure to foreign
currency rate fluctuations is material.
17
ITEM 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors............................................................................... 19
Consolidated Financial Statements:
Consolidated balance sheets as of December 31, 2000 and 1999............................................. 20
Consolidated statements of operations for the years ended December 31, 2000, 1999 and 1998............... 21
Consolidated statements of stockholders' equity for the years ended December 31, 2000, 1999 and 1998..... 22
Consolidated statements of cash flows for the years ended December 31, 2000, 1999 and 1998............... 23
Notes to consolidated financial statements............................................................... 24
18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Syratech Corporation:
We have audited the accompanying consolidated balance sheets of Syratech
Corporation and subsidiaries (the "Company") as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2000.
Our audits also included the consolidated financial statement schedule listed in
the Index at Item 14. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Syratech Corporation and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 30, 2001
19
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
--------------------
2000 1999
-------- --------
ASSETS
Current assets:
Cash and equivalents ................................................ $ 3,442 $ 1,451
Accounts receivable, net ............................................ 103,637 69,267
Inventories ......................................................... 92,749 94,096
Deferred income taxes ............................................... 14,156 13,187
Prepaid expenses and other .......................................... 3,318 3,273
-------- --------
Total current assets ............................................ 217,302 181,274
Property, plant and equipment, net ..................................... 71,776 71,689
Purchase price in excess of net assets acquired, net.................... 6,566 6,308
Other assets, net ...................................................... 5,446 7,246
-------- --------
Total ........................................................... $301,090 $266,517
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable ......................... $ 67,318 $ 22,669
Accounts payable .................................................... 13,642 11,673
Accrued expenses .................................................... 14,801 11,697
Accrued interest .................................................... 4,120 3,999
Accrued compensation ................................................ 3,421 3,012
Accrued advertising ................................................. 3,610 3,569
Income taxes payable ................................................ 289 1,216
-------- --------
Total current liabilities ....................................... 107,201 57,835
Long - term debt ....................................................... 148,550 165,000
Deferred income taxes .................................................. 20,547 19,671
Pension liability ...................................................... 2,568 2,674
Commitments and contingencies
Preferred stock, $.01 par value, 500,000 shares authorized;
(25,000 designated as cumulative redeemable preferred stock,
18,000 shares issued and outstanding, liquidation value of $18,000,
includes accrued and unpaid dividends of $9,438 and $6,498
in 2000 and 1999, respectively) ................................... 27,438 24,498
Common stock, $.01 par value, 20,000,000 shares
authorized; 3,784,018 shares issued and outstanding ............... 38 38
Deficit ............................................................. (4,331) (3,308)
Accumulated other comprehensive income .............................. (921) 109
-------- --------
Total stockholders' equity ...................................... 22,224 21,337
-------- --------
Total ........................................................... $301,090 $266,517
======== ========
See notes to consolidated financial statements.
20
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended December 31,
---------------------------------
2000 1999 1998
-------- -------- ---------
Net sales ............................................................. $356,598 $305,270 $ 290,406
Cost of sales ......................................................... 259,729 221,199 212,968
-------- -------- ---------
Gross profit ..................................................... 96,869 84,071 77,438
Selling, general and administrative expenses .......................... 77,524 69,079 65,017
Asset dispositions, impairment of long-lived assets
and restructuring costs ........................................... (532) (15,596) 5,170
Other operating income ................................................ (1,982) (3,358) (5,662)
-------- -------- ---------
Income from operations ........................................... 21,859 33,946 12,913
Interest expense ...................................................... (24,223) (24,643) (23,709)
Interest income ....................................................... 70 137 34
-------- -------- ---------
Income (loss) before provision (benefit) for income taxes ........ (2,294) 9,440 (10,762)
Provision (benefit) for income taxes ................................. (575) 4,251 (2,690)
-------- -------- ---------
Income (loss) from continuing operations before extraordinary gain (1,719) 5,189 (8,072)
Extraordinary gain on early extinguishment of debt, net of
income taxes of $2,527 ............................................ 3,636 -- --
-------- -------- ---------
Net income (loss) ..................................................... 1,917 5,189 (8,072)
Preferred stock dividends accrued ..................................... 2,940 2,624 2,344
-------- -------- ---------
Net income (loss) applicable to common stockholders .............. $ (1,023) $ 2,565 $ (10,416)
======== ======== =========
Basic and diluted income (loss) per share:
Income (loss) from continuing operations before extraordinary gain $ (0.45) $ 1.37 $ (2.13)
Extraordinary gain on early extinguishment of debt, net of
income taxes of $2,527 ....................................... 0.96 -- --
Preferred stock dividends accrued ................................ (0.78) (0.69) (0.62)
-------- -------- ---------
Net income (loss) per common share .................................. $ (0.27) $ 0.68 $ (2.75)
======== ======== =========
Weighted-average number of shares outstanding ....................... 3,784 3,784 3,784
======== ======== =========
See notes to consolidated financial statements.
21
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998
(in thousands, except for share data)
Cumulative
Redeemable Accumulated
Common Stock Preferred Stock Retained Other
------------------ ------------------ Earnings Comprehensive
Shares Amount Shares Amount (Deficit) Income Total
---------- ------- -------- -------- -------- ------------- -----------
Balance, January 1, 1998 ......... 3,784,018 $ 38 18,000 $ 19,530 $ 4,816 $ 769 $ 25,153
Other ............................ (273) (273)
Accrued preferred stock dividend . 2,344 (2,344) --
Comprehensive income:
Translation adjustment ........ (270) (270)
Net loss ...................... (8,072) (8,072)
--------
Total comprehensive loss .... (8,342)
--------- ------ ------ -------- -------- -------- --------
Balance, December 31, 1998 ....... 3,784,018 38 18,000 21,874 (5,873) 499 16,538
Accrued preferred stock dividend . 2,624 (2,624) --
Comprehensive income:
Translation adjustment ........ (390) (390)
Net income .................... 5,189 5,189
--------
Total comprehensive income .. 4,799
--------- ------ ------ -------- -------- -------- --------
Balance, December 31, 1999 ....... 3,784,018 38 18,000 24,498 (3,308) 109 21,337
Accrued preferred stock dividend . 2,940 (2,940) --
Comprehensive income:
Translation adjustment ........ (695) (695)
Minimum pension adjustment .... (335) (335)
Net income .................... 1,917 1,917
--------
Total comprehensive income .. 887
--------- ------ ------ -------- -------- -------- --------
Balance, December 31, 2000 ....... 3,784,018 $ 38 18,000 $ 27,438 $ (4,331) $ (921) $ 22,224
========= ====== ====== ======== ======== ======== ========
See notes to consolidated financial statements.
22
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Cash flows from operating activities:
Net income (loss) ..................................... $ 1,917 $ 5,189 $ (8,072)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization .................... 8,618 8,582 7,857
Deferred income taxes ............................ (93) 2,788 (4,059)
Pension liability ................................ (106) (291) (171)
Impairment of long-lived assets .................. 1,747 5,170
Gain on sale of property ......................... (17,988)
Gain on extinguishment of debt before income taxes (6,163)
(Gain) loss on disposal of assets and other ...... (17) (22) 42
Increase (decrease) in assets and liabilities:
Accounts receivable ............................ (34,370) 434 (6,235)
Inventories .................................... 1,347 (7,491) (2,999)
Prepaid expenses and other ..................... (45) (1,629) 719
Accounts payable and accrued expenses .......... 5,644 (1,976) (346)
Income taxes payable ........................... (927) 798 418
-------- -------- --------
Net cash used in operating activities ................. (24,195) (9,859) (7,676)
-------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment ........... (7,919) (6,519) (13,166)
Proceeds from disposal of assets ..................... 278 32,591 1
Other ................................................ (105) 67 194
-------- -------- --------
Net cash provided by (used in) investing activities ... (7,746) 26,139 (12,971)
-------- -------- --------
Cash flows from financing activities:
Net borrowings under revolving loan facilities ...... 44,649 (23,532) 27,301
Retirement of outstanding senior notes .............. (9,793)
Other ............................................... (5) (356)
-------- -------- --------
Net cash provided by (used in) financing activities ... 34,851 (23,532) 26,945
-------- -------- --------
Effect of exchange rate changes ....................... (919) (306) (270)
-------- -------- --------
Net increase (decrease) in cash and equivalents ....... 1,991 (7,558) 6,028
Cash and equivalents, beginning of year ............... 1,451 9,009 2,981
-------- -------- --------
Cash and equivalents, end of year ..................... $ 3,442 $ 1,451 $ 9,009
======== ======== ========
See notes to consolidated financial statements.
23
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for share and per share data)
1. Business and Summary of Significant Accounting Policies
Business
Syratech Corporation designs, manufactures, imports and markets a diverse
portfolio of tabletop, giftware and seasonal products, including: sterling
silver, silver-plated and stainless steel flatware, sterling silver,
silver-plated and brass hollowware, picture frames and photo albums, glassware,
woodenware and ceramics, fine porcelain boxes, figurines, waterglobes and
Christmas ornaments, trim, lighting and tree skirts.
Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of Syratech
Corporation and its subsidiaries (the "Company"), Wallace International
Silversmiths, Inc. and its subsidiaries ("Wallace"), Leonard Florence
Associates, Inc. ("LFA"), Towle Manufacturing Company and its subsidiaries
("Towle"), Rauch Industries, Inc. and its subsidiaries ("Rauch"), Silvestri Inc.
("Silvestri"), and Syratech (H.K.) Ltd. and its subsidiaries ("Syratech H.K.").
All significant intercompany balances and transactions have been eliminated.
Earnings (Loss) Per Share
The Company applies the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("Statement 128"), which specifies the
computation, presentation, and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock or potential common stock.
Basic earnings (loss) per share reflect the weighted-average number of common
shares outstanding during each period. Diluted earnings (loss) per share reflect
the impact of potential common shares from options and warrants, using the
treasury stock method. There were no potential common shares in 2000, 1999 or
1998.
Comprehensive Income (Loss)
Comprehensive income is comprised of net income, foreign currency translation
adjustments and minimum pension liability adjustments.
Use of Estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates include income taxes, reserves for potentially obsolete and slow
moving inventory, and reserves for potential bad debts and sales returns.
24
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenue is recognized when products are shipped. The Company provides allowances
for estimated doubtful accounts and sales returns based on historical experience
and evaluation of specific accounts. Such allowances were comprised of the
following:
December 31,
----------------------------
2000 1999
----------- ---------
Sales returns and allowances ........ $ 10,041 $ 7,405
Doubtful accounts ................... 1,881 1,606
----------- ---------
$ 11,922 $ 9,011
=========== =========
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin, or SAB, No. 101, "Revenue Recognition in Financial Statements," as
amended by SAB 101A and 101B, which is effective no later than the quarter ended
December 31, 2000. SAB 101 clarifies the SEC's views regarding the recognition
of revenue. The Company adopted SAB 101 during 2000. The adoption of SAB 101 did
not have a significant impact on the Company's consolidated financial
statements.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to credit risk
consist primarily of cash, cash equivalents and accounts receivable. The Company
manages its cash credit risk by maintaining cash and cash equivalents with
financial institutions that it believes are financially sound. In regards to
accounts receivable, the Company performs on going credit evaluations of its
customers. The Company sells its products to a multitude of customers in
numerous geographical locations. There is no disproportionate concentration of
risk.
Customers
Substantially all customers are retailers. No base of customers in one
geographic area constitutes a significant portion of sales. Sales to one
customer represented 12.2% and 10.6% of 2000 and 1999 consolidated net sales,
respectively. No single customer represented 10% or greater of consolidated net
sales in 1998. In 2000, one customer represented 17.2% of net accounts
receivable. In 1999, another customer represented 13.9% of net accounts
receivable.
Cash Equivalents
Cash equivalents consist of highly liquid investments purchased with a remaining
maturity of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out ("FIFO") method. See Note 3.
Property, Plant and Equipment
Purchased property, plant and equipment is recorded at cost. Leased equipment is
recorded at the present value of the minimum lease payments required during the
lease term. Depreciation is provided using the straight-line method over the
estimated useful lives of the related assets and over the terms, if shorter, of
the related leases, as follows:
Years
-----
Buildings and improvements 2 to 39
Tools and dies 3 to 50
Machinery and equipment 3 to 10
Other 3 to 10
25
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of Long-Lived Assets
Recoverability of long-lived assets is determined by periodically comparing the
forecasted undiscounted net cash flows of the operations to which the assets
relate to the carrying amount, including associated intangible assets of such
operations.
Purchase Price in Excess of Net Assets Acquired
Purchase price in excess of net assets acquired is amortized using the
straight-line method over 30 years. This goodwill is a result from the Company's
purchase of its Rauch subsidiary in 1996. The Company evaluates the carrying
value of goodwill based upon current and anticipated net income and undiscounted
cash flows, and recognizes an impairment when it is probable that such estimated
future net income and/or cash flows will be less than the carrying value of
goodwill. Measurement of the amount of impairment, if any, is based upon the
difference between carrying value and estimated fair value.
Other Assets
Other assets consist principally of deposits, deferred fees, deferred financing
costs and deferred long-term rent. Deferred financing costs are being amortized
using the interest method over the terms of the related loans. Accumulated
amortization aggregated approximately $4,744 and $3,685 at December 31, 2000 and
1999, respectively.
Advertising Costs
Advertising costs are charged to operations when incurred. These costs are
recorded in selling, general and administrative expenses and totaled $4,440,
$4,196 and $4,417 in the years ended December 31, 2000, 1999 and 1998,
respectively.
Financial Instruments
The carrying values of cash and equivalents, accounts receivable, accounts
payable and borrowings under revolving credit facilities approximate fair value
due to the short-term nature of these instruments. The fair value of the Notes
(Note 5) was estimated to be $89,130 as of December 31, 2000, based upon recent
private market trades.
Income Taxes
The Company and its domestic subsidiaries (except for Wallace's Puerto Rican
subsidiaries) file a consolidated federal income tax return. The Puerto Rican
subsidiaries file separate returns in accordance with Section 936 of the
Internal Revenue Code. The Company uses the liability method of accounting for
income taxes. Deferred taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities given the provisions of the enacted tax laws. The Company
provides for taxes on substantially all undistributed earnings of foreign
subsidiaries.
The Company records valuation allowances against net deferred tax assets, if
based upon the available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. In assessing the realizability
of deferred assets, management considers whether it is more likely than not that
some or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income and when temporary differences become deductible. The Company
considers, among other available information, uncertainties surrounding the
recoverability of deferred tax assets, scheduled reversals of deferred tax
liabilities, projected future taxable income, and other matters in making this
assessment.
26
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at year-end exchange rates and income and expense items are
translated at the average rates of exchange prevailing during each year. The
effects of foreign currency fluctuations on the foreign subsidiaries' assets and
liabilities have been recorded directly to other comprehensive income included
as a component of stockholders' equity. Gains and losses on foreign currency
transactions are included in the consolidated statement of operations and
comprehensive income.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The standard
requires that all companies record derivatives in the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The Company will
adopt SFAS No. 133, as required, the first quarter of fiscal year 2001, and such
adoption will not have a material impact on the consolidated financial
statements.
Reclassification
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
Cash Flow Information
Supplemental cash flow information is as follows:
Cash paid during the year for:
2000 1999 1998
---- ---- ----
Interest................... $22,941 $23,318 $22,653
======= ======= =======
Income taxes............... $ 2,190 $ 1,118 $ 1,045
======= ======= =======
27
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. Asset Dispositions, Impairment of Long-Lived Assets and Restructuring Costs
In November 1999 the Company sold its primary east coast distribution facility
for $29,500. The sale of this facility resulted in a net gain of approximately
$17,140. The Company simultaneously entered into a short-term leaseback of
approximately 40% of the distribution facility (which ended on January 31,
2001). Also in 1999, the Company sold undeveloped land adjacent to this facility
for a gain of approximately $756. In connection with the disposition of the
facility, the Company recorded separation benefits of approximately $532 for 42
hourly employees and three salaried employees, all of which was accrued at
December 31, 1999. During 2000 the separation benefits were not required and the
$532 accrual was reversed in the fourth quarter with a corresponding benefit
recorded in the statement of operations.
In the fourth quarter of 1999, the Company wrote down the value of certain
assets by approximately $1,157. These write-downs relate to abandonment of
certain manufacturing equipment at its Gastonia, North Carolina, facility with a
book value of approximately $1,057. The remaining asset write-downs relate to
the finalization of amounts relative to the shutdown of the El Paso facility
discussed below. Other less significant asset write-downs and adjustments
aggregated a net charge of $611. All amounts provided in 1999 were fully
utilized during 2000.
In the fourth quarter of 1998, the Company wrote down the value of certain
assets primarily relating to its facilities in El Paso, Texas, and one facility
in Gastonia, North Carolina, where the carrying values had been impaired by an
aggregate of $4,307 after management's decision to shut down and sell the
facilities. The El Paso facility was sold in December of 1999 and was leased
back through June 30, 2000. The Company relocated its warehousing activities to
a newly leased 85,000 sq. ft. facility also in El Paso. The Gastonia facility
was shut down on June 15, 1999. No additional charges or credits were required
after 1998. Also included in the fourth quarter of 1998 is a charge for $627
related to impaired equipment and tooling that was abandoned at other Company
facilities and $236 representing a decline in the estimated fair value of a
property held for sale since 1997.
3. Inventories
Inventories by major classification are as follows:
December 31,
------------------------
2000 1999
---------- ----------
Raw materials.................. $ 10,757 $ 11,137
Work-in-process................ 8,062 6,115
Finished goods................. 73,930 76,844
---------- ----------
Total................ $ 92,749 $ 94,096
========== ==========
28
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. Property, Plant and Equipment
Property, plant and equipment was comprised of the following:
December 31,
---------------------------
2000 1999
--------- ---------
Land and improvements............. $ 6,359 $ 6,524
Buildings and improvements........ 52,153 50,021
Tools and dies.................... 18,604 17,928
Machinery and equipment........... 40,068 37,039
Other............................. 3,988 3,290
Construction in progress.......... 1,873 910
--------- ---------
Total........................ 123,045 115,712
Less accumulated depreciation. (51,269) (44,023)
--------- ---------
Net............................. $ 71,776 $ 71,689
========= =========
Capitalized interest is not material to the Company's consolidated financial
statements in any year presented.
Unrecorded commitments for property, plant and equipment are not material to the
Company's consolidated financial statements at December 31, 2000.
5. Revolving Loan Facilities and Notes Payable
Revolving Loan Facilities
The Company has a Senior Revolving Credit Facility (the "Revolving Credit
Facility") dated April 16, 1997 (amended effective as of July 31, 1997, December
31, 1997, March 30, 1998, December 31, 1998 and March 26, 2001) which at
December 31, 2000 provided for $123,000 of borrowings, including a $30,000
sublimit for the issuance of standby and commercial letters of credit. In
accordance with the terms of its Senior Notes Indenture, the Revolving Credit
Facility was reduced by $7,000 effective as of November 21, 2000 as a result of
the permanent application of certain proceeds from the November 22, 1999 sale of
its primary east coast facility. Borrowings made under the Revolving Credit
Facility bear interest at a rate equal to, at the Company's option, the
Eurodollar Rate plus 212.5 basis points (8.69% using the 30-day Eurodollar rate
at December 31, 2000) or the Prime Rate plus 50 basis points (10.0% at December
31, 2000). The weighted-average interest rate on borrowings outstanding under
this facility for the year ended December 31, 2000 was 9.9%. The Revolving
Credit Facility expires on April 16, 2002. Pursuant to the terms of the
Revolving Credit Facility, as amended, the Company is required during February
and March of each year to maintain excess availability of at least $25,000. The
obligations of the Company under the Revolving Credit Facility are secured by
inventory and accounts receivable of the Company (the "Issuer/Guarantor Parent")
and its domestic subsidiaries and by a pledge of 100% of the domestic
subsidiaries' (the "Guarantor Subsidiaries") and at least 65% of the foreign
subsidiaries' ("Non-Guarantor Subsidiaries") outstanding capital stock (Note
14). The Revolving Credit Facility, as amended, contains customary covenants of
the Company and the subsidiary borrowers, including but not limited to capital
expenditures, and minimum consolidated net worth on or after December 31, 1997
to be at least $1.00 (not in thousands). In addition, the Revolving Credit
Facility, as amended, includes covenants requiring a minimum ratios of earnings
before income taxes, depreciation, amortization, and certain adjustments
("EBITDA"), as defined, including funded debt to EBITDA and fixed charge
coverage, as defined. Management believes the Company is in compliance with the
covenants, as amended, as of December 31, 2000 and for the year then ended. At
December 31, 2000, there was $66,441 outstanding under this facility and of
these borrowings, $40,000 were at the Eurodollar rate. Availability under the
Revolving Credit Facility, net of outstanding letters of credit, was $43,976 at
December 31, 2000.
29
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes Payable
The Company also has debt financing of $148,550 of 11% Senior Notes (the
"Notes") which are due April 15, 2007 and require interest payments to be made
semi-annually on April 15 and October 15. During the fourth quarter of 2000, the
Company purchased an aggregate of $16,450 of its Notes on the open market
resulting in an extraordinary gain of $3,636, net of $2,527 in income taxes. The
Notes are general unsecured obligations of the Company and rank pari passu in
right of payment with all current and future unsubordinated indebtedness of the
Company, including borrowings under the Revolving Credit Facility. However, all
borrowings under the Revolving Credit Facility are secured by a first priority
lien on the accounts receivable and inventory of the Company and its domestic
subsidiaries ("Guarantor Subsidiaries") but not of its foreign subsidiaries (See
Note 14). Consequently, the obligations of the Company under the Notes are
effectively subordinated to its obligations under the Revolving Credit Facility
to the extent of such assets. The Notes are redeemable, in whole or in part, at
the Company's option after April 15, 2002.
The Company's ability to pay dividends is restricted by terms of the Revolving
Credit Facility and the Notes. The Notes also include financial covenants, which
are less restrictive than the covenants contained in the Revolving Credit
Facility. Cross default provisions exist between the Notes and the Revolving
Credit Facility.
Other Debt Facilities
The Company has outstanding borrowings of $877 under one of Wallace's Puerto
Rican subsidiaries' $1,000 debt facility (the "Facility"), expiring on May 31,
2001. The Facility bears interest at a rate equal to, at the Company's option,
the Eurodollar Rate plus 175 basis points (8.31 % using the 30-day Eurodollar
rate at December 31, 2000) or the bank's Prime Rate less 25 basis points (9.25%
at December 31, 2000). Availability under the Facility was $123 at December 31,
2000. The weighted-average interest rate on borrowings outstanding under this
facility for the year ended December 31, 2000 was 9.2%.
Borrowings under the Facility were uncollateralized; however, the pledge of
assets owned by one of the subsidiaries as collateral for other loans was
prohibited. Borrowings under the Facility were guaranteed by the Company and
cross-guaranteed by certain other subsidiaries.
The Company's C.J. Vander Ltd. subsidiary has an overdraft facility entered into
on March 16, 1998 ("Overdraft Facility") which provides for borrowings of
(pound)250. Borrowings made under the Overdraft Facility bear interest at the
bank's base rate plus 1% (7.0% at December 31, 2000). The Overdraft Facility
contains customary covenants, and borrowings are secured by substantially all of
the assets of C.J.Vander Ltd. The Overdraft Facility as renewed on August 23,
2000 is due on demand and expires on April 30, 2001. Availability under the
Overdraft Facility was (pound)241 at December 31, 2000. The weighted-average
interest rate on borrowings outstanding under this facility for the year ended
December 31, 2000 was 7.0%.
30
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. Income Taxes
The provisions (benefit) for income taxes from continuing operations before
extraordinary gain, excluding $2,527 of deferred tax expense reported as a
reduction of the extraordinary item reported for fiscal 2000, are as follows:
Year Ended December 31,
---------------------------------------------------
2000 1999 1998
---- ---- ----
Current:
Federal......................................... $ 380 $ 87 $ -
State........................................... 506 579 489
Foreign......................................... 1,159 797 880
-------------- ------------- -------------
2,045 1,463 1,369
-------------- ------------- -------------
Deferred:
Federal......................................... (2,412) 3,198 (4,042)
State........................................... (208) (410) (17)
Foreign......................................... - - -
-------------- ------------- -------------
(2,620) 2,788 (4,059)
-------------- ------------- -------------
Total provisions............................ $ (575) $ 4,251 $ (2,690)
============== ============= =============
The reconciliations between the Company's effective income tax rate and the U.S.
federal statutory rate from continuing operations before extraordinary gain are
as follows:
Year Ended December 31,
----------------------------------------------------
2000 1999 1998
---- ---- ----
Federal statutory rate.............................. (35.0)% 35.0% (35.0)%
State taxes, net of federal income tax benefit...... 7.0 % 2.4% 1.4 %
Foreign income taxes (including Puerto Rico)........ (3.4)% 6.2% 5.1 %
Other............................................... 6.4 % 1.4% 3.5 %
-------------- ------------- -------------
Effective income tax rate........................... (25.0)% 45.0% (25.0)%
============== ============= =============
The components of income before provision (benefit) for income taxes from
continuing operations before extraordinary gain were comprised of the following:
Year Ended December 31,
----------------------------------------------------
2000 1999 1998
---- ---- ----
Domestic........................................... $ (7,598) $ 3,859 $ (15,090)
Foreign............................................ 5,304 5,581 4,328
-------------- ------------- -------------
Total.......................................... $ (2,294) $ 9,440 $ (10,762)
============== ============= =============
31
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Provisions have been made for taxes on the majority of the undistributed
earnings of Syratech H.K. and Wallace's Puerto Rican subsidiaries which are
ultimately expected to be remitted to the parent company. In addition, the
Company has permanently invested a portion of the undistributed earnings of
these subsidiaries. It is not practical to estimate the amount of unrecognized
deferred tax liability attributable to these undistributed foreign earnings.
Wallace's Puerto Rican subsidiaries operate under grants from the Commonwealth
of Puerto Rico exempting 90% of their income from taxation until December 2003.
Had the Company not been eligible for the tax exemption, net loss for 2000 would
have increased by $1,217, net income in 1999 would have decreased by $985 and
the net loss for 1998 would have increased by $1,105, and earnings per share
would have been decreased by approximately $.32, $.26 and $.29, respectively.
The tax effects of significant items comprising the Company's net deferred tax
asset (liability) are as follows:
December 31,
---------------------------------
2000 1999
---- ----
Accounts receivable......................... $ 5,458 $ 3,803
Inventory................................... 2,282 1,576
Reserves and accruals....................... 1,366 1,794
Operating loss carryforwards................. 7,710 7,353
Other....................................... 471 845
-------------- -------------
Total.................................... 17,287 15,371
Valuation allowance......................... (3,131) (2,184)
-------------- -------------
Net current deferred tax asset................ $ 14,156 $ 13,187
============== =============
Property, plant and equipment................ $ (11,247) $ (11,928)
Deferred compensation........................ 874 1,021
Foreign earnings to be remitted.............. (10,174) (8,764)
-------------- -------------
Net non-current deferred tax liability...... $ (20,547) $ (19,671)
============== =============
The valuation allowance relates primarily to the potential unusable portion of
foreign tax loss carryforwards, and increased as a result of fiscal 2000 losses
by a foreign subsidiary.
7. Commitments and Contingencies
The Company and its subsidiaries have various operating lease commitments for
buildings and equipment. The lease agreements generally require the Company to
pay insurance, real estate taxes, and maintenance and contain various renewal
options. Future minimum rental payments for all noncancellable operating leases
for each of the next five years and thereafter are as follows:
2001.................................. $3,980
2002.................................. 3,237
2003.................................. 2,559
2004.................................. 1,949
2005.................................. 1,403
Subsequent to 2005.................... 1,623
Rent expense for all operating leases was approximately $5,636, $3,951 and
$4,570 in 2000, 1999 and 1998, respectively.
32
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's Rauch, Inc. subsidiary has entered into long term Purchase
Commitments (Supply Agreements) with two vendors located in Kentucky and
Pennsylvania for glass components used in the manufacture of Christmas
ornaments. The Supply Agreements provide for the vendors to supply and Rauch to
purchase, certain minimum quantities. At the end of December 31, 2000, the
approximate future purchase commitments under the Supply Agreements were as
follows:
2001................................................. $3,950
2002................................................. 3,950
Certain subsidiaries were contingently obligated for outstanding letters of
credit, trade acceptances and similar instruments aggregating $7,707 at December
31, 2000 (Note 5). The assets of Syratech H.K. are pledged as collateral for
certain of these contingent obligations.
8. Employee Benefit Plans
The following information is provided in accordance with the provisions of SFAS
No. 132, " Employers' Disclosures about Pensions and other Postretirement
Benefits."
401(K) Savings Plans
The Company has two 401(k) savings plans (the "Plans"). The Plans cover
substantially all employees of its domestic and Puerto Rican subsidiaries, and
are subject to certain minimum age and length of employment requirements. Under
the Plans, the Company matches 50% of the first five hundred twenty dollars
contributed and 30% thereafter, of the participants' contributions up to 6% of
compensation. The Company also has a savings plan, established in 1991, covering
substantially all employees of the Company's Hong Kong subsidiary. Under the
Hong Kong plan, the Company contributes up to 10% of the participants'
compensation. The Company contributed an aggregate of $581, $510 and $617 to all
of these plans in 2000, 1999 and 1998.
Officers Retirement Plan
The Company has employment agreements with certain officers for terms ranging
from three to five years.
Agreements with five of the Company's officers provide for other retirement
benefit payments. Two agreements provide that the benefit payments be based upon
two percent of the average total annual compensation (salary and bonus) for the
three-year period preceding the executives' retirement dates multiplied by the
number of years of service. In addition, one of the agreements provides for a
100% survivor benefit for the executive's spouse. Two agreements provide for
benefit payments based upon the greater of (i) $75,000 or (ii) one-half of one
percent of the average total annual compensation (salary and bonus) for the
three-year period preceding the executives' retirement dates multiplied by the
number of years of service. One agreement with an officer provides for benefit
payments based upon the greater of (i) $75,000 or (ii) one percent of the
average total annual compensation (salary and bonus) for the three-year period
preceding the executives' retirement dates multiplied by the number of years of
service. On April 16, 1997 an employment agreement with an officer was amended
so as to (i) change the officer's term of full-time employment from a rolling
five-year term to a fixed five-year term, (ii) provide for a minimum base salary
of $1,150 per annum, (iii) establish $1,150 as the minimum amount upon which the
officer's retirement benefit (and the survivor's benefit of his surviving
spouse) will be computed and (iv) create contractual rights with respect to
certain perquisites that he is accorded informally under present arrangements
with the Company. Additionally, an employment agreement with another officer was
amended to change the officer's term of full-time employment from a rolling
five-year term to a fixed five-year term. On July 29, 1998, the Company entered
into Amendment No. 1 to Mr. Florence's Amended and Restated Employment Agreement
which provides, among other things, for the modification of the computation and
timing of payments in respect of the retirement benefit. The terms of the
Amendment provide for the acceleration of payments (the first of which was made
upon execution of the Amendment) related to the retirement benefit provided that
such payments are allowed under the terms of the Company's credit agreements, as
amended.
33
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These agreements provide for minimum annual salaries aggregating $2,580 and
certain other benefits. Pension expense is determined using assumptions at the
beginning of the year. Assumptions used in determining the actuarial present
value of the projected benefit obligation include a discount rate of 6.75% in
2000, 1999, and 1998, and a rate of future increases in benefit compensation of
3%. An additional minimum liability of $335 for fiscal year 2000 is recorded
within other comprehensive income.
Change in projected benefit obligation:
2000 1999 1998
---- ---- ----
Benefit obligation at beginning of year ....... $ 2,717 $ 3,261 $ 3,529
Service cost .................................. 158 198 265
Interest cost ................................. 123 160 185
Actuarial loss/(gain) ......................... 621 (10) 174
Payments ...................................... (892) (892) (892)
-------------- ------------ ------------
Benefit obligation at end of year ............ $ 2,727 $ 2,717 $ 3,261
============== ============ ============
Components of net periodic benefit costs:
2000 1999 1998
---- ---- ----
Service cost for benefits earned............... $ 158 $ 198 $ 265
Interest cost benefit obligation............... 123 160 185
Amortization of prior service cost............. (34) (34) (34)
Amortization of loss........................... 6 26 37
-------------- ------------ ------------
Net periodic pension cost...................... $ 253 $ 350 $ 453
============== ============ ============
Funded status as of December 31, 2000 and 1999:
2000 1999
---- ----
Actuarial present value of obligations:
Accumulated benefit obligation................. $ 2,568 $ 2,479
============= =============
Projected benefit obligation................... $ 2,727 $ 2,717
Fair value of plan assets...................... - -
------------- -------------
Projected benefit obligation in excess
of plan assets............................... 2,727 2,717
Unrecognized prior service cost................ 265 298
Unrecognized gain/(loss)....................... (759) (341)
Additional minimum liability 335
------------- -------------
Net accrued pension liability.................. $ 2,568 $ 2,674
============= =============
Other
The Company's C. J. Vander subsidiary also has an employee benefit plan. The
Company's obligation under the plan is not material to the Company's
consolidated financial position or results of operations.
34
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. Stockholders' Equity
Preferred Stock
The liquidation preference of the Cumulative Redeemable Preferred Stock is
$1,000 per share plus accrued but unpaid dividends. Holders of the Cumulative
Redeemable Preferred Stock are entitled, subject to the rights of creditors, in
the event of any voluntary or involuntary liquidation of the Company, to an
amount in cash equal to $1,000 for each share outstanding plus all accrued and
unpaid dividends. The rights of holders of the Cumulative Redeemable Preferred
Stock upon liquidation of the Company rank prior to those of the holders of
Common Stock.
Dividends on shares of Cumulative Redeemable Preferred Stock are cumulative from
the date of issue and are payable when and as declared from time to time by the
Board of Directors of the Company. Such dividends accrue on a daily basis
(whether or not declared) from the original date of issue at an annual rate per
share equal to 12% of the original purchase price per share, with such amount to
be compounded annually on each December 31 so that if the dividend is not paid
for any year the unpaid amount will be added to the original purchase price of
the Cumulative Redeemable Preferred Stock for the purpose of calculating
succeeding years' dividends. At December 31, 2000, $9,438 was accrued.
The Cumulative Redeemable Preferred Stock is redeemable at any time at the
option of the Company, in whole or in part, at $1,000 per share plus all
accumulated and unpaid dividends, if any, to the date of redemption. Subject to
the Company's existing debt agreements, the Company must redeem all outstanding
Cumulative Redeemable Preferred Stock in the event of a public offering of
equity, a change of control or certain sales of assets.
10. Related-Party Transactions
In connection with the 1997 merger between the Company and THL Transaction I
Corp, a Delaware corporation, controlled by affiliates of Thomas H. Lee Company
("THL"), the Company entered into a Management Agreement with THL for which the
Company pays an annual management fee in the amount of $450. The Company paid
and expensed $450 in 2000, 1999 and 1998 under this arrangement.
11. Segment Disclosures
The Company has identified only one distinct and reportable segment: Home
Entertainment and Decorative Products. This segment generates revenue from two
types of product offerings: Tabletop and Giftware, and Seasonal. The Company has
determined that it only has one reportable segment meeting the criteria
established under SFAS 131 "Disclosures about Segments of an Enterprise and
Related Information", as the Company's chief operating decision maker, as
defined, (determined to be the Chief Executive Officer and President) and the
Board of Directors do not manage any part of the Company separately and review
and evaluate only the Company's consolidated operating results.
The Company's operations are conducted primarily in the United States of America
(US), with only two locations representing individually more than 10% of
revenues or income from operations: the US and Hong Kong. The Company also
conducts operations in the United Kingdom (UK) and in other countries; however
these operations are individually insignificant and have been included in "Other
Foreign" below.
35
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following presents information in accordance with SFAS No. 131:
Year Ended December 31,
------------------------------------------------
2000 1999 1998
---- ---- ----
Product Offerings:
Net sales:
Tabletop and Giftware...... $ 230,076 $ 202,563 $ 184,545
Seasonal................... 126,522 102,707 105,861
------------- -------------- --------------
Total................... $ 356,598 $ 305,270 $ 290,406
============= ============== ==============
Geographic Location:
Net sales:
United States.............. $ 291,721 $ 250,454 $ 230,762
Hong Kong.................. 57,900 48,124 55,070
Other foreign.............. 6,977 6,692 4,574
------------- -------------- --------------
Total.................... $ 356,598 $ 305,270 $ 290,406
============= ============== ==============
Income (loss) from operations:
United States.............. $ 16,573 $ 28,355 $ 8,525
Hong Kong.................. 7,245 6,794 4,924
Other foreign.............. (1,959) (1,203) (536)
------------- -------------- --------------
Total.................... $ 21,859 $ 33,946 $ 12,913
============= ============== ==============
Identifiable assets:
United States.............. $ 283,026 $ 249,299 $ 268,133
Hong Kong.................. 7,833 6,108 7,867
Other foreign.............. 10,231 11,110 9,220
------------- -------------- --------------
Total.................... $ 301,090 $ 266,517 $ 285,220
============= ============== ==============
12. Litigation
The Company has been named as a defendant in certain legal actions arising from
its normal business activities. The Company carries insurance against liability
for certain types of risks. Although the amount of liability that could result
from any litigation cannot be predicted, in the opinion of management, the
Company's potential liability on all known claims would not have a material
adverse effect on the consolidated financial position or results of operations
of the Company.
36
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. Quarterly Results (Unaudited)
SUPPLEMENTARY INFORMATION
Quarterly Results (unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ------------- -------------
Year Ended December 31, 2000:
Net sales.......................................... $ 55,327 $ 47,141 $ 119,806 $ 134,324
Gross profit....................................... 14,864 12,426 36,349 33,230
Income (loss) from operations...................... (3,337) (3,220) 15,707 12,709
Income (loss) before provision (benefit) for
income taxes ................................. (8,779) (8,721) 9,357 5,849
Income (loss) from continuing operations
before extraordinary gain .................... (6,584) (6,535) 7,012 4,388
Extraordinary gain on debt extinguishment ......... 3,636
Preferred stock dividend accrued .................. (735) (735) (735) (735)
Net income (loss) applicable to common
stockholders ................................. (7,319) (7,270) 6,277 7,289
Basic and diluted income (loss) per share:
Income (loss) from continuing operations
before extraordinary gain .................. $ (1.74) $ (1.72) $ 1.85 $ 1.16
Extraordinary gain net of income taxes ......... 0.96
Preferred stock dividend accrued ............... (0.19) (0.20) (0.19) (0.20)
------------ ------------ ------------- -------------
Net income (loss) per common share ............. $ (1.93) $ (1.92) $ 1.66 $ 1.92
============ ============ ============= =============
Weighted-average number of shares
outstanding ................................ 3,784 3,784 3,784 3,784
============ ============ ============= =============
Year Ended December 31, 1999:
Net sales.......................................... $ 42,726 $ 42,064 $ 112,587 $ 107,893
Gross profit....................................... 12,839 12,002 31,875 27,355
Income (loss) from operations...................... (2,990) (1,788) 13,507 25,217
Income (loss) before provision (benefit) for
income taxes .................................. (8,663) (6,983) 7,021 18,065
Income (loss) from continuing operations........... (6,498) (5,236) 5,264 11,659
Preferred stock dividend accrued .................. (656) (656) (656) (656)
Net income (loss) applicable to common
stockholders .................................. (7,154) (5,892) 4,608 11,003
Basic and diluted income (loss) per share:
Income (loss) from continuing operations........... $ (1.72) $ (1.38) $ 1.39 $ 3.08
Preferred stock dividend accrued ............... (0.17) (0.18) (0.17) (0.17)
------------ ------------ ------------- -------------
Net income (loss) per common share ............. $ (1.89) $ (1.56) $ 1.22 $ 2.91
============ ============ ============= =============
Weighted-average number of shares
outstanding ................................ 3,784 3,784 3,784 3,784
============ ============ ============= =============
During the fourth quarter of 2000 the separation benefits recorded in 1999 as a
result of the sale of the Company's primary east coast warehouse were not
required and the $532 accrual was reversed with a corresponding benefit to the
statement of operations (see Note 2). A subsidiary of the Company recorded
$1,425 of additional provisions for excess and slow moving inventory, also
during the fourth quarter.
During the fourth quarter of 1999, the Company adjusted the income tax rate to
45% for the full year, which is higher than the estimated effective income tax
rate of 25% recorded through September 30, 1999. The increased income tax rate
reflects the impact from the gain recorded from the sale of a warehouse (see
Note 2).
37
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. Supplemental Consolidating Financial Statements
The following supplemental consolidating financial statements as of December 31,
2000 and 1999 and for each of the three years in the period ended December 31,
2000, present separate financial information for the Company ("Issuer/Guarantor
Parent"), the Guarantor Subsidiaries (Note 5), and the Non-Guarantor
Subsidiaries (Note 5). Separate financial statements of each guarantor are not
presented because management believes that such statements would not be
materially different from the information presented herein.
38
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS
YEAR ENDED DECEMBER 31, 2000
Issuer/ Non-
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- -------------
ASSETS
Current assets:
Cash and equivalents ............................. $ $ 968 $ 2,474 $ $ 3,442
Accounts receivable, net ......................... 97,839 5,798 103,637
Inventories ...................................... 87,767 5,441 (459) 92,749
Deferred income taxes ............................ 4,797 9,359 14,156
Prepaid expenses and other ....................... 113 2,799 406 3,318
------------- ------------- ------------- ------------ --------------
Total current assets ......................... 4,910 198,732 14,119 (459) 217,302
Property, plant and equipment, net .................. 68,676 3,150 (50) 71,776
Purchase price in excess of net assets acquired ..... 6,066 500 6,566
Other assets, net ................................... 5,790 150 (494) 5,446
Investment .......................................... 49,665 9,793 (59,458) -
------------- ------------- ------------- ------------ --------------
Total ........................................ $ 60,365 $ 283,417 $ 17,269 $ (59,961) $ 301,090
============= ============= ============= ============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable ...... $ $ 67,318 $ - $ $ 67,318
Accounts payable .................................. 7,556 6,086 13,642
Accrued expenses .................................. 41 13,570 1,190 14,801
Accrued interest .................................. 3,832 288 4,120
Accrued compensation .............................. 2,997 424 3,421
Accrued advertising ............................... 3,610 3,610
Income taxes payable .............................. (9,893) 7,315 346 2,521 289
------------- ------------- ------------- ------------ --------------
Total current liabilities .................... (6,020) 102,654 8,046 2,521 107,201
Long-term debt ...................................... 165,000 (16,450) 148,550
Deferred income taxes ............................... 10,174 10,373 20,547
Pension liability .................................... 2,568 2,568
Intercompany (receivable) payable ................... (13,127) 36,379 (21,860) (1,392) -
Stockholders' equity ................................ (95,662) 131,443 31,083 (44,640) 22,224
------------- ------------- ------------- ------------ --------------
Total ........................................ $ 60,365 $ 283,417 $ 17,269 $ (59,961) $ 301,090
============= ============= ============= ============ ==============
39
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS
YEAR ENDED DECEMBER 31, 1999
Issuer/ Non-
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ -------------
ASSETS
Current assets:
Cash and equivalents ........................... $ $ 587 $ 864 $ $ 1,451
Accounts receivable, net ....................... 64,087 5,180 69,267
Inventories .................................... 88,181 5,874 41 94,096
Deferred income taxes .......................... 5,399 7,788 13,187
Prepaid expenses and other ..................... 113 2,319 841 3,273
----------- ------------- ------------ ----------- -------------
Total current assets ...................... 5,512 162,962 12,759 41 181,274
Property, plant and equipment, net ................ 68,073 3,664 (48) 71,689
Purchase price in excess of net assets acquired ... 6,308 6,308
Other assets, net ................................. 7,117 129 7,246
Investment ........................................ 49,665 (49,665)
------------ -------------- ------------- ------------ --------------
Total ..................................... $ 62,294 $ 237,472 $ 16,423 $ (49,672) $ 266,517
============ ============== ============= ============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable .... $ $ 22,579 $ 90 $ $ 22,669
Accounts payable ................................ 7,259 4,414 11,673
Accrued expenses ................................ 37 11,337 323 11,697
Accrued interest ................................ 3,832 167 3,999
Accrued compensation ............................ 2,726 286 3,012
Accrued advertising ............................. 3,569 3,569
Income taxes payable ............................ (10,644) 11,284 570 6 1,216
------------ -------------- ------------- ------------ --------------
Total current liabilities ................. (6,775) 58,921 5,683 6 57,835
Long-term debt .................................... 165,000 165,000
Deferred income taxes ............................. 8,764 10,907 19,671
Pension liability .................................. 2,674 2,674
Intercompany (receivable) payable ................. (25,545) 42,800 (17,255) -
Stockholders' equity .............................. (79,150) 122,170 27,995 (49,678) 21,337
------------ -------------- ------------- ------------ --------------
Total ..................................... $ 62,294 $ 237,472 $ 16,423 $ (49,672) $ 266,517
============ ============== ============= ============ ==============
40
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
Issuer/ Non-
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ ------------
Net sales ...................... $ $ 292,115 $ 130,932 $ (66,449) $ 356,598
Cost of sales ................. 217,367 108,811 (66,449) 259,729
---------- ------------ ------------ ------------ ------------
Gross profit ............. 74,748 22,121 96,869
Selling, general and administrative
expenses .................... 450 60,239 16,835 77,524
Asset dispositions, impairments
restructuring ............... (532) (532)
Other operating income ........ (1,982) (1,982)
---------- ------------ ------------ ------------ ------------
Income (loss) from operations (450) 17,023 5,286 - 21,859
Interest expense .............. (22,309) (1,880) (34) (24,223)
Interest income ............... 18 52 70
---------- ------------ ------------ ------------ ------------
Income (loss) before provisions
(benefit) for income taxes (22,759) 15,161 5,304 (2,294)
Provision (benefit) for income taxes (6,556) 4,822 1,159 (575)
---------- ------------ ------------ ------------ ------------
Income (loss) from continuing
operations before
extraordinary gain ..... (16,203) 10,339 4,145 - (1,719)
Extraordinary gain on early
extinguishment of debt, net of
income taxes of $2,527 ...... 3,636 3,636
---------- ------------ ------------ ------------ ------------
Net income (loss) ........ (12,567) 10,339 4,145 1,917
Preferred stock dividends accrued 2,940 2,940
---------- ------------ ------------ ------------ ------------
Net income (loss) applicable to
common stockholders $ (15,507) $ 10,339 $ 4,145 $ - $ (1,023)
========== ============ ============ ============ ============
41
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
Issuer/ Non-
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ ------------
Net sales ...................... $ $ 250,550 $ 94,864 $ (40,144) $ 305,270
Cost of sales ................. 186,145 75,198 (40,144) 221,199
---------- ------------ ------------ ------------ ------------
Gross profit ............. 64,405 19,666 - 84,071
Selling, general and administrative
expenses .................... 450 54,541 14,119 (31) 69,079
Asset dispositions and impairment
of long-lived assets
and restructuring costs....... (15,552) (44) (15,596)
Other operating income ........ (3,358) (3,358)
---------- ------------ ------------ ------------ ------------
Income (loss) from operations (450) 28,774 5,591 31 33,946
Interest expense .............. (19,573) (5,019) (51) (24,643)
Interest income ............... 96 41 137
Dividend income ............... 14,390 - (14,390)
---------- ------------ ------------ ------------ ------------
Income (loss) before provisions
(benefit) for income taxes .. (5,633) 23,851 5,581 (14,359) 9,440
Provision (benefit) for income taxes (4,625) 8,080 796 4,251
---------- ------------ ------------ ------------ ------------
Net income (loss) ......... (1,008) 15,771 4,785 (14,359) 5,189
Preferred stock dividends accrued 2,624 2,624
---------- ------------ ------------ ------------ ------------
Net income (loss) applicable to
common stockholders $ (3,632) $ 15,771 $ 4,785 $ (14,359) $ 2,565
========== ============ ============ ============ ============
42
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
Issuer/ Non-
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ ------------
Net sales ...................... $ $ 230,782 $ 91,234 $ (31,610) $ 290,406
Cost of sales ................. 173,373 71,205 (31,610) 212,968
---------- ------------ ------------ ------------ ------------
Gross profit ............. 57,409 20,029 - 77,438
Selling, general and administrative
expenses .................... 450 49,304 15,406 (143) 65,017
Asset dispositions and impairment
of long-lived assets ........ 4,935 235 5,170
Other operating income ........ (5,662) (5,662)
---------- ------------ ------------ ------------ ------------
Income (loss) from operations (450) 8,832 4,388 143 12,913
Interest expense .............. (19,569) (4,048) (92) (23,709)
Interest income ............... 1 1 32 34
---------- ------------ ------------ ------------ ------------
Income (loss) before provisions
(benefit) for income taxes .. (20,018) 4,785 4,328 143 (10,762)
Provision (benefit) for income taxes (4,850) 1,280 880 (2,690)
---------- ------------ ------------ ------------ ------------
Net income (loss) ......... (15,168) 3,505 3,448 143 (8,072)
Preferred stock dividends accrued 2,344 2,344
---------- ------------ ------------ ------------ ------------
Net income (loss) applicable to
common stockholders $ (17,512) $ 3,505 $ 3,448 $ 143 $ (10,416)
========== ============ ============ ============ ============
43
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000
Issuer/ Non-
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------- ------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) .................................... $(12,567) $ 10,339 $ 4,145 $ -- $ 1,917
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization ...................... 916 7,091 611 8,618
Deferred income taxes .............................. 2,012 (2,105) (93)
Gain on extinguishment of debt, before income taxes (6,163) (6,163)
Gain or (loss) on disposal of assets ............... (17) (17)
Pension liability .................................. (106) (106)
Increase (decrease) in assets and liabilities:
Accounts receivable ............................ (28,985) (4,767) (618) (34,370)
Inventories .................................... 914 433 1,347
Prepaid expenses and other ..................... 497 (977) 435 (45)
Accounts payable and accrued expenses .......... 4 2,963 2,677 5,644
Income taxes payable ........................... 3,278 (3,981) (224) (927)
Intercompany account ........................... 41,094 (36,147) (4,947) --
-------- -------- -------- -------- --------
Net cash (used in) provided by operating activities ... 86 (26,793) 2,512 -- (24,195)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment .......... (7,598) (321) (7,919)
Proceeds from disposal of assets .................... 186 92 278
Other ............................................... (82) (23) (105)
-------- -------- -------- -------- --------
Net cash (used in) investing activities ............... (82) (7,435) (229) -- (7,746)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net borrowings under revolving loan facilities ...... 44,739 (90) 44,649
Retirement of outstanding senior notes .............. (9,793) -- (9,793)
Other ............................................... (4) (1) (5)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities ... (4) 34,935 (90) -- 34,851
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash and equivalents (336) (583) (919)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and equivalents ....... -- 381 1,610 -- 1,991
Cash and equivalents, beginning of year ............... -- 587 864 1,451
-------- -------- -------- -------- --------
Cash and equivalents, end of year ..................... $ -- $ 968 $ 2,474 $ -- $ 3,442
======== ======== ======== ======== ========
44
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
Issuer/ Non-
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------- ------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) ..................................... $ (1,008) $ 15,771 $ 4,785 $(14,359) $ 5,189
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization ...................... 1,422 6,527 633 8,582
Deferred income taxes .............................. 6,217 (3,429) 2,788
Pension liability .................................. (291) (291)
Impairment of long-lived assets
and other asset dispositions .................... 1,791 (44) 1,747
Dividend income .................................... (14,390) 14,390
Gain on sale of property ........................... (17,988) (17,988)
(Gain) loss on disposal of assets and other ........ (32) 10 (22)
Increase (decrease) in assets and liabilities:
Accounts receivable ............................ 746 (312) 434
Inventories .................................... (6,851) (640) (7,491)
Prepaid expenses and other ..................... (1,259) (370) (1,629)
Accounts payable and accrued expenses .......... (3,808) 1,832 (1,976)
Income taxes payable ........................... (10,842) 11,488 152 798
Intercompany account ........................... 18,684 (12,998) (5,655) (31)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities ... 83 (10,333) 391 (9,859)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment .......... (5,551) (968) (6,519)
Proceeds from disposal of assets .................... 32,089 502 32,591
Other ............................................... (83) 150 67
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities ... (83) 26,688 (466) -- 26,139
-------- -------- -------- -------- --------
Cash flows from financing activities:
Change in revolving loan facilities ................. (23,264) (268) (23,532)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities ... (23,264) (268) (23,532)
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash and equivalents (306) (306)
-------- -------- -------- -------- --------
Net decrease in cash and equivalents .................. (6,909) (649) (7,558)
Cash and equivalents, beginning of year ............... 7,496 1,513 9,009
-------- -------- -------- -------- --------
Cash and equivalents, end of year ..................... $ -- $ 587 $ 864 $ -- $ 1,451
======== ======== ======== ======== ========
45
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
Issuer/ Non-
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------- ------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) ..................................... $(15,168) $ 3,505 $ 3,448 $ 143 $ (8,072)
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization ...................... 1,419 5,930 508 7,857
Deferred income taxes .............................. (1,869) (2,036) (154) (4,059)
Pension liability .................................. (171) (171)
Impairment of long-lived assets
and other asset dispositions .................... 4,935 235 5,170
(Gain) loss on disposal of assets and other ........ 42 42
Increase (decrease) in assets and liabilities:
Accounts receivable ............................ (3,893) (2,342) (6,235)
Inventories .................................... (2,519) (480) (2,999)
Prepaid expenses and other ..................... (113) 836 (4) 719
Accounts payable and accrued expenses .......... (645) (818) 1,117 (346)
Income taxes payable ........................... (15,735) 15,657 496 418
Intercompany account ........................... 32,449 (28,889) (3,417) (143)
-------- -------- ------- ----- --------
Net cash (used in) provided by operating activities ... 338 (7,463) (551) (7,676)
-------- -------- ------- ----- --------
Cash flows from investing activities:
Purchases of property, plant and equipment .......... (12,645) (521) (13,166)
Other ............................................... 212 (17) 195
-------- -------- ------- ----- --------
Net cash used in investing activities ................. (12,433) (538) (12,971)
-------- -------- ------- ----- --------
Cash flows from financing activities:
Change in revolving loan facilities ................. 27,301 27,301
Other ............................................... (356) (356)
-------- -------- ------- ----- --------
Net cash provided by (used in) financing activities ... (356) 27,301 26,945
-------- -------- ------- ----- --------
Effect of exchange rate changes on cash and equivalents (270) (270)
-------- -------- ------- ----- --------
Net increase (decrease) in cash and equivalents ....... (18) 7,405 (1,359) 6,028
Cash and equivalents, beginning of year ............... 18 91 2,872 2,981
-------- -------- ------- ----- --------
Cash and equivalents, end of year ..................... $ -- $ 7,496 $ 1,513 $ -- $ 9,009
======== ======== ======= ======= ========
46
ITEM 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
Not applicable
PART III
ITEM 10. Directors and Executive Officers Of The Registrant
Director
Name Age Principal Occupation Since
---- --- -------------------- -----
Leonard Florence .......... 69 Chairman of the Board, Chief Executive Officer .................. 1986
and President of the Company
E Merle Randolph .......... 68 Executive Vice President, International Manufacturing, Director.. 1989
Michael S. Krause ......... 60 Executive Vice President and Chief Operating Officer -
Ami A. Trauber ............ 61 Executive Vice President of Finance, Administration, -
Strategic Planning and Chief Financial Officer and
Treasurer
Melvin L. Levine .......... 69 Vice President of Purchasing of the Company, Director ........... 1989
Alan R. Kanter ............ 48 Vice President of Sales of the Company, Director ................ 1997
Faye A. Florence .......... 44 Vice President and General Counsel; Secretary of the -
Company
David V. Harkins .......... 60 Director ........................................................ 1997
Thomas M. Hagerty ......... 38 Director ........................................................ 1997
Scott A. Schoen ........... 42 Director ........................................................ 1997
Kent R. Weldon ............ 33 Director ........................................................ 1997
George R. Taylor ......... 30 Director ........................................................ 2000
Leonard Florence is Chairman of the Board, Chief Executive Officer and President
of the Company. He has served in the capacity of Chairman of the Board and Chief
Executive Officer continuously since September 1986. He has also been President
and a director of certain of its subsidiaries since their respective dates of
organization. Mr. Florence previously served as President of the Company from
1986 to 1994 and resumed the position in 1995. Mr. Florence has been an
executive in the tabletop and giftware products industry for more than 40 years.
E. Merle Randolph has held the position of Executive Vice President,
International Manufacturing since 1998. Prior thereto he had been Vice
President, Chief Financial Officer and Treasurer of the Company since September
1986. He became a Director of the Company in May 1989. Mr. Randolph is also an
officer of certain of the Company's subsidiaries. For 17 years prior to joining
the Company, Mr. Randolph was employed in various financial positions by
Rockwell International Corporation.
Michael S. Krause became Executive Vice President and Chief Operating Officer in
August 1997. Prior to joining the Company, Mr. Krause served as Senior Vice
President Global Operations at Tambrands, Inc. from 1995 to 1997; Vice
President-Supply Chain, Snacks Division, at The Quaker Oats Company in 1995;
Executive Vice President, Supply Chain at Stella Foods Inc. in 1994; and Senior
Vice President-Operations at Goody Products, Inc. from 1991 to 1994.
Ami A. Trauber was appointed Executive Vice President of Finance,
Administration, Strategic Planning and Chief Financial Officer and Treasurer in
February, 1998. Prior thereto Mr. Trauber served as Chief Financial Officer at
Visual Edge Systems, Inc. and served as President, Chief Operating Officer,
Director and Part Owner of Ed's West, Inc. He served as Corporate Vice President
Finance and Control at Harcourt General, Inc. from 1978-1990. Mr. Trauber is
also an officer and director of certain of the Company's subsidiaries.
47
Melvin L. Levine has been a Vice President of the Company and certain of its
subsidiaries since September 1986. Mr. Levine has been an executive in the
tabletop and giftware products industry for more than 40 years. He became a
director of the Company in May 1989. Mr. Levine is also an officer and director
of certain of the Company's subsidiaries.
Alan R. Kanter has been a Vice President of the Company and a subsidiary of the
Company since September 1986. He became a director of the Company in April 1997.
Mr. Kanter has been employed in the tabletop and giftware industry for more than
20 years.
Faye A. Florence, an attorney, has been Vice President and General Counsel of
the Company since June 1987 and Secretary since August 1987. Ms. Florence is
also an officer of certain of the Company's subsidiaries. Ms. Florence is the
daughter of Leonard Florence.
David V. Harkins, President, Thomas H. Lee Partners, L.P. Mr. Harkins has been
associated with the firm since its founding in 1975. In addition, he has over 30
years experience in the investment and venture capital industries with the John
Hancock Mutual Life Insurance Company, where he began his career, as well as TA
Associates and Massachusetts Capital Corporation. Mr. Harkins also founded
National Dentex Corporation and serves as Chairman of the Board. He is currently
a Director of Conseco, Inc., Cott Corporation, Fisher Scientific International,
Inc., Metris Companies, Inc., Stanley Furniture Company, Inc and Tucker Anthony
Sutro.
Thomas M. Hagerty, Managing Director, joined Thomas H. Lee Partners, L.P in
1988. Prior to joining the firm, Mr. Hagerty was in the Mergers and Acquisitions
Department of Morgan Stanley & Co. Incorporated. Mr. Hagerty is currently a
director of several public and private companies including Cott Corporation, ARC
Holdings LLC, Tucker Anthony, Conseco Inc. and Metris Companies, Inc.
Scott A. Schoen, a Managing Director at the Thomas H. Lee Partners, L.P., joined
the firm in 1986. Prior to joining the firm, Mr. Schoen was in the Private
Finance Department of Goldman, Sachs & Co. Mr. Schoen is a Director of ARC
Holdings LLC, Rayovac Corporation, TransWestern Publishing, United Industries
Corporation and Wyndham International, Inc.
Kent R. Weldon, Managing Director, joined the Thomas H. Lee Partners, L.P in
1991. From 1989 to 1991, Mr. Weldon worked at Morgan Stanley & Co. Incorporated
in the Corporate Finance Department. Mr. Weldon is currently a director of
Fisher Scientific International, Inc. and FairPoint Communication, Inc.
George R. Taylor is an Associate of Thomas H. Lee Partners, L.P. in Boston. He
joined the firm in 1996 and prior to that he was a financial analyst at ABS
Capital Partners of Baltimore.
Meetings Of The Board Of Directors
The Board of Directors consists of Leonard Florence, E. Merle Randolph, Melvin
L. Levine, Alan R. Kanter, David V. Harkins, Thomas M. Hagerty, Scott A. Schoen,
Kent R. Weldon and George R. Taylor. The Chairman of the Board is Leonard
Florence. The Board of Directors held a meeting on February 24, 1998 to replace
those committees as constituted prior to the Merger. The reconstituted
committees include an Audit Committee and a Compensation and Stock Option
Committee.
The Audit Committee consists of Scott Schoen, Kent R. Weldon and Thomas M.
Hagerty. Scott Schoen is the Chairman of the Audit Committee. This Committee has
oversight authority and responsibility for the financial statements of the
Company and its subsidiaries. In conjunction with its responsibilities, the
Committee invites representatives of Deloitte & Touche LLP to be present, at its
meetings.
48
The Compensation and Stock Option Committee consists of David V. Harkins, Thomas
M. Hagerty and George R. Taylor. Mr. Harkins is the Chairman of the Compensation
and Stock Option Committee. The functions of the Compensation and Stock Option
Committee include fixing the compensation and reviewing the salaries, of the
Chief Executive Officer and the executive officers of the Company, including the
review of incentive plans and benefits.
ITEM 11. Executive Compensation
The following table sets forth the compensation awarded to, earned by or paid to
the Chief Executive Officer and the four other most highly compensated executive
officers during the fiscal years ended December 31, 2000, 1999 and 1998 for
services rendered in all capacities to the Company and its subsidiaries.
Summary Compensation Table
Annual Compensation (1)
------------------------------------- All Other
Fiscal Salary Bonus Compensation
Name and Principal Position Year $ $ $ (2)
------------- ---------------------- ------------- -------------------
Leonard Florence......................... 12/31/2000 $ 1,150,000 $ 250,000 $ 3,254
Chairman of the Board, President 12/31/1999 $ 1,150,000 $ - $ 181,310
and Chief Executive Officer 12/31/1998 $ 1,150,000 $ - $ 19,496
Melvin L. Levine......................... 12/31/2000 $ 390,000 $ - $ 3,254
Vice President of Purchasing 12/31/1999 $ 390,000 $ 55,000 $ 3,104
12/31/1998 $ 350,000 $ - $ 3,104
Alan R. Kanter........................... 12/31/2000 $ 390,000 $ - $ 3,254
Vice President of Sales 12/31/1999 $ 390,000 $ 55,000 $ 3,104
12/31/1998 $ 350,000 $ - $ 3,104
Ami A. Trauber (3)....................... 12/31/2000 $ 355,000 $ - $ 2,539
Executive Vice President of Finance, 12/31/1999 $ 355,000 $ 50,000 $ 2,433
Administation, Strategic Planning and 12/31/1998 $ 302,500 $ - $ 34,771
Chief Financial Officer and Corporate
Treasurer
E. Merle Randolph........................ 12/31/2000 $ 325,000 $ - $ 3,254
Executive Vice President, International 12/31/1999 $ 325,000 $ 25,000 $ 3,104
Manufacturing 12/31/1998 $ 325,000 $ - $ 3,104
(1) The column designated "Other Annual Compensation" by the Securities and
Exchange Commission ("SEC") for the reporting of perquisites and other
personal benefits has been eliminated because the amounts paid to each
executive officer do not exceed the disclosure threshold established by the
SEC pursuant to applicable rules and no other compensation required to be
reported under that column was awarded to, earned by or paid to any of the
named executive officers during the period covered by the table. In
addition, the columns designated by the SEC for the reporting of certain
long-term compensation, including awards of restricted stock and long-term
incentive plan payouts have been eliminated as no such awards or payouts
were made during the period covered by the table.
49
(2) During the year ended December 31, 1999 a life insurance policy with
benefits payable to both Leonard Florence and the Company was cancelled and
the Company's interest in such benefits totaling $178,206 was transferred
to Mr. Florence. The estimated dollar value benefit of insurance premiums
paid by the Company with respect to this policy for the year ended December
31, 1998 was $16,392. All other amounts represent contributions made by the
Company to the accounts of Messrs. Florence, Levine, Kanter and Randolph
pursuant to the Company's 401(k) Plan.
(3) Ami A. Trauber was appointed Executive Vice President of Finance,
Administration, Strategic Planning and Chief Financial Officer and
Corporate Treasurer on January 26, 1998. Amounts shown as salary represent
compensation for the period beginning February 1, 1998 to December 31,
1998. Included in the column designated caption "All Other Compensation" is
$32,400 for consulting services for the period January 1 to January 31,
1998. All other amounts represent contributions made by the Company to Mr.
Trauber's account pursuant to the Company's 401(k) Plan.
Stock Option Grants
The Company does not currently have a stock option plan, therefore there were no
grants of stock options to any of the named executive officers during the fiscal
year 2000. The Company does not grant stock appreciation rights ("SARs") of any
kind.
Option Exercises/Value Of Unexercised Options
The Company does not currently have a stock option plan, therefore no stock
options were exercised during fiscal year 2000 and there are no unexercised
options at December 31, 2000.
Compensation Of Directors
The directors who are not also officers of the Company are currently compensated
indirectly through the management fee agreement between the Company and THL I.
(See notes to the consolidated financial statements).
Compensation And Stock Option Committee Interlocks And Insider Participation
In connection with the Merger, the Company entered into a management agreement
with Thomas H. Lee Company for which the Company pays an annual management fee
in the amount of $450.
Compensation And Stock Option Committee Report
The Members of the Compensation and Stock Option Committee of the Board of
Directors (the "committee") are all non-employee directors. The Committee is
charged with the responsibility of fixing the annual compensation of the Chief
Executive Officer of the Company, and in consultation with the Chief Executive
Officer of the Company, determining the annual compensation of the other
executive officers of the Company and the officers of each subsidiary of the
Company, subject in each case to any employment or other contract between the
Company or a subsidiary thereof and any such officer. In addition, the Committee
is charged with the responsibility to determine the payment of bonuses or other
supplemental compensation to the Chief Executive Officer of the Company and, in
consultation with the Chief Executive Officer, to determine payment of bonuses
or other supplemental compensation to any other officer of the Company or any
subsidiary thereof.
50
The Committee has the authority over the issuance of stock options or the grant
of awards under any stock option, stock bonus or other stock based compensation
and/or incentive plans for officers and/or employees of the Company. The Company
does not currently have any such plans in place.
The overall compensation paid to executive officers of the Company includes cash
compensation consisting of a base salary and may include a performance bonus and
stock options for executive officers. In addition all executive officers
participate in various benefit plans generally available to employees, such as
health insurance and contributions made to the accounts of its employees
pursuant to the Company's 401(k) Plan.
The Committee attempts to balance the compensation paid to the executive
officers of the Company to the Company's performance. In its review, the
Committee may consider the level of compensation paid to executive officers of
companies of comparable market capitalization, however, this is somewhat
difficult since industry peers, and principal competitors are often either
privately held companies or divisions of large publicly held companies, and
therefore, executive compensation information is not publicly available. The
Committee, therefore, has generally relied upon its analysis of overall Company
performance including the level of net sales and net income and the individual
efforts and achievements of each executive officer during the fiscal year.
The Company was a party to employment agreements with certain of the named
executive officers during fiscal year 2000. Such agreements were approved by
both the Committee and the Board of Directors of the Company in August 1991 and
fixed the minimum salary levels of such officers. Employment agreements with two
of its officers, including the Chief Executive Officer were amended in August,
1995 reflecting changes to the annual retirement benefits to be received.
Additionally, the employment agreements with Messrs. Randolph and Kanter were
amended in July 1996, to provide, and during the same month Faye A. Florence and
the Company entered into a Retirement Benefit Agreement that provides for
certain retirement benefits to be received. Further, an employment agreement was
entered into as of July, 1998 with an additional officer.
Upon consummation of the Merger, an employment agreement with an officer was
amended so as to (i) change the officer's term of full-time employment from a
rolling five-year term to a fixed five-year term, (ii) provide for a minimum
base salary of $1,150 per annum, (iii) establish $1,150 as the minimum amount
upon which the officer's retirement benefit (and the survivor's benefit of his
surviving spouse) will be computed and (iv) create contractual rights with
respect to certain perquisites that he is accorded informally under present
arrangements with the Company. Additionally, an employment agreement with
another officer was amended to change the officer's term of full-time employment
from a rolling five-year term to a fixed five-year term.
In evaluating the compensation paid to the Chief Executive Officer, Mr.
Florence, the Committee evaluates many factors. The Committee following an
analysis of the Company's overall performance and financial results establishes
Mr. Florence's overall compensation. Additionally, Mr. Florence's performance in
his position is reviewed in conjunction with his ongoing ability to provide the
necessary direction for the Company's continued growth. Moreover, the Committee
determined as it has in the past that Mr. Florence's compensation should also be
determined in conjunction with the visibility and leadership roles which Mr.
Florence continues to possess in the industries in which the Company operates.
51
Employment Agreements
Effective August 16, 1991, the Company entered into an employment agreement with
Leonard Florence (the "Florence Employment Agreement") providing for the
employment of Mr. Florence as Chief Executive Officer of the Company. The
Florence Employment Agreement provided that the Company may, at its discretion,
but without any obligation, increase Mr. Florence's base salary during the term
of full-time employment. Once the base salary shall have been increased, it
shall not thereafter be decreased without his written consent. The Florence
Employment Agreement obligates Mr. Florence to provide certain advisory services
to the Company during the five-year period following the term of Mr. Florence's
full-time employment (the "Advisory Period") and provides for Mr. Florence to
receive annual compensation during the Advisory Period in an amount equal to not
less than 25% of his base salary during the final year of his full-time
employment. During the period of his full-time employment and the Advisory
Period, Mr. Florence is prohibited from engaging in any business that is
competitive with any line of business in which the Company is engaged that
contributes three percent or more of the gross revenues of the Company. The
Florence Employment Agreement also provides for payment to Mr. Florence of a
retirement benefit. Upon the consummation of the Merger, the Florence Employment
Agreement ("the Amended and Restated Agreement" was amended so as to (i) change
his term of full-time employment from a rolling-five-year term to a fixed
five-year term, (ii) provide for a minimum base compensation of $1.15 million
per annum, (iii) establish $1.15 million as the minimum amount upon which his
retirement benefit (and survivors benefit of his surviving spouse) will be
computed and (iv) create contractual rights with respect to certain perquisites
that are accorded to him informally under his prior arrangement with the
Company. Under Section 162(m) of the Internal Revenue Code, so much of the
compensation paid to Mr. Florence as exceeds $1 million annually may not be
deductible by the Company for federal income tax purposes. On July 29, 1998, the
Company entered into Amendment No. 1 ("the Amendment") to Mr. Florence's Amended
and Restated Employment Agreement which provides, among other things, for the
modification of the computation and timing of payments in respect of the
retirement benefit. The terms of the Amendment established fixed payment amounts
and provided for the acceleration of payments (the first of which was made upon
execution of the Amendment) related to the retirement benefit. In addition to
other benefits, in 1999 the Board of Directors voted to grant continued health
benefits to Leonard Florence and his spouse for the remainder of each of their
lives.
The Company entered into a similar employment agreement, also effective as of
August 16, 1991, with Melvin L. Levine, Vice President of Purchasing of the
Company, except in Mr. Levine's case the base salary was $0.225 million for the
year ended December 31, 1992. Mr. Levine's current base salary is $0.390 million
per annum. As of May 1995 the employment agreement with Mr. Levine was amended
with respect to the computation and payment of the retirement benefit.
Specifically, the amendments provided for annual retirement benefit payments in
amounts equal to 2% of their respective average total compensation (i.e., base
salary and bonus compensation) in the three years preceding attainment by the
relevant executive of age sixty-five or termination of such executive's full
time employment, whichever occurs later, multiplied by the number of years of
such executive's employment by the Company. Upon the consummation of the Merger,
the employment agreement with Melvin L. Levine was further amended, to change
his term of full-time employment from a rolling five-year term to a fixed
five-year term.
The employment agreement with Mr. Levine, as amended, provides for retirement
benefit payments determined and payable in accordance with the agreements. The
following table shows the estimated annual benefits payable to Mr. Levine upon
retirement based upon various compensation levels and years of service.
PENSION PLAN TABLE
Years of Service
-----------------------------------------
REMUNERATION 10 15 20
------------- -- -- --
400,000 80,000 120,000 160,000
500,000 100,000 150,000 200,000
600,000 120,000 180,000 240,000
52
Mr. Levine has completed 14 years of credited service. Retirement benefits under
the employment agreements are computed on the basis of a straight-life annuity
and are not reduced by the benefits received under Social Security, but would be
reduced by any benefits received under any Company funded pension plan that
hereafter may be adopted.
The Company has also entered into employment agreements, effective as of August
16, 1991, with E. Merle Randolph, currently the Vice President, International
Manufacturing, and Alan R. Kanter, Vice President of Sales of the Company. The
agreements with Messrs. Randolph and Kanter are similar to those with Messrs.
Florence and Levine described above, except that (i) the term of full-time
employment of each of Messrs. Randolph and Kanter will continue until the third
anniversary of receipt of a notice of termination given by the Company to the
executive involved or by such executive to the Company, (ii) the period during
which each of Messrs. Randolph and Kanter has agreed to provide advisory
services to the Company (and to be bound by a non-competition agreement)
following the term of his full-time employment will be the lesser of three years
or six months for each year of his full-time employment beginning with the date
of the employment agreement, with such advisory period and the coextensive
non-competition covenant being subject to termination at the election of the
Company on six months prior notice to the executive involved, and (iii) no
provision was originally made therein for a payment of a retirement benefit.
The employment agreements of Messrs. Randolph and Kanter were amended in July
1996, to provide, and during the same month Faye A. Florence and the Company
entered into a Retirement Benefit Agreement that provides, inter alia, for the
payment at age 65 or upon termination of such officer's employment, whichever is
later, of an annual retirement benefit to each such officer equal to a
percentage of his or her average annual compensation for the three fiscal years
ended immediately prior to the date on which such officer ceases to be a full
time employee of the Company multiplied by the number of years of such officer's
service to the Company. The minimum annual retirement benefit for each such
officer will be $75,000.
53
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of January 15, 2001
concerning the beneficial ownership of Syratech Common Stock (i) by each
stockholder who is known by the Company to own beneficially in excess of 5% of
the outstanding Common Stock, (ii) by each director, and (iii) by each executive
officer named in the Summary Compensation Table under "Executive Compensation"
and (iv) by all executive officers and directors as a group. Except as otherwise
indicated, all persons listed below have (i) sole voting power and investment
power with respect to their shares of Common Stock, except to the extent that
authority is shared by spouses under applicable law, and (ii) record and
beneficial ownership with respect to their shares of Common Stock.
Shares of
Common Stock
Beneficially
Name Owned Percentage
---- ----------------- -------------
Leonard Florence (a) .............................. 362,850 9.6%
E. Merle Randolph .................................. 17,000 *
Melvin L. Levine ................................... 44,256 1.2%
Alan R. Kanter ..................................... 51,356 1.4%
Ami A. Trauber ..................................... 0 *
David V. Harkins (b) ............................... 2,210,788 58.4%
Scott A. Schoen (b) ................................ 2,205,936 58.3%
Thomas M. Hagerty (b) .............................. 2,204,316 58.3%
George R. Taylor (b) ............................... 2,196,216 58.0%
Kent R. Weldon (b) ................................. 2,197,431 58.1%
Thomas H. Lee Company Affiliates (c) ............... 2,196,216 58.0%
Officers and Directors as a group (12 persons)...... 2,708,812 71.6%
CMS Companies Inc. Affiliates (d) .................. 255,678 6.8%
*Less then 1% of the issued and outstanding Syratech Common Stock.
(a) The business address for Leonard Florence is c/o Syratech Corporation, 175
McClellan Highway, East Boston, Massachusetts, 02128-9114.
(b) The business address of this stockholder is c/o Thomas H. Lee Company, 75
State Street, Boston, Massachusetts 02109. Includes an aggregate of 2,196,216
shares of common stock owned by Thomas H. Lee Equity Fund III, L.P., Thomas H.
Lee Foreign Fund III, L.P. and THL Co-Investors III-A LLC which may be deemed to
be beneficially owned by Messrs. Harkins, Hagerty, Schoen, Weldon and Taylor,
Officers of Thomas H. Lee Company. Each of such persons disclaims beneficial
ownership of such shares.
(c) THL Equity Advisors III limited Partnership ("Advisors"), the general
partner of Thomas H. Lee Equity Fund III, L.P. and Thomas H. Lee Foreign Fund
III, L.P., THL Equity Trust III ("Equity Trust"), the general partner of
Advisors, Thomas H. Lee, Messrs. Harkins, Hagerty, Schoen and Weldon and other
managing directors of Thomas H. Lee Company may be deemed to be beneficial
owners of the shares of Syratech Common Stock held by such funds. Each of such
persons maintains a principal business address at Suite 2600, 75 State Street,
Boston, Massachusetts 02109. Each of such persons disclaims beneficial ownership
of such shares.
54
(d) All such voting securities are owned by CMS Business Spectrum Fund L.P., CMS
Co-Investment Subpartners, CMS Mid-Atlantic Business Opportunity Partners, L.P.,
and CMS diversified Partners. Each of such persons maintains a principal
business address c/o CMS Companies, Inc. 1926 Arch Street, Philadelphia, PA
19103-1484.
ITEM 13. Certain Relationships And Related Transactions
In connection with the Merger, the Company entered into a management agreement
with the Thomas H. Lee Company for which the Company pays an annual management
fee in the amount of $450.
55
PART IV
ITEM 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K
(a) Exhibits:
2.1 Restated Agreement and Plan of Merger dated November 27, 1996,
effective as of October 23, 1996 between Syratech and THL Transaction I
Corp. and the Amendment, dated February 14, 1997 to the Restated
Agreement and Plan of Merger. Incorporated by reference from Exhibit
2.1 to Form S-4 Registration Statement No. 333-16917.
3.1 Restated Certificate of Incorporation of Syratech. Incorporated by
reference from Exhibit 3.1 to Form S-1 Registration Statement No.
33-41619.
3.2 Syratech Corporation Certificate of Designations in respect of Series A
Preferred Stock dated October 26, 1992. Incorporated by reference from
Exhibit 3.2 to Form S-4 Registration Statement No. 333-16917.
3.3 Bylaws of Syratech. Incorporated by reference from Exhibit 3.2 to Form
S-1 Registration Statement No. 33-41619.
3.4 Amendment to Section 2.9 of the Bylaws of Syratech, effective August
15, 1991. Incorporated by reference from Exhibit 3.3 to Form S-1
Registration Statement No. 33-41619.
3.5 Certificate of Ownership and Merger of WSC Liquidating, Inc. by and
into Syratech Corporation dated May 9, 1996. Incorporated by reference
from Exhibit 3.5 to Form S-4 Registration Statement No. 333-16917.
3.6 Specimen Common Stock Certificate. Incorporated by reference to Exhibit
4.1 to Form 10-K of Syratech for the year ended December 31, 1993.
10.1 Form of Amended and Restated Employment Agreement dated as of April 16,
1997 between Leonard Florence and the Company. Incorporated by
reference from Exhibit 10.1 to Form S-4 Registration Statement No.
333-16917.
10.1.1 Amendment No. 1 dated July 29, 1998 to Employment Agreement dated
as of April 16, 1997 between Leonard Florence and the Company.
10.2 Employment Agreement dated August 16, 1991 between E. Merle Randolph
and the Company. Incorporated by reference from Exhibit 10.17 to Form
S-1 Registration Statement No. 33-41619.
10.3 Employment Agreement dated August 16, 1991, between Melvin L. Levine
and the Company. Incorporated by reference from Exhibit 10.18 to
Form S-1 Registration Statement No. 33-41619.
10.4 Employment Agreement dated August 16, 1991 between Alan R. Kanter and
the Company. Incorporated by reference from Exhibit 10.19 to Form S-1
Registration Statement No. 33-41619.
10.5 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated
as of August 16, 1991 between E. Merle Randolph and the Company.
Incorporated by reference from Exhibit 10.5 to Form S-4 Registration
Statement No. 333-16917.
10.6 Amendment No. 1 dated as of May 11, 1995 to Employment Agreement dated
as of August 16, 1991 between Melvin L. Levine and the Company.
Incorporated by reference from Exhibit 10.8 to Form 10-K for Syratech
for the year ended December 31, 1995.
10.7 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated
as of August 16, 1991 between Alan R. Kanter and the Company.
Incorporated by reference from Exhibit 10.7 to Form S-4 Registration
Statement No. 333-16917.
56
10.8 Retirement Benefit Agreement dated as of July 27, 1996 between Faye A.
Florence and the Company. Incorporated by reference from Exhibit 10.8
to Form S-4 Registration Statement No. 333-16917.
10.9 Amendment No. 2, dated as of January 31, 1997, effective as of December
31, 1996, to Employment Agreement dated as of August 16, 1991 between
E. Merle Randolph and the Company. Incorporated by reference from
Exhibit 10.9 to Form S-4 Registration Statement No. 333-16917.
10.10 Amendment No. 2, dated as of January 31, 1997, effective as of December
31, 1996, to Employment Agreement dated as of August 16, 1991 between
Melvin L. Levine and the Company. Incorporated by reference from
Exhibit 10.10 to Form S-4 Registration Statement No. 333-16917.
10.11 Amendment No. 2 dated January 31, 1997 effective as of December 31,
1996, to Employment Agreement dated as of August 16, 1991 between Alan
R. Kanter and the Company. Incorporated by reference from Exhibit 10.11
to Form S-4 Registration Statement No. 333-16917.
10.12 Agreement dated December 31, 1996 by and between the Company, THL I
Transaction Corp., Leonard Florence and Melvin L. Levine. Incorporated
by reference from Exhibit 10.12 to Form S-4 Registration Statement No.
333-16917.
10.13 Agreement dated December 31, 1996 by and between the Company, THL I
Transaction Corp., Leonard Florence and E. Merle Randolph. Incorporated
by reference from Exhibit 10.13 to Form S-4 Registration Statement No.
333-16917.
10.14 Agreement dated December 31, 1996 by and between the Company, THL I
Transaction Corp., Leonard Florence and Alan R. Kanter. Incorporated by
reference from Exhibit 10.14 to Form S-4 Registration Statement No.
333-16917.
10.15 Asset Purchase Agreement dated February 2, 1996 by and between
Farberware Inc., the Company, Lifetime Hoan Corporation and Far-B
Acquisition Corp., Inc. Incorporated by reference from Exhibit 1 to
Form 8-K dated April 16, 1996.
10.16 Settlement Agreement dated February 3, 1997 by and among Bruckner
Manufacturing Corp. (formerly Farberware Inc.), U.S. Industries, Inc.,
Farberware Inc. (formerly Far-B Acquisition Corp.) and Lifetime Hoan
Corporation. Incorporated by reference from Exhibit 10.16 to Form S-4
Registration Statement No. 333-16917.
10.17 Agreement dated as of December 7, 1995 among the Company, SYR
Acquisition Inc. and Rauch Industries, Inc. Incorporated by reference
from Exhibit 1 to Form 8-K of the Company dated December 7, 1995.
Incorporated by reference from Exhibit 10.17 to Form S-4 Registration
Statement No. 333-16917.
10.18 Amended and Restated Line of Credit Agreement among Wallace
International de Puerto Rico, Inc., International Silver de Puerto
Rico, Inc. and Banco Popular de Puerto Rico dated October 15, 1996.
Incorporated by reference from Exhibit 10.18 to Form S-4 Registration
Statement No. 333-16917.
10.19 Agreement, dated as of February 2, 1996, by and among the Company,
Lifetime Hoan Corporation and Far-B Acquisition Corp. Incorporated
by reference from Exhibit 10.19 to Form S-4 Registration Statement
No. 333-16917.
57
10.20 Agreement, dated as of May 3, 1996, by and among the Company,
Farberware Inc. and Meyer Manufacturing Co. Ltd. Incorporated by
reference from Exhibit 10.20 to Form S-4 Registration Statement No. 333-16917.
10.21 License Agreement, dated as of July 12, 1996, by and between Farberware
Inc. and Service Merchandise Company, Inc. (redacted to omit certain
royalty information). Incorporated by reference from Exhibit 10.21 to
Form S-4 Registration Statement No. 333-16917.
10.22 Agreement, dated as of October 16, 1996, among Farberware Inc., Service
Merchandise Company, Inc. and Windmere-Durable Holdings, Inc. (amending
Item 10.21). Incorporated by reference from Exhibit 10.22 to Form S-4
Registration Statement No. 333-16917.
10.23 Commitment Letter between Banco Popular de Puerto Rico and Wallace
International de PR, Inc. dated May 1, 1997. Incorporated by reference
from Exhibit 10-1 to Form 10-Q dated August 13, 1997.
10.24 Letter Agreement between Banco Popular de Puerto Rico and Wallace
International de PR, Inc. dated May 12, 1997. Incorporated by reference
from Exhibit 10-2 to Form 10-Q dated August 13, 1997.
10.25 Amendment No. 1, dated as of July 31, 1997, to Loan and Security
Agreement, dated as of April 16, 1997. Incorporated by reference from
Exhibit 10-1 to Form 10-Q dated November 12, 1997.
10.26 Amendment No. 2, dated as of December 31, 1997, to Loan and Security
Agreement, dated as of April 16, 1997. Incorporated by reference from
Exhibit 10.26 from 10-K dated March 31, 1998
10.27 Amendment No. 3 dated as of January 26, 1998 to Employment Agreement
dated as of August 16, 1991 between E. Merle Randolph and the Company.
Incorporated by reference from Exhibit 10.27 from 10-K dated March 31, 1998.
10.28 Purchase and Sale Agreement dated as of January 28, 1998 by and among
The Claremont Company, Inc. and Faye A. Florence, Leonard Florence and
E. Merle Randolph, Trustees of 175 Amlegion Realty Trust. Incorporated
by reference from Exhibit 10.28 from 10-K dated March 31, 1998.
10.29 Escrow Agreement dated January 28, 1998 by and among Faye A.
Florence, Leonard Florence and E. Merle Randolph, Trustees of 175
Amlegion Realty Trust and The Claremont Company and Hutchins,
Wheeler & Dittmar, A Professional Corporation. Incorporated by
reference from Exhibit 10.29 From 10-K dated March 31, 1998.
10.30 Agreement between Rauch Industries, Inc. and Guy Yocom Construction,
Inc., dated July 31, 1997. Incorporated by reference from Exhibit 10.30 from
10-K dated March 31, 1998.
10.31 Agreement between Rauch Industries, Inc. and C.A.S. Construction Inc.,
dated August 25, 1997. Incorporated by reference from Exhibit 10.31 from
10-K dated March 31, 1998.
10.32 Varco-Pruden Purchase Order dated June 16, 1997. Incorporated by
reference from Exhibit 10.32 from 10-K dated March 31, 1998.
10.33 Amendment No. 3, dated as of March 30, 1998, to Loan and Security
Agreement, dated as of April 16, 1997. Incorporated by reference from
Exhibit 10.33 from 10-K dated March 31, 1998.
10.34 Amendment No. 4, dated as of March 26, 1999, to Loan and Security Agreement,
dated as of April 16, 1997. Incorporated by reference from Exhibit 10.34
from 10-K dated March 31, 1999.
10.35 Advice of Borrowing Terms between C. J. Vander Ltd. And Nat West Bank
P.L.C., dated March 19, 1999. Incorporated by reference from Exhibit 10.35
from 10-K dated March 31, 1999.
10.36 Advice of Borrowing Terms between C. J. Vander Ltd. And Nat West Bank
P.L.C., dated August 5, 1999. Incorporated by reference from Exhibit 10.2
from 10-Q dated June 30, 1999.
58
10.37 Letter Agreement between Banco Popular and Wallace International
de Puerto Rico, Inc. dated June 1, 1999. Incorporated by
reference from Exhibit 10.1 from 10-Q dated June 30, 1999.
10.38 Employment Agreement dated as of July 8, 1999 between Ami A.
Trauber and the Company. Incorporated by reference from Exhibit
10.3 from 10-Q dated June 30, 1999.
10.39 Lyme Properties LLC. Incorporated by reference from Exhibit 10.2
from 10-Q dated September 30, 1999.
10.40 Advice of Borrowing Terms between C.J. Vander Ltd/International
Silver Company Ltd and Nat West P.L.C., dated March 10, 2000.
Incorporated by reference from Exhibit 10.40 from 10-K dated
December 31, 1999.
10.41 Letter Agreement dated as of December 31, 1998 between Farberware
Inc. Excel Importing Corp. Incorporated by reference from Exhibit
10.36 from 10-K dated March 31, 1999.
10.42 Report on Form 15 Certification and Notice of Termination of
Registration under Section 12(g) of the Securities Exchange Act
of 1934 or Suspension of Duty to File Reports under Sections 13
and 15(d) of the Securities Exchange Act of 1934 filed on
December 7, 1998. Incorporated by reference from Exhibit 10.37
from 10-K dated March 31, 1999.
10.43 Letter Agreement between Banco Popular and Wallace International
de Puerto Rico, Inc. dated July 31, 2000. Incorporated by
reference from Exhibit 10 to Form 10-Q dated June 30, 2000.
10.44 Advice of Borrowing Terms between C. J. Vander Ltd. and Nat West
Bank P.L.C., dated August 23, 2000. Incorporated by reference
from Exhibit 10.1 to Form 10-Q dated September 30, 2000.
10.45 Letter Agreement dated August 24, 2000 between Syratech
Corporation and affiliates and Bank of America, N.A.
administrative agent for lenders under Loan and Security
Agreement. Incorporated by reference from Exhibit 10.2 to Form
10-Q dated September 30, 2000.
10.46 Amendment No. 5 dated as of March 26, 2001, to Loan and Security
Agreement, dated as of April 16, 1997.
12 Computation of ratio of earnings before fixed charges to fixed
charges.
22 List of Subsidiaries. Incorporated by reference from Exhibit 22
to Form S-4 Registration Statement No. 333-16917.
(b) Financial Statement Schedule:
Schedule II: Valuation and Qualifying Accounts
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Act of 1934,
the Registrant has duly caused this Annual Report on Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Boston,
State of Massachusetts, on the 30th day of March, 2001.
SYRATECH CORPORATION
By: /s/ Ami A. Trauber
-----------------------------------
Ami A. Trauber
Executive Vice President,
Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1934, this Annual Report
on Form 10-K has been signed by the following persons in the capacities and on
the dates indicated below.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Leonard Florence Chairman of the Board of March 30, 2001
-------------------- Directors, Chief Executive
Leonard Florence Officer and President (Principal
Executive Officer)
/s/ Ami A. Trauber Executive Vice President, Chief March 30, 2001
------------------ Financial Officer and Treasurer
Ami A. Trauber (Principal Financial and
Accounting Officer)
/s/ Thomas M. Hagerty Director March 30, 2001
---------------------
Thomas M. Hagerty
/s/ David V. Harkins Director March 30, 2001
--------------------
David V. Harkins
/s/ Alan R. Kanter Director March 30, 2001
------------------
Alan R. Kanter
/s/ Melvin L. Levine Director March 30, 2001
--------------------
Melvin L. Levine
/s/ E. Merle Randolph Director March 30, 2001
---------------------
E. Merle Randolph
/s/ Scott A. Schoen Director March 30, 2001
-------------------
Scott A. Schoen
/s/ Kent R. Weldon Director March 30, 2001
------------------
Kent R. Weldon
/s/ George R. Taylor Director March 30, 2001
--------------------
George R. Taylor
60
SCHEDULE II
SYRATECH CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Column A Column B Column C Column D Column E
------------------------------ ---------- ----------------------- ---------- ---------
(1) (2)
Beginning of Costs and Charged to End of
Description Period Expenses Other Accts. Deductions Period
----------- ------- -------- -------- --------- ---------
Year Ended December 31, 2000
Allowance for doubtful accounts $ 1,606 $ 1,424 $ (1,149)(a) $ 1,881
Sales returns and allowances 7,405 15,397 (12,761)(b) 10,041
------- -------- -------- --------- ---------
$ 9,011 $ 16,821 $ (13,910) $ 11,922
======= ======== ======== ========= =========
Year Ended December 31, 1999
Allowance for doubtful accounts $ 836 $ 2,236 $ (1,466)(a) $ 1,606
Sales returns and allowances 6,120 12,003 (10,718)(b) 7,405
------- -------- -------- --------- ---------
$ 6,956 $ 14,239 $ - $ (12,184) $ 9,011
======= ======== ======== ========= =========
Year Ended December 31, 1998
Allowance for doubtful accounts $ 1,231 $ 467 $ (862)(a) $ 836
Sales returns and allowances 5,977 10,295 (10,152)(b) 6,120
------- -------- -------- --------- ---------
$ 7,208 $ 10,762 $ - $ (11,014) $ 6,956
======= ======== ======== ========= =========
-----------------------
(a) Doubtful accounts written off
(b) Sales returns and other