item 14 exhibits financial statement schedules reports form 8k exhibits 21 restated agreement plan merger dated november 27 1996 effective october 23 1996 syratech thl transaction corp amendment dated february 14 1997 restated agreement plan merger incorporated reference exhibit 21 form s4 registration statement 33316917 31 restated certificate incorporation syratech incorporated reference exhibit 31 form s1 registration statement 3341619 32 syratech corporation certificate designations respect series preferred stock dated october 26 1992 incorporated reference exhibit 32 form s4 registration statement 33316917 33 bylaws syratech incorporated reference exhibit 32 form s1 registration statement 3341619 34 amendment section 29 bylaws syratech effective august 15 1991 incorporated reference exhibit 33 form s1 registration statement 3341619 35 certificate ownership merger wsc liquidating inc syratech corporation dated may 9 1996 incorporated reference exhibit 35 form s4 registration statement 33316917 36 specimen common stock certificate incorporated reference exhibit 41 form 10k syratech year ended december 31 1993 101 form amended restated employment agreement dated april 16 1997 leonard florence company incorporated reference exhibit 101 form s4 registration statement 33316917 1011 amendment 1 dated july 29 1998 employment agreement dated april 16 1997 leonard florence company 102 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1017 form s1 registration statement 3341619 103 employment agreement dated august 16 1991 melvin l levine 104 company incorporated reference exhibit 1018 form s1 registration statement 3341619 104 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1019 form s1 registration statement 3341619 105 amendment 1 dated july 27 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 105 form s4 registration statement 33316917 106 amendment 1 dated may 11 1995 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 108 form 10k syratech year ended december 31 1995 107 amendment 1 dated july 27 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 107 form s4 registration statement 33316917 108 retirement benefit agreement dated july 27 1996 faye florence company incorporated reference exhibit 108 form s4 registration statement 33316917 109 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 109 form s4 registration statement 33316917 1010 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 1010 form s4 registration statement 33316917 1011 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1011 form s4 registration statement 33316917 1012 agreement dated december 31 1996 company thl transaction corp leonard florence melvin l levine incorporated reference exhibit 1012 form s4 registration statement 33316917 1013 agreement dated december 31 1996 company thl transaction corp leonard florence e merle randolph incorporated reference exhibit 1013 form s4 registration statement 33316917 1014 agreement dated december 31 1996 company thl transaction corp leonard florence alan r kanter incorporated reference exhibit 1014 form s4 registration statement 33316917 1015 asset purchase agreement dated february 2 1996 farberware inc company lifetime hoan corporation farb acquisition corp inc incorporated reference exhibit 1 form 8k dated april 16 1996 1016 settlement agreement dated february 3 1997 among bruckner manufacturing corp formerly farberware inc us industries inc farberware inc formerly farb acquisition corp lifetime hoan corporation incorporated reference exhibit 1016 form s4 registration statement 33316917 1017 agreement dated december 7 1995 among company syr acquisition inc rauch industries inc incorporated reference exhibit 1 form 8k company dated december 7 1995 incorporated reference exhibit 1017 form s4 registration statement 33316917 1018 amended restated line credit agreement among wallace international de puerto rico inc international silver de puerto rico inc banco popular de puerto rico dated october 15 1996 incorporated reference exhibit 1018 form s4 registration statement 33316917 1019 agreement dated february 2 1996 among company lifetime hoan corporation farb acquisition corp incorporated reference exhibit 1019 form s4 registration statement 33316917 1020 agreement dated may 3 1996 among company farberware inc meyer manufacturing co ltd incorporated reference exhibit 1020 form s4 registration statement 33316917 1021 license agreement dated july 12 1996 farberware inc service merchandise company inc redacted omit certain royalty information incorporated reference exhibit 1021 form s4 registration statement 33316917 1022 agreement dated october 16 1996 among farberware inc service merchandise company inc windmeredurable holdings inc amending item 1021 incorporated reference exhibit 1022 form s4 registration statement 33316917 1023 commitment letter banco popular de puerto rico wallace international de pr inc dated may 1 1997 incorporated reference exhibit 101 form 10q dated august 13 1997 1024 letter agreement banco popular de puerto rico wallace international de pr inc dated may 12 1997 incorporated reference exhibit 102 form 10q dated august 13 1997 1025 amendment 1 dated july 31 1997 loan security agreement dated april 16 1997 incorporated reference exhibit 101 form 10q dated november 12 1997 1026 amendment 2 dated december 31 1997 loan security agreement dated april 16 1997 incorporated reference exhibit 1026 10k dated march 31 1998 1027 amendment 3 dated january 26 1998 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1027 10k dated march 31 1998 1028 purchase sale agreement dated january 28 1998 among claremont company inc faye florence leonard florence e merle randolph trustees 175 amlegion realty trust incorporated reference exhibit 1028 10k dated march 31 1998 1029 escrow agreement dated january 28 1998 among faye florence leonard florence e merle randolph trustees 175 amlegion realty trust claremont company hutchins wheeler dittmar professional corporation incorporated reference exhibit 1029 10k dated march 31 1998 1030 agreement rauch industries inc guy yocom construction inc dated july 31 1997 incorporated reference exhibit 1030 10k dated march 31 1998 1031 agreement rauch industries inc cas construction inc dated august 25 1997 incorporated reference exhibit 1031 10k dated march 31 1998 1032 varcopruden purchase order dated june 16 1997 incorporated reference exhibit 1032 10k dated march 31 1998 1033 amendment 3 dated march 30 1998 loan security agreement dated april 16 1997 incorporated reference exhibit 1033 10k dated march 31 1998 1034 amendment 4 dated march 26 1999 loan security agreement dated april 16 1997 incorporated reference exhibit 1034 10k dated march 31 1999 1035 advice borrowing terms c j vander ltd nat west bank plc dated march 19 1999 incorporated reference exhibit 1035 10k dated march 31 1999 1036 advice borrowing terms c j vander ltd nat west bank plc dated august 5 1999 incorporated reference exhibit 102 10q dated june 30 1999 1037 letter agreement banco popular wallace international de puerto rico inc dated june 1 1999 incorporated reference exhibit 101 10q dated june 30 1999 1038 employment agreement dated july 8 1999 ami trauber company incorporated reference exhibit 103 10q dated june 30 1999 1039 lyme properties llc incorporated reference exhibit 102 10q dated september 30 1999 1040 advice borrowing terms cj vander ltdinternational silver company ltd nat west plc dated march 10 2000 1041 letter agreement dated december 31 1998 farberware inc excel importing corp incorporated reference exhibit 1036 10k dated march 31 1999 1042 report form 15 certification notice termination registration section 12g securities exchange act 1934 suspension duty file reports sections 13 15d securities exchange act 1934 filed december 7 1998 incorporated reference exhibit 1037 10k dated march 31 1999 11 statement computation per share earnings 12 computation ratio earnings fixed charges fixed charges 181 letter regarding change accounting principle 22 list subsidiaries incorporated reference exhibit 22 form s4 registration statement 33316917 271 financial data schedule 272 financial data schedule b financial statement schedule ii valuation qualifying accounts c reports form 8k company filed current report form 8k quarter ended december 31 1999 securities exchange commission reported sale companys property revere massachusetts signatures pursuant requirements section 13 15d securities act 1934 registrant duly caused annual report form 10k signed behalf undersigned thereunto duly authorized city boston state massachusetts 30th day march 2000 syratech corporation ami trauber ami trauber executive vice president chief financial officer treasurer pursuant requirements securities act 1934 annual report form 10k signed following persons capacities dates indicated schedule ii syratech corporation subsidiaries valuation qualifying accounts thousands doubtful accounts written b sales returns item 14 exhibits financial statement schedules reports form 8k exhibits 21 restated agreement plan merger dated november 27 1996 effective october 23 1996 syratech thl transaction corp amendment dated february 14 1997 restated agreement plan merger incorporated reference exhibit 21 form s4 registration statement 33316917 31 restated certificate incorporation syratech incorporated reference exhibit 31 form s1 registration statement 3341619 32 syratech corporation certificate designations respect series preferred stock dated october 26 1992 incorporated reference exhibit 32 form s4 registration statement 33316917 33 bylaws syratech incorporated reference exhibit 32 form s1 registration statement 3341619 34 amendment section 29 bylaws syratech effective august 15 1991 incorporated reference exhibit 33 form s1 registration statement 3341619 35 certificate ownership merger wsc liquidating inc syratech corporation dated may 9 1996 incorporated reference exhibit 35 form s4 registration statement 33316917 36 specimen common stock certificate incorporated reference exhibit 41 form 10k syratech year ended december 31 1993 101 form amended restated employment agreement dated april 16 1997 leonard florence company incorporated reference exhibit 101 form s4 registration statement 33316917 1011 amendment 1 dated july 29 1998 employment agreement dated april 16 1997 leonard florence company incorporated reference exhibit 102 10q dated june 30 1998 102 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1017 form s1 registration statement 3341619 103 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 1018 form s1 registration statement 3341619 104 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1019 form s1 registration statement 3341619 105 amendment 1 dated july 27 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 105 form s4 registration statement 33316917 106 amendment 1 dated may 11 1995 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 108 form 10k syratech year ended december 31 1995 107 amendment 1 dated july 27 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 107 form s4 registration statement 33316917 108 retirement benefit agreement dated july 27 1996 faye florence company incorporated reference exhibit 108 form s4 registration statement 33316917 109 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 109 form s4 registration statement 33316917 1010 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 1010 form s4 registration statement 33316917 1011 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1011 form s4 registration statement 33316917 1012 agreement dated december 31 1996 company thl transaction corp leonard florence melvin l levine incorporated reference exhibit 1012 form s4 registration statement 33316917 1013 agreement dated december 31 1996 company thl transaction corp leonard florence e merle randolph incorporated reference exhibit 1013 form s4 registration statement 33316917 1014 agreement dated december 31 1996 company thl transaction corp leonard florence alan r kanter incorporated reference exhibit 1014 form s4 registration statement 33316917 1015 asset purchase agreement dated february 2 1996 farberware inc company lifetime hoan corporation farb acquisition corp inc incorporated reference exhibit 1 form 8k dated april 16 1996 1016 settlement agreement dated february 3 1997 among bruckner manufacturing corp formerly farberware inc us industries inc farberware inc formerly farb acquisition corp lifetime hoan corporation incorporated reference exhibit 1016 form s4 registration statement 33316917 1017 agreement dated december 7 1995 among company syr acquisition inc rauch industries inc incorporated reference exhibit 1 form 8k company dated december 7 1995 incorporated reference exhibit 1017 form s4 registration statement 33316917 1018 amended restated line credit agreement among wallace international de puerto rico inc international silver de puerto rico inc banco popular de puerto rico dated october 15 1996 incorporated reference exhibit 1018 form s4 registration statement 33316917 1019 agreement dated february 2 1996 among company lifetime hoan corporation farb acquisition corp incorporated reference exhibit 1019 form s4 registration statement 33316917 1020 agreement dated may 3 1996 among company farberware inc meyer manufacturing co ltd incorporated reference exhibit 1020 form s4 registration statement 33316917 1021 license agreement dated july 12 1996 farberware inc service merchandise company inc redacted omit certain royalty information incorporated reference exhibit 1021 form s4 registration statement 33316917 1022 agreement dated october 16 1996 among farberware inc service merchandise company inc windmeredurable holdings inc amending item 1021 incorporated reference exhibit 1022 form s4 registration statement 33316917 1023 commitment letter banco popular de puerto rico wallace international de pr inc dated may 1 1997 incorporated reference exhibit 101 form 10q dated august 13 1997 1024 letter agreement banco popular de puerto rico wallace international de pr inc dated may 12 1997 incorporated reference exhibit 102 form 10q dated august 13 1997 1025 amendment 1 dated july 31 1997 loan security agreement dated april 16 1997 incorporated reference exhibit 101 form 10q dated november 12 1997 1026 amendment 2 dated december 31 1997 loan security agreement dated april 16 1997 incorporated reference exhibit 1026 10k dated march 31 1998 1027 amendment 3 dated january 26 1998 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1027 10k dated march 31 1998 1028 purchase sale agreement dated january 28 1998 among claremont company inc faye florence leonard florence e merle randolph trustees 175 amlegion realty trust incorporated reference exhibit 1028 10k dated march 31 1998 1029 escrow agreement dated january 28 1998 among faye florence leonard florence e merle randolph trustees 175 amlegion realty trust claremont company hutchins wheeler dittmar professional corporation incorporated reference exhibit 1029 10k dated march 31 1998 1030 agreement rauch industries inc guy yocom construction inc dated july 31 1997 incorporated reference exhibit 1030 10k dated march 31 1998 1031 agreement rauch industries inc cas construction inc dated august 25 1997 incorporated reference exhibit 1031 10k dated march 31 1998 1032 varcopruden purchase order dated june 16 1997 incorporated reference exhibit 1032 10k dated march 31 1998 1033 amendment 3 dated march 30 1998 loan security agreement dated april 16 1997 incorporated reference exhibit 1033 10k dated march 31 1998 1034 amendment 4 dated march 26 1999 loan security agreement dated april 16 1997 incorporated reference exhibit 1034 10k dated march 31 1999 1035 advice borrowing terms c j vander ltd nat west bank plc dated march 19 1999 incorporated reference exhibit 1035 10k dated march 31 1999 1036 advice borrowing terms c j vander ltd nat west bank plc dated august 5 1999 incorporated reference exhibit 102 10q dated june 30 1999 1037 letter agreement banco popular wallace international de puerto rico inc dated june 1 1999 incorporated reference exhibit 101 10q dated june 30 1999 1038 employment agreement dated july 8 1999 ami trauber company incorporated reference exhibit 103 10q dated june 30 1999 1039 lyme properties llc incorporated reference exhibit 102 10q dated september 30 1999 1040 advice borrowing terms cj vander ltdinternational silver company ltd nat west plc dated march 10 2000 incorporated reference exhibit 1040 10k dated december 31 1999 1041 letter agreement dated december 31 1998 farberware inc excel importing corp incorporated reference exhibit 1036 10k dated march 31 1999 1042 report form 15 certification notice termination registration section 12g securities exchange act 1934 suspension duty file reports sections 13 15d securities exchange act 1934 filed december 7 1998 incorporated reference exhibit 1037 10k dated march 31 1999 1043 letter agreement banco popular wallace international de puerto rico inc dated july 31 2000 incorporated reference exhibit 10 form 10q dated june 30 2000 1044 advice borrowing terms c j vander ltd nat west bank plc dated august 23 2000 incorporated reference exhibit 101 form 10q dated september 30 2000 1045 letter agreement dated august 24 2000 syratech corporation affiliates bank america na administrative agent lenders loan security agreement incorporated reference exhibit 102 form 10q dated september 30 2000 1046 amendment 5 dated march 26 2001 loan security agreement dated april 16 1997 incorporated reference exhibit 1046 form 10k dated march 30 2001 1047 advice borrowing terms c j vander ltdinternational silver company ltd nat west plc dated march 20 2001 incorporated reference exhibit 101 form 10q dated march 31 2001 1048 promissory note 10000000 dated april 2 2001 ml distribution center llc sunamerica life insurance company incorporated reference exhibit 102 form 10q dated march 31 2001 1049 letter agreement banco popular wallace international de puerto rico inc dated august 2 2001 incorporated reference exhibit 101 form 10q dated june 30 2001 1050 amendment 6 dated august 13 2001 loan security agreement dated april 16 1997 incorporated reference exhibit 102 form 10q dated june 30 2001 1051 advice borrowing terms c j vander ltdinternational silver company ltd nat west plc dated september 28 2001 incorporated reference exhibit 101 form 10q dated september 30 2001 1052 employment noncompetition agreement dated february 27 2002 robert meers company 1053 amendment 2 amended restated employment agreement dated april 16 1997 leonard florence company 1054 amendment 7 consent dated march 22 2002 loan security agreement dated april 16 1997 1055 acquisition agreement dated december 31 2001 farberware inc company 1056 employment agreement dated june 1 2001 gregory hunt company 1057 amendment 4 dated february 22 2001 employment agreement dated august 16 1991 e merle randolph company computation ratio earnings fixed charges fixed charges list subsidiaries incorporated reference exhibit 22 form s4 registration statement 33316917 b financial statement schedule ii valuation qualifying accounts signatures pursuant requirements section 13 15d securities act 1934 registrant duly caused annual report form 10k signed behalf undersigned thereunto duly authorized city boston state massachusetts 1st day april 2002 pursuant requirements securities act 1934 annual report form 10k signed following persons capacities dates indicated signature title date leonard florence chairman board directors april 1 2002 leonard florence robert meers robert meers president chief executive officer director april 1 2002 gregory w hunt gregory w hunt senior vice president chief financial officer treasurer principal financial accounting officer director april 1 2002 thomas hagerty thomas hagerty director april 1 2002 david v harkins david v harkins director april 1 2002 alan r kanter alan r kanter director april 1 2002 melvin l levine melvin l levine director april 1 2002 scott schoen scott schoen director april 1 2002 kent r weldon kent r weldon director april 1 2002 george r taylor george r taylor director april 1 2002 schedule ii syratech corporation subsidiaries valuation qualifying accounts thousands doubtful accounts written b sales returns item 14 controls procedures within ninety day period prior date report company conducted evaluation supervision participation company’s management including company’s chief executive officer chief financial officer principal executive officer principal financial officer respectively regarding effectiveness design operation company’s disclosure controls procedures defined rule 13a14 securities exchange act 1934 “exchange act” based upon evaluation chief executive officer chief financial officer concluded company’s disclosure controls procedures effective ensure material information relating company including consolidated subsidiaries made known others within entities significant changes company’s internal controls factors could significantly affect internal controls subsequent date company carried evaluation part iv item 15 item 14 principal accountant fees services following summary fees billed us deloitte touche llp “deloitte” professional services rendered fiscal years ended december 31 2003 december 31 2002 audit fees consists aggregate fees billed professional services rendered audit company’s consolidated financial statements review interim consolidated financial statements including quarterly reports services normally provided deloitte connection statutory regulatory filings engagements auditrelated fees consists aggregate fees billed assurance related services reasonably related performance audit review company’s consolidated financial statements reported “audit fees” fiscal 2003 services included benefit plan audits consultation accounting standards transactions statutory audits fiscal 2002 services included plan audits consultation accounting standards transactions statutory audits tax fees consists aggregate fees billed professional services tax compliance tax advice tax planning services included assistance regarding federal state international tax compliance international tax planning fees relate consulting relative 401 k plans advisory services related sarbanes oxley 404 implementation audit committee considers whether provision services compatible maintaining auditor’s independence determined services fiscal 2003 2002 compatible audit committee policy preapproval services independent auditors audit committee’s policy preapprove audit permissible nonaudit services provided independent auditors services may include audit services auditrelated services tax services preapproval generally provided one year audit committee may also preapprove particular services casebycase basis part iv item 15 item 14 exhibits financial statement schedules reports form 8k exhibits 21 restated agreement plan merger dated november 27 1996 effective october 23 1996 syratech thl transaction corp amendment dated february 14 1997 restated agreement plan merger incorporated reference exhibit 21 form s4 registration statement 33316917 31 restated certificate incorporation syratech incorporated reference exhibit 31 form s1 registration statement 3341619 32 syratech corporation certificate designations respect series preferred stock dated october 26 1992 incorporated reference exhibit 32 form s4 registration statement 33316917 33 bylaws syratech incorporated reference exhibit 32 form s1 registration statement 3341619 34 amendment section 29 bylaws syratech effective august 15 1991 incorporated reference exhibit 33 form s1 registration statement 3341619 35 certificate ownership merger wsc liquidating inc syratech corporation dated may 9 1996 incorporated reference exhibit 35 form s4 registration statement 33316917 36 specimen common stock certificate incorporated reference exhibit 41 form 10k syratech year ended december 31 1993 101 form amended restated employment agreement dated april 16 1997 leonard florence company incorporated reference exhibit 101 form s4 registration statement 33316917 1011 amendment 1 dated july 29 1998 employment agreement dated april 16 1997 leonard florence company 102 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1017 form s1 registration statement 3341619 103 employment agreement dated august 16 1991 melvin l levine 104 company incorporated reference exhibit 1018 form s1 registration statement 3341619 104 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1019 form s1 registration statement 3341619 105 amendment 1 dated july 27 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 105 form s4 registration statement 33316917 106 amendment 1 dated may 11 1995 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 108 form 10k syratech year ended december 31 1995 107 amendment 1 dated july 27 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 107 form s4 registration statement 33316917 108 retirement benefit agreement dated july 27 1996 faye florence company incorporated reference exhibit 108 form s4 registration statement 33316917 109 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 109 form s4 registration statement 33316917 1010 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 1010 form s4 registration statement 33316917 1011 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1011 form s4 registration statement 33316917 1012 agreement dated december 31 1996 company thl transaction corp leonard florence melvin l levine incorporated reference exhibit 1012 form s4 registration statement 33316917 1013 agreement dated december 31 1996 company thl transaction corp leonard florence e merle randolph incorporated reference exhibit 1013 form s4 registration statement 33316917 1014 agreement dated december 31 1996 company thl transaction corp leonard florence alan r kanter incorporated reference exhibit 1014 form s4 registration statement 33316917 1015 asset purchase agreement dated february 2 1996 farberware inc company lifetime hoan corporation farb acquisition corp inc incorporated reference exhibit 1 form 8k dated april 16 1996 1016 settlement agreement dated february 3 1997 among bruckner manufacturing corp formerly farberware inc us industries inc farberware inc formerly farb acquisition corp lifetime hoan corporation incorporated reference exhibit 1016 form s4 registration statement 33316917 1017 agreement dated december 7 1995 among company syr acquisition inc rauch industries inc incorporated reference exhibit 1 form 8k company dated december 7 1995 incorporated reference exhibit 1017 form s4 registration statement 33316917 1018 amended restated line credit agreement among wallace international de puerto rico inc international silver de puerto rico inc banco popular de puerto rico dated october 15 1996 incorporated reference exhibit 1018 form s4 registration statement 33316917 1019 agreement dated february 2 1996 among company lifetime hoan corporation farb acquisition corp incorporated reference exhibit 1019 form s4 registration statement 33316917 1020 agreement dated may 3 1996 among company farberware inc meyer manufacturing co ltd incorporated reference exhibit 1020 form s4 registration statement 33316917 1021 license agreement dated july 12 1996 farberware inc service merchandise company inc redacted omit certain royalty information incorporated reference exhibit 1021 form s4 registration statement 33316917 1022 agreement dated october 16 1996 among farberware inc service merchandise company inc windmeredurable holdings inc amending item 1021 incorporated reference exhibit 1022 form s4 registration statement 33316917 1023 commitment letter banco popular de puerto rico wallace international de pr inc dated may 1 1997 incorporated reference exhibit 101 form 10q dated august 13 1997 1024 letter agreement banco popular de puerto rico wallace international de pr inc dated may 12 1997 incorporated reference exhibit 102 form 10q dated august 13 1997 1025 amendment 1 dated july 31 1997 loan security agreement dated april 16 1997 incorporated reference exhibit 101 form 10q dated november 12 1997 1026 amendment 2 dated december 31 1997 loan security agreement dated april 16 1997 incorporated reference exhibit 1026 10k dated march 31 1998 1027 amendment 3 dated january 26 1998 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1027 10k dated march 31 1998 1028 purchase sale agreement dated january 28 1998 among claremont company inc faye florence leonard florence e merle randolph trustees 175 amlegion realty trust incorporated reference exhibit 1028 10k dated march 31 1998 1029 escrow agreement dated january 28 1998 among faye florence leonard florence e merle randolph trustees 175 amlegion realty trust claremont company hutchins wheeler dittmar professional corporation incorporated reference exhibit 1029 10k dated march 31 1998 1030 agreement rauch industries inc guy yocom construction inc dated july 31 1997 incorporated reference exhibit 1030 10k dated march 31 1998 1031 agreement rauch industries inc cas construction inc dated august 25 1997 incorporated reference exhibit 1031 10k dated march 31 1998 1032 varcopruden purchase order dated june 16 1997 incorporated reference exhibit 1032 10k dated march 31 1998 1033 amendment 3 dated march 30 1998 loan security agreement dated april 16 1997 incorporated reference exhibit 1033 10k dated march 31 1998 1034 amendment 4 dated march 26 1999 loan security agreement dated april 16 1997 1035 advice borrowing terms cj vander ltd nat west bank plc dated march 19 1999 1036 letter agreement dated december 31 1998 farberware inc excel importing corp 1037 report form 15 certification notice termination registration section 12g securities exchange act 1934 suspension duty file reports sections 13 15d securities exchange act 1934 filed december 7 1998 11 statement computation per share earnings 12 computation ratio earnings fixed charges fixed charges 22 list subsidiaries incorporated reference exhibit 22 form s4 registration statement 33316917 27 financial data schedule ii valuation qualifying accounts signatures pursuant requirements section 13 15d securities act 1934 registrant duly caused annual report form 10k signed behalf undersigned thereunto duly authorized city boston state massachusetts 31st day march 1999 syratech corporation ami trauber ami trauber executive vice president chief financial officer treasurer pursuant requirements securities act 1934 annual report form 10k signed following persons capacities dates indicated schedule ii syratech corporation subsidiaries valuation qualifying accounts thousands doubtful accounts written b sales returns item 14 exhibits financial statement schedules reports form 8k exhibits b financial statement schedule ii valuation qualifying accounts signatures pursuant requirements section 13 15d securities act 1934 registrant duly caused annual report form 10k signed behalf undersigned thereunto duly authorized city boston state massachusetts 30th day march 2001 syratech corporation ami trauber ami trauber executive vice president chief financial officer treasurer pursuant requirements securities act 1934 annual report form 10k signed following persons capacities dates indicated schedule ii syratech corporation subsidiaries valuation qualifying accounts thousands doubtful accounts written b sales returns item 14 exhibits financial statement schedules reports form 8k b financial statement schedule independent auditors report schedule ii valuation qualifying accounts c reports filed form 8k quarter ended december 31 1996 company filed current report form 8k dated october 25 1996 securities exchange commission reported announcement agreement plan merger syratech corporation thomas h lee equity fund iii lp company filed current report form 8k dated november 12 1996 securities exchange commission reported termination syratech corporations rights agreement signatures pursuant requirements section 13 15d securities act 1934 registrant duly caused annual report form 10k signed behalf undersigned thereunto duly authorized city boston state massachusetts 31st day march 1997 syratech corporation leonard florence leonard florence chairman board chief executive officer president pursuant requirements securities act 1934 annual report form 10k signed following persons capacities dates indicated independent auditors report board directors stockholders syratech corporation boston massachusetts audited consolidated financial statements syratech corporation company december 31 1996 1995 three years period ended december 31 1996 issued report thereon dated february 7 1997 february 14 1997 note 15 included elsewhere annual report form 10k annual report audits also included consolidated financial statement schedule listed item 14 annual report consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein deloitte touche llp boston massachusetts february 7 1997 schedule ii syratech corporation subsidiaries valuation qualifying accounts thousands doubtful accounts written b sales returns index exhibits item 14 exhibits financial statement schedules reports form 8k exhibits 21 restated agreement plan merger dated november 27 1996 effective october 23 1996 syratech thl transaction corp amendment dated february 14 1997 restated agreement plan merger incorporated reference exhibit 21 form s4 registration statement 33316917 31 restated certificate incorporation syratech incorporated reference exhibit 31 form s1 registration statement 3341619 32 syratech corporation certificate designations respect series preferred stock dated october 26 1992 incorporated reference exhibit 32 form s4 registration statement 33316917 33 bylaws syratech incorporated reference exhibit 32 form s1 registration statement 3341619 34 amendment section 29 bylaws syratech effective august 15 1991 incorporated reference exhibit 33 form s1 registration statement 3341619 35 certificate ownership merger wsc liquidating inc syratech corporation dated may 9 1996 incorporated reference exhibit 35 form s4 registration statement 33316917 36 specimen common stock certificate incorporated reference exhibit 41 form 10k syratech year ended december 31 1993 101 form amended restated employment agreement dated april 16 1997 leonard florence company incorporated reference exhibit 101 form s4 registration statement 33316917 102 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1017 form s1 registration statement 3341619 103 employment agreement dated august 16 1991 melvin l levine 104 company incorporated reference exhibit 1018 form s1 registration statement 3341619 104 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1019 form s1 registration statement 3341619 105 amendment 1 dated july 27 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 105 form s4 registration statement 33316917 106 amendment 1 dated may 11 1995 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 108 form 10k syratech year ended december 31 1995 107 amendment 1 dated july 27 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 107 form s4 registration statement 33316917 108 retirement benefit agreement dated july 27 1996 faye florence company incorporated reference exhibit 108 form s4 registration statement 33316917 109 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 109 form s4 registration statement 33316917 1010 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 1010 form s4 registration statement 33316917 1011 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1011 form s4 registration statement 33316917 1012 agreement dated december 31 1996 company thl transaction corp leonard florence melvin l levine incorporated reference exhibit 1012 form s4 registration statement 33316917 1013 agreement dated december 31 1996 company thl transaction corp leonard florence e merle randolph incorporated reference exhibit 1013 form s4 registration statement 33316917 1014 agreement dated december 31 1996 company thl transaction corp leonard florence alan r kanter incorporated reference exhibit 1014 form s4 registration statement 33316917 1015 asset purchase agreement dated february 2 1996 farberware inc company lifetime hoan corporation farb acquisition corp inc incorporated reference exhibit 1 form 8k dated april 16 1996 1016 settlement agreement dated february 3 1997 among bruckner manufacturing corp formerly farberware inc us industries inc farberware inc formerly farb acquisition corp lifetime hoan corporation incorporated reference exhibit 1016 form s4 registration statement 33316917 1017 agreement dated december 7 1995 among company syr acquisition inc rauch industries inc incorporated reference exhibit 1 form 8k company dated december 7 1995 incorporated reference exhibit 1017 form s4 registration statement 33316917 1018 amended restated line credit agreement among wallace international de puerto rico inc international silver de puerto rico inc banco popular de puerto rico dated october 15 1996 incorporated reference exhibit 1018 form s4 registration statement 33316917 1019 agreement dated february 2 1996 among company lifetime hoan corporation farb acquisition corp incorporated reference exhibit 1019 form s4 registration statement 33316917 1020 agreement dated may 3 1996 among company farberware inc meyer manufacturing co ltd incorporated reference exhibit 1020 form s4 registration statement 33316917 1021 license agreement dated july 12 1996 farberware inc service merchandise company inc redacted omit certain royalty information incorporated reference exhibit 1021 form s4 registration statement 33316917 1022 agreement dated october 16 1996 among farberware inc service merchandise company inc windmeredurable holdings inc amending item 1021 incorporated reference exhibit 1022 form s4 registration statement 33316917 1023 commitment letter banco popular de puerto rico wallace international de pr inc dated may 1 1997 incorporated reference exhibit 101 form 10q dated august 13 1997 1024 letter agreement banco popular de puerto rico wallace international de pr inc dated may 12 1997 incorporated reference exhibit 102 form 10q dated august 13 1997 1025 amendment 1 dated july 31 1997 loan security agreement dated april 16 1997 incorporated reference exhibit 101 form 10q dated november 12 1997 1026 amendment 2 dated december 31 1997 loan security agreement dated april 16 1997 1027 amendment 3 dated january 26 1998 employment agreement dated august 16 1991 e merle randolph company 1028 purchase sale agreement dated january 28 1998 among claremont company inc fay florence leonard florence e merle randolph trustees 175 amlegion realty trust 1029 escrow agreement dated january 28 1998 among faye florence leonard florence e merle randolph trustees 175 amlegion realty trust claremont company hutchins wheeler dittmar professional corporation 1030 agreement rauch industries inc guy yocom construction inc dated july 31 1997 1031 agreement rauch industries inc cas construction inc dated august 25 1997 1032 varcopruden purchase order dated june 16 1997 1033 amendment 3 dated march 30 1998 loan security agreement dated april 16 1997 11 statement computation per share earnings 22 list subsidiaries incorporated reference exhibit 22 form s4 registration statement 33316917 271 financial data schedule 272 financial data schedule 273 financial data schedule b financial statement schedule ii valuation qualifying accounts signatures pursuant requirements section 13 15d securities act 1934 registrant duly caused annual report form 10k signed behalf undersigned thereunto duly authorized city boston state massachusetts 31st day march 1998 syratech corporation leonard florence leonard florence chairman board chief executive officer president pursuant requirements securities act 1934 annual report form 10k signed following persons capacities dates indicated signature title date leonard florence chairman board march 31 1998 directors chief executive leonard florence officer president principal executive officer ami trauber executive vice president chief march 31 1998 financial officer treasurer ami trauber director principal financial accounting officer thomas hagerty director march 31 1998 thomas hagerty david v harkins director march 31 1998 david v harkins alan r kanter director march 31 1998 alan r kanter seth w lawry director march 31 1998 seth w lawry melvin l levine director march 31 1998 melvin l levine e merle randolph director march 31 1998 e merle randolph scott schoen director march 31 1998 scott schoen kent r weldon director march 31 1998 kent r weldon schedule ii syratech corporation subsidiaries valuation qualifying accounts thousands doubtful accounts written b sales returns index exhibits 21 restated agreement plan merger dated november 27 1996 effective october 23 1996 syratech thl transaction corp amendment dated february 14 1997 restated agreement plan merger incorporated reference exhibit 21 form s4 registration statement 33316917 31 restated certificate incorporation syratech incorporated reference exhibit 31 form s1 registration statement 3341619 32 syratech corporation certificate designations respect series preferred stock dated october 26 1992 incorporated reference exhibit 32 form s4 registration statement 33316917 33 bylaws syratech incorporated reference exhibit 32 form s1 registration statement 3341619 34 amendment section 29 bylaws syratech effective august 15 1991 incorporated reference exhibit 33 form s1 registration statement 3341619 35 certificate ownership merger wsc liquidating inc syratech corporation dated may 9 1996 incorporated reference exhibit 35 form s4 registration statement 33316917 36 specimen common stock certificate incorporated reference exhibit 41 form 10k syratech year ended december 31 1993 101 form amended restated employment agreement dated april 16 1997 leonard florence company incorporated reference exhibit 101 form s4 registration statement 33316917 102 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1017 form s1 registration statement 3341619 103 employment agreement dated august 16 1991 melvin l levine 104 company incorporated reference exhibit 1018 form s1 registration statement 3341619 104 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1019 form s1 registration statement 3341619 105 amendment 1 dated july 27 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 105 form s4 registration statement 33316917 106 amendment 1 dated may 11 1995 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 108 form 10k syratech year ended december 31 1995 107 amendment 1 dated july 27 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 107 form s4 registration statement 33316917 108 retirement benefit agreement dated july 27 1996 faye florence company incorporated reference exhibit 108 form s4 registration statement 33316917 109 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 109 form s4 registration statement 33316917 1010 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 1010 form s4 registration statement 33316917 1011 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1011 form s4 registration statement 33316917 1012 agreement dated december 31 1996 company thl transaction corp leonard florence melvin l levine incorporated reference exhibit 1012 form s4 registration statement 33316917 1013 agreement dated december 31 1996 company thl transaction corp leonard florence e merle randolph incorporated reference exhibit 1013 form s4 registration statement 33316917 1014 agreement dated december 31 1996 company thl transaction corp leonard florence alan r kanter incorporated reference exhibit 1014 form s4 registration statement 33316917 1015 asset purchase agreement dated february 2 1996 farberware inc company lifetime hoan corporation farb acquisition corp inc incorporated reference exhibit 1 form 8k dated april 16 1996 1016 settlement agreement dated february 3 1997 among bruckner manufacturing corp formerly farberware inc us industries inc farberware inc formerly farb acquisition corp lifetime hoan corporation incorporated reference exhibit 1016 form s4 registration statement 33316917 1017 agreement dated december 7 1995 among company syr acquisition inc rauch industries inc incorporated reference exhibit 1 form 8k company dated december 7 1995 incorporated reference exhibit 1017 form s4 registration statement 33316917 1018 amended restated line credit agreement among wallace international de puerto rico inc international silver de puerto rico inc banco popular de puerto rico dated october 15 1996 incorporated reference exhibit 1018 form s4 registration statement 33316917 1019 agreement dated february 2 1996 among company lifetime hoan corporation farb acquisition corp incorporated reference exhibit 1019 form s4 registration statement 33316917 1020 agreement dated may 3 1996 among company farberware inc meyer manufacturing co ltd incorporated reference exhibit 1020 form s4 registration statement 33316917 1021 license agreement dated july 12 1996 farberware inc service merchandise company inc redacted omit certain royalty information incorporated reference exhibit 1021 form s4 registration statement 33316917 1022 agreement dated october 16 1996 among farberware inc service merchandise company inc windmeredurable holdings inc amending item 1021 incorporated reference exhibit 1022 form s4 registration statement 33316917 1023 commitment letter banco popular de puerto rico wallace international de pr inc dated may 1 1997 incorporated reference exhibit 101 form 10q dated august 13 1997 1024 letter agreement banco popular de puerto rico wallace international de pr inc dated may 12 1997 incorporated reference exhibit 102 form 10q dated august 13 1997 1025 amendment 1 dated july 31 1997 loan security agreement dated april 16 1997 incorporated reference exhibit 101 form 10q dated november 12 1997 1026 amendment 2 dated december 31 1997 loan security agreement dated april 16 1997 1027 amendment 3 dated january 26 1998 employment agreement dated august 16 1991 e merle randolph company 1028 purchase sale agreement dated january 28 1998 among claremont company inc faye florence leonard florence e merle randolph trustees 175 amlegion realty trust 1029 escrow agreement dated january 28 1998 among faye florence leonard florence e merle randolph trustees 175 amlegion realty trust claremont company hutchins wheeler dittmar professional corporation 1030 agreement rauch industries inc guy yocom construction inc dated july 31 1997 1031 agreement rauch industries inc cas construction inc dated august 25 1997 1032 varcopruden purchase order dated june 16 1997 1033 amendment 3 dated march 30 1998 loan security agreement dated april 16 1997 11 statement computation per share earnings 22 list subsidiaries incorporated reference exhibit 22 form s4 registration statement 33316917 271 financial data schedule 272 financial data schedule 273 financial data schedule item 7 managements discussion analysis financial condition results operations forwardlooking statements private securities litigation reform act 1995 provides safe harbor forwardlooking statements except historical information contained incorporated reference annual report form 10k matters discussed incorporated reference herein forwardlooking statements forwardlooking statements involve known unknown risks uncertainties factors may cause actual results performance achievements company industry results materially different future results performance achievements expressed implied forwardlooking statements factors include among others general economic business conditions industry capacity industry trends overseas expansion loss major customers changes demand companys products timing orders received customers cost availability raw materials dependence foreign sources supply changes business strategy development plans availability quality management availability terms deployment capital seasonal nature business special attention paid forwardlooking statements including limited statements relating companys ability obtain sufficient resources finance working capital expenditure needs provide known obligations ii continuation companys ability benefit vendor consolidation trend retail industry described elsewhere annual report form 10k merger recapitalization april 16 1997 thl transaction corp thl delaware corporation controlled affiliates thomas h lee company thl merged company merger pursuant restated agreement plan merger thl company transaction accounted recapitalization see notes consolidated financial statements results operations following table sets forth certain financial data percentage net sales company years presented 1 company changed method pricing certain inventories lastin firstout lifo firstin first fifo method 1999 prior periods restated reflect change occurred earliest period presented see note 4 companys consolidated financial statements 2 consists gain disposal primary east coast distribution facility 1999 write value certain assets 1999 1998 see note 3 companys consolidated financial statements 3 consists income sale farberware inventory operating income net certain selling general administrative expenses 4 consists nonrecurring pretax income related sale certain equipment associated farberware settlement 1997 following results operations years 1998 prior restated change accounting principal lifo inventory cost method fifo inventory cost method certain inventories see note 4 companys financial statements year ended december 31 1999 compared year ended december 31 1998 net sales increased 51 3053 million year ended december 31 1999 2904 million year ended december 31 1998 increase primarily due increased sales new line licensed giftware products specialty retailers increased sales candle giftware partially offset decreased sales certain seasonal products changes normal product prices materially impact net sales gross profit increased 86 841 million year ended december 31 1999 774 million year ended december 31 1998 gross profit percentage sales 275 year ended december 31 1999 compared 267 comparable 1998 period 08 percentage point increase primarily reflects higher margin carried new line licensed giftware offset increased royalty expense related line change gross profit percentage sales materially impacted change product pricing selling general administrative expenses g expenses 691 million 226 percentage net sales year ended december 31 1999 compared 224 650 million comparable 1998 period 02 percentage point increase g expenses sales year ended december 31 1999 reflects increased bad debt expense higher royalty expense noted income operations 339 million 129 million year ended december 31 1999 1998 respectively included operating income 34 million 57 million 1999 1998 respectively decrease 1999 operating income primarily due onetime income 26 million recorded 1998 connection granting license extending certain existing licenses relating farberware intellectual property one existing licensees income operations also included asset dispositions 1999 charges impairment longlived assets 1999 1998 november 1999 company sold primary east coast distribution facility 295 million sale facility resulted net gain approximately 171 million company simultaneously entered shortterm leaseback approximately 40 distribution facility connection disposition facility company recorded separation benefits approximately 05 million 42 hourly employees three salaried employees accrued december 31 1999 expected fully paid end first quarter 2001 earlier year company sold undeveloped land adjacent facility gain approximately 08 million fourth quarter 1999 company wrote value certain assets approximately 12 million writedowns relate abandonment certain manufacturing equipment gastonia north carolina facility book value approximately 11 million remaining asset writedowns relate finalization amounts relative shutdown el paso facility discussed less significant asset writedowns adjustments aggregated net charge 06 million interest expense net 245 million year ended december 31 1999 compared 237 million period 1998 increase results increased borrowings working capital purposes higher interest rates companys revolving credit facilities notes payable provision income taxes 43 million year ended december 31 1999 compared benefit 27 million year ended december 31 1998 estimated effective income tax rate 45 year ended december 31 1999 compares 25 rate period prior year increase tax rate reflects impact recognizing gain east coast distribution facility sale 1999 increased proportion income taxed higher us tax rates compared lower foreign tax rates comparison 1998 net income applicable common stockholders year ended december 31 1999 26 million 068 per share compared net loss applicable common stockholders year ended december 31 1998 104 million 275 per share adjusted weighted average shares 3784018 years year ended december 31 1998 compared year ended december 31 1997 net sales 2904 million year ended december 31 1998 approximately flat 2909 million year ended december 31 1997 slight decrease reflects lower sales silvestri branded seasonal items offset stronger sales giftware particularly picture frames 1998 changes product prices materially impact net sales gross profit 774 million year ended december 31 1998 compared 760 million year ended december 31 1997 gross profit percentage net sales 267 year ended december 31 1998 compared 261 year ended december 31 1997 increase gross profit percentage 06 percentage points reflects 07 percentage point improvement related converting lifo fifo accounting certain inventories see note 4 consolidated financial statements gross profit percentage also reflects 01 point decrease due onetime higher costs related consolidation warehousing increased mix closeout sales related aggressive plan reduce excess inventories offset lower manufacturing costs companys chester sc manufacturing facility new equipment startup manufacturing inefficiencies experienced 1997 corrected 1998 decrease gross profit margin materially impacted change product prices selling general administrative expenses g expenses decreased 224 percentage net sales 650 million year ended december 31 1998 250 727 million year ended december 31 1997 included g expenses 1997 onetime charge 39 million stock option compensation expense due merger excluding onetime charge 39 million g expenses 237 percentage net sales 688 million year ended december 31 1997 13 percentage point decrease 1998 reflects lower bad debt expense savings related consolidation operations partially offset personnel severance costs increased management personnel travel costs addition 1997 included one time favorable legal settlement nonrecurring favorable adjustments accruals related discontinued operations income operations 129 million 56 million years ended december 31 1998 1997 respectively included operating income 57 million 24 million respectively primarily resulting farberware licensing income fourth quarter 1998 company received onetime income 26 million connection granting license extending certain existing licenses relating farberware intellectual property one existing licensees income operations 1998 includes onetime noncash charge 52 impairment assets see note 3 companys consolidated financial statements noted 1997 includes onetime charge 39 million compensation expense related stock options result merger nonoperating income 1997 represents 22 million income sale equipment associated farberware settlement fourth quarter 1998 company wrote value certain assets primarily relating facilities el paso texas one facility gastonia north carolina carrying values impaired aggregate 43 million managements decision shut sell facilities el paso facility sold december 1999 leased back six months pending location alternate warehousing facilities gastonia facility shut june 15 1999 also included fourth quarter charge 06 million related impaired equipment tooling abandoned company facilities 02 million representing decline estimated fair value property held sale since 1997 interest expense net 237 million 158 million years ended december 31 1998 1997 respectively change results primarily full year interest expense finance merger benefit income taxes 27 23 million years ended december 31 1998 1997 respectively increase income tax benefit 1998 reflects higher net loss resulting increased interest expense net loss applicable common stockholders year ended december 31 1998 104 million 275 diluted per share adjusted weighted average shares outstanding 3784018 diluted compared net loss applicable common stockholders 72 million 138 diluted per share adjusted weighted average shares outstanding 5216000 diluted year ended december 31 1997 reduction adjusted weighted average shares reflects acquisition retirement 49 million shares company common stock connection merger effected april 16 1997 liquidity capital resources net cash used operating activities year ended december 31 1999 99 million primary uses cash increases operating working capital needs inventories ended year higher level due increased level customer demand expected first quarter 2000 companys working capital requirements seasonal tend highest period september december due christmas selling season accounts receivable tend decline first quarter receivables generated third fourth quarters collected remain lower next peak season beginning september capital expenditures approximately 65 million year ended december 31 1999 expenditures include computer equipment systems warehouse distribution facility mira loma ca computer equipment systems companys east boston office facility machinery equipment tools dies companys manufacturing facilities companys level indebtedness several important effects future operation including substantial portion companys cash flow operations must dedicated payment interest indebtedness available purposes ii covenants contained new credit facility indenture governing senior notes require company meet certain financial tests restrictions may limit ability borrow additional funds dispose assets may affect companys flexibility planning reacting changes business including possible acquisition activities iii companys ability obtain additional financing future working capital expenditures acquisitions general corporate purposes may impaired company believes borrowings available revolving credit facility sufficient finance companys working capital requirements provide known obligations company including obligations company 1650 million notes operating leases fund planned capital expenditures december 31 2000 see note 10 description dividend liquidation terms companys cumulative redeemable preferred stock see note 6 accompanying consolidated financial statements discussion borrowings availability covenants dividend restrictions company revolving credit facilities notes due april 15 2007 year 2000 company modified key systems comply year 2000 expenditures material financial condition results operations given year companys critical computer systems successfully transitioned year 2000 however may latent problems surface key dates future company experienced anticipate significant problems related transition year 2000 addition company experienced notified significant year 2000 issues relating significant customers vendors suppliers others furthermore company anticipate significant expenditure future related year 2000 compliance accounting pronouncements june 1998 financial accounting standards board issued statement financial accounting standard sfas 133 accounting derivative instruments hedging activities effective fiscal quarters fiscal years beginning june 15 2000 new standard requires companies record derivatives balance sheet assets liabilities measured fair value gains losses resulting changes values derivatives would accounted depending use derivative whether qualifies hedge accounting management currently assessing whether impact sfas 133 companys consolidated financial statements upon adoption required first quarter 2001 december 1999 securities exchange commission issued staff accounting bulletin sab 101 revenue recognition financial statements sab 101 provides guidance applying generally accepted accounting principles revenue recognition issues financial statements company adopt sab 101 required second quarter 2000 expect adoption material impact consolidated financial statements item 7a item 7 management’s discussion analysis financial condition results operations forwardlooking statements private securities litigation reform act 1995 provides “safe harbor” forwardlooking statements except historical information contained incorporated reference annual report form 10k matters discussed incorporated reference herein forwardlooking statements forwardlooking statements involve known unknown risks uncertainties factors may cause actual results performance achievements company industry results materially different future results performance achievements expressed implied forwardlooking statements factors include among others general economic business conditions industry capacity industry trends overseas expansion loss major customers changes demand company’s products timing orders received customers cost availability raw materials dependence foreign sources supply changes business strategy development plans availability quality management availability terms deployment capital seasonal nature business special attention paid forwardlooking statements including limited statements relating company’s ability obtain sufficient resources finance working capital expenditure needs provide known obligations ii continuation company’s ability benefit vendor consolidation trend retail industry described elsewhere annual report form 10k results operations following table sets forth certain financial data percentage net sales company years presented 1 consists gain disposal company’s primary east coast distribution facility 1999 write value certain assets 2001 1999 see note 2 company’s financial statements 2 consists primarily revenue related licensing farberware name 2001 amount includes onetime gain related sale company’s interest farberware intellectual property year ended december 31 2001 compared year ended december 31 2000 net sales comparable basis excluding sales specialty retaillicensing organization 2000 decreased 89 2749 million year ended december 31 2001 3019 million year ended december 31 2000 reflecting generally weak retail environment 2001 net sales 2749 million represented 229 decrease total net sales 3566 million year ended december 31 2000 net sales year ended december 31 2000 included 547 million sales specialty retaillicensing organization 2001 company entered direct sourcing agency arrangement specialty retaillicensing organization replacing arrangement company previously sold distributed licensed products new arrangement company’s sales royalty expenses organization eliminated purchasing commissions earned changes normal product prices materially impact net sales gross profit decreased 703 million year ended december 31 2001 969 million year ended december 31 2000 gross profit percentage sales 256 year ended december 31 2001 compared 272 comparable 2000 period 16 percentage point decrease reflects additional provisions obsolete slow moving inventory totaling approximately 59 million related certain discontinued products rauch christmas ornament manufacturing operation decision cease manufacturing certain cutlery products favor sourcing well additional provisions related tabletop giftware products decrease gross profit percentage also reflects favorable mix product sold offset lower absorption distribution manufacturing costs compared prior year period selling general administrative expenses “s g expenses” decreased 72 million 703 million year ended december 31 2001 compared 775 million comparable period ended december 31 2000 fourth quarter 2001 company provided approximately 12 million related termination benefits contractual obligations certain executives overall decrease primarily due reduced royalty expenses spending cuts initiated address lower sales volume income operations 72 million 219 million years ended december 31 2001 2000 respectively fourth quarter 2001 company recorded asset impairment 16 million relating excess equipment rauch christmas ball manufacturing operations end fourth quarter 2001 rauch began dismantling manufacturing equipment chester sc facility began moving primary christmas ball manufacturing location gastonia nc displace certain older equipment relocation equipment complete scheduled fully operational may 2002 income operations also included operating income 87 million comprised farberware licensing fees 15 million onetime gain 72 million related sale company’s interest farberware intellectual property 2002 company longer derive licensing fees related farberware interest expense 231 million year ended december 31 2001 compared 242 million period 2000 decrease reflects decline bank’s prime lending rate reduced amount 11 senior notes outstanding decreased borrowings company’s revolving credit facility benefit income taxes 39 million year ended december 31 2001 compared 06 million year ended december 31 2000 effective income tax rate 25 periods fourth quarter 2001 company purchased aggregate 07 million notes open market resulting extraordinary gain early debt extinguishment 03 million net 02 million income taxes net loss applicable common stockholders years ended december 31 2001 2000 148 million 10 million respectively 390 027 respectively per basic diluted share adjusted weightedaverage shares 3784018 periods year ended december 31 2000 compared year ended december 31 1999 net sales increased 168 3566 million year ended december 31 2000 3053 million year ended december 31 1999 increase reflects continued strong demand housewares products designed company including fountains stainless steel flatware lighting candles accessories giftware sales also increased versus prior year including sales licensed giftware specialty retailers changes normal product prices materially impact net sales gross profit increased 152 969 million year ended december 31 2000 841 million year ended december 31 1999 gross profit percentage sales 272 year ended december 31 2000 compared 275 comparable 1999 period 03 percentage point decrease percentage gross profit primarily reflects mix products sold period including sales discontinued products additional provisions slow moving inventories change gross profit percentage sales materially impacted change normal product pricing selling general administrative expenses “s g expenses” 775 million 217 percentage net sales year ended december 31 2000 compared 226 691 million comparable 1999 period 84 million increase sg expenses reflects higher royalties commissions advertising related increased sales volume investment additional sales marketing staff well higher spending information technology 09 percentage point improvement g expenses sales year ended december 31 2000 reflects spending controls put place reduce growth g rate growth sales volume 2001 company entered sourcing arrangement specialty retaillicensing organization replacing arrangement company previously sold licensed products effect new arrangement reduce sales royalty expense increase commission revenue company expect adverse impact financial results result new arrangement income operations 219 million 339 million years ended december 31 2000 1999 respectively 1999 income operations included 156 million relating recording asset dispositions impairments including 5 million severance expense accrual 2000 separation benefits required 5 million accrual reversed fourth quarter corresponding benefit income operations excluding adjustments income operations increased 31 million 169 214 183 million years ended december 31 2000 1999 respectively interest expense net 242 million year ended december 31 2000 compared 245 million period 1999 decrease interest expense primarily reflects effect 2000 november 1999 receipt proceeds sale company’s revere property subsequent pay debt offset increased borrowings working capital purposes due higher sales volume higher interest rates company’s revolving credit facilities benefit income taxes 06 million year ended december 31 2000 compared provision 43 million year ended december 31 1999 estimated effective income tax rate 25 year ended december 31 2000 compares 45 rate period prior year tax rate 1999 reflected impact recognizing gain east coast distribution facility sale increased proportion income taxed higher us tax rates compared lower foreign tax rates comparison 2000 company estimates 2001 effective tax rate 25 fourth quarter 2000 company purchased aggregate 165 million notes open market resulting extraordinary gain early debt extinguishment 36 million net 25 million income taxes net loss applicable common stockholders year ended december 31 2000 10 million 027 per share compared net income applicable common stockholders year ended december 31 1999 26 million 068 per share adjusted weightedaverage shares 3784018 years liquidity capital resources net cash provided operating activities year ended december 31 2001 502 million compared 242 million use cash year ended december 31 2000 improvement relates significant decline working capital requirements related elimination sales specialty retaillicensing organization noted lower sales volume reduced investment inventories proceeds sale company’s interest farberware intellectual property company’s working capital requirements seasonal tend highest period september november due christmas selling season accounts receivable tend decline december first quarter receivables generated third fourth quarters collected remain lower next peak season beginning december inventories tend increase january august year gradually decrease final four months year capital expenditures approximately 63 million year ended december 31 2001 expenditures relate primarily investment information technology machinery equipment tools dies company’s manufacturing distribution facilities company senior revolving credit facility “facility” dated april 16 1997 amended effective july 31 1997 december 31 1997 march 30 1998 december 31 1998 march 26 2001 august 13 2001 march 22 2002 provides 110 million borrowings including 30 million sublimit issuance standby commercial letters credit march 22 2002 term facility extended additional year facility expires april 15 2003 obligations company facility secured inventory accounts receivable company domestic subsidiaries pledge 100 domestic subsidiaries’ least 65 foreign subsidiaries’ outstanding capital stock borrowings made revolving credit facility bear interest rate equal company’s option eurodollar rate plus 375 basis points prime rate plus 100 basis points revolving credit facility amended contains customary covenants company subsidiary borrowers including limited requiring minimum earnings income taxes depreciation amortization certain adjustments “ebitda” defined limits capital spending company must maintain minimum availability requirements 25 million february march year minimum availability varying 133 million 10 million months april january company compliance covenants amended december 31 2001 december 31 2001 availability revolving credit facility net outstanding letters credit minimum excess availability requirements 412 million december 31 2001 company also debt financing 1478 million 11 senior notes “notes” due april 15 2007 require interest payments made semiannually april 15 october 15 notes redeemable whole part company’s option april 15 2002 november 2 2001 company whollyowned subsidiary purchased aggregate 07 million outstanding notes open market resulting extraordinary gain net applicable taxes approximately 03 million recorded fourth quarter 2001 january 2002 company whollyowned subsidiary purchased aggregate 25 million outstanding notes open market resulting extraordinary gain net applicable taxes approximately 07 million recorded first quarter 2002 company may time future repurchase additional notes open market may allowed terms revolving credit facility terms senior notes indenture april 2 2001 company executed 10 million promissory note secured certain real property building improvements located mira loma california note bears interest rate 742 repaid monthly installments may 2011 final payment 81 million due december 31 2001 balance outstanding 99 million company’s level indebtedness several important effects future operation including substantial portion company’s cash flow operations must dedicated payment interest indebtedness available purposes ii covenants contained revolving credit facility indenture governing senior notes require company meet certain financial tests restrictions may limit ability borrow additional funds dispose assets may affect company’s flexibility planning reacting changes business including possible acquisition activities iii company’s ability obtain additional financing future working capital expenditures acquisitions general corporate purposes may impaired company believes borrowings available revolving credit facility amended sufficient finance company’s working capital requirements provide known obligations company including obligations company 1478 million notes operating leases fund planned capital expenditures december 31 2002 see note 5 accompanying consolidated financial statements additional discussion borrowings availability covenants dividend restrictions company revolving credit facilities notes due april 15 2007 see note 9 description dividend liquidation terms company’s cumulative redeemable preferred stock significant accounting policies company’s management required make estimates assumptions order prepare financial statements conformity accounting principles generally accepted united states america actual results could differ estimates assumptions company believe differences would material effect results operations financial position company’s significant accounting policies included note 1 notes consolidated financial statements significant accounting policies estimates underlie preparation consolidated financial statements revenue recognition depreciation policies addition judgments used review longlived assets including goodwill intangible assets impairment additionally company’s depreciation policy reflects judgments estimated useful life assets accounting pronouncements company adopted sfas 133 “accounting derivative instruments hedging activities” required fiscal 2001 adoption sfas 133 impact company’s financial statements company utilize derivative instruments july 2001 financial accounting standard board “fasb” issued statement financial accounting standards 141 “sfas 141” “business combinations” sfas 141 requires purchase method accounting business combinations initiated june 30 2001 eliminates poolingofinterests method adoption sfas 141 impact financial statements july 2001 financial accounting standards board approved financial accounting standard 142 ”goodwill intangible assets” “sfas 142” sfas 142 includes requirements test goodwill indefinite lived intangible assets impairment rather amortize goodwill amortization recorded twelve months ended december 31 2001 aggregated 341 sfas 142 effective fiscal years beginning december 15 2001 company adopt sfas 142 beginning first quarter 2002 december 31 2001 company approximately 58 million goodwill recorded related rauch rochard acquisition company specifically identified intangible assets goodwill patents trademarks company process performing initial impairment analysis required sfas 142 believes adoption sfas 142 may impact financial statements june 2001 fasb issued sfas 143 “accounting asset retirement obligations” fiscal years starting june 15 2002 statement addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs company believe adoption sfas 143 significant impact financial statements august 2001 fasb issued sfas 144 “accounting impairment disposal longlived assets” sfas 144 supersedes fasb statement 121 “accounting impairment longlived assets longlived assets disposed of” accounting reporting provisions accounting principles board “apb” opinion 30 “reporting results operations reporting effects disposal segment business extraordinary unusual infrequently occurring events transactions” disposal segment business previously defined opinion sfas 144 requires one accounting model used longlived assets disposed sale whether previously held used newly acquired broadens presentation discontinued operations include disposal transactions included previous standards sfas 144 effective fiscal years beginning december 15 2001 company adopt sfas 144 beginning first quarter 2002 company expect adoption significant impact financial position results operations item 7a item 7 management’s discussion analysis financial condition results operations forwardlooking statements private securities litigation reform act 1995 provides “safe harbor” forwardlooking statements except historical information contained incorporated reference annual report form 10k matters discussed incorporated reference herein forwardlooking statements forwardlooking statements involve known unknown risks uncertainties factors may cause actual results performance achievements company industry results materially different future results performance achievements expressed implied forwardlooking statements factors include among others general economic business conditions industry capacity industry trends overseas expansion loss major customers changes demand company’s products timing orders received customers cost availability raw materials dependence foreign sources supply changes business strategy development plans availability quality management availability terms deployment capital seasonal nature business special attention paid forwardlooking statements including limited statements relating company’s ability obtain sufficient resources finance working capital expenditure needs provide known obligations ii continuation company’s ability benefit vendor consolidation trend retail industry described elsewhere annual report form 10k results operations following table sets forth certain financial data percentage net sales company years presented year ended december 31 2002 compared year ended december 31 2001 net sales decreased 55 2525 million year ended december 31 2002 2672 million year ended december 31 2001 reflecting lower demand certain company’s giftware products partially offset higher demand stainless steel flatware changes normal product prices materially impact net sales gross profit decreased 560 million year ended december 31 2002 698 million year ended december 31 2001 gross profit percentage sales 222 year ended december 31 2002 compared 261 comparable 2001 period largest single component reduction gross margin approximately 3 percentage points 74 million writedown inventory values recorded fourth quarter resulting company’s plan reduce leased square footage mira loma ca distribution facility close north dighton distribution facility company adopted plan reducing closing certain products previously sold normal programs distribution channels accomplish reduction distribution facilities storage space selling general administrative expenses “s g expenses” decreased 14 million 674 million year ended december 31 2002 compared 688 million comparable period ended december 31 2001 g expenses percentage sales increased slightly 267 year ended december 31 2002 compared 257 comparable period ended december 31 2001 primarily result reduction sales volume 2002 company initiated restructuring programs focused reducing overall cost structure eliminating excess capacity distribution manufacturing showroom sourcing facilities well reductions headcount expense commitments restructuring charges 2002 comprised facility exit costs employee separation payments early termination certain equipment lease commitments fourth quarter 2002 due excess capacity company began executing plan remove service portions leased space north dighton manufacturing distribution facility distribution operations relocated company’s mira loma ca warehouse first quarter 2003 reduction distribution manufacturing space north dighton planned completed may 30 2003 charge 21 million recorded recognize future costs associated unused space related asset impairments company also recorded charge 10 million related abandonment certain equipment leases exit two showrooms contract cancellation costs connection restructuring company recorded employee separation payments 14 million 2001 company recorded asset impairment 16 million relating excess equipment primarily relating consolidation rauch manufacturing operations relocation equipment completed june 2002 income operations 2002 also included operating income 19 million due gain debt extinguishment related purchase 39 million senior notes open market interest expense 201 million year ended december 31 2002 compared 223 million period 2001 decrease reflects decline bank’s prime lending rate decreased borrowings company’s revolving credit facility reduced amount 11 senior notes outstanding benefit income taxes 114 million year ended december 31 2002 compared 37 million year ended december 31 2001 effective income tax rate increased 334 2002 278 2001 primarily due change mix foreign taxable income domestic tax losses net loss applicable common stockholders years ended december 31 2002 2001 393 million 148 million respectively 1039 390 respectively per basic diluted share adjusted weightedaverage shares 3784018 periods year ended december 31 2001 compared year ended december 31 2000 net sales comparable basis excluding sales specialty retaillicensing organization 2000 decreased 94 2672 million year ended december 31 2001 2949 million year ended december 31 2000 reflecting generally weak retail environment 2001 net sales 2672 million represented 236 decrease total net sales 3496 million year ended december 31 2000 net sales year ended december 31 2000 included 547 million sales specialty retaillicensing organization 2001 company entered direct sourcing agency arrangement specialty retaillicensing organization replacing arrangement company previously sold distributed licensed products new arrangement company’s sales royalty expenses organization eliminated purchasing commissions earned changes normal product prices materially impact net sales gross profit decreased 698 million year ended december 31 2001 964 million year ended december 31 2000 gross profit percentage sales 261 year ended december 31 2001 compared 276 comparable 2000 period 15 percentage point decrease reflects additional provisions obsolete slow moving inventory totaling approximately 59 million related certain discontinued products rauch christmas ornament manufacturing operation decision cease manufacturing certain cutlery products favor sourcing well additional provisions related tabletop giftware products decrease gross profit percentage also reflects favorable mix product sold offset lower absorption distribution manufacturing costs compared prior year period selling general administrative expenses “s g expenses” decreased 63 million 688 million year ended december 31 2001 compared 751 million comparable period ended december 31 2000 fourth quarter 2001 company provided approximately 12 million related termination benefits contractual obligations certain executives overall decrease primarily due reduced royalty expenses spending cuts initiated address lower sales volume income operations 86 million 300 million years ended december 31 2001 2000 respectively fourth quarter 2001 company recorded asset impairment 16 million relating excess equipment rauch christmas ball manufacturing operations rauch moved christmas ball manufacturing operations chester sc facility primary location gastonia nc planned fourth quarter 2001 relocation completed june 2002 income operations also included operating income 92 million comprised farberware licensing fees 15 million onetime gain 72 million related sale company’s interest farberware intellectual property 2002 company longer derives licensing fees related farberware also included 5 million gain debt extinguishment related purchase 07 million senior notes open market interest expense 223 million year ended december 31 2001 compared 233 million period 2000 decrease reflects decline bank’s prime lending rate reduced amount 11 senior notes outstanding decreased borrowings company’s revolving credit facility benefit income taxes 37 million year ended december 31 2001 compared provision 20 million year ended december 31 2000 effective income tax rate 278 2001 slightly 290 2000 net loss applicable common stockholders years ended december 31 2001 2000 148 million 10 million respectively 390 027 respectively per basic diluted share adjusted weightedaverage shares 3784018 periods liquidity capital resources net cash used operating activities year ended december 31 2002 37 million compared cash 505 million provided operations year ended december 31 2001 decrease operating cash flows reflects 138 million decrease gross margin 2002 compared 2001 also 2001 operating cash flows benefited significant onetime reduction trade receivables due elimination sales specialty retaillicensing organization noted proceeds sale company’s interest farberware intellectual property company’s working capital requirements seasonal tend highest period september november due christmas selling season accounts receivable tend decline december first quarter receivables generated third fourth quarters collected remain lower next peak season beginning december inventories tend increase january august year gradually decrease final four months year capital expenditures approximately 27 million year ended december 31 2002 expenditures relate primarily investment information technology machinery equipment tools dies company’s manufacturing distribution facilities company senior revolving credit facility “revolving credit facility” dated april 16 1997 amended effective july 31 1997 december 31 1997 march 30 1998 december 31 1998 march 26 2001 august 13 2001 march 22 2002 november 12 2002 december 18 2002 march 20 2003 obligations company revolving credit facility secured inventory accounts receivable company domestic subsidiaries pledge 100 domestic subsidiaries’ least 65 foreign subsidiaries’ outstanding capital stock revolving credit facility amended provides borrowings 86400 borrowing capacity related inventory limited maximum 55 million revolving credit facility expires april 15 2004 december 18 2002 amendment provides repurchases company’s 11 senior notes due 2007 “senior notes” subject approval transaction administrative agent lenders company covenants compliance minimum levels earnings income taxes depreciation amortization certain adjustments “ebitda” defined december 31 2002 result waiver obtained conjunction november 12 2002 amendment company must maintain minimum ebitda period one fiscal quarter ending march 31 2003 negative 56 million ii period two consecutive fiscal quarters ending june 30 2003 negative 99 million iii period three consecutive fiscal quarters ending september 30 2003 5 million iv period four consecutive fiscal quarters ending december 31 2003 last day fiscal quarter thereafter 15 million borrowings made revolving credit facility repurchases senior notes bear interest rate equal company’s option eurodollar rate plus 375 basis points prime rate plus 100 basis points borrowings made revolving credit facility repurchase senior notes bear interest rate equal company’s option eurodollar rate plus 500 basis points prime rate plus 225 basis points amended company must maintain minimum borrowing availability 10 million october 15 2003 1125 million october 16 2003 increasing gradually 20 million period december 3 2003 january 2004 25 million february march 2004 10 million thereafter march 20 2003 revolving credit facility amended consent sale c j vander ltd subsidiaries see notes 8 17 consolidated financial statements december 31 2002 232 million outstanding revolving credit facility borrowings 232 million prime rate plus 100 basis points company compliance covenants amended december 31 2002 availability revolving credit facility net outstanding letters credit minimum availability requirements 351 million december 31 2002 december 31 2002 company also debt financing third parties 1439 million 11 senior notes due april 15 2007 require interest payments made semiannually april 15 october 15 senior notes general unsecured obligations company rank pari passu right payment current future unsubordinated indebtedness company including borrowings revolving credit facility however borrowings revolving credit facility secured first priority lien accounts receivable inventory company domestic subsidiaries “guarantor subsidiaries” foreign subsidiaries consequently obligations company senior notes effectively subordinated obligations revolving credit facility extent assets senior notes became redeemable whole part company’s option april 15 2002 company purchased aggregate 39 million senior notes open market resulting pretax gain 19 million subsequent year end march 31 2003 company purchased additional 244 million outstanding senior notes open market resulting pretax gain approximately 90 million recorded first quarter 2003 company may time future purchase material amounts additional senior notes open market privately negotiated transactions purchases would subject obtaining prior approval company’s lenders april 2 2001 company executed 10 million promissory note secured certain real property building improvements located mira loma california note bears interest rate 742 repaid monthly installments may 2011 final payment 81 million due december 31 2002 balance outstanding note 98 million january 15 2003 company relieved obligations note upon sale mira loma ca warehouse distribution facility purchase price 268 million partially paid buyer’s assumption 98 indebtedness related property remainder paid cash see note 17 accompanying consolidated financial statements company’s level indebtedness several important effects future operation including substantial portion company’s cash flow operations must dedicated payment interest indebtedness available purposes ii covenants contained revolving credit facility indenture governing senior notes require company meet certain financial tests restrictions may limit ability borrow additional funds dispose assets may affect company’s flexibility planning reacting changes business including possible acquisition activities iii company’s ability obtain additional financing future working capital expenditures acquisitions general corporate purposes may impaired company believes borrowings available revolving credit facility amended sufficient finance company’s working capital requirements provide known obligations company including obligations company 1439 million notes operating leases fund planned capital expenditures december 31 2003 contractual obligations following table presents contractual obligations december 31 2002 1 january 15 2003 note payable mira loma property assumed third party buyer connection sale see note 17 consolidated financial statements significant accounting policies company’s management required make estimates assumptions order prepare financial statements conformity accounting principles generally accepted united states america actual results could differ estimates assumptions company believe differences would material effect results operations financial position company’s significant accounting policies included note 1 notes consolidated financial statements significant accounting policies estimates underlie preparation consolidated financial statements revenue recognition depreciation policies addition judgments used review longlived assets including goodwill intangible assets impairment additionally company’s depreciation policy reflects judgments estimated useful life assets accounting pronouncements june 2001 fasb issued sfas 143 “accounting asset retirement obligations” fiscal years starting june 15 2002 statement addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs company believe adoption sfas 143 significant impact financial statements june 2002 fasb issued sfas 146 “accounting cost associated exit disposal activities” sfas 146 addresses financial accounting reporting costs associated exit disposal activities nullifies emerging issues task force “eitf” issue 943 “liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring” sfas 146 requires liability cost associated exit disposal activity recognized liability incurred provisions sfas 146 effective exit disposal activities initiated december 31 2002 item 7a item 7 management’s discussion analysis financial condition results operations forwardlooking statements private securities litigation reform act 1995 provides “safe harbor” forwardlooking statements except historical information contained incorporated reference annual report form 10k matters discussed incorporated reference herein forwardlooking statements forwardlooking statements involve known unknown risks uncertainties factors may cause actual results performance achievements company industry results materially different future results performance achievements expressed implied forwardlooking statements factors include among others general economic business conditions industry capacity industry trends overseas expansion loss major customers changes demand company’s products timing orders received customers cost availability raw materials dependence foreign sources supply changes business strategy development plans availability quality management availability terms deployment capital seasonal nature business special attention paid forwardlooking statements including limited statements relating company’s ability obtain sufficient resources finance working capital expenditure needs provide known obligations ii continuation company’s ability benefit vendor consolidation trend retail industry described elsewhere annual report form 10k results operations following table sets forth certain financial data percentage net sales company years presented year ended december 31 2003 compared year ended december 31 2002 net sales decreased 29 2030 million year ended december 31 2003 2090 million year ended december 31 2002 60 million decrease sales reflects reduced sales certain tabletop giftware products particularly premium products partially offset increased sales discontinued inventory changes normal product prices materially impact net sales gross profit increased 568 million year ended december 31 2003 515 million year ended december 31 2002 gross profit percentage sales 280 year ended december 31 2003 compared 246 comparable 2002 period improvement 34 percentage points company continuing plan reducing closing certain products previously sold normal programs distribution channels accomplish planned reductions storage space fourth quarter 2003 company increased inventory reserves 32 million result requirement reduce inventory investment leased square footage mira loma california distribution facility company’s decision discontinue manufacturing north dighton massachusetts facility result company closing additional finished goods inventory writing component inventories longer used manufacturing 32 million writedown inventory values 42 million less 74 million taken fourth quarter 2002 close outs inventory results comparative margin improvement approximately 2 percentage points additional 08 improvement 2003 gross margin due recognition 17 million related deferred gain sale company’s mira loma warehouse facility january 2003 selling general administrative expenses “s g expenses” decreased 66 million 567 million year ended december 31 2003 compared 633 million comparable period ended december 31 2002 g expenses percentage sales decreased 279 year ended december 31 2003 compared 303 comparable period ended december 31 2002 included 2003 sg 12 million expenses due agreement related resignation company’s chairman board 04 million related executive severance improvement g reflects reduced personnel sourcing officeshowroom expenses related restructuring cost reduction programs initiated 2002 well reduced commissions advertising royalty expenses 2002 company substantially reduced space north dighton facility november 2003 made decision close operations planned cease may 30 2004 company recorded asset impairment charge 6 million fourth quarter 2003 related planned closure restructuring charges 2002 comprised facility exit costs employee separation payments early termination certain equipment leases commitments fourth quarter 2002 due excess capacity company began executing plan remove service portions leased space north dighton manufacturing distribution facility distribution operations relocated company’s mira loma warehouse first quarter 2003 reduction distribution manufacturing space north dighton completed may 30 2003 charge 21 million recorded 2002 recognize future costs associated unused space related asset impairments 2002 company also recorded charge 10 million related abandonment certain equipment leases exit two showrooms contract cancellation costs employee separation payments 14 million company anticipates incurring approximately 15 million additional charges 2004 related closure north dighton facility estimated charges primarily related employee severance lease termination costs operating income included 94 million gain extinguishment debt year ended december 31 2003 related company’s purchase 257 million senior notes open market company purchased 39 million senior notes recorded gain 19 million year ended december 31 2002 interest expense 165 million year ended december 31 2003 compared 201 million 2002 decrease reflects decline bank’s prime lending rate decreased borrowings company’s revolving credit facility reduced amount 11 senior notes outstanding benefit income taxes 22 million year ended december 31 2003 compared 116 million year ended december 31 2002 effective income tax rate decreased 291 2003 335 2002 primarily due change mix foreign taxable income domestic tax losses net loss applicable common stockholders years ended december 31 2003 2002 357 million 393 million respectively 944 1039 respectively per basic diluted share weightedaverage shares 3784018 periods december 2003 company formalized decision sell liquidate rauch company incurred charges 186 million reduce long lived assets estimated fair value write 75 million reduce inventory estimated liquidation value company obtained letter intent prospective purchaser process negotiating terms proposed sale anticipated sale rauch occur second quarter 2004 company anticipates incurring losses operating activities rauch date disposal estimated loss disposition 3 million year ended december 31 2002 compared year ended december 31 2001 net sales decreased 70 2090 million year ended december 31 2002 2246 million year ended december 31 2001 reflecting lower demand certain company’s giftware products partially offset higher demand stainless steel flatware changes normal product prices materially impact net sales gross profit decreased 515 million year ended december 31 2002 688 million year ended december 31 2001 gross profit percentage sales 246 year ended december 31 2002 compared 306 comparable 2001 period reduced margin reflects unfavorable mix products including increased sales discontinued products sold year well reduction gross margin approximately 3 percentage points due 74 million writedown inventory values recorded fourth quarter resulting company’s plan reduce leased square footage mira loma distribution facility close distribution portion north dighton facility company adopted plan reducing closing certain products previously sold normal programs distribution channels accomplish reduction distribution facilities storage space selling general administrative expenses “s g expenses” decreased 6 million 633 million year ended december 31 2002 compared 639 million comparable period ended december 31 2001 g expenses percentage sales increased 303 year ended december 31 2002 compared 285 comparable period ended december 31 2001 primarily result reduction sales volume 2002 company initiated restructuring programs focused reducing overall cost structure eliminating excess capacity distribution manufacturing showroom sourcing facilities well reductions headcount expense commitments restructuring charges 2002 comprised facility exit costs employee separation payments early termination certain equipment lease commitments fourth quarter 2002 due excess capacity company began executing plan remove service portions leased space north dighton manufacturing distribution facility distribution operations relocated company’s mira loma warehouse first quarter 2003 reduction distribution manufacturing space north dighton completed may 30 2003 charge 21 million recorded recognize future costs associated unused space related asset impairments company also recorded charge 10 million related abandonment certain equipment leases exit two showrooms contract cancellation costs connection restructuring company recorded employee separation expense 14 million income operations 2002 also included operating income 19 million due gain debt extinguishment related purchase 39 million senior notes open market interest expense 201 million year ended december 31 2002 compared 223 million period 2001 decrease reflects decline bank’s prime lending rate decreased borrowings company’s revolving credit facility reduced amount 11 senior notes outstanding benefit income taxes 116 million year ended december 31 2002 compared 16 million year ended december 31 2001 effective income tax rate increased 335 2002 202 2001 primarily due change mix foreign taxable income domestic tax losses net loss applicable common stockholders years ended december 31 2002 2001 393 million 148 million respectively 1039 390 respectively per basic diluted share adjusted weightedaverage shares 3784018 periods liquidity capital resources net cash used operating activities continuing operations year ended december 31 2003 50 million compared cash 39 million used operations year ended december 31 2002 decrease operating cash flows reflects decrease loss continuing operations 177 million offset increase noncash gains debt extinguishment recognized gain sale mira loma ca facility along changes working capital company’s working capital requirements seasonal tend highest period september november due christmas selling season accounts receivable tend decline december first quarter receivables generated third fourth quarters collected remain lower next peak season beginning december inventories tend increase january august year gradually decrease final four months year result discontinuing rauch christmas ball business seasonal working capital fluctuations less pronounced 2004 beyond company anticipates incurring losses operating activities rauch date disposal estimated loss disposition 3 million capital expenditures continuing operations approximately 44 million year ended december 31 2003 expenditures relate primarily investment information technology machinery equipment tools dies company’s manufacturing distribution facilities company also capital spending 5 million related discontinued rauch christmas ball operations company anticipates spending approximately 6 million capital expenditures 2004 284 million increase net cash provided investing activities continuing operations attributable company’s sale two facilities proceeds 141 million received disposal company’s property east boston “the property” occurred december 18 2003 company leased portion property back buyer january 15 2003 company sold warehouse property mira loma ca “the mira loma property” net proceeds sale 256 million reduced buyer’s assumption 98 million company’s indebtedness related mira loma property 341 million decrease net cash financing activities continuing operations primarily due reduction revolving credit facilities outstanding senior notes related proceeds sale mira loma ca east boston properties company senior revolving credit facility “revolving credit facility” dated april 16 1997 amended effective july 31 1997 december 31 1997 march 30 1998 december 31 1998 march 26 2001 august 13 2001 march 22 2002 november 12 2002 december 18 2002 march 20 2003 march 5 2004 march 26 2004 december 31 2003 obligations company revolving credit facility secured inventory accounts receivable company domestic subsidiaries pledge 100 domestic subsidiaries’ least 65 foreign subsidiary’s outstanding capital stock march 5 2004 revolving credit facility amended eliminate pledge outstanding capital stock domestic foreign subsidiaries due company’s plan discontinue rauch business declare ineligible inventory accounts receivables rauch subsidiary purposes determining borrowing capacity effect borrowing capacity time amendment approximately 2 million march 26 2004 revolving credit facility amended restated terms restated agreement term facility extended expires march 31 2006 ii maximum borrowings reduced 864 million 70 million iii maximum borrowing capacity related inventory reduced 55 million 30 million iv company’s optional interest rate lowered eurodollar rate plus 300 basis points formerly plus 375 basis points prime rate plus 100 basis points v provision repurchases company’s senior notes eliminated restated agreement contains customary covenants company including limited maximum capital expenditures certain ratios earnings interest income taxes depreciation amortization certain adjustments “ebitda” cash interest fixed charges defined period four fiscal quarters ended december 31 2004 company must minimum ratio ebitda cash interest defined 10 period four fiscal quarters ended december 31 2005 company must minimum ratio ebitda fixed charges defined 10 fixed charges exceed ebitda defined 5 million period four quarters ended june 30 2005 interest rates increased eurodollar rate plus 375 basis points prime rate plus 125 basis points noncompliance ebitda covenant december 31 2003 waived amendment revolving credit facility restated requires company maintain minimum borrowing availability 20 million april 30 2004 75 million may 1 2004 december 30 2004 20 million december 31 2004 april 30 2005 75 million december 31 2005 increases 20 million expiration facility december 31 2003 75 million outstanding revolving credit facility borrowings bore interest prime rate plus 100 basis points weightedaverage interest rate borrowings outstanding revolving credit facility year ended december 31 2003 64 availability revolving credit facility net outstanding letters credit minimum availability requirements approximately 267 million december 31 2003 noncompliance ebitda covenant december 31 2003 waived march 26 2004 amended restated revolving credit agreement company compliance covenants amended december 31 2003 december 31 2003 company also debt financing third parties 1183 million 11 senior notes due april 15 2007 require interest payments made semiannually april 15 october 15 senior notes general unsecured obligations company rank pari passu right payment current future unsubordinated indebtedness company including borrowings revolving credit facility however borrowings revolving credit facility secured first priority lien accounts receivable inventory company domestic subsidiaries “guarantor subsidiaries” foreign subsidiary consequently obligations company senior notes effectively subordinated obligations revolving credit facility extent assets senior notes became redeemable whole part company’s option april 15 2002 2003 company purchased aggregate 257 million senior notes open market 157 million resulting gain extinguishment debt 94 million company may time future purchase material amounts additional senior notes open market privately negotiated transactions purchases would subject obtaining prior approval company’s lenders april 2 2001 company executed 10 million promissory note secured certain real property building improvements located mira loma california january 15 2003 company relieved obligations note upon sale mira loma warehouse distribution facility purchase price 268 million partially paid buyer’s assumption 98 indebtedness related property remainder paid cash january 31 2004 company’s 5 million credit facility wallace de puerto rico subsidiary expired renewed company december 31 2003 borrowings outstanding facility borrowing availability 5 million company’s level indebtedness several important effects future operation including substantial portion company’s cash flow operations must dedicated payment interest indebtedness available purposes ii covenants contained revolving credit facility indenture governing senior notes require company meet certain financial tests restrictions may limit ability borrow additional funds dispose assets may affect company’s flexibility planning reacting changes business including possible acquisition activities iii company’s ability obtain additional financing future working capital expenditures acquisitions general corporate purposes may impaired company believes borrowings available revolving credit facility amended restated sufficient finance company’s working capital requirements provide known obligations company including obligations company 1183 million notes operating leases fund planned capital expenditures december 31 2004 contractual obligations following table presents contractual obligations december 31 2003 significant accounting policies company’s management required make estimates assumptions order prepare financial statements conformity accounting principles generally accepted united states america actual results could differ estimates assumptions company believe differences would material effect results operations financial position company’s significant accounting policies included note 1 notes consolidated financial statements significant accounting policies estimates underlie preparation consolidated financial statements revenue recognition depreciation policies addition judgments used review longlived assets impairment additionally company’s depreciation policy reflects judgments estimated useful life assets allowance doubtful accounts receivable reduced allowance amounts may become uncollectible future estimate allowance doubtful accounts related trade receivables includes evaluation specific accounts information customer may inability meet financial obligation together general provision unknown existing doubtful accounts actual collection experience may improve decline inventories related reserves obsolete excess inventory inventories valued lower cost market reduced reserve excess potentially obsolete inventories company regularly reviews inventory values hand using specific aging categories records provision obsolete excess inventory based historical usage estimated future usage actual demand market conditions may vary projected management adjustments inventory valuations may required income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax carry forwards deferred tax assets liabilities measured using enacted tax rates applied taxable income years temporary differences expected recovered settled recorded valuation allowance represents operating loss carry forwards utilization uncertain management judgment required determining provision income taxes deferred tax assets liabilities valuation allowance recorded net deferred tax assets environmental liabilities global operations regulated laws protection environment various circumstances laws may require remediation sites hazardous substances released endangering environment expended substantial resources comply applicable environmental laws regulations believe substantial compliance laws regulations maintain procedures designed foster ensure compliance however may future subject formal informal enforcement actions proceedings regarding noncompliance laws regulations whether determined ultimately responsible normal course business employee benefit plans provide range benefits employees including pensions post retirement benefits annually record expenses relating plans based calculations specified us gaap dependent upon various actuarial assumptions discount rates assumed rates return compensation increases turnover rates health care cost trends expected return plan assets assumption based expectation longterm average rate return assets pension funds reflective current projected asset mix funds considers historical returns earned funds review actuarial assumptions least annual basis make modifications assumptions based current rates trends appropriate based information provided actuaries relevant sources believe assumptions reasonable accounting pronouncements april 2003 financial accounting standards board “fasb” issued statement financial accounting standards “sfas” 149 “amendment statement 133 derivative instruments hedging activities” sfas 149 amends clarifies financial accounting reporting hedging activities derivative instruments including certain derivative instruments embedded contracts sfas 149 effective contracts entered modified june 30 2003 adoption sfas 149 material impact company’s financial position results operations may 2003 fasb issued sfas 150 “accounting certain financial instruments characteristics liabilities equity” sfas 150 establishes standards classification measurement certain financial instruments characteristics liabilities equity provisions sfas 150 effective financial instruments entered modified may 31 2003 instruments exist beginning first interim financial reporting period beginning june 15 2003 adoption sfas 150 material impact results operations financial position december 2003 fasb revised sfas 132 “employers’ disclosures pensions postretirement benefits” sfas 132 requires additional disclosure assets obligations cash flows net periodic benefit cost defined benefit pension plans defined benefit postretirement plans statement also requires disclosure types plan assets investment strategy measurement dates plan obligations cash flows sfas 132 effective fiscal years ending december 15 2003 required disclosures presented financial statements item 7a item 7 managements discussion analysis financial condition results operations forwardlooking statements private securities litigation reform act 1995 provides safe harbor forwardlooking statements except historical information contained incorporated reference annual report form 10k matters discussed incorporated reference herein forwardlooking statements forwardlooking statements involve known unknown risks uncertainties factors may cause actual results performance achievements company industry results materially different future results performance achievements expressed implied forwardlooking statements factors include among others general economic business conditions industry capacity industry trends overseas expansion loss major customers changes demand companys products timing orders received customers cost availability raw materials dependence foreign sources supply changes business strategy development plans availability quality management availability terms deployment capital seasonal nature business special attention paid forwardlooking statements including limited statements relating companys ability obtain sufficient resources finance working capital expenditure needs provide known obligations ii continuation companys ability benefit vendor consolidation trend retail industry described elsewhere annual report form 10k recent transactions merger recapitalization april 16 1997 thl transaction corp thl delaware corporation controlled affiliates thomas h lee company thl merged company merger pursuant restated agreement plan merger thl company transaction accounted recapitalization see notes consolidated financial statements rauch industries inc february 15 1996 company indirect wholly owned subsidiary acquired outstanding shares rauch approximately 496 million including costs transaction acquisition accounted purchase method accounting results operations rauch included results company february 15 1996 farberware inc april 2 1996 company indirect whollyowned subsidiary together lifetime hoan corporation lifetime acquired certain assets farberware inc subsidiary us industries inc company lifetime affiliates farberware inc manufacturer aluminum clad stainless steel cookware bakeware small electric kitchen appliances aggregate consideration paid company lifetime 458 million company paid approximately 326 million assets acquired company included certain inventory tradename farberware intellectual property including intellectual property relates cookware bakeware electric products major kitchen appliances certain tools dies machinery equipment 1996 company also acquired inventory pursuant transitional manufacturing services agreement 1997 sold disposed acquired inventory december 31 1997 longer manufactures sells farberware cookware bakeware products noncommercial electric products accordingly net sales year ended december 31 1998 1997 1996 exclude revenue sales farberware inventory 50 million 24 million 39 million respectively related sales licensing income net certain selling general administrative expenses recorded operating income company lifetime agreed allocation assets acquired farberware inc joint administration certain licensing rights company acquired farberware inc assets order expand farberwares licensing activities use farberware name certain companys existing new products june 27 1996 companys farberware inc subsidiary formerly farb farberware entered license agreement meyer marketing co ltd meyer pursuant meyer granted certain rights term 200 years grant meyer made onetime payment company 255 million resulted recognition company 119 million nonrecurring income terms licensing agreement company obligation respect amount paid meyer july 12 1996 farberware granted major retail chain exclusive license use exploit farberware name related intellectual property connection sourcing manufacture marketing sale certain electric products quarterly royalty payments february 3 1997 company received waiver certain restrictions disposition tools machinery equipment formerly used bruckner manufacturing corp manufacture farberware products company sold majority tools machinery equipment 1997 retained remainder use existing businesses sale tools machinery equipment resulted net proceeds company 22 million recorded nonoperating income 1997 see notes consolidated financial statements following table sets forth certain financial data percentage net sales company years presented 1 consists income sale farberware inventory operating income net certain selling general administrative expenses 2 consists nonrecurring pretax income related sale certain equipment associated farberware settlement 1997 licensing farberware name cookware bakeware 1996 see note 4 companys consolidated financial statements year ended december 31 1998 compared year ended december 31 1997 net sales 2904 million year ended december 31 1998 approximately flat 2909 million year ended december 31 1997 slight decrease reflects lower sales silvestri branded seasonal items offset stronger sales giftware particularly picture frames 1998 changes product prices materially impact net sales gross profit 771 million year ended december 31 1998 compared 775 million year ended december 31 1997 gross profit percentage net sales 265 year ended december 31 1998 compared 266 year ended december 31 1997 slight decrease gross profit percentage 01 percentage points reflects onetime higher costs related consolidation warehousing increased mix closeout sales related aggressive plan reduce excess inventories offset lower manufacturing costs companys chester sc manufacturing facility new equipment startup manufacturing inefficiencies experienced 1997 corrected 1998 decrease gross profit margin materially impacted change product prices selling general administrative expenses g expenses decreased 224 percentage net sales 650 million year ended december 31 1998 250 727 million year ended december 31 1997 included g expenses 1997 onetime charge 39 million stock option compensation expense due merger excluding onetime charge 39 million g expenses 237 percentage net sales 688 million year ended december 31 1997 13 percentage point decrease 1998 reflects lower bad debt expense savings related consolidation operations partially offset personnel severance costs increased management personnel travel costs addition 1997 included one time favorable legal settlement nonrecurring favorable adjustments accruals related discontinued operations income operations 126 million 71 million years ended december 31 1998 1997 respectively included operating income 57 million 24 million respectively primarily resulting farberware licensing income fourth quarter 1998 company received onetime income 26 million connection granting license extending certain existing licenses relating farberware intellectual property one existing licensees income operations 1998 includes onetime noncash charge 52 impairment assets see note 3 companys consolidated financial statements noted 1997 includes onetime charge 39 million compensation expense related stock options result merger nonoperating income 1997 represents 22 million income sale equipment associated farberware settlement see note 4 companys consolidated financial statements fourth quarter 1998 company wrote value certain assets primarily relating facilities el paso texas one facility gastonia north carolina carrying values impaired aggregate 4307 managements decision shut sell facilities el paso facility ceased manufacturing activity prior december 311998 gastonia facility scheduled shut july 1 1999 4307 total 506 relates adjusting salvage value certain specialized equipment longer used production process alternative use value company 3801 represents adjustment carrying values properties estimated fair value approximately 893 based upon available market data net costs disposition included properties held sale accompanying consolidated balance sheet december 31 1998 also included charge 627 related impaired equipment tooling abandoned company facilities 236 representing decline estimated fair value property held sale since 1997 interest expense net 237 million 158 million years ended december 31 1998 1997 respectively change results primarily full year interest expense finance merger benefit income taxes 28 19 million years ended december 31 1998 1997 respectively increase income tax benefit 1998 reflects higher net loss resulting increased interest expense net loss applicable common stockholders year ended december 31 1998 107 million compared net loss available common stockholders 61 million 117 diluted per share adjusted weighted average shares outstanding 5216000 diluted year ended december 31 1997 reduction adjusted weighted average shares reflects acquisition retirement 49 million shares company common stock connection merger effected april 16 1997 year ended december 31 1997 compared year ended december 31 1996 net sales increased 74 2909 million year ended december 31 1997 2709 million year ended december 31 1996 excluding impact rauch silvestri cj vander potpourri press acquisitions 1996 net sales increased 117 increase reflects higher sales volume giftware items primarily crystal silverplated items stainless steel sterling silver flatware sales related companys 1996 acquisitions decreased 17 due lower sales rauch christmas ornaments changes product prices materially impact net sales gross profit 775 million year ended december 31 1997 compared 768 million year ended december 31 1996 gross profit percentage net sales 266 year ended december 31 1997 compared 284 year ended december 31 1996 decrease gross profit percentage 18 percentage points related rauch new equipment startup manufacturing inefficiencies impact full year warehousing expenses seasonal silvestri business compared partial year 1996 well reduced proportion higher margin products total product mix decrease gross profit margin materially impacted change product prices selling general administrative expenses g expenses increased 250 percentage net sales 727 million year ended december 31 1997 213 577 million year ended december 31 1996 included g expenses 1997 onetime charge 39 million also contributing increase higher personnel related costs including costs companys pacific rim offices support 1996 acquisitions establish increased presence mainland china management believes enable company reduce expenses higher cost hong kong philippines taiwan locations 1997 philippines office closed cost reductions taiwan hong kong underway addition 1997 full year g expenses associated product lines acquired 1996 compared partial period prior year expenses running levels higher initially anticipated due delays integrating operations acquisitions income operations 71 million 231 million years ended december 31 1997 1996 respectively included operating income 24 million 39 million respectively resulting disposal farberware inventory farberware license revenue income operations 1997 includes onetime charge 39 million compensation expense related stock options result merger nonoperating income 1997 represents 22 million income sale equipment associated farberware settlement 1996 represents 119 million income onetime licensing fee received farberware name cookware bakeware see note 4 companys consolidated financial statements interest expense net 158 million 24 million years ended december 31 1997 1996 respectively change results primarily increase debt including issuance 11 senior notes finance merger benefit income taxes 19 million year ended december 31 1997 compared income tax provision 122 million year ended december 31 1996 benefit income taxes 1997 arose net loss year net loss applicable common stockholders year ended december 31 1997 61 million 117 diluted per share adjusted weighted average shares outstanding 5216000 diluted compared net income available common stockholders 204 million 232 diluted per share 8799000 adjusted weighted average shares outstanding 1996 reduction adjusted weighted average shares primarily reflects acquisition retirement 49 million shares company common stock connection merger effected april 16 1997 liquidity capital resources net cash used operating activities year ended december 31 1998 77 million primary uses cash increases operating working capital needs accounts receivable customers ended year higher level due higher level sales fourth quarter 1998 compared period 1997 companys working capital requirements seasonal tend highest period september december due christmas selling season accounts receivable tend decline first quarter receivables generated third fourth quarters collected remain lower next peak season beginning september capital expenditures approximately 132 million year ended december 31 1998 expenditures primarily completing construction warehouse distribution facility mira loma ca including related material handling computer equipment systems improvements companys east boston facility machinery equipment tools dies companys manufacturing facilities companys level indebtedness several important effects future operation including substantial portion companys cash flow operations must dedicated payment interest indebtedness available purposes ii covenants contained new credit facility indenture governing senior notes require company meet certain financial tests restrictions may limit ability borrow additional funds dispose assets may affect companys flexibility planning reacting changes business including possible acquisition activities iii companys ability obtain additional financing future working capital expenditures acquisitions general corporate purposes may impaired company believes borrowings available revolving credit facility sufficient finance companys working capital requirements provide known obligations company including obligations company 1650 million notes issued connection merger operating leases fund planned capital expenditures december 31 1998 see merger recapitalization see note 2 accompanying consolidated financial statements description terms merger note 11 dividend liquidation terms companys cumulative redeemable preferred stock see note 7 accompanying consolidated financial statements discussion borrowings availability covenants dividend restrictions company revolving credit facilities notes due april 15 2007 year 2000 conversion company substantially completed assessment year 2000 compliance determined critical systems required evaluate modify test company modified key systems comply year 2000 requirements process modifying testing certain systems year 2000 compliant modification critical systems schedule largely completed december 31 1998 testing certification systems targeted completion mid1999 company currently believes able modify replace mitigate affected systems time avoid material detrimental impact operations company determines may unable remediate properly test affected systems timely basis company intends develop appropriate contingency plans critical systems time determination made company presently aware significant exposure systems properly remediated timely basis assurances year 2000 remediation processes completed properly tested year 2000 contingency plans sufficiently mitigate risk year 2000 readiness problem company initiated communications significant suppliers customers critical business partners determine extent company may vulnerable event parties fail properly remediate year 2000 issues company completed modification testing electronic data interchange edi systems used process orders communicate certain customers company able process 6 digit dates customers using older versions american national standards institute ansi voluntary interindustry communications standard vics 3070 specification listed compliant vendor web site national retail federation addition company currently processing 8digit dates inherently year 2000 compliant accordance ansi vics 4010 specification customers able accept transmit version company develop appropriate contingency plans event significant exposure identified relative dependencies thirdparty systems company presently aware significant exposure guarantee systems thirdparties company relies converted timely manner failure properly convert another company would material adverse effect company potential sources risk include inability principal suppliers year 2000 ready could result delays product deliveries suppliers b disruption distribution channel including ports transportation vendors companys distribution centers result general failure systems necessary infrastructure electricity supply company believes actions suppliers minimize risks interruption companys ability conduct business due year 2000 readiness problem could material adverse effect company currently believes expenditures necessary year 2000 compliant material financial condition results operations given year costs compliance estimated completion dates year 2000 modifications based managements best estimates derived utilizing numerous assumptions future events including continued availability certain resources thirdparty modification plans factors however guarantee estimates achieved actual results could differ materially anticipated specific factors might cause material differences include limited availability cost personnel trained area ability locate correct relevant computer codes replace embedded computer chips affected systems equipment actions governmental agencies third parties respect year 2000 problems accounting pronouncements march 1998 american institute certified public accountants released statement opinion 981 accounting costs computer software developed obtained internal use requires certain expenditures made internal use software capitalized provisions opinion adopted company effective january 1 1999 adoption expected material effect upon companys consolidated financial statements june 1998 financial accounting standards board issued statement financial accounting standard sfas 133 accounting derivative instruments hedging activities effective fiscal quarters fiscal years beginning june 15 1999 new standard requires companies record derivatives balance sheet assets liabilities measured fair value gains losses resulting changes values derivatives would accounted depending use derivative whether qualifies hedge accounting management currently assessing whether impact sfas 133 companys consolidated financial statements upon adoption required first quarter 2000 item 7a item 7 managements discussion analysis financial condition results operations forwardlooking statements private securities litigation reform act 1995 provides safe harbor forwardlooking statements except historical information contained incorporated reference annual report form 10k matters discussed incorporated reference herein forwardlooking statements forwardlooking statements involve known unknown risks uncertainties factors may cause actual results performance achievements company industry results materially different future results performance achievements expressed implied forwardlooking statements factors include among others general economic business conditions industry capacity industry trends overseas expansion loss major customers changes demand companys products timing orders received customers cost availability raw materials dependence foreign sources supply changes business strategy development plans availability quality management availability terms deployment capital seasonal nature business special attention paid forwardlooking statements including limited statements relating companys ability obtain sufficient resources finance working capital expenditure needs provide known obligations ii continuation companys ability benefit vendor consolidation trend retail industry described elsewhere annual report form 10k results operations following table sets forth certain financial data percentage net sales company years presented 1 consists gain disposal primary east coast distribution facility 1999 write value certain assets 1999 1998 see note 2 companys consolidated financial statements 2 consists primarily licensing income including licenses farberware tradename year ended december 31 2000 compared year ended december 31 1999 net sales increased 168 3566 million year ended december 31 2000 3053 million year ended december 31 1999 increase reflects continued strong demand housewares products designed company including fountains stainless steel flatware lighting candles accessories giftware sales also increased versus prior year including sales licensed giftware specialty retailers changes normal product prices materially impact net sales gross profit increased 152 969 million year ended december 31 2000 841 million year ended december 31 1999 gross profit percentage sales 272 year ended december 31 2000 compared 275 comparable 1999 period 03 percentage point decrease percentage gross profit primarily reflects mix products sold period including sales discontinued products additional provisions slow moving inventories change gross profit percentage sales materially impacted change normal product pricing selling general administrative expenses g expenses 775 million 217 percentage net sales year ended december 31 2000 compared 226 691 million comparable 1999 period 84 million increase sg expenses reflects higher royalties commissions advertising related increased sales volume investment additional sales marketing staff well higher spending information technology 09 percentage point improvement g expenses sales year ended december 31 2000 reflects spending controls put place reduce growth g rate growth sales volume 2001 company entered sourcing arrangement specialty retaillicensing organization replacing arrangement company previously sold licensed products effect new arrangement reduce sales royalty expense increase commission revenue company expect adverse impact financial results result new arrangement income operations 219 million 339 million years ended december 31 2000 1999 respectively 1999 income operations included 156 million relating recording asset dispositions impairments including 5 million severance expense accrual 2000 separation benefits required 5 million accrual reversed fourth quarter corresponding benefit income operations excluding adjustments income operations increased 31 million 169 214 183 million years ended december 31 2000 1999 respectively interest expense net 242 million year ended december 31 2000 compared 245 million period 1999 decrease interest expense primarily reflects effect 2000 november 1999 receipt proceeds sale companys revere property subsequent pay debt offset increased borrowings working capital purposes due higher sales volume higher interest rates companys revolving credit facilities benefit income taxes 06 million year ended december 31 2000 compared provision 43 million year ended december 31 1999 estimated effective income tax rate 25 year ended december 31 2000 compares 45 rate period prior year tax rate 1999 reflected impact recognizing gain east coast distribution facility sale increased proportion income taxed higher us tax rates compared lower foreign tax rates comparison 2000 company estimates 2001 effective tax rate 25 fourth quarter 2000 company purchased aggregate 16450 notes open market resulting extraordinary gain early debt extinguishment 3636 net 2527 income taxes net loss applicable common stockholders year ended december 31 2000 10 million 027 per share compared net income applicable common stockholders year ended december 31 1999 26 million 068 per share adjusted weighted average shares 3784018 years year ended december 31 1999 compared year ended december 31 1998 net sales increased 51 3053 million year ended december 31 1999 2904 million year ended december 31 1998 increase primarily due increased sales new line licensed giftware products specialty retailers increased sales candle giftware partially offset decreased sales certain seasonal products changes normal product prices materially impact net sales gross profit increased 86 841 million year ended december 31 1999 774 million year ended december 31 1998 gross profit percentage sales 275 year ended december 31 1999 compared 267 comparable 1998 period 08 percentage point increase primarily reflects higher margin carried new line licensed giftware offset increased royalty expense related line change gross profit percentage sales materially impacted change product pricing selling general administrative expenses g expenses 691 million 226 percentage net sales year ended december 31 1999 compared 224 650 million comparable 1998 period 02 percentage point increase g expenses sales year ended december 31 1999 reflects increased bad debt expense higher royalty expense noted income operations 339 million 129 million year ended december 31 1999 1998 respectively included operating income 34 million 57 million 1999 1998 respectively decrease 1999 operating income primarily due onetime income 26 million recorded 1998 connection granting license extending certain existing licenses relating farberware intellectual property one existing licensees income operations also included asset dispositions 1999 charges impairment longlived assets 1999 1998 november 1999 company sold primary east coast distribution facility 295 million sale facility resulted net gain approximately 171 million company simultaneously entered shortterm leaseback approximately 40 distribution facility connection disposition facility company recorded separation benefits approximately 05 million 42 hourly employees three salaried employees accrued december 31 1999 expected fully paid end first quarter 2001 2000 separation benefits required 5 million accrual reversed fourth quarter 2000 corresponding benefit income operations year april 1999 company sold undeveloped land adjacent facility gain approximately 08 million fourth quarter 1999 company wrote value certain assets approximately 12 million writedowns relate abandonment certain manufacturing equipment gastonia north carolina facility book value approximately 11 million remaining asset writedowns relate finalization amounts relative shutdown el paso facility discussed less significant asset writedowns adjustments aggregated net charge 06 million interest expense net 245 million year ended december 31 1999 compared 237 million period 1998 increase results increased borrowings working capital purposes higher interest rates companys revolving credit facilities notes payable provision income taxes 43 million year ended december 31 1999 compared benefit 27 million year ended december 31 1998 estimated effective income tax rate 45 year ended december 31 1999 compares 25 rate period prior year increase tax rate reflects impact recognizing gain east coast distribution facility sale 1999 increased proportion income taxed higher us tax rates compared lower foreign tax rates comparison 1998 net income applicable common stockholders year ended december 31 1999 26 million 068 per share compared net loss applicable common stockholders year ended december 31 1998 104 million 275 per share adjusted weighted average shares 3784018 years liquidity capital resources net cash used operating activities year ended december 31 2000 242 million primary use cash increase accounts receivable related higher sales volume fourth quarter compared prior year inventories decreased 941 million december 31 1999 927 million december 31 2000 due improved procedures control inventory levels timing inventory purchases lower projected sales first quarter 2001 due change sourcing arrangement certain previously licensed products noted companys working capital requirements seasonal tend highest period september december due christmas selling season accounts receivable tend decline first quarter receivables generated third fourth quarters collected remain lower next peak season beginning september capital expenditures approximately 79 million year ended december 31 2000 expenditures relate primarily computer equipment systems machinery equipment tools dies companys manufacturing distribution facilities including capital expenditures add distribution capabilities companys east boston north dighton facilities due relocation activities formerly located companys revere facility sold november 1999 see note 2 accompanying consolidated financial statements december 31 2000 company senior revolving credit facility revolving credit facility provided 123000 borrowings including 30000 sublimit issuance standby commercial letters credit accordance terms senior notes indenture revolving credit facility reduced 7000 effective november 21 2000 result permanent application certain proceeds november 22 1999 sale primary east coast facility company also debt financing form 14855 million 11 senior notes due april 15 2007 require interest payments made semiannually april 15 october 15 fourth quarter 2000 company purchased aggregate 1645 million notes open market resulting extraordinary gain 3636 net 2527 income taxes companys level indebtedness several important effects future operation including substantial portion companys cash flow operations must dedicated payment interest indebtedness available purposes ii covenants contained revolving credit facility indenture governing senior notes require company meet certain financial tests restrictions may limit ability borrow additional funds dispose assets may affect companys flexibility planning reacting changes business including possible acquisition activities iii companys ability obtain additional financing future working capital expenditures acquisitions general corporate purposes may impaired company believes borrowings available revolving credit facility amended sufficient finance companys working capital requirements provide known obligations company including obligations company 14855 million notes operating leases fund planned capital expenditures december 31 2001 see note 5 accompanying consolidated financial statements additional discussion borrowings availability covenants dividend restrictions company revolving credit facilities notes due april 15 2007 see note 9 description dividend liquidation terms companys cumulative redeemable preferred stock accounting pronouncements june 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities effective fiscal quarters fiscal years beginning june 15 2000 standard requires companies record derivatives balance sheet assets liabilities measured fair value gains losses resulting changes values derivatives would accounted depending use derivative whether qualifies hedge accounting company adopt sfas 133 required first quarter fiscal year 2001 adoption material impact consolidated financial statements december 1999 securities exchange commission issued staff accounting bulletin sab 101 revenue recognition financial statements amended sab 101a 101b effective later quarter ended december 31 2000 sab 101 clarifies secs views regarding recognition revenue company adopted sab 101 2000 adoption sab 101 significant impact companys consolidated financial statements item 7a item 7 managements discussion analysis financial condition results operations forwardlooking statements private securities litigation reform act 1995 provides safe harbor forwardlooking statements except historical information contained incorporated reference annual report form 10k matters discussed incorporated reference herein forwardlooking statements forwardlooking statements involve known unknown risks uncertainties factors may cause actual results performance achievements company industry results materially different future results performance achievements expressed implied forwardlooking statements factors include among others general economic business conditions industry capacity industry trends overseas expansion loss major customers changes demand companys products timing orders received customers cost availability raw materials dependence foreign sources supply changes business strategy development plans availability quality management availability terms deployment capital seasonal nature business special attention paid forwardlooking statements including limited statements relating companys ability execute growth strategies realize growth objectives ii companys planned expansion product offerings iii companys ability obtain sufficient resources finance working capital expenditure needs provide known obligations iv continuation companys ability benefit vendor consolidation trend retail industry described elsewhere annual report form 10k recent transactions rauch industries inc february 15 1996 company indirect wholly owned subsidiary acquired outstanding shares rauch approximately 496 million including costs transaction acquisition accounted purchase method accounting results operations rauch included results company february 15 1996 purchase price excess net assets acquired 72 million amortized straight line basis 30 years year ended december 31 1996 company received 238 million connection insurance claim relating 1994 fire rauch fiscal year ended december 31 1995 net sales rauch 589 million farberware april 2 1996 company indirect wholly owned subsidiary farb acquisition corp farb together lifetime hoan corporation lifetime acquired certain assets farberware inc subsidiary us industries inc usi lifetime company affiliates farberware inc manufacturer aluminum clad stainless steel cookware bakeware small electric kitchen appliances aggregate consideration paid farb lifetime approximately 458 million subject adjustment farb paid approximately 326 million amount adjustment subject dispute noted assets acquired company included certain inventory tradename farberware intellectual property including intellectual property relates cookware bakeware electric products major kitchen appliances certain tools dies machinery equipment effective april 2 1996 company farb entered manufacturing services agreement farberware inc transitional manufacturing services certain finished goods previously produced farberware inc company entered manufacturing services agreement part provide continuity product transition period order protect strength farberware name marketplace manufacturing services agreement terminated company acquired farberware inc assets order expand farberwares licensing activities use farberware name certain companys existing new products upon disposal acquired inventory company manufacture sell farberware cookware bakeware products noncommercial electric products accordingly net sales year ended december 31 1996 exclude sales farberware inventory 35 million net certain selling general administrative expenses sales recorded operating income separate transaction company farb entered agreement lifetime provided allocation assets acquired farberware inc acquired lifetime directly farberware inc granting longterm license lifetime use farberware name connection extensive list products granting lifetime longterm exclusive rights operate farberware outlet stores reservation certain exclusive rights farb including exclusive rights use farberware name corporate purposes marketing cookware bakeware products well electric products future formation joint venture administer certain licensing rights june 27 1996 companys farberware inc subsidiary formerly farb farberware entered license agreement meyer marketing co ltd meyer pursuant meyer granted term 200 years exclusive worldwide license use exploit farberware name certain related intellectual property rights connection sourcing manufacture distribution cookware bakeware products home use commercial industrial institutional size pots pans roasters ii nonexclusive shared rights use certain farberware technology intellectual property grant meyer made onetime payment company 255 million resulted recognition company 119 million nonrecurring income terms licensing agreement company obligation respect amount paid meyer entire proceeds received recognized revenue july 12 1996 farberware granted major retail chain exclusive license use exploit farberware name related intellectual property connection sourcing manufacture marketing sale certain electric products annual royalty payments october 25 1996 farberware granted fci corp license use exploit farberware name connection sourcing manufacturing marketing sale certain commercial products defined six specified commercial urns one specified commercial convection oven plus cookware bakeware electric products developed licensee solely exclusively commercial industrial institutional use prior written approval farberware payment annual royalties pursuant agreement made lifetime hoan corporation lhc contemporaneously agreement acquisition assets farberware inc company lhc agreed share rights receive obligation pay certain commissions respect royalties specified license agreements assigned company prior owner farberware trade name joint venture yet formally established pursuant agreement lhc subject certain intellectual property rights company reserved exclusively company lhc expect continue grant licenses third parties use farberware trade name company also intends market specific products time farberware trade name agreement lhc provides period sixty days following change control either syratech lhc coowner joint venture right require coowner experienced change control set price onehalf interest venture thereupon coowner ie one experienced change control elect either buy coowners interest price set sell interest price coowner set february 3 1997 company farberware lifetime reached agreement settlement agreement usi bruckner manufacturing corp formerly farberware inc usi subsidiarybmc settle previous outstanding legal disputes arising farberware asset purchase agreement manufacturing services agreement settlement agreement provides change aggregate consideration paid acquired assets eliminates certain restrictions disposition acquired tools machinery equipment company expects recognize gain approximately 25 million taxes 1997 disposition sale certain tools equipment terms settlement agreement farberware receive certain finished goods inventory cost company estimates net realizable value approximately 12 million agreed pay certain finished goods inventories purchased manufacturing services agreement settlement agreement also resolved outstanding claims disputes related purchase price adjustments trade accounts receivable advertising commitments administration consumer warranties silvestri april 16 1996 company purchased finished goods inventory intangible assets silvestri division ffsc inc approximately 86 million prior companys purchase assets ffsc inc subsidiaries affiliated companies filed protection chapter 11 bankruptcy code united states bankruptcy court northern district texas bankruptcy court bankruptcy court approved acquisition company silvestri products include christmas ornaments collectibles lighting trim well seasonal nonseasonal giftware decorative accessories company given guaranty limited 4 million dated may 21 1996 obligations ff holding company ffsc inc certain related entities cit groupbusiness credit inc certain debtor possession financing agreement dated may 21 1996 request company nationsbank na south issued letter credit dated may 21 1996 amount 4 million cit groupbusiness credit inc secure companys aforesaid guaranty certain funds affiliates thomas h lee company creditors ffsc inc see agreement plan merger cj vander may 8 1996 company one subsidiaries acquired outstanding common stock cj vander manufacturer sterling silver silverplated flatware hollowware sheffield london england purchase price immaterial companys consolidated financial statements acquisition accounted purchase method accounting potpourri press november 26 1996 whollyowned subsidiary company acquired inventory tangible property intellectual property rights certain key records including customer lists customer files supplier information catalogs certain contract rights selected companys subsidiary potpourri press north carolinabased manufacturer christmas products purchase price approximately 23 million plus 02 million promissory note syroco april 11 1995 pursuant agreement entered march 28 1995 company subsidiary syratech holding corporation sold syroco inc syroco net proceeds received costs sale income taxes 1339 million september 25 1995 company reached final settlement regarding sale syroco terms settlement company reacquired certain assets reassumed certain liabilities syroco recorded estimated net fair value amounting 18 million december 31 1995 company expect liquidation assets material effect previously recognized gain disposal sale resulted discontinuance companys casual furniture accessories business resulted tax gain disposal 305 million recognized second quarter 1995 assets liabilities relating discontinued business included caption net assets discontinued operations consolidated balance sheets december 31 1994 1995 results operations discontinued segment included discontinued operations consolidated income statements cash flows years ended december 31 1994 1995 agreement plan merger october 23 1996 company thl entered merger agreement restated november 27 1996 amended february 14 1997 pursuant thl merged company pursuant transaction stockholders company receive 32 cash share syratech common stock owned leonard florence receive 28 per share may elect receive portion consideration retaining stock surviving entity results operations following table sets forth certain financial data percentage net sales company periods presented 1 includes income sale farberware inventory operating income net certain selling general administrative expenses 2 consists nonrecurring pretax income related licensing farberware name cookware bakeware year ended december 31 1996 compared year ended december 31 1995 net sales increased 598 2709 million year ended december 31 1996 1695 million year ended december 31 1995 excluding impact acquisitions businesses productlines completed 1996 net sales increased 81 increase reflects primarily increased sales volume giftware items including seasonal items picture frames silver plated items sterling silver flatware changes product prices materially impact net sales gross profit increased 546 768 million year ended december 31 1996 497 million year ended december 31 1995 gross profit percentage sales 284 year ended december 31 1996 compared 293 year ended december 31 1995 decrease gross profit percentage primarily result acquisition rauch gross profit margin lower certain companys product lines 13 million nonrecurring compensation expense charge related transfer shares one executive officers see note 11 companys consolidated financial statements partially offsetting decrease gross profit recently acquired high end silvestri seasonal productline excluding impact acquisitions gross profit percentage 303 year ended december 31 1996 increase gross profit percentage exclusive acquisitions due increased sterling flatware sales higher profit margin tabletop giftware items also change product mix giftware lines higher margin items including frames certain seasonal products increase gross profit margin materially impacted change product prices selling general administrative expenses sg expenses increased 213 percentage net sales 577 million year ended december 31 1996 202 342 million year ended december 31 1995 sg expenses 395 million 215 percentage net sales excluding sg expenses incurred rauch silvestri cj vander potpourri acquired companies 182 million sg expenses including allocation existing continuing corporate expenses substantial resources dedicated additional expenses incurred result acquiring productlines integrating functions including selling marketing customer service general administrative functions case farberware general administrative costs disposing productline 1996 allocated corporate costs incurred sell farberware product line 26 million included operating income line included companys sg expenses also included sg expenses 1996 26 million nonrecurring compensation expense related transfer shares two executive officers see note 11 companys consolidated financial statements income operations increased 496 231 million year ended december 31 1996 included income operations year ended december 31 1996 35 million net certain sg expenses disposal farberware inventory company expect incur loss disposal remaining farberware inventory december 31 1996 33 million interest expense net 24 million year ended december 31 1996 compared interest income net 46 million year ended december 31 1995 change results reduction invested cash used purchase retire 3064751 shares companys common stock recent acquisitions seasonal working capital needs provision income taxes 122 million year ended december 31 1996 compared 69 million year ended december 31 1995 effective income tax rate 375 year ended december 31 1996 compared 343 year ended december 31 1995 increase effective income tax rate 1996 due higher proportion income earned tax jurisdictions higher income tax rates including limited farberware income net income year ended december 31 1996 income continuing operations 204 million 232 per share shares 8799000 compared income continuing operations 132 million 112 per share shares 11803000 year ended december 31 1995 year ended december 31 1996 included nonrecurring pretax income 119 million net costs resulting license agreement net income year ended december 31 1995 462 million 391 per share year ended december 31 1995 included income discontinued operations net income taxes 26 million gain sale syroco inc 305 million totaling 279 per share year ended december 31 1995 compared year ended december 31 1994 net sales increased 151 1695 million 1995 1473 million 1994 primarily due increased sales volume result expanded product offerings within giftware line well increased demand companys giftware products increase seasonal product category changes product prices materially impact net sales companys sales increased despite difficult retail environment 1995 companys gross profit increased 164 497 million 1995 427 million 1994 gross profit percentage net sales increased 293 1995 290 1994 increase due primarily improved product mix giftware lines selling general administrative expenses increased 342 million 1995 316 million 1994 decreased percentage net sales 202 1995 215 1994 decrease 13 percentage points due companys cost reduction program following sale syroco income operations increased 394 154 million 1995 111 million 1994 result factors discussed interest income net 46 million 1995 compared net interest expense 05 million 1994 interest income earned primarily result investing net proceeds sale syroco shortterm investment grade securities provision income taxes 1995 69 million compared 28 million 1994 effective income tax rate increased 343 1995 260 1994 1995 effective income tax rate increased primarily due increase proportion companys earnings tax jurisdictions higher tax rates primarily interest income earned united states liquidity capital resources march 28 1995 company sold casual furniture accessories business marley plc net proceeds 1339 million transaction costs income taxes company used net proceeds sale syroco working capital requirements grow existing business effect katy stock repurchase make several acquisitions 1996 net cash provided operating activities year ended december 31 1996 approximately 238 million primary sources cash decrease marketable securities result repayment temporary borrowings used effect katy stock repurchase income generated includes nonrecurring pretax farberware gain 119 million partially offsetting sources acquisition related increases accounts receivable inventories december 31 1996 accounts receivable increased 600 million 319 million december 31 1995 increase primarily result sales farberware inventory seasonality recent acquisitions increased sales volume tabletop giftware product lines increase inventory 412 million december 31 1995 794 million december 31 1996 due recent acquisitions including purchased farberware inventory 1996 238 million collected final settlement agreement rauch fire loss occurred prior companys acquisition rauch companys working capital requirements seasonal tend highest period september december due christmas selling season accounts receivable tend decline first quarter receivables generated third fourth quarters collected remain lower next peak season beginning september seasonality increased result acquisition rauch silvestri product line capital expenditures approximately 151 million year ended december 31 1996 expenditures primarily warehouse south carolina computer software hardware improvements companys east boston facility machinery tools dies companys manufacturing facilities building equipment cj vander company expects capital expenditures year ended december 31 1997 approximately 17 million including land construction costs warehouse facility west coast cost certain machinery equipment rauch december 29 1995 company effected katy stock repurchase aggregate purchase price 521 million represented approximately 17 per share purchase substantially financed issuance two promissory notes due january 2 1996 subsidiaries katy assumption short term bank debt aggregating 517 million two promissory notes shortterm bank debt paid january 2 1996 effective october 31 1996 companys loan agreement amended add rauch farberware silvestri borrowers limited total borrowings including amounts reserved drawings letters credit 1000 million december 31 1996 thereafter 600 million earlier april 30 1997 completion refinancing contemplated respect merger december 31 1996 amount outstanding borrowings loan agreement 59 million revolving credit facility one companys puerto rican subsidiaries expired may 30 1996 however company received letter commitment increasing line 40 million 100 million extending may 31 1997 october 15 1996 puerto rican subsidiary lender entered amended restated line credit agreement increasing facility 100 million renewing may 31 1997 december 31 1996 amount outstanding borrowings line 06 million december 31 1996 credit availability net 103 million outstanding letters credit company loan agreement puerto rican subsidiarys line totaled 838 million 94 million respectively january 1 1997 availability company loan agreement reduced 400 million upon consummation merger company would pro forma basis december 31 1996 outstanding debt approximately 1623 million plus 180 million cumulative redeemable preferred stock accrues 12 per annum transaction expected close first half 1997 intended transaction accounted recapitalization company believes 1996 acquisitions businesses product lines together growth companys existing businesses generate sufficient income operations cover increased level interest incurred result merger allow company remain profitable company already begun capitalize synergies newly acquired businesses new acquisitions continue integrated core business cost savings expected realized redundant functions services facilities eliminated addition construction west coast warehouse distribution facility expected create significant savings beginning 1998 warehouse becomes operational company believes funds generated operations borrowings available existing revolving loan facilities sufficient finance companys working capital requirements provide known obligations company including obligations company operating leases fund planned capital expenditures december 31 1998 accounting pronouncements effective january 1 1996 company adopted statement financial accounting standards 123 accounting stockbased compensation statement 123 company continued account stockbased transactions employees accordance accounting principles board opinion 25 accounting stock issued employees include pro forma disclosures required statement 123 material annual financial statements stock option grants nonemployees company follows provisions statement 123 calculates compensation expense using fair value based method amortizes compensation expense vesting period year ended december 31 1996 company grant options purchase shares common stock nonemployees also effective january 1 1996 company adopted statement financial accounting standards 121 accounting impairment longlived assets longlived assets disposed statement 121 statement 121 requires longlived assets held used entity reviewed impairment whenever circumstances indicate carrying amount asset may recoverable also requires longlived assets disposed reported lower carrying amount fair value less cost sell adoption statement 121 material effect companys financial position results operations year ended december 31 1996 item 8 item 7 managements discussion analysis financial condition results operations forwardlooking statements private securities litigation reform act 1995 provides safe harbor forwardlooking statements except historical information contained incorporated reference annual report form 10k matters discussed incorporated reference herein forwardlooking statements forwardlooking statements involve known unknown risks uncertainties factors may cause actual results performance achievements company industry results materially different future results performance achievements expressed implied forwardlooking statements factors include among others general economic business conditions industry capacity industry trends overseas expansion loss major customers changes demand companys products timing orders received customers cost availability raw materials dependence foreign sources supply changes business strategy development plans availability quality management availability terms deployment capital seasonal nature business special attention paid forwardlooking statements including limited statements relating companys ability execute growth strategies realize growth objectives ii companys planned expansion product offerings iii companys ability obtain sufficient resources finance working capital expenditure needs provide known obligations iv continuation companys ability benefit vendor consolidation trend retail industry described elsewhere annual report form 10k recent transactions merger recapitalization april 16 1997 thl transaction corp thl delaware corporation controlled affiliates thomas h lee company thl merged company merger pursuant restated agreement plan merger dated november 27 1996 effective october 23 1996 amended february 14 1997 thl company pursuant merger share companys common stock par value 001 per share common stock issued outstanding immediately prior effective time merger effective time april 16 1997 shares common stock held company whollyowned subsidiary thereof ii 35232 shares common stock contributed company leonard florence former principal shareholder upon merger canceled retired entitled receive election holder thereof stated either 3200 cash except leonard florence received 2800 cash b one fully paid nonassessable share companys common stock common stock retained limited case stockholder management stockholders 3475 stockholders shares common stock also aggregate 868250 shares companys common stock could retained stockholders management stockholders right retain companys common stock subject proration addition company stock option granted 1986 1993 stock plans outstanding immediately prior effective time vested canceled exchange excess cash 3200 exercise price per share companys common stock aggregate amount paid optionees 37 million 2 million related vesting stock options charged compensation expense upon merger thl acquired directly company aggregate 18000 shares represented 100 companys 12 cumulative redeemable preferred stock 2374793 exchange corresponding stock interests thl paid aggregate 94 million cash accordingly thl investment resulted control company effective time company entered debt financing arrangements consisting 165 million principal amount 11 senior notes senior revolving credit facility 130 million revolving credit facility amount invested thl purchase price cumulative redeemable preferred stock plus proceeds notes portion proceeds available pursuant revolving credit facility used finance acquisition shares companys outstanding common stock retained companys existing stockholders refinance companys outstanding indebtedness revolving credit facility also intended provide companys working capital requirements time following merger connection merger company entered management agreement thomas h lee company pays annual management fee amount 450000 320000 expensed year ended december 31 1997 transaction accounted recapitalization see notes consolidated financial statements rauch industries inc february 15 1996 company indirect wholly owned subsidiary acquired outstanding shares rauch approximately 496 million including costs transaction acquisition accounted purchase method accounting results operations rauch included results company february 15 1996 farberware inc april 2 1996 company indirect wholly owned subsidiary farb acquisition corp farb together lifetime hoan corporation lifetime acquired certain assets farberware inc subsidiary us industries inc usi lifetime company affiliates farberware inc manufacturer aluminum clad stainless steel cookware bakeware small electric kitchen appliances aggregate consideration paid farb lifetime approximately 458 million farb paid approximately 326 million manufacturing service agreement entered april 2 1996 provide products transition period terminated 1996 1997 company sold disposed acquired inventory longer manufactures sells farberware cookware bakeware products noncommercial electric products net sales year ended december 31 1997 1996 exclude revenue sales farberware inventory 26 million 39 million respectively related sales licensing income net certain selling general administrative expenses recorded operating income company acquired farberware inc assets order expand farberwares licensing activities use farberware name certain companys existing new products company lifetime agreed allocation assets acquired farberware inc joint administration certain licensing rights june 27 1996 companys farberware inc subsidiary formerly farb farberware entered license agreement meyer marketing co ltd meyer pursuant meyer granted certain rights term 200 years grant meyer made onetime payment company 255 million resulted recognition company 119 million nonrecurring income terms licensing agreement company obligation respect amount paid meyer july 12 1996 farberware granted major retail chain exclusive license use exploit farberware name related intellectual property connection sourcing manufacture marketing sale certain electric products quarterly royalty payments october 25 1996 farberware granted fci corp license use exploit farberware name connection sourcing manufacturing marketing sale certain commercial products subsequent acquisition assets farberware inc legal disputes arose amongst parties alleged breaches agreements february 3 1997 company farberware lifetime reached agreement settlement agreement bruckner manufacturing corp bmc us industries inc usi settle previous outstanding legal disputes arising farberware asset purchase agreement apa manufacturing services agreement msa terms settlement agreement company received certain finished goods inventory cost paid certain finished goods inventories purchased msa company also received waiver certain restrictions apa disposing tools machinery equipment formerly used bmc manufacture farberware products company sold majority tools machinery equipment 1997 retained remainder use existing businesses sale tools machinery equipment resulted net proceeds company 2184 recorded nonoperating income 1997 see notes consolidated financial statements silvestri april 16 1996 company purchased finished goods inventory intangible assets silvestri division ffsc inc silvestri approximately 86 million silvestri products include christmas ornaments collectibles lighting trim well seasonal nonseasonal giftware decorative accessories acquisition accounted purchase method accounting results operations silvestri included results company april 16 1996 cj vander may 8 1996 company one subsidiaries acquired outstanding common stock cj vander manufacturer sterling silver silverplated flatware hollowware sheffield london england purchase price immaterial companys consolidated financial statements acquisition accounted purchase method accounting results operations c j vander included results company may 8 1996 potpourri press november 26 1996 whollyowned subsidiary company acquired inventory tangible property intellectual property rights certain key records including customer lists customer files supplier information catalogs certain contract rights potpourri press north carolinabased manufacturer marketer christmas products purchase price approximately 23 million plus 02 million promissory note acquisition accounted purchase method accounting results operations potpourri press included results company november 26 1996 syroco april 11 1995 pursuant agreement entered march 28 1995 company subsidiary syratech holding corporation sold syroco inc syroco net proceeds received costs sale income taxes 1339 million sale resulted discontinuance companys casual furniture accessories business resulted aftertax gain disposal 305 million recognized second quarter 1995 results operations discontinued segment included discontinued operations consolidated statements statement operations statements cash flows year ended december 31 1995 following table sets forth certain financial data percentage net sales company years presented percentage net sales year ended december 31 1997 1996 19951 net sales 1000 cost sales 734 716 707 gross profit 266 284 293 selling general administrative expenses 250 213 202 operating income 2 08 14 income operations 24 85 91 interest income expense net 54 09 27 income 3 08 44 income loss income taxes 22 120 118 provision benefit income taxes 06 45 40 income loss continuing operations 16 75 78 1 income statement data 1995 restated reflect syroco inc discontinued operation see managements discussion analysis financial condition results operationsrecent transactions 2 consists income sale farberware inventory operating income net certain selling general administrative expenses 3 consists nonrecurring pretax income related sale certain equipment associated farberware settlement 1997 licensing farberware name cookware bakeware 1996 see note 3 companys consolidated financial statements year ended december 31 1997 compared year ended december 31 1996 net sales increased 74 2909 million year ended december 31 1997 2709 million year ended december 31 1996 excluding impact rauch silvestri cj vander potpourri press acquisitions 1996 net sales increased 117 increase reflects higher sales volume giftware items primarily crystal silverplated items stainless steel sterling silver flatware sales related companys 1996 acquisitions decreased 17 due lower sales rauch christmas ornaments changes product prices materially impact net sales gross profit 775 million year ended december 31 1997 compared 768 million year ended december 31 1996 gross profit percentage net sales 266 year ended december 31 1997 compared 284 year ended december 31 1996 decrease gross profit percentage 18 percentage points related rauch new equipment startup manufacturing inefficiencies impact full year warehousing expenses seasonal silvestri business compared partial year 1996 well reduced proportion higher margin products total product mix decrease gross profit margin materially impacted change product prices selling general administrative expenses g expenses increased 250 percentage net sales 727 million year ended december 31 1997 213 577 million year ended december 31 1996 included g expenses 1997 onetime charge 39 million stock option compensation expense due merger also contributing increase higher personnel related costs including costs companys pacific rim offices support 1996 acquisitions establish increased presence mainland china management believes enable company reduce expenses higher cost hong kong philippines taiwan locations 1997 philippines office closed cost reductions taiwan hong kong underway addition 1997 full year g expenses associated product lines acquired 1996 compared partial period prior year expenses running levels higher initially anticipated due delays integrating operations acquisitions income operations 71 million 231 million years ended december 31 1997 1996 respectively included operating income 24 million 39 million respectively resulting disposal farberware inventory farberware license revenue income operations 1997 includes onetime charge 39 million compensation expense related stock options result merger nonoperating income 1997 represents 22 million income sale equipment associated farberware settlement 1996 represents 119 million income onetime licensing fee received farberware name cookware bakeware see note 3 companys consolidated financial statements interest expense net 158 million 24 million years ended december 31 1997 1996 respectively change results primarily increase debt including issuance 11 senior notes finance merger benefit income taxes 19 million year ended december 31 1997 compared income tax provision 122 million year ended december 31 1996 benefit income taxes 1997 arose net loss year net loss applicable common stockholders year ended december 31 1997 61 million 117 diluted per share adjusted weighted average shares outstanding 5216000 diluted compared net income available common stockholders 204 million 232 diluted per share 8799000 adjusted weighted average shares outstanding 1996 reduction adjusted weighted average shares primarily reflects acquisition retirement 49 million shares company common stock connection merger effected april 16 1997 year ended december 31 1996 compared year ended december 31 1995 net sales increased 598 2709 million year ended december 31 1996 1695 million year ended december 31 1995 excluding impact acquisitions businesses product lines completed 1996 net sales increased 81 increase reflects increased sales volume giftware items including seasonal items picture frames silverplated items sterling silver flatware changes product prices materially impact net sales gross profit increased 546 768 million year ended december 31 1996 497 million year ended december 31 1995 gross profit percentage sales 284 year ended december 31 1996 compared 293 year ended december 31 1995 decrease gross profit percentage primarily result acquisition rauch gross profit margin lower certain companys product lines 13 million nonrecurring compensation expense charge related transfer shares one executive officers see note 11 companys consolidated financial statements partially offsetting decrease gross profit recently acquired higher margin silvestri seasonal product line excluding impact acquisitions gross profit percentage 303 year ended december 31 1996 increase gross profit percentage exclusive acquisitions due increased sterling flatware sales higher profit margin tabletop giftware items also change product mix giftware lines higher margin items including frames certain seasonal products increase gross profit margin materially impacted change product prices selling general administrative expenses g expenses increased 213 percentage net sales 577 million year ended december 31 1996 202 342 million year ended december 31 1995 g expenses 395 million 215 percentage net sales excluding g expenses incurred rauch silvestri cj vander potpourri acquired companies 182 million g expenses including allocation existing continuing corporate expenses substantial resources dedicated additional expenses incurred result acquiring product lines integrating functions including selling marketing customer service general administrative functions case farberware general administrative costs disposing product line 1996 allocated corporate costs incurred sell farberware product line 26 million included operating income line included companys g expenses also included g expenses 1996 26 million nonrecurring compensation expense related transfer shares two executive officers see note 11 companys consolidated financial statements income operations increased 496 231 million year ended december 31 1996 included income operations year ended december 31 1996 35 million net certain g expenses disposal farberware inventory nonoperating income 1996 represents 119 million income onetime licensing fee farberware name cookware bakeware see note 3 companys consolidated financial statements interest expense net 24 million year ended december 31 1996 compared interest income net 46 million year ended december 31 1995 change results reduction invested cash used purchase retire 3064751 shares companys common stock recent acquisitions seasonal working capital needs provision income taxes 122 million year ended december 31 1996 compared 69 million year ended december 31 1995 effective income tax rate 375 year ended december 31 1996 compared 343 year ended december 31 1995 increase effective income tax rate 1996 due higher proportion income earned tax jurisdictions higher income tax rates including limited farberware income net income year ended december 31 1996 income continuing operations 204 million 232 per share shares 8799000 compared income continuing operations 132 million 112 per share shares 11803000 year ended december 31 1995 year ended december 31 1996 included nonrecurring pretax income 119 million net costs resulting license agreement net income year ended december 31 1995 462 million 391 per share year ended december 31 1995 included income discontinued operations net income taxes 26 million gain sale syroco inc 305 million totaling 279 per share liquidity capital resources net cash used operating activities year ended december 31 1997 126 million primary uses cash financing fees related debt incurred connection merger increases operating working capital needs companys working capital requirements seasonal tend highest period september december due christmas selling season accounts receivable tend decline first quarter receivables generated third fourth quarters collected remain lower next peak season beginning september seasonality increased result acquisitions rauch silvestri product lines capital expenditures approximately 245 million year ended december 31 1997 expenditures primarily purchase land construction warehouse distribution facility mira loma ca purchase single story manufacturing facility cj vander improvements companys east boston facility purchase machinery tools dies rauch puerto rico c j vander manufacturing facilities completion mira loma facility expected cost 4 million first quarter 1998 companys level indebtedness several important effects future operation including substantial portion companys cash flow operations must dedicated payment interest indebtedness available purposes ii covenants contained new credit facility indenture governing senior notes require company meet certain financial tests restrictions may limit ability borrow additional funds dispose assets may affect companys flexibility planning reacting changes business including possible acquisition activities iii companys ability obtain additional financing future working capital expenditures acquisitions general corporate purposes may impaired company believes funds generated operations borrowings available revolving credit facility sufficient finance companys working capital requirements provide known obligations company including obligations company 1650 million notes issued connection merger operating leases fund planned capital expenditures december 31 1998 see merger recapitalization see note 2 accompanying consolidated financial statements description terms merger note 11 dividend liquidation terms companys cumulative redeemable preferred stock see note 7 16 accompanying consolidated financial statements discussion borrowings availability covenants dividend restrictions company revolving credit facilities notes due april 15 2007 year 2000 conversion company modified certain key systems comply year 2000 requirements initiated program evaluate modify systems year 2000 compliant company continue evaluate remaining systems appropriate make necessary modifications company currently believes expenditures necessary year 2000 compliant material financial condition results operations given year accounting pronouncements june 1997 financial accounting standards board issued statements financial accounting standards nos 130 131 reporting comprehensive income disclosures segments enterprise related information sfas 130 sfas 131 respectively company required adopt provisions statements fiscal 1998 sfas 130 provides standards reporting items considered comprehensive income uses term comprehensive income refer revenues expenses gains losses included comprehensive income generally accepted accounting principles excluded net income currently items presented companys consolidated financial statements would considered comprehensive income defined sfas 130 cumulative translation adjustments recorded components stockholders equity sfas 131 establishes new standards reporting information operating segments company believes segment information required disclosed sfas 131 comprehensive previously provided including expanded disclosure income statement balance sheet items reportable operating segment company yet completed analysis operating segments report company believes provisions sfas 130 adopted material impact companys consolidated financial statements february 1998 financial accounting standards board issued statement financial accounting standards 132 sfas 132 employers disclosures pensions postretirement benefits sfas 132 standardizes disclosure requirement pensions postretirement benefits extent practicable change measurement recognition plans company required adopt provisions statement 1998 adoption provisions material impact upon companys consolidated financial statements item 8 item 7a quantitative qualitative disclosures market risk company exposed interest rate risk primarily borrowing activities companys shortterm borrowings substantially denominated us dollars bear interest variable rates primarily based either prime rate london interbank offering rate libor effect 10 change prime libor rate would material impact companys financial results company also fixed debt financing 165000 11 senior notes due april 15 2007 fair value 113850 december 31 1999 based upon recent private market trades inherent rollover risk borrowings upon maturity renewed current market rates extent risk quantifiable predictable variability future interest rates companys future financing requirements currently company enter financial instruments transactions trading speculative purposes manage interest rate exposure investments debt equity securities company transacts sales purchases primarily us dollars maintains minimum cash balances denominated foreign currencies company enter foreign currency hedge transactions december 31 1999 foreign currency fluctuations material impact companys consolidated financial position results operations cash flows one year company believe exposure foreign currency rate fluctuations material item 8 item 7a quantitative qualitative disclosures market risk company exposed interest rate risk primarily borrowing activities company’s shortterm borrowings substantially denominated us dollars bear interest variable rates primarily based either prime rate eurodollar rate effect 10 change prime eurodollar rate would material impact company’s financial results company also fixed debt financing 1478 million 11 senior notes due april 15 2007 fair value 650 million december 31 2001 based upon recent private market trades inherent rollover risk borrowings upon maturity renewed current market rates extent risk quantifiable predictable variability future interest rates company’s future financing requirements currently company enter financial instruments transactions trading speculative purposes manage interest rate exposure investments debt equity securities company transacts sales purchases primarily us dollars maintains minimum cash balances denominated foreign currencies company enter foreign currency hedge transactions december 31 2001 foreign currency fluctuations material impact company’s consolidated financial position results operations cash flows one year company believe exposure foreign currency rate fluctuations material item 8 item 7a quantitative qualitative disclosures market risk company exposed interest rate risk primarily borrowing activities company’s shortterm borrowings substantially denominated us dollars bear interest variable rates primarily based either prime rate eurodollar rate effect 10 change prime eurodollar rate would material impact company’s financial results company also fixed debt financing 1439 million 11 senior notes due april 15 2007 fair value 835 million december 31 2002 based upon recent private market trades inherent rollover risk borrowings upon maturity renewed current market rates extent risk quantifiable predictable variability future interest rates company’s future financing requirements currently company enter financial instruments transactions trading speculative purposes manage interest rate exposure investments debt equity securities company transacts sales purchases primarily us dollars maintains minimum cash balances denominated foreign currencies company enter foreign currency hedge transactions december 31 2002 foreign currency fluctuations material impact company’s consolidated financial position results operations cash flows one year company believe exposure foreign currency rate fluctuations material item 8 item 7a quantitative qualitative disclosures market risk company exposed interest rate risk primarily borrowing activities company’s shortterm borrowings substantially denominated us dollars bear interest variable rates primarily based either prime rate eurodollar rate effect 10 change prime eurodollar rate would material impact company’s financial results company also fixed debt financing 1183 million 11 senior notes due april 15 2007 fair value 923 million december 31 2003 based upon recent private market trades inherent rollover risk borrowings upon maturity renewed current market rates extent risk quantifiable predictable variability future interest rates company’s future financing requirements company enter financial instruments transactions trading speculative purposes manage interest rate exposure investments debt equity securities company transacts sales purchases primarily us dollars maintains minimum cash balances denominated foreign currencies company enter foreign currency hedge transactions december 31 2003 foreign currency fluctuations material impact company’s consolidated financial position results operations cash flows one year company believe exposure foreign currency rate fluctuations material item 8 item 7a quantitative qualitative disclosures market risk company exposed interest rate risk primarily borrowing activities companys shortterm borrowings substantially denominated us dollars bear interest variable rates primarily based either prime rate london interbank offering rate libor effect 10 change prime libor rate would material impact companys financial results company also fixed debt financing 165000 11 senior notes due april 15 2007 fair value 133650 december 31 1998 based upon recent private market trades inherent rollover risk borrowings upon maturity renewed current market rates extent risk quantifiable predictable variability future interest rates companys future financing requirements currently company enter financial instruments transactions trading speculative purposes manage interest rate exposure investments debt equity securities company transacts sales purchases primarily us dollars maintains minimum cash balances denominated foreign currencies company enter foreign currency hedge transactions december 31 1998 foreign currency fluctuations material impact companys consolidated financial position results operations cash flows one year company believe exposure foreign currency rate fluctuations material item 8 item 7a quantitative qualitative disclosures market risk company exposed interest rate risk primarily borrowing activities companys shortterm borrowings substantially denominated us dollars bear interest variable rates primarily based either prime rate eurodollar rate effect 10 change prime eurodollar rate would material impact companys financial results company also fixed debt financing 148550 11 senior notes due april 15 2007 fair value 89130 december 31 2000 based upon recent private market trades inherent rollover risk borrowings upon maturity renewed current market rates extent risk quantifiable predictable variability future interest rates companys future financing requirements currently company enter financial instruments transactions trading speculative purposes manage interest rate exposure investments debt equity securities company transacts sales purchases primarily us dollars maintains minimum cash balances denominated foreign currencies company enter foreign currency hedge transactions december 31 2000 foreign currency fluctuations material impact companys consolidated financial position results operations cash flows one year company believe exposure foreign currency rate fluctuations material item 8 item 8 financial statements supplementary data index consolidated financial statements independent auditors report board directors stockholders syratech corporation audited accompanying consolidated balance sheets syratech corporation company subsidiaries december 31 1999 1998 related consolidated statements operations stockholders equity cash flows three years period ended december 31 1999 audits also included consolidated financial statement schedule listed index item 14 consolidated financial statements financial statement schedule responsibility companys management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall consolidated financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position syratech corporation subsidiaries december 31 1999 1998 results operations cash flows three years period ended december 31 1999 conformity generally accepted accounting principles also opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein discussed note 4 consolidated financial statements company given retroactive effect change method pricing certain inventory lastin firstout method firstin firstout method 1999 discussed note 2 company completed merger accounted recapitalization 1997 deloitte touche llp boston massachusetts march 10 2000 syratech corporation subsidiaries consolidated balance sheets thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements operations thousands except per share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements stockholders equity years ended december 31 1999 1998 1997 thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements cash flows thousands see notes consolidated financial statements syratech corporation subsidiaries notes consolidated financial statements thousands dollars except share per share data 1 business summary significant accounting policies business syratech corporation designs manufactures imports markets diverse portfolio tabletop giftware seasonal products including sterling silver silverplated stainless steel flatware sterling silver silverplated brass hollowware picture frames photo albums glassware woodenware ceramics fine porcelain boxes figurines waterglobes christmas ornaments trim lighting tree skirts summary significant accounting policies basis consolidation consolidated financial statements include accounts syratech corporation subsidiaries company wallace international silversmiths inc subsidiaries wallace leonard florence associates inc lfa towle manufacturing company subsidiaries towle rauch industries inc subsidiaries rauch silvestri inc silvestri syratech hk ltd subsidiaries syratech hk significant intercompany balances transactions eliminated recapitalization company accounted 1997 merger thl company related purchase common stock retirement recapitalization see note 2 earnings loss per share company applies provisions statement financial accounting standards 128 earnings per share statement 128 specifies computation presentation disclosure requirements earnings per share eps entities publicly held common stock potential common stock basic earnings loss per share reflect weighedaverage number common shares outstanding period diluted earnings loss per share reflect impact potential common shares options warrants using treasurystock method potential common shares approximately 30000 resulting stock options outstanding 1997 antidilutive due recorded net loss potential common shares 1999 1998 comprehensive income loss effective january 1 1998 company adopted provisions statement financial accounting standards 130 reporting comprehensive income sfas 130 provides standards reporting items considered comprehensive income uses term comprehensive income refer revenues expenses gains losses included comprehensive income generally accepted accounting principles excluded net income currently items presented companys consolidated financial statements considered comprehensive income loss defined sfas 130 cumulative translation adjustments recorded components stockholders equity accumulated comprehensive income reported consolidated balance sheets consists foreign currency translation adjustments tax effected use estimates preparing financial statements conformity generally accepted accounting principles management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date consolidated financial statements revenues expenses reporting period actual results could differ estimates significant estimates include income taxes reserves potentially obsolete slow moving inventory reserves potential bad debts sales returns syratech corporation subsidiaries notes consolidated financial statements continued revenue recognition revenue recognized products shipped company provides allowances estimated doubtful accounts sales returns based historical experience evaluation specific accounts allowances excluding amounts related farberware inc comprised following customers substantially customers retailers base customers one geographic area constitutes significant portion sales walmart stores inc subsidiaries represented 106 1999 consolidated net sales single customer represented 10 greater consolidated net sales 1998 1997 cash equivalents cash equivalents consist highly liquid investments purchased remaining maturity three months less inventories stated lower cost market cost determined firstin firstout fifo method see note 4 properties held sale properties held sale separately presented accompanying consolidated balance sheets stated lower cost estimated net realizable value property plant equipment purchased property plant equipment recorded cost leased equipment recorded present value minimum lease payments required lease term depreciation provided using straightline method estimated useful lives related assets terms shorter related leases follows impairment longlived assets recoverability longlived assets determined periodically comparing forecasted undiscounted net cash flows operations assets relate carrying amount including associated intangible assets operations syratech corporation subsidiaries notes consolidated financial statements continued purchase price excess net assets acquired purchase price excess net assets acquired amortized using straightline method 30 years goodwill result companys purchase rauch subsidiary 1996 company evaluates carrying value goodwill based upon current anticipated net income undiscounted cash flows recognizes impairment probable estimated future net income andor cash flows less carrying value goodwill measurement amount impairment based upon difference carrying value estimated fair value assets consist principally deposits deferred fees deferred financing costs deferred longterm rent deferred financing costs amortized using interest method terms related loans accumulated amortization aggregated approximately 3685 2345 december 31 1999 1998 respectively advertising costs advertising costs charged operations incurred costs recorded selling general administrative expenses totaled 4196 4417 4156 years ended december 31 1999 1998 1997 respectively financial instruments carrying values cash equivalents accounts receivable accounts payable borrowings revolving credit facilities approximate fair value due shortterm nature instruments fair value notes note 2 estimated 113850 december 31 1999 based upon recent private market trades income taxes company domestic subsidiaries except wallaces puerto rican subsidiaries file consolidated federal income tax return puerto rican subsidiaries file separate returns accordance section 936 internal revenue code company uses liability method accounting income taxes deferred taxes determined based estimated future tax effects differences financial statement tax bases assets liabilities given provisions enacted tax laws company provides taxes substantially undistributed earnings foreign subsidiaries accordance statement financial accounting standards sfas 109 company records valuation allowances net deferred tax assets based upon available evidence likely deferred tax assets realized assessing realizability deferred assets management considers whether likely deferred tax assets realized ultimate realization deferred tax assets dependent upon generation future taxable income temporary differences become deductible company considers among available information uncertainties surrounding recoverability deferred tax assets scheduled reversals deferred tax liabilities projected future taxable income matters making assessment foreign currency translation assets liabilities denominated foreign currencies translated us dollars yearend exchange rates income expense items translated average rates exchange prevailing year effects foreign currency fluctuations foreign subsidiaries assets liabilities reflected separate component stockholders equity transaction gains losses insignificant syratech corporation subsidiaries notes consolidated financial statements continued recent accounting pronouncements effective january 1 1999 company adopted provisions statement opinion 981 accounting costs computer software developed obtained internal use requires certain expenditures made internal use software capitalized provisions opinion material effect companys consolidated financial statements june 1998 financial accounting standards board issued statement financial accounting standard sfas 133 accounting derivative instruments hedging activities effective fiscal quarters fiscal years beginning june 15 2000 new standard requires companies record derivatives balance sheet assets liabilities measured fair value gains losses resulting changes values derivatives would accounted depending use derivative whether qualifies hedge accounting management currently assessing whether impact sfas 133 companys consolidated financial statements upon adoption required first quarter 2001 december 1999 securities exchange commission issued staff accounting bulletin sab 101 revenue recognition financial statements sab 101 provides guidance applying generally accepted accounting principles revenue recognition issues financial statements company adopt sab 101 required second quarter 2000 expect adoption material impact consolidated financial statements reclassification certain prior year amounts reclassified conform 1999 presentation cash flow information supplemental cash flow information follows 2 merger recapitalization april 16 1997 thl transaction corp thl delaware corporation controlled affiliates thomas h lee company thl merged company merger pursuant restated agreement plan merger thl company pursuant merger share companys common stock par value 001 per share common stock issued outstanding immediately prior effective time merger effective time april 16 1997 shares common stock held company whollyowned subsidiary thereof ii 35232 shares common stock contributed company leonard florence former principal shareholder upon merger canceled retired entitled receive election holder thereof stated either 3200 cash except leonard florence received 2800 cash b one fully paid nonassessable share companys common stock addition company stock option granted 1986 1993 stock plans outstanding immediately prior effective time vested canceled exchange excess cash 3200 exercise price per share companys common stock aggregate amount paid optionees 3685 188 related vesting options charged compensation expense upon merger thl acquired directly company aggregate 18000 shares represented 100 companys 12 cumulative redeemable preferred stock 2374793 shares represented 628 companys common stock exchange corresponding stock interests thl paid aggregate 93993 cash accordingly thl acquired control company syratech corporation subsidiaries notes consolidated financial statements continued effective time company entered debt financing arrangements consisting 165000 principal amount 11 senior notes senior revolving credit facility 130000 revolving credit facility amount invested thl purchase price cumulative redeemable preferred stock plus proceeds notes portion proceeds available pursuant revolving credit facility used finance acquisition shares companys outstanding common stock retained companys existing stockholders refinance companys outstanding indebtedness revolving credit facility also intended provide companys working capital requirements time following merger transaction accounted recapitalization effective time merger employment agreement chairman board chief executive officer amended changed term fulltime employment rolling fiveyear term fixed fiveyear term ii provided minimum base salary 1150 per annum iii established 1150 minimum amount upon chairmans retirement benefit survivors benefit surviving spouse computed iv created contractual rights respect certain perquisites accorded informally present arrangements company employment agreement vice president purchasing also amended change term fulltime employment rolling fiveyear term fixed fiveyear term 3 asset dispositions impairment longlived assets restructuring costs november 1999 company sold primary east coast distribution facility 29500 sale facility resulted net gain approximately 17140 company simultaneously entered shortterm leaseback approximately 40 distribution facility connection disposition facility company recorded separation benefits approximately 532 42 hourly employees three salaried employees accrued december 31 1999 expected fully paid end first quarter 2001 earlier year company sold undeveloped land adjacent facility gain approximately 756 fourth quarter 1999 company wrote value certain assets approximately 1157 writedowns relate abandonment certain manufacturing equipment gastonia north carolina facility book value approximately 1057 remaining asset writedowns relate finalization amounts relative shutdown el paso facility discussed less significant asset writedowns adjustments aggregated net charge 611 fourth quarter 1998 company wrote value certain assets primarily relating facilities el paso texas one facility gastonia north carolina carrying values impaired aggregate 4307 managements decision shut sell facilities el paso facility sold december 1999 leased back six months pending location alternate warehousing facilities gastonia facility shut june 15 1999 also included fourth quarter 1998 charge 627 related impaired equipment tooling abandoned company facilities 236 representing decline estimated fair value property held sale since 1997 syratech corporation subsidiaries notes consolidated financial statements continued 4 change method inventory valuation company changed method valuing certain inventories cost goods sold lifo fifo method fiscal year 1999 prior fiscal year 1999 approximately 9 companys inventories valued using lifo method change inventory valuation method reflects managements belief fifo method provides better measurement operating results provide uniform system valuing inventories companywide financial statements prior years retroactively restated apply new method effect accounting change net tax effects net loss earnings per share previously reported fiscal years 1998 1997 cumulatively prior years inventories major classification follows 5 property plant equipment property plant equipment comprised following syratech corporation subsidiaries notes consolidated financial statements continued capitalized interest material companys consolidated financial statements year presented unrecorded commitments property plant equipment material companys consolidated financial statements december 31 1999 6 revolving loan facilities notes payable revolving loan facilities company senior revolving credit facility revolving credit facility dated april 16 1997 amended effective july 31 1997 december 31 1997 march 30 1998 december 31 1998 provides 130000 borrowings including 30000 sublimit issuance standby commercial letters credit borrowings made revolving credit facility bear interest rate equal companys option eurodollar rate plus 225 basis points 808 using 30 day eurodollar rate december 31 1999 prime rate plus 50 basis points 90 december 31 1999 weightedaverage interest rate borrowings outstanding facility year ended december 31 1999 779 revolving credit facility expires april 16 2002 pursuant terms revolving credit facility amended company required february march year maintain excess availability least 25000 obligations company revolving credit facility secured inventory accounts receivable company issuerguarantor parent domestic subsidiaries pledge 100 domestic subsidiaries least 65 foreign subsidiaries outstanding capital stock guarantor subsidiaries note 15 revolving credit facility amended contains customary covenants company subsidiary borrowers including limited capital expenditures minimum consolidated net worth december 31 1997 least 100 thousands addition revolving credit facility amended includes covenants beginning first quarter 1999 requiring minimum ratio earnings income taxes depreciation amortization certain adjustments ebitda defined including funded debt ebitda fixed charge coverage ratios defined management believes company compliance covenants amended december 31 1999 year ended december 31 1999 21642 outstanding facility borrowings 7500 eurodollar rate availability revolving credit facility net outstanding letters credit 66935 december 31 1999 notes payable company also debt financing 165000 11 senior notes due april 15 2007 require interest payments made semiannually april 15 october 15 notes general unsecured obligations company rank pari passu right payment current future unsubordinated indebtedness company including borrowings revolving credit facility however borrowings revolving credit facility secured first priority lien accounts receivable inventory company domestic subsidiaries guarantor subsidiaries foreign subsidiaries nonguarantor subsidiaries see note 15 consequently obligations company notes effectively subordinated obligations revolving credit facility extent assets notes redeemable whole part companys option april 15 2002 companys ability pay dividends restricted terms revolving credit facility notes also include financial covenants less restrictive covenants contained revolving credit facility default notes trigger default revolving credit facility debt facilities company outstanding borrowings 937 one wallaces puerto rican subsidiaries 1000 facility expiring may 30 2000 facility bears interest rate equal companys option eurodollar rate plus 175 basis points 758 using 30day eurodollar rate december 31 1999 banks prime rate less 25 basis points 825 december 31 1999 availability facility 63 syratech corporation subsidiaries notes consolidated financial statements continued december 31 1999 weightedaverage interest rate borrowings outstanding facility year ended december 31 1999 777 borrowings facility uncollateralized however pledge assets owned one subsidiaries collateral loans prohibited borrowings facility guaranteed company crossguaranteed certain subsidiaries companys cj vander ltd subsidiary overdraft facility entered march 16 1998 overdraft facility provides borrowings pound250 borrowings made overdraft facility bear interest banks base rate plus 1 65 december 31 1999 overdraft facility contains customary covenants borrowings secured substantially assets cjvander ltd overdraft facility renewed september 18 1998 march 19 1999 march 10 2000 due demand expires september 6 2000 availability overdraft facility pound90 december 31 1999 weightedaverage interest rate borrowings outstanding facility year ended december 31 1999 645 7 income taxes provisions benefit income taxes follows reconciliations companys effective income tax rate us federal statutory rate follows syratech corporation subsidiaries notes consolidated financial statements continued components income provision benefit income taxes comprised following provisions made taxes portion undistributed earnings syratech hk wallaces puerto rican subsidiaries permanently invested ultimately expected remitted parent company wallaces puerto rican subsidiaries operate grants commonwealth puerto rico exempting 90 income taxation december 2003 company eligible tax exemption net income 1999 would decreased 985 net loss 1998 1997 would increased approximately 1105 1685 respectively earnings per share would decreased approximately 026 029 032 respectively tax effects significant items comprising companys net deferred tax asset liability follows valuation allowance relates primarily potential unusable portion foreign tax loss carryforwards syratech corporation subsidiaries notes consolidated financial statements continued 8 commitments contingencies company subsidiaries various operating lease commitments buildings equipment lease agreements generally require company pay insurance real estate taxes maintenance contain various renewal options future minimum rental payments noncancellable operating leases next five years thereafter follows rent expense operating leases approximately 3951 4570 6254 1999 1998 1997 respectively certain subsidiaries contingently obligated outstanding letters credit trade acceptances similar instruments aggregating 8722 december 31 1999 note 6 assets syratech hk pledged collateral certain contingent obligations 9 employee benefit plans 1998 company adopted provisions sfas 132 employers disclosures pensions postretirement benefits following information provided accordance provisions statement 401k savings plans company two 401k savings plans 401k savings plans cover substantially employees domestic puerto rican subsidiaries 401k plans subject certain minimum age length employment requirements plan company matches 50 first five hundred twenty dollars contributed 30 thereafter participants contributions 6 compensation company also savings plan established 1991 covering substantially employees companys hong kong subsidiary hong kong plan company contributes 10 participants compensation company contributed aggregate 510 617 463 plans 1999 1998 1997 officers retirement plan company employment agreements certain officers terms ranging three five years agreements five companys officers provide retirement benefit payments two agreements provide benefit payments based upon two percent average total annual compensation salary bonus threeyear period preceding executives retirement dates multiplied number years service addition one agreements provides 100 survivor benefit executives spouse two agreements provide benefit payments based upon greater 75000 ii onehalf one percent average total annual compensation salary bonus threeyear period preceding executives retirement dates multiplied number years service one agreement officer provides benefit payments based upon greater 75000 ii one percent average total annual compensation salary bonus threeyear period preceding executives retirement dates multiplied number years service upon consummation merger note 2 employment agreement officer amended change officers term fulltime employment rolling fiveyear term fixed fiveyear term ii provide syratech corporation subsidiaries notes consolidated financial statements continued minimum base salary 1150 per annum iii establish 1150 minimum amount upon officers retirement benefit survivors benefit surviving spouse computed iv create contractual rights respect certain perquisites accorded informally present arrangements company additionally employment agreement another officer amended change officers term fulltime employment rolling fiveyear term fixed fiveyear term july 29 1998 company entered amendment 1 mr florences amended restated employment agreement provides among things modification computation timing payments respect retirement benefit terms amendment provide acceleration payments first made upon execution amendment related retirement benefit provided payments allowed terms companys credit agreements amended terms material impact consolidated financial statements years ended december 31 1998 1999 july 8 1999 company entered additional employment agreement executive officer agreements provide minimum annual salaries aggregating 2580 certain benefits pension expense determined using assumptions beginning year assumptions used determining actuarial present value projected benefit obligation include discount rate 675 1999 1998 1997 rate future increases benefit compensation 3 change projected benefit obligation syratech corporation subsidiaries notes consolidated financial statements continued funded status december 31 1999 1998 companys c j vander subsidiary also employee benefit plan companys obligation plan material companys consolidated financial position results operations 10 stockholders equity preferred stock liquidation preference cumulative redeemable preferred stock 1000 per share plus accrued unpaid dividends holders cumulative redeemable preferred stock entitled subject rights creditors event voluntary involuntary liquidation company amount cash equal 1000 share outstanding plus accrued unpaid dividends rights holders cumulative redeemable preferred stock upon liquidation company rank prior holders common stock dividends shares cumulative redeemable preferred stock cumulative date issue payable declared time board directors company dividends accrue daily basis whether declared original date issue annual rate per share equal 12 original purchase price per share amount compounded annually december 31 dividend paid year unpaid amount added original purchase price cumulative redeemable preferred stock purpose calculating succeeding years dividends december 31 1999 6498 accrued cumulative redeemable preferred stock redeemable time option company whole part 1000 per share plus accumulated unpaid dividends date redemption subject companys existing debt agreements company must redeem outstanding cumulative redeemable preferred stock event public offering equity change control certain sales assets key employee stock option plans pursuant merger common stock option granted companys existing stock option plans outstanding immediately prior merger vested cancelled exchange payment optionees 3873 charged compensation expense syratech corporation subsidiaries notes consolidated financial statements continued summary stock option activity companys plans december 31 1997 follows stock options granted outstanding 1999 1998 11 relatedparty transactions connection merger company entered management agreement thomas h lee company pays annual management fee amount 450 company paid expensed 450 1999 1998 arrangement 12 segment disclosures following presented accordance sfas 131 disclosures segments enterprise related information sfas 131 statement establishes new standards defining disclosing information companys business segments requires company define segments along internal structure reporting methodology company identified one distinct reportable segment home entertainment decorative products segment generates revenue two types product offerings tabletop giftware seasonal company determined one reportable segment meeting criteria established sfas 131 companys chief operating decision maker defined determined chief executive officer president board directors manage part company separately review evaluate companys consolidated operating results one segment refer note 1 significant accounting policies companys operations conducted primarily united states america us two locations representing individually 10 revenues income operations us hong kong company also conducts operations united kingdom uk countries however operations individually insignificant included foreign syratech corporation subsidiaries notes consolidated financial statements continued following presents information accordance sfas 131 13 litigation company leonard florence defendants lawsuit filed former employee alleging certain causes action including limited breach contract tortious misrepresentation defamation violation massachusetts general laws ch 93a arising alleged promise grant stock employee connection employment matter currently preliminary stages discovery company mr florence intend vigorously defend matter asserted certain defenses counterclaims outcome matter cannot predicted company believe matter material adverse affect financial position addition company mr florence pursuing certain insurance coverages although assurance adequacy sufficiency company named defendant certain legal actions arising normal business activities company carries insurance liability certain types risks although amount liability could result litigation cannot predicted opinion management companys potential liability known claims would material adverse effect consolidated financial position results operations company syratech corporation subsidiaries notes consolidated financial statements continued 14 quarterly results unaudited supplementary information quarterly results unaudited 1 restated see note 4 fourth quarter 1999 company adjusted income tax rate 45 full year higher estimated effective income tax rate 25 recorded september 30 1999 increased income tax rate reflects impact gain recorded sale companys primary east coast warehouse see note 3 fourth quarter 1998 company recorded impairment long lived assets 5170 see note 3 adjusted tax benefit rate 25 full year slightly lower estimated effective income tax rate 28 recorded nine months ended september 30 1998 syratech corporation subsidiaries notes consolidated financial statements continued 15 supplemental condensed consolidating financial statements following supplemental condensed consolidating financial statements december 31 1999 1998 three years period ended december 31 1999 present separate financial information company issuerguarantor parent guarantor subsidiaries note 6 nonguarantor subsidiaries note 6 separate financial statements guarantor presented management believes statements would materially different information presented herein syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating balance sheets december 31 1999 syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating balance sheets december 31 1998 restated syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating statements operations year ended december 31 1999 syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating statements operations year ended december 31 1998 restated syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating statements operations year ended december 31 1997 restated syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating statements cash flows year ended december 31 1999 syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating statements cash flows year ended december 31 1998 restated syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating statements cash flows year ended december 31 1997 restated item 9 item 8 financial statements supplementary data index consolidated financial statements report independent auditors consolidated financial statements consolidated balance sheets december 31 2001 2000 consolidated statements operations years ended december 31 2001 2000 1999 consolidated statements stockholders equity years ended december 31 2001 2000 1999 consolidated statements cash flows years ended december 31 2001 2000 1999 notes consolidated financial statements independent auditors’ report board directors stockholders syratech corporation audited accompanying consolidated balance sheets syratech corporation subsidiaries “company” december 31 2001 2000 related consolidated statements operations stockholders’ equity cash flows three years period ended december 31 2001 audits also included consolidated financial statement schedule listed index item 14 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position syratech corporation subsidiaries december 31 2001 2000 results operations cash flows three years period ended december 31 2001 conformity accounting principles generally accepted united states america also opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp boston massachusetts march 22 2002 syratech corporation subsidiaries consolidated balance sheets thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements operations thousands except per share data 1 see management’s discussion analysis financial condition results operations explanation sales decrease see notes consolidated financial statements syratech corporation subsidiaries consolidated statements stockholders’ equity years ended december 31 2001 2000 1999 thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements cash flows thousands see notes consolidated financial statements syratech corporation subsidiaries notes consolidated financial statements thousands dollars except share per share data 1 business summary significant accounting policies business syratech corporation designs manufactures imports markets diverse portfolio tabletop giftware seasonal products including sterling silver silverplated stainless steel flatware sterling silver silverplated brass hollowware picture frames photo albums glassware woodenware ceramics fine porcelain boxes figurines waterglobes christmas ornaments trim lighting tree skirts summary significant accounting policies basis consolidation consolidated financial statements include accounts syratech corporation subsidiaries “company” wallace international silversmiths inc subsidiaries “wallace” leonard florence associates inc “lfa” towle manufacturing company subsidiaries “towle” rochard inc rochard rauch industries inc subsidiaries “rauch” silvestri inc “silvestri” syratech hk ltd subsidiaries “syratech hk” significant intercompany balances transactions eliminated use estimates preparing financial statements conformity accounting principles generally accepted united states america management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date consolidated financial statements revenues expenses reporting period actual results could differ estimates significant estimates include income taxes long lived asset impairment reserves potentially obsolete slow moving inventory reserves potential bad debts sales returns revenue recognition revenue recognized products shipped company provides allowances estimated doubtful accounts sales returns based historical experience evaluation specific accounts allowances comprised following concentrations credit risk financial instruments potentially subject company credit risk consist primarily cash equivalents accounts receivable company manages cash credit risk maintaining cash equivalents financial institutions believes financially sound regards accounts receivable company performs going credit evaluations customers company sells products multitude customers numerous geographical locations customers substantially customers retailers customers one geographic area constitute significant portion sales one customer represented 120 122 106 2001 2000 1999 consolidated net sales respectively 2001 one customer represented 169 net accounts receivable another customer represented 111 net accounts receivable 2000 one customer represented 172 net accounts receivable cash equivalents cash equivalents consist highly liquid investments purchased remaining maturity three months less inventories stated lower cost market cost determined firstin firstout “fifo” method see note 3 property plant equipment purchased property plant equipment recorded cost leased equipment recorded present value minimum lease payments required lease term depreciation provided using straightline method estimated useful lives related assets terms shorter related leases follows impairment longlived assets recoverability longlived assets determined accordance statement financial accounting standards 121 “sfas 121” “accounting impairment longlived assets longlived assets disposed of” periodically comparing forecasted undiscounted net cash flows operations assets relate carrying amount including associated intangible assets operations determined impairment value occurred carrying value written present value future cash flows generated note 2 purchase price excess net assets acquired purchase price excess net assets acquired amortized using straightline method 30 years goodwill result company’s purchase rauch subsidiary 1996 company evaluates carrying value goodwill based upon current anticipated net income undiscounted cash flows recognizes impairment probable estimated future net income andor cash flows less carrying value goodwill measurement amount impairment based upon difference carrying value estimated fair value see recent accounting pronouncements section information regarding new accounting rules goodwill effective year ended december 31 2002 assets consist principally deposits deferred financing costs deferred financing costs amortized using interest method terms related loans accumulated amortization aggregated approximately 6432 4744 december 31 2001 2000 respectively advertising costs advertising costs charged operations incurred costs recorded selling general administrative expenses totaled 3684 4440 4196 years ended december 31 2001 2000 1999 respectively financial instruments carrying values cash equivalents accounts receivable accounts payable borrowings revolving credit facilities approximate fair value due shortterm nature instruments december 31 2001 company debt financing 147846 11 senior notes “notes” fair value notes note 5 estimated 65042 december 31 2001 based upon recent private market trades income taxes company domestic subsidiaries except wallace’s puerto rican subsidiaries file consolidated federal income tax return puerto rican subsidiaries file separate returns accordance section 936 internal revenue code company uses liability method accounting income taxes deferred taxes determined based estimated future tax effects differences financial statement tax bases assets liabilities given provisions enacted tax laws company provides taxes substantially undistributed earnings foreign subsidiaries company records valuation allowances net deferred tax assets based upon available evidence likely deferred tax assets realized assessing realizability deferred tax assets management considers whether likely deferred tax assets realized ultimate realization deferred tax assets dependent upon generation future taxable income temporary differences become deductible company considers among available information uncertainties surrounding recoverability deferred tax assets scheduled reversals deferred tax liabilities projected future taxable income matters making assessment foreign currency translation assets liabilities denominated foreign currencies translated us dollars yearend exchange rates income expense items translated average rates exchange prevailing year effects foreign currency fluctuations foreign subsidiaries’ assets liabilities recorded directly comprehensive income included component stockholders’ equity gains losses foreign currency transactions included consolidated statement operations comprehensive income earnings loss per share basic earnings loss per share reflect weightedaverage number common shares outstanding period diluted earnings loss per share reflect impact potential common shares options warrants using treasury stock method potential common shares 2001 2000 1999 comprehensive income loss comprehensive income loss comprised net income foreign currency translation adjustments minimum pension liability adjustments recent accounting pronouncements company adopted sfas 133 “accounting derivative instruments hedging activities” required fiscal 2001 adoption sfas 133 impact company’s financial statements company utilize derivative instruments july 2001 financial accounting standards board “fasb” issued statement financial accounting standards 141 “sfas 141” “business combinations” sfas 141 requires purchase method accounting business combinations initiated june 30 2001 eliminates poolingofinterests method adoption sfas 141 impact financial statements july 2001 financial accounting standards board approved financial accounting standard 142 “goodwill intangible assets” “sfas 142” sfas 142 includes requirements test goodwill indefinite lived intangible assets impairment rather amortize goodwill amortization recorded twelve months ended december 31 2001 aggregated 341 sfas 142 effective fiscal years beginning december 15 2001 company adopt sfas 142 beginning first quarter 2002 december 31 2001 company approximately 5825 goodwill recorded related rauch rochard acquisition company specifically identified intangible assets goodwill patents trademarks company process performing initial impairment analysis required sfas 142 believes adoption sfas 142 may impact financial statements june 2001 fasb issued sfas 143 “accounting asset retirement obligations” fiscal years starting june 15 2002 statement addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs company believe adoption sfas 143 significant impact financial statements august 2001 fasb issued sfas 144 “accounting impairment disposal longlived assets” sfas 144 supersedes fasb statement 121 “accounting impairment longlived assets longlived assets disposed of” accounting reporting provisions accounting principles board “apb” opinion 30 “reporting results operations reporting effects disposal segment business extraordinary unusual infrequently occurring events transactions” disposal segment business previously defined opinion sfas 144 requires one accounting model used longlived assets disposed sale whether previously held used newly acquired broadens presentation discontinued operations include disposal transactions included previous standards sfas 144 effective fiscal years beginning december 15 2001 company adopt sfas 144 beginning first quarter 2002 company expect adoption significant impact financial position results operations reclassification certain prior year amounts reclassified conform 2001 presentation cash flow information supplemental cash flow information follows cash paid year 2 asset dispositions impairment longlived assets restructuring costs fourth quarter 2001 company recorded asset impairment 1575 relating excess equipment primarily relating consolidation rauch manufacturing operations end fourth quarter 2001 rauch began dismantling manufacturing equipment chester sc facility began moving primary manufacturing location gastonia nc displace certain older equipment longer used relocation equipment complete scheduled fully operational may 2002 november 1999 company sold primary east coast distribution facility 29500 sale facility resulted net gain approximately 17140 company simultaneously entered shortterm leaseback approximately 40 distribution facility ended january 31 2001 also 1999 company sold undeveloped land adjacent facility gain approximately 756 connection disposition facility company recorded separation benefits approximately 532 42 hourly employees three salaried employees accrued december 31 1999 2000 separation benefits required 532 accrual reversed fourth quarter corresponding benefit recorded statement operations fourth quarter 1999 company wrote value certain assets approximately 1157 writedowns relate abandonment certain manufacturing equipment gastonia nc facility book value approximately 1057 remaining asset writedowns relate finalization amounts relative shutdown el paso tx facility el paso facility sold december 1999 leased back june 30 2000 company relocated warehousing activities newly leased 85000 sq ft facility also el paso less significant asset writedowns adjustments aggregated net charge 611 amounts provided 1999 fully utilized 2000 3 inventories major classification follows 4 property plant equipment property plant equipment comprised following capitalized interest material company’s consolidated financial statements year presented unrecorded commitments property plant equipment material company’s consolidated financial statements december 31 2001 5 revolving loan facilities notes payable revolving loan facilities company senior revolving credit facility “revolving credit facility” dated april 16 1997 amended effective july 31 1997 december 31 1997 march 30 1998 december 31 1998 march 26 2001 august 13 2001 march 22 2002 december 31 2001 provided 123000 borrowings including 30000 sublimit issuance standby commercial letters credit amendment dated march 22 2002 reduced revolving credit facility 110000 extended expiration one year april 15 2003 borrowings made revolving credit facility bear interest rate equal company’s option eurodollar rate plus 375 basis points 562 using 30day eurodollar rate december 31 2001 prime rate plus 100 basis points 575 december 31 2001 weightedaverage interest rate borrowings outstanding facility year ended december 31 2001 829 obligations company revolving credit facility secured inventory accounts receivable company “issuerguarantor parent” domestic subsidiaries pledge 100 domestic subsidiaries’ “guarantor subsidiaries” least 65 foreign subsidiaries’ “nonguarantor subsidiaries” outstanding capital stock note 14 revolving credit facility amended contains customary covenants company subsidiary borrowers including limited requiring minimum earnings income taxes depreciation amortization certain adjustments “ebitda” defined limits capital spending company must maintain minimum availability requirements 25000 february march year minimum availability varying 13300 10000 months april january december 31 2001 16000 outstanding facility borrowings 16000 eurodollar rate company compliance covenants amended december 31 2001 availability revolving credit facility net outstanding letters credit minimum availability requirements 41167 december 31 2001 notes payable december 31 2001 company also debt financing 147846 11 senior notes due april 15 2007 require interest payments made semiannually april 15 october 15 notes general unsecured obligations company rank pari passu right payment current future unsubordinated indebtedness company including borrowings revolving credit facility however borrowings revolving credit facility secured first priority lien accounts receivable inventory company domestic subsidiaries “guarantor subsidiaries” foreign subsidiaries see note 14 consequently obligations company notes effectively subordinated obligations revolving credit facility extent assets notes redeemable whole part company’s option april 15 2002 fourth quarter 2001 2000 company purchased aggregate 704 16450 respectively notes open market resulting extraordinary gain 271 3636 net 188 2527 respectively income taxes subsequently january 2002 company purchased additional 2500 outstanding notes open market resulting extraordinary gain approximately 729 net 507 income taxes recorded first quarter 2002 company’s ability pay dividends restricted terms revolving credit facility notes also include financial covenants less restrictive covenants contained revolving credit facility cross default provisions exist notes revolving credit facility debt facilities company outstanding borrowings 856 one wallace’s puerto rican subsidiaries’ 1000 debt facility “facility” expiring april 30 2002 facility bears interest rate equal bank’s prime rate plus 100 basis points 575 december 31 2001 company paid facility zero consecutive 15 day period required terms availability facility 144 december 31 2001 weightedaverage interest rate borrowings outstanding facility year ended december 31 2001 70 borrowings facility uncollateralized however pledge assets owned one subsidiaries collateral loans prohibited borrowings facility guaranteed company crossguaranteed certain subsidiaries company’s cj vander ltd subsidiary overdraft facility entered march 16 1998 “overdraft facility” provides borrowings £250 borrowings made overdraft facility bear interest bank’s base rate plus 1 5 december 31 2001 overdraft facility contains customary covenants borrowings secured substantially assets cjvander ltd overdraft facility renewed september 28 2001 due demand expires april 30 2002 availability overdraft facility £250 december 31 2001 borrowings facility year ended december 31 2001 april 2 2001 company executed 10000 promissory note secured certain real property building improvements located mira loma california note bears interest rate 742 repaid monthly installments may 2011 final payment 81 million due december 31 2001 balance outstanding note 9927 6 income taxes provisions benefit income taxes continuing operations extraordinary gain excluding 188 2527 deferred tax expense reported reduction extraordinary item reported fiscal 2001 2000 respectively follows reconciliations company’s effective income tax rate us federal statutory rate continuing operations extraordinary gain follows components income provision benefit income taxes continuing operations extraordinary gain comprised following provisions made taxes majority undistributed earnings syratech hk wallace’s puerto rican subsidiaries ultimately expected remitted parent company addition company permanently invested portion undistributed earnings subsidiaries practical estimate amount unrecognized deferred tax liabilities attributable undistributed foreign earnings wallace’s puerto rican subsidiaries operate grants commonwealth puerto rico exempting 90 income taxation december 2003 company eligible tax exemption net loss 2001 would increased 727 net loss 2000 would increased 1217 net income 1999 would decreased 985 earnings per share would decreased approximately 19 32 26 respectively tax effects significant items comprising company’s net deferred tax asset liability follows valuation allowance relates primarily potential unusable portion foreign tax loss carryforwards increased primarily result fiscal 2001 losses foreign subsidiary december 31 2001 company available net operating tax loss carryforward united states approximately 21338 expire years 2012 2021 7 commitments contingencies company subsidiaries various operating lease commitments buildings equipment lease agreements generally require company pay insurance real estate taxes maintenance contain various renewal options future minimum rental payments noncancellable operating leases next five years thereafter follows rent expense operating leases approximately 5054 5636 3951 2001 2000 1999 respectively rauch entered long term purchase commitments supply agreements two vendors located kentucky pennsylvania glass components used manufacture christmas ornaments supply agreements provide vendors supply rauch purchase certain minimum quantities end december 31 2001 company committed supply agreements purchases year ending december 31 2002 approximately 3950 commitment made future purchases beyond date certain subsidiaries contingently obligated outstanding letters credit trade acceptances similar instruments aggregating 4764 december 31 2001 note 5 assets syratech hk pledged collateral certain contingent obligations 8 employee benefit plans following information provided accordance provisions sfas 132 “ employers’ disclosures pensions postretirement benefits” 401k savings plans company two 401k savings plans “plans” plans cover substantially employees domestic puerto rican subsidiaries subject certain minimum age length employment requirements plans company matches 50 first five hundred twenty dollars contributed 30 thereafter participants’ contributions 6 compensation company also savings plan established 1991 covering substantially employees company’s hong kong subsidiary hong kong plan company contributes 10 participants’ compensation company contributed aggregate 744 581 510 plans 2001 2000 1999 officers retirement plan company employment agreements certain officers terms ranging three five years agreements five company’s officers provide retirement benefit payments two agreements provide benefit payments based upon two percent average total annual compensation salary bonus threeyear period preceding executives’ retirement dates multiplied number years service addition one agreements provides 100 survivor benefit executive’s spouse two agreements provide benefit payments based upon greater 75 ii onehalf one percent average total annual compensation salary bonus threeyear period preceding executives’ retirement dates multiplied number years service one agreement officer provides benefit payments based upon greater 75 ii one percent average total annual compensation salary bonus threeyear period preceding executives’ retirement dates multiplied number years service july 29 1998 company entered amendment 1 mr florence’s amended restated employment agreement provided among things modification computation timing payments respect retirement benefit terms amendment provide acceleration payments first made upon execution amendment related retirement benefit provided payments allowed terms company’s credit agreements amended january 2002 final payment satisfying company’s retirement obligation mr florence made agreements provide minimum annual salaries aggregating 2580 certain benefits pension expense determined using assumptions beginning year assumptions used determining actuarial present value projected benefit obligation include discount rate 675 2001 2000 1999 rate future increases benefit compensation 3 additional minimum liability 718 fiscal year 2001 recorded within comprehensive income change projected benefit obligation components net periodic benefit costs funded status december 31 2001 2000 company’s c j vander subsidiary also employee benefit plan company’s obligation plan material company’s consolidated financial position results operations 9 stockholders’ equity preferred stock liquidation preference cumulative redeemable preferred stock 1000 per share plus accrued unpaid dividends holders cumulative redeemable preferred stock entitled subject rights creditors event voluntary involuntary liquidation company amount cash equal 1000 share outstanding plus accrued unpaid dividends rights holders cumulative redeemable preferred stock upon liquidation company rank prior holders common stock dividends shares cumulative redeemable preferred stock cumulative date issue payable declared time board directors company dividends accrue daily basis whether declared original date issue annual rate per share equal 12 original purchase price per share amount compounded annually december 31 dividend paid year unpaid amount added original purchase price cumulative redeemable preferred stock purpose calculating succeeding years’ dividends december 31 2001 12731 accrued cumulative redeemable preferred stock redeemable time option company whole part 1000 per share plus accumulated unpaid dividends date redemption subject company’s existing debt agreements company must redeem outstanding cumulative redeemable preferred stock event public offering equity change control certain sales assets 10 relatedparty transactions connection 1997 merger company thl transaction corp delaware corporation controlled affiliates thomas h lee partners lp “thl” company entered management agreement thl company paid expensed 450 2001 2000 1999 arrangement thl affiliates 599 outstanding common stock 100 preferred stock company 11 segment disclosures company identified one distinct reportable segment home entertainment decorative products segment generates revenue two types product offerings tabletop giftware seasonal company determined one reportable segment meeting criteria established sfas 131 “disclosures segments enterprise related information” company’s chief operating decision maker defined determined chief executive officer president board directors manage part company separately review evaluate company’s consolidated operating results company’s operations conducted primarily united states america us two locations representing individually 10 revenues income operations us hong kong company also conducts operations united kingdom uk countries however operations individually insignificant included “other foreign” following presents information accordance sfas 131 12 litigation company named defendant certain legal actions arising normal business activities company carries insurance liability certain types risks although amount liability could result litigation cannot predicted opinion management company’s potential liability known claims would material adverse effect consolidated financial position results operations company 13 quarterly results unaudited supplementary information quarterly results unaudited fourth quarter 2001 company provided approximately 1248 related termination benefits contractual obligations certain executives recorded asset impairment 1575 excess equipment primarily relating consolidation rauch manufacturing operations note 2 company also recorded additional provisions obsolete excess slow moving inventory 5829 related certain discontinued products rauch decision cease manufacturing certain cutlery products favor sourcing well additional provisions related tabletop giftware products also fourth quarter 2001 onetime pretax gain 7240 related sale company’s interest farberware intellectual property recognized fourth quarter 2000 separation benefits recorded 1999 result sale company’s primary east coast warehouse required 532 accrual reversed corresponding benefit statement operations see note 2 subsidiary company recorded 1425 additional provisions excess slow moving inventory also fourth quarter 14 supplemental consolidating financial statements following supplemental consolidating financial statements december 31 2001 2000 three years period ended december 31 2001 present separate financial information issuerguarantor parent guarantor subsidiaries nonguarantor subsidiaries note 5 separate financial statements guarantor presented management believes statements would materially different information presented herein supplemental consolidating balance sheets december 31 2001 supplemental consolidating balance sheets december 31 2000 supplemental consolidating statements operations year ended december 31 2001 supplemental consolidating statements operations year ended december 31 2000 supplemental consolidating statements operations year ended december 31 1999 supplemental consolidating statements cash flows year ended december 31 2001 supplemental consolidating statements cash flows year ended december 31 2000 supplemental consolidating statements cash flows year ended december 31 1999 item 9 item 8 financial statements supplementary data index consolidated financial statements report independent auditors consolidated financial statements consolidated balance sheets december 31 2002 2001 consolidated statements operations years ended december 31 2002 2001 2000 consolidated statements stockholders’ equity years ended december 31 2002 2001 2000 consolidated statements cash flows years ended december 31 2002 2001 2000 notes consolidated financial statements independent auditors’ report board directors stockholders syratech corporation audited accompanying consolidated balance sheets syratech corporation subsidiaries “company” december 31 2002 2001 related consolidated statements operations stockholders’ equity cash flows three years period ended december 31 2002 audits also included consolidated financial statement schedule listed index item 15 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position syratech corporation subsidiaries december 31 2002 2001 results operations cash flows three years period ended december 31 2002 conformity accounting principles generally accepted united states america also opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 6 consolidated financial statements company changed method accounting goodwill intangible assets conform provisions sfas 142 also discussed note 2 2001 2000 consolidated financial statements restated due adoption sfas 145 syratech corporation subsidiaries consolidated balance sheets thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements operations thousands except per share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements stockholders’ equity years ended december 31 2002 2001 2000 thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements cash flows thousands see notes consolidated financial statements syratech corporation subsidiaries notes consolidated financial statements thousands dollars except share per share data 1 business summary significant accounting policies business syratech corporation designs manufactures imports markets diverse portfolio tabletop giftware seasonal products including sterling silver silverplated stainless steel flatware sterling silver silverplated brass hollowware picture frames photo albums glassware woodenware ceramics fine porcelain boxes figurines waterglobes christmas ornaments trim lighting tree skirts summary significant accounting policies basis consolidation consolidated financial statements include accounts syratech corporation subsidiaries “company” wallace international silversmiths inc subsidiaries “wallace” leonard florence associates inc “lfa” towle manufacturing company subsidiaries “towle” rochard inc “rochard” rauch industries inc subsidiaries “rauch” silvestri inc “silvestri” syratech hk ltd subsidiaries “syratech hk” significant intercompany balances transactions eliminated use estimates preparing financial statements conformity accounting principles generally accepted united states america management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date consolidated financial statements revenues expenses reporting period actual results could differ estimates significant estimates include income taxes long lived asset impairment reserves potentially obsolete slow moving inventory reserves potential bad debts sales returns revenue recognition revenue recognized significant risks rewards ownership transferred buyer costs measured reliably receipt future economic benefits probable typically goods shipped customers additionally company records allowance estimated returns compliance sfas 48 “revenue recognition right return exists” company provides allowances estimated doubtful accounts sales returns based historical experience evaluation specific accounts allowances comprised following concentrations credit risk financial instruments potentially subject company credit risk consist primarily cash equivalents accounts receivable company manages cash credit risk maintaining cash equivalents financial institutions believes financially sound regards accounts receivable company performs going credit evaluations customers company sells products multitude customers numerous geographical locations customers substantially customers retailers customers one geographic area constitute significant portion sales one customer represented 115 120 122 2002 2001 2000 consolidated net sales respectively december 31 2002 one customer represented 183 net accounts receivable another customer represented 138 net accounts receivable december 31 2001 one customer represented 169 net accounts receivable another customer represented 111 net accounts receivable cash equivalents cash equivalents consist highly liquid investments purchased remaining maturity three months less inventories stated lower cost market cost determined firstin firstout “fifo” method see note 5 property plant equipment purchased property plant equipment recorded cost leased equipment recorded present value minimum lease payments required lease term depreciation provided using straightline method estimated useful lives related assets terms shorter related leases follows impairment longlived assets company evaluates potential impairment longlived assets longlived assets disposed accordance statements financial accounting standards sfas 144 “accounting impairment disposal longlived assets” adopted january 1 2002 sfas 144 requires longlived assets measured lower carrying amount fair value less cost sell whether reported continuing operations discontinued operations sfas 144 also redefined qualifying discontinued operations adoption sfas 144 impact previously recorded amounts december 31 2002 management believes significant impairment company’s longlived assets include deferred financing costs intangible asset related pension plan deposits deferred financing costs amortized using interest method terms related debt following table presents balances deferred financing costs december 31 2002 2001 advertising costs advertising costs charged operations incurred costs recorded selling general administrative expenses totaled 3855 3684 4440 years ended december 31 2002 2001 2000 respectively financial instruments carrying values cash equivalents accounts receivable accounts payable borrowings revolving credit facilities approximate fair value due shortterm nature instruments december 31 2002 company debt financing 143946 11 senior notes “senior notes” fair value senior notes note 8 estimated 83489 december 31 2002 based upon recent private market trades income taxes company domestic subsidiaries except wallace’s puerto rican subsidiaries file consolidated federal income tax return puerto rican subsidiaries file separate returns accordance section 936 internal revenue code company uses liability method accounting income taxes deferred taxes determined based estimated future tax effects differences financial statement tax bases assets liabilities given provisions enacted tax laws company provides taxes substantially undistributed earnings foreign subsidiaries company records valuation allowances net deferred tax assets based upon available evidence likely deferred tax assets realized ultimate realization deferred tax assets dependent upon generation future taxable income temporary differences become deductible company considers among available information uncertainties surrounding recoverability deferred tax assets scheduled reversals deferred tax liabilities projected future taxable income matters making assessment foreign currency translation assets liabilities denominated foreign currencies translated us dollars yearend exchange rates income expense items translated average rates exchange prevailing year effects foreign currency fluctuations foreign subsidiaries’ assets liabilities recorded directly comprehensive income included component stockholders’ equity gains losses foreign currency transactions included consolidated statement operations comprehensive income earnings loss per share basic earnings loss per share reflect weightedaverage number common shares outstanding period diluted earnings loss per share reflect impact potential common shares options warrants using treasury stock method potential common shares 2002 2001 2000 comprehensive income loss comprehensive income loss comprised net income foreign currency translation adjustments pension adjustments related recording minimum pension liability maximum intangible asset accumulated comprehensive income component follows recent accounting pronouncements june 2001 fasb issued sfas 143 “accounting asset retirement obligations” fiscal years starting june 15 2002 statement addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs company believe adoption sfas 143 significant impact financial statements june 2002 fasb issued sfas 146 “accounting cost associated exit disposal activities” sfas 146 addresses financial accounting reporting costs associated exit disposal activities nullifies emerging issues task force “eitf” issue 943 “liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring” sfas 146 requires liability cost associated exit disposal activity recognized liability incurred provisions sfas 146 effective exit disposal activities initiated december 31 2002 reclassification certain prior year amounts reclassified conform 2002 presentation cash flow information supplemental cash flow information follows cash paid year 2 new accounting pronouncements company adopted sfas 142 “goodwill intangible assets” described note 6 sfas 144 “accounting impairment disposal longlived assets” described note 1 sfas 145 “recession fasb statements 4 44 64 amendment fasb statement 13 technical corrections” discussed sfas 145 generally requires gains losses extinguishment debt recorded part operating activities prior adoption sfas 145 gains losses extinguishment debt reported extraordinary item net tax sfas 145 adopted 2002 resulted restatement certain amounts reported extraordinary item net taxes 2001 2000 following sets forth changes previously presented amounts 3 asset dispositions impairment longlived assets restructuring costs 2002 company initiated restructuring programs focused reducing overall cost structure eliminating excess capacity distribution manufacturing showroom sourcing facilities well reductions headcount expense commitments restructuring charges 2002 comprised facility exit costs employee separation payments elimination certain equipment lease commitments fourth quarter 2002 due excess capacity company began executing plan remove service portions leased space north dighton manufacturing distribution facility distribution operations relocated company’s mira loma ca warehouse first quarter 2003 reduction distribution manufacturing space north dighton planned completed may 30 2003 charge 2054 recorded recognize future costs associated unused space related asset impairments addition company initiated plan reduce mira loma ca warehouse space approximately 886000 square feet approximately 644000 square feet established aggressive program inventory reduction accomplish space reduction result company recorded charge 7447 fourth quarter 2002 reduce inventory carrying values anticipated losses resulting planned inventory reductions see note 17 previously company sold goods normal programs channels charge included cost sales company also recorded charge 1010 related early termination certain equipment leases exit two showrooms contract cancellation costs connection restructuring company recorded employee separation payments 1418 1128 unpaid december 31 2002 fourth quarter 2001 company recorded asset impairment 1575 relating excess equipment primarily relating consolidation rauch manufacturing operations end fourth quarter 2001 rauch began dismantling manufacturing equipment chester sc facility moved primary manufacturing location gastonia nc displaced certain older equipment longer used relocation equipment completed june 2002 november 1999 company sold primary east coast distribution facility connection disposition facility company recorded separation benefits approximately 532 42 hourly employees three salaried employees accrued december 31 1999 2000 separation benefits required 532 accrual reversed fourth quarter corresponding benefit recorded statement operations 4 discontinued operations december 2002 company formalized decision offer sale indirect wholly owned subsidiary cj vander ltd subsidiaries company adopted sfas 144 “accounting impairment disposal longlived assets “sfas 144”” january 1 2002 accordingly results operation classified discontinued prior periods restated connection sale consummated march 21 2003 see note 17 company incurred onetime charge 5305 reduce business fair value less costs sell december 2002 company also recognized pretax loss 821 discontinued operations 533 net 288 tax benefit related worker’s compensation expense former subsidiary syroco inc sold 1995 company expect material losses future related syroco inc net sales net loss discontinued operations follows assets liabilities discontinued operation follows 5 inventories major classification follows 6 goodwill company adopted sfas 142 “goodwill intangible assets” required fiscal 2002 implementation sfas 142 resulted company recording onetime noncash goodwill impairment charge 6225 january 1 2002 impairment results change criteria measurement impairments undiscounted discounted cash flow method charge reflects cumulative effect adopting accounting change statement operations impact cash flows impaired goodwill deductible taxes result tax benefit recorded relation charge company recorded approximately 341 goodwill amortization 2001 242 2000 sfas 142 goodwill amortization recorded 2002 company recorded specifically identified intangible assets intellectual property includes copyrights trademarks 7 property plant equipment property plant equipment comprised following capitalized interest material company’s consolidated financial statements year presented commitments purchase property plant equipment material company’s consolidated financial statements december 31 2002 8 revolving loan facilities notes payable revolving loan facilities company senior revolving credit facility “revolving credit facility” dated april 16 1997 amended effective july 31 1997 december 31 1997 march 30 1998 december 31 1998 march 26 2001 august 13 2001 march 22 2002 november 12 2002 december 18 2002 march 20 2003 obligations company revolving credit facility secured inventory accounts receivable company domestic subsidiaries pledge 100 domestic subsidiaries’ least 65 foreign subsidiaries’ outstanding capital stock revolving credit facility amended provides borrowings 86400 borrowing capacity related inventory limited maximum 55000 revolving credit facility expires april 15 2004 december 18 2002 amendment provides repurchases company’s 11 senior notes due 2007 “senior notes” subject approval transaction administrative agent lenders company covenants compliance minimum levels earnings income taxes depreciation amortization certain adjustments “ebitda” defined december 31 2002 result waiver obtained conjunction november 12 2002 amendment company must maintain minimum ebitda period one fiscal quarter ending march 31 2003 negative 5565 ii period two consecutive fiscal quarters ending june 30 2003 negative 9938 iii period three consecutive fiscal quarters ending september 30 2003 5000 iv period four consecutive fiscal quarters ending december 31 2003 last day fiscal quarter thereafter 15000 borrowings made revolving credit facility repurchases senior notes bear interest rate equal company’s option eurodollar rate plus 375 basis points prime rate plus 100 basis points weightedaverage interest rate borrowings outstanding revolving credit facility year ended december 31 2002 70 borrowings made revolving credit facility repurchase senior notes bear interest rate equal company’s option eurodollar rate plus 500 basis points prime rate plus 225 basis points amended company must maintain minimum borrowing availability 10000 october 15 2003 11250 million october 16 2003 increasing gradually 20000 period december 3 2003 january 2004 25000 february march 2004 10000 thereafter march 20 2003 revolving credit facility amended consent sale c j vander ltd subsidiaries notes 4 17 december 31 2002 23234 outstanding revolving credit facility borrowings 23234 prime rate plus 100 basis points company compliance covenants amended december 31 2002 availability revolving credit facility net outstanding letters credit minimum availability requirements 35136 december 31 2002 notes payable december 31 2002 company also debt financing third parties 143946 11 senior notes due april 15 2007 require interest payments made semiannually april 15 october 15 senior notes general unsecured obligations company rank pari passu right payment current future unsubordinated indebtedness company including borrowings revolving credit facility however borrowings revolving credit facility secured first priority lien accounts receivable inventory company domestic subsidiaries “guarantor subsidiaries” foreign subsidiaries see note 18 consequently obligations company senior notes effectively subordinated obligations revolving credit facility extent assets senior notes became redeemable whole part company’s option april 15 2002 company purchased aggregate 3900 senior notes open market resulting pretax gain 1852 subsequent year end march 31 2003 company purchased additional 24446 outstanding senior notes open market resulting pretax gain approximately 9040 recorded first quarter 2003 company’s ability pay dividends restricted terms revolving credit facility senior notes senior notes also include financial covenants less restrictive covenants contained revolving credit facility cross default provisions exist senior notes revolving credit facility debt facilities company borrowings outstanding one wallace’s puerto rican subsidiaries’ 1000 debt facility “facility” expiring april 30 2003 facility bears interest rate equal bank’s prime rate plus 100 basis points 525 december 31 2002 company paid facility zero consecutive 15 day period required terms availability facility 1000 december 31 2002 weightedaverage interest rate borrowings outstanding facility year ended december 31 2002 62 borrowings facility uncollateralized however pledge assets owned one subsidiaries collateral loans prohibited borrowings facility guaranteed company crossguaranteed certain subsidiaries april 2 2001 company executed 10000 promissory note secured certain real property building improvements located mira loma california note bears interest rate 742 repaid monthly installments may 2011 final payment 81 million due december 31 2002 balance outstanding note 9787 january 15 2003 company relieved obligations note upon sale mira loma ca warehouse distribution facility note 17 9 income taxes provisions benefit income taxes continuing operations comprised following reconciliations company’s effective income tax rate us federal statutory rate continuing operations follows components income provision benefit income taxes continuing operations comprised following provisions made taxes majority undistributed earnings syratech hk wallace’s puerto rican subsidiaries ultimately expected remitted parent company addition company permanently invested portion undistributed earnings subsidiaries practical estimate amount unrecognized deferred tax liabilities attributable undistributed foreign earnings wallace’s puerto rican subsidiaries operate grants commonwealth puerto rico exempting 90 income taxation december 2003 company eligible tax exemption net loss 2002 would increased 762 net loss 2001 would increased 720 net income 2000 would decreased 1217 basic diluted earnings per share would decreased approximately 20 19 32 respectively tax effects significant items comprising company’s net deferred tax asset liability follows valuation allowance relates primarily potential unusable portion foreign tax loss carryforwards decreased primarily result reclassification discontinued operations valuation loss allowance related discontinued subsidiary december 31 2002 company available net operating tax loss carryforward united states approximately 23848 expire years 2018 2022 company anticipates generating sufficient taxable income future periods realize net operating losses 10 commitments contingencies company subsidiaries various operating lease commitments buildings equipment lease agreements generally require company pay insurance real estate taxes maintenance contain various renewal options future minimum rental payments noncancellable operating leases next five years thereafter follows rent expense operating leases approximately 5580 4989 5568 2002 2001 2000 respectively rauch entered long term purchase commitments “supply agreements” two vendors located kentucky north carolina supply agreements provide vendors supply rauch purchase certain minimum quantities silver solution glass components used manufacture christmas ornaments december 31 2002 approximate future purchase commitments supply agreements follows certain subsidiaries contingently obligated outstanding letters credit trade acceptances similar instruments aggregating 4480 december 31 2002 note 8 assets syratech hk pledged collateral certain contingent obligations 11 employee benefit plans following information provided accordance provisions sfas 132 “ employers’ disclosures pensions postretirement benefits” 401k savings plans company two 401k savings plans “plans” plans cover substantially employees domestic puerto rican subsidiaries subject certain minimum age length employment requirements plans company matched 50 first five hundred twenty dollars contributed participants’ plan 30 remaining contributions made participants’ plan maximum 6 compensation company also savings plan established 1991 covering substantially employees company’s hong kong subsidiary hong kong plan company contributed 10 participants’ compensation company contributed aggregate 485 716 562 plans 2002 2001 2000 officers retirement plan company employment agreements certain officers terms ranging three five years agreements three company’s officers provide retirement benefit payments two agreements provide benefit payments based upon two percent average total annual compensation salary bonus threeyear period preceding executives’ retirement dates multiplied number years service addition one agreements provides 100 survivor benefit executive’s spouse one agreement provides benefit payments based upon greater 75 ii onehalf one percent average total annual compensation salary bonus threeyear period preceding executives’ retirement dates multiplied number years service july 29 1998 company entered amendment 1 mr florence’s amended restated employment agreement provided among things modification computation timing payments respect retirement benefit terms amendment provide acceleration payments first made upon execution amendment related retirement benefit provided payments allowed terms company’s credit agreements amended january 2002 final payment satisfying company’s retirement obligation mr florence made agreements provide minimum annual salaries aggregating 2590 certain benefits pension expense determined using assumptions beginning year assumptions used determining actuarial present value projected benefit obligation include discount rate 675 2002 2001 2000 rate future increases benefit compensation 3 components net periodic benefit costs change projected benefit obligation funded status december 31 2002 2001 amounts recognized consolidated balance sheets consist company’s c j vander subsidiary also employee benefit plan company’s obligation plan material company’s consolidated financial position results operations march 21 2003 c j vander ltd subsidiaries sold company longer obligated plan see notes 4 17 12 stockholders’ equity preferred stock liquidation preference cumulative redeemable preferred stock 1000 per share plus accrued unpaid dividends holders cumulative redeemable preferred stock entitled subject rights creditors event voluntary involuntary liquidation company amount cash equal 1000 share outstanding plus accrued unpaid dividends rights holders cumulative redeemable preferred stock upon liquidation company rank prior holders common stock dividends shares cumulative redeemable preferred stock cumulative date issue payable declared time board directors company dividends accrue daily basis whether declared original date issue annual rate per share equal 12 original purchase price per share amount compounded annually december 31 dividend paid year unpaid amount added original purchase price cumulative redeemable preferred stock purpose calculating succeeding years’ dividends december 31 2002 16419 accrued cumulative redeemable preferred stock redeemable time option company whole part 1000 per share plus accumulated unpaid dividends date redemption subject company’s existing debt agreements company must redeem outstanding cumulative redeemable preferred stock event public offering equity change control certain sales assets 13 relatedparty transactions connection 1997 merger company thl transaction corp delaware corporation controlled affiliates thomas h lee partners lp “thl” company entered management agreement thl company paid expensed 450 2002 2001 2000 arrangement thl affiliates 599 outstanding common stock 899 preferred stock company 14 segment disclosures company identified one distinct reportable segment home entertainment decorative products segment generates revenue two types product offerings tabletop giftware seasonal company determined one reportable segment meeting criteria established sfas 131 “disclosures segments enterprise related information” company’s chief operating decision maker defined determined chief executive officer president board directors manage part company separately review evaluate company’s consolidated operating results company’s operations conducted primarily united states america us two locations representing individually 10 revenues income operations us hong kong company classified cj vander ltd subsidiary discontinued operation conducts operations united kingdom uk see note 17 accordingly revenues income operations excluded following information following presents information accordance sfas 131 15 litigation company named defendant certain legal actions arising normal business activities company carries insurance liability certain types risks although amount liability could result litigation cannot predicted opinion management company’s potential liability known claims would material adverse effect consolidated financial position results operations company 16 quarterly results unaudited supplementary information quarterly results unaudited certain adjustments described note 3 recorded fourth quarter 2002 fourth quarter 2001 company provided approximately 1248 related termination benefits contractual obligations certain executives recorded asset impairment 1575 excess equipment primarily relating consolidation rauch manufacturing operations note 3 company also recorded additional provisions obsolete excess slow moving inventory 5879 related certain discontinued products rauch decision cease manufacturing certain cutlery products favor sourcing well additional provisions related tabletop giftware products also fourth quarter 2001 onetime pretax gain 7240 related sale company’s interest farberware intellectual property recognized 17 subsequent events january 15 2003 company indirect whollyowned subsidiary “seller” sold warehouse property located 11640 harrel street mira loma ca “the property” industrial developments international inc “buyer” purchase price 26750 partially paid buyer’s assumption 9787 seller’s indebtedness related property remainder paid cash simultaneously sale property buyer leased property back affiliate seller lease agreement provides gradual reductions square footage leased buyer 66 month term march 21 2003 company indirect whollyowned subsidiary sold c j vander ltd subsidiaries hlw 179 limited company led existing management c j vander ltd proceeds sale net expected selling costs approximately 2750 connection sale two subsidiaries company entered agreements supply certain products new company one subsidiaries 18 supplemental consolidating financial statements following supplemental consolidating financial statements december 31 2002 2001 three years period ended december 31 2002 present separate financial information issuerguarantor parent guarantor subsidiaries nonguarantor subsidiaries note 8 separate financial statements guarantor presented management believes statements would materially different information presented herein supplemental consolidating balance sheets december 31 2002 supplemental consolidating balance sheets december 31 2001 supplemental consolidating statements operations year ended december 31 2002 supplemental consolidating statements operations year ended december 31 2001 supplemental consolidating statements operations year ended december 31 2000 supplemental consolidating statements cash flows year ended december 31 2002 supplemental consolidating statements cash flows year ended december 31 2001 supplemental consolidating statements cash flows year ended december 31 2000 item 9 item 8 financial statements supplementary data index consolidated financial statements report independent auditors consolidated financial statements consolidated balance sheets december 31 2003 2002 consolidated statements operations years ended december 31 2003 2002 2001 consolidated statements stockholders’ equity years ended december 31 2003 2002 2001 consolidated statements cash flows years ended december 31 2003 2002 2001 notes consolidated financial statements independent auditors’ report board directors stockholders syratech corporation audited accompanying consolidated balance sheets syratech corporation subsidiaries “company” december 31 2003 2002 related consolidated statements operations stockholders’ equity cash flows three years period ended december 31 2003 audits also included consolidated financial statement schedule listed index item 15 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position syratech corporation subsidiaries december 31 2003 2002 results operations cash flows three years period ended december 31 2003 conformity accounting principles generally accepted united states america also opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 6 consolidated financial statements company changed method accounting goodwill intangible assets conform provisions sfas 142 2002 syratech corporation subsidiaries consolidated balance sheets thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements operations thousands except per share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements stockholders’ equity years ended december 31 2003 2002 2001 thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements cash flows thousands see notes consolidated financial statements syratech corporation subsidiaries notes consolidated financial statements thousands dollars except share per share data 1 business summary significant accounting policies business syratech corporation designs manufactures imports markets diverse portfolio tabletop giftware seasonal products including sterling silver silverplated stainless steel flatware sterling silver silverplated brass hollowware picture frames photo albums glassware woodenware ceramics fine porcelain boxes figurines waterglobes christmas ornaments trim lighting tree skirts connection anticipated disposition it’s rauch operations discussed note 3 company exiting majority christmas ball ornaments trim tree skirt product offerings summary significant accounting policies basis consolidation consolidated financial statements include accounts syratech corporation domestic subsidiaries “company” subsidiaries include wallace international silversmiths inc subsidiaries “wallace” leonard florence associates inc “lfa” towle manufacturing company subsidiaries “towle” rochard inc “rochard” rauch industries inc subsidiaries “rauch” silvestri inc “silvestri” foreign subsidiary syratech hk ltd “syratech hk” significant intercompany balances transactions eliminated subsequent yearend company merged domestic subsidiaries except rauch syratech corporation use estimates preparing financial statements conformity accounting principles generally accepted united states america management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date consolidated financial statements revenues expenses reporting period actual results could differ estimates significant estimates include income taxes long lived asset impairment reserves potentially obsolete slow moving inventory reserves potential bad debts sales returns revenue recognition revenue recognized significant risks rewards ownership transferred buyer costs measured reliably receipt future economic benefits probable typically goods shipped customers additionally company records allowance estimated returns compliance sfas 48 “revenue recognition right return exists” company provides allowances estimated doubtful accounts sales returns based historical experience evaluation specific accounts allowances related continuing operations comprised following concentrations credit risk financial instruments potentially subject company credit risk consist primarily cash equivalents accounts receivable company manages cash credit risk maintaining cash equivalents financial institutions believes financially sound regards accounts receivable company performs going credit evaluations customers company sells products multitude customers numerous geographical locations customers substantially customers retailers company provide customers significant promotional allowances cooperative advertising program customers one geographic area constitute significant portion sales one customer represent 10 2003 2002 2001 consolidated net sales continuing operations respectively december 31 2003 one customer represented 10 net accounts receivable continuing operations including net accounts receivable discontinuing operations 2003 one customer represented 252 net accounts receivable another customer represented 163 net accounts receivable december 31 2002 one customer represented ­­ 183 net accounts receivable another customer represented 138 net accounts receivable cash equivalents cash equivalents consist highly liquid investments purchased remaining maturity three months less inventories stated lower cost market cost determined firstin firstout “fifo” method property plant equipment purchased property plant equipment recorded cost depreciation provided using straightline method estimated useful lives related assets terms shorter related leases follows impairment longlived assets company evaluates potential impairment longlived assets longlived assets disposed accordance statements financial accounting standards sfas 144 “accounting impairment disposal longlived assets” adopted january 1 2002 sfas 144 requires longlived assets measured lower carrying amount fair value less cost sell whether reported continuing operations discontinued operations sfas 144 also redefined qualifying discontinued operations prior january 1 2002 company followed provisions sfas 121 requiring longlived assets certain identifiable intangibles held used entity reviewed impairment whenever events changes circumstances indicate carrying amount asset may recoverable accordingly adoption sfas 144 impact recorded amount longlived assets include deferred financing costs intangible asset related officers retirement plan deposits deferred financing costs amortized using interest method terms related debt following table presents balances deferred financing costs december 31 2003 2002 advertising costs advertising costs charged operations incurred costs recorded selling general administrative expenses continuing operations totaled 3718 3847 3576 years ended december 31 2003 2002 2001 respectively financial instruments carrying values cash equivalents accounts receivable accounts payable borrowings revolving credit facilities approximate fair value due shortterm nature instruments december 31 2003 company debt financing 118271 11 senior notes “senior notes” fair value senior notes note 7 estimated 92251 december 31 2003 83489 december 31 2002 based upon private market trades income taxes company domestic subsidiaries except wallace’s puerto rican subsidiaries file consolidated federal income tax return puerto rican subsidiaries file separate returns accordance section 936 internal revenue code company uses liability method accounting income taxes deferred taxes determined based estimated future tax effects differences financial statement tax bases assets liabilities given provisions enacted tax laws company provides taxes substantially undistributed earnings foreign subsidiaries company records valuation allowances net deferred tax assets based upon available evidence likely deferred tax assets realized ultimate realization deferred tax assets dependent upon generation future taxable income temporary differences become deductible company considers among available information uncertainties surrounding recoverability deferred tax assets scheduled reversals deferred tax liabilities projected future taxable income matters making assessment foreign currency translation assets liabilities denominated foreign currencies translated us dollars yearend exchange rates income expense items translated average rates exchange prevailing year effects foreign currency fluctuations foreign subsidiaries’ assets liabilities recorded directly comprehensive income included component stockholders’ equity gains losses foreign currency transactions included consolidated statement operations comprehensive income environmental costs company provides environmental remediation costs meet requirements set forth aicpa statement position 961 environmental remediation liabilities company accrued 05 million 2003 related continuing operations address environmental cleanup costs related decommissioning north dighton facility based upon currently available information company expect additional costs compliance cleanup material earnings loss per share basic earnings loss per share reflect weightedaverage number common shares outstanding period diluted earnings loss per share reflect impact potential common shares options warrants using treasury stock method potential common shares 2003 2002 2001 comprehensive income loss comprehensive income loss comprised net income foreign currency translation adjustments pension adjustments related recording minimum pension liability maximum intangible asset accumulated comprehensive income component follows recent accounting pronouncements april 2003 financial accounting standards board “fasb” issued statement financial accounting standards “sfas” 149 “amendment statement 133 derivative instruments hedging activities” sfas 149 amends clarifies financial accounting reporting hedging activities derivative instruments including certain derivative instruments embedded contracts sfas 149 effective contracts entered modified june 30 2003 adoption sfas 149 material impact company’s financial position results operations may 2003 fasb issued sfas 150 “accounting certain financial instruments characteristics liabilities equity” sfas 150 establishes standards classification measurement certain financial instruments characteristics liabilities equity provisions sfas 150 effective financial instruments entered modified may 31 2003 instruments exist beginning first interim financial reporting period beginning june 15 2003 adoption sfas 150 material impact results operations financial position december 2003 fasb revised sfas 132 “employers’ disclosures pensions postretirement benefits” sfas 132 requires additional disclosure assets obligations cash flows net periodic benefit cost defined benefit pension plans defined benefit postretirement plans statement also requires disclosure types plan assets investment strategy measurement dates plan obligations cash flows sfas 132 effective fiscal years ending december 15 2003 required disclosures presented herein reclassification certain prior year amounts reclassified conform 2003 presentation cash flow information supplemental cash flow information follows cash paid continuing operations year 2 asset dispositions impairment longlived assets restructuring costs asset dispositions december 18 2003 company sold corporate headquarters office distribution property east boston “the property” proceeds sale property 14110 company leased portion property back buyer gain 4319 related sale property recognized 60 month term lease 3498 classified long term deferred gain december 31 2003 entire gain deferred future periods january 15 2003 company indirect whollyowned subsidiary sold warehouse property mira loma ca “the mira loma property” net proceeds sale 25622 reduced buyer’s assumption 9787 company’s indebtedness related mira loma property buyer leased mira loma property back company lease agreement provides gradual reductions square footage leased company 66 month term gain 6085 related sale mira loma property recognized term lease year ended december 31 2003 1673 gain recognized 4412 deferred future periods 3244 classified long term deferred gain december 31 2003 impairment longlived assets restructuring costs 2002 company planned reduce mira loma ca warehouse space approximately 886000 square feet approximately 644000 square feet completed 2003 2004 company plans additional reduction mira loma ca warehouse space 424000 square feet 2002 company established aggressive program inventory reduction accomplish space reduction result company recorded charge 7447 2002 reduce inventory carrying values anticipated losses resulting planned inventory reductions 2003 company recorded additional inventory writedown 3172 fourth quarter 2003 result plan reduce inventories warehouse space decision close manufacturing facility north dighton previously company sold goods normal programs channels charges included cost sales company recorded charge 1010 2002 related early termination certain equipment leases exit two showrooms contract cancelation costs connection restructuring associated mira loma ca warehouse company recorded employee separation payments 1418 1128 unpaid december 31 2002 amounts remain unpaid december 31 2003 addition company initiated restructuring programs focused reducing overall cost structure eliminating excess capacity distribution manufacturing showroom sourcing facilities well reductions headcount expense commitments restructuring charges 2003 2002 comprised facility exit costs employee separation payments elimination certain equipment lease commitments fourth quarter 2002 due excess capacity company began executing plan remove service portions leased space north dighton manufacturing distribution facility distribution operations relocated company’s mira loma ca warehouse first quarter 2003 november 2003 company made decision completely close north dighton facility operations planned cease may 30 2004 charge 586 recorded 2003 reflect impairment assets north dighton manufacturing facility addition company anticipates incurring approximately 1533 additional charges related closure estimated charges relate operating leases estimated severance 2002 company recorded charge 2054 recognize future costs primarily operating associated unused space north dighton facility fourth quarter 2001 company recorded asset impairment 1575 relating excess equipment primarily relating consolidation rauch manufacturing operations charge included discontinued operations due decision offer rauch sale see note 3 discontinued operations december 2003 company formalized decision sell liquidate rauch company adopted sfas 144 “accounting impairment disposal longlived assets “sfas 144”” january 1 2002 accordingly results operation classified discontinued prior periods restated company incurred charges 18641 reduce longlived assets estimated fair value write 7530 reduce inventory estimated liquidation value company obtained letter intent prospective purchaser process negotiating terms proposed sale anticipated sale rauch occur second quarter 2004 company anticipates incurring losses operating activities rauch date disposal estimated loss disposition 3 million net sales net income loss discontinued operations sale rauch industries inc follows assets liabilities discontinued operation follows december 2002 company formalized decision offer sale indirect wholly owned subsidiary cj vander ltd subsidiaries accordingly results operation classified discontinued december 31 2002 connection proposed sale consummated march 21 2003 company incurred charges 5305 reduce business fair value less costs sell recorded 2002 proceeds sale net selling costs approximately 2750 connection sale two subsidiaries company entered agreements supply certain products new company one subsidiaries period five years december 2002 company also recognized pretax loss 821 discontinued operations 533 net 288 tax benefit related worker’s compensation expense former subsidiary syroco inc sold 1995 company expect material losses future related syroco inc net sales net loss discontinued operations sale cj vander ltd including syroco inc adjustment follows assets liabilities discontinued operation follows 4 inventories major classification follows 5 goodwill company adopted sfas 142 “goodwill intangible assets” required fiscal 2002 implementation sfas 142 resulted company recording noncash goodwill impairment charge 6225 january 1 2002 impairment results change criteria measurement impairments undiscounted discounted cash flow method charge reflects cumulative effect adopting accounting change statement operations impact cash flows impaired goodwill deductible taxes result tax benefit recorded relation charge company recorded approximately 341 goodwill amortization 2001 sfas 142 goodwill amortization recorded 2003 2002 company recorded specifically identified intangible assets intellectual property includes copyrights trademarks 6 property plant equipment property plant equipment comprised following capitalized interest material company’s consolidated financial statements year presented commitments purchase property plant equipment material company’s consolidated financial statements december 31 2003 7 revolving loan facilities notes payable revolving loan facilities company senior revolving credit facility “revolving credit facility” dated april 16 1997 amended effective july 31 1997 december 31 1997 march 30 1998 december 31 1998 march 26 2001 august 13 2001 march 22 2002 november 12 2002 december 18 2002 march 20 2003 march 6 2004 march 26 2004 december 31 2003 obligations company revolving credit facility secured inventory accounts receivable company domestic subsidiaries pledge 100 domestic subsidiaries’ least 65 foreign subsidiary’s outstanding capital stock march 5 2004 revolving credit facility amended eliminate pledge outstanding capital stock domestic foreign subsidiaries due company’s plan discontinue rauch business declare ineligible inventory accounts receivable rauch subsidiary purposes determining borrowing capacity effect borrowing capacity time amendment approximately 2000 march 26 2004 revolving credit facility amended restated terms restated agreement term facility extended expires march 31 2006 ii maximum borrowings reduced 86400 70000 iii maximum borrowing capacity related inventory reduced 55000 30000 iv company’s optional interest rate lowered eurodollar rate plus 300 basis points formerly plus 375 basis points prime rate plus 100 basis points v provision repurchases company’s senior notes eliminated restated agreement contains customary covenants company including limited maximum capital expenditures certain ratios earnings interest income taxes depreciation amortization certain adjustments “ebitda” cash interest fixed charges defined period four fiscal quarters ended december 31 2004 company must minimum ratio ebitda cash interest defined 10 period four fiscal quarters ended december 31 2005 company must minimum ratio ebitda fixed charges defined 10 fixed charges exceed ebitda defined 5 million period four quarters ended june 30 2005 interest rates increased eurodollar rate plus 375 basis points prime rate plus 125 basis points revolving credit facility restated requires company maintain minimum borrowing availability 20000 april 30 2004 7500 may 1 2004 december 30 2004 20000 december 31 2004 april 30 2005 7500 december 31 2005 increases 20000 expiration facility december 31 2003 7518 outstanding revolving credit facility borrowings bore interest prime rate plus 100 basis points weightedaverage interest rate borrowings outstanding revolving credit facility year ended december 31 2003 64 availability revolving credit facility net outstanding letters credit minimum availability requirements approximately 26693 december 31 2003 noncompliance ebitda covenant december 31 2003 waived march 26 2004 amended restated revolving credit agreement company compliance covenants amended december 31 2003 notes payable december 31 2003 company also debt financing third parties 118271 11 senior notes due april 15 2007 require interest payments made semiannually april 15 october 15 senior notes general unsecured obligations company rank pari passu right payment current future unsubordinated indebtedness company including borrowings revolving credit facility however borrowings revolving credit facility secured first priority lien accounts receivable inventory company domestic subsidiaries “guarantor subsidiaries” foreign subsidiary see note 17 consequently obligations company senior notes effectively subordinated obligations revolving credit facility extent assets senior notes became redeemable whole part company’s option april 15 2002 2003 company purchased aggregate 25675 million senior notes open market resulting pretax gain 9446 million company’s ability pay dividends restricted terms revolving credit facility senior notes senior notes also include financial covenants less restrictive covenants contained revolving credit facility cross default provisions exist senior notes revolving credit facility debt facilities company borrowings outstanding one wallace’s puerto rican subsidiaries’ 1000 debt facility “facility” expiring april 30 2003 may 2003 company renewed credit facility renewed facility reduced 1000 500 expired january 30 2004 company renew facility upon expiration april 2 2001 company executed 10000 promissory note secured certain real property building improvements located mira loma california note bears interest rate 742 repaid monthly installments may 2011 final payment 81 million due january 15 2003 company relieved obligations note upon sale mira loma ca warehouse distribution facility 8 income taxes benefit income taxes continuing operations comprised following reconciliations company’s effective income tax rate us federal statutory rate continuing operations follows components loss benefit income taxes continuing operations comprised following wallace’s puerto rican subsidiaries operate grants commonwealth puerto rico exempting 90 income taxation december 2003 company eligible tax exemption net loss 2003 would increased 440 net loss 2002 would increased 762 net loss 2001 would increased 720 basic diluted earnings per share would decreased approximately 12 20 19 years ended december 31 2003 2002 2001 respectively july 2003 company filed application new tax grant treasury department company contact treasury department expects grant accepted filed 2004 company requested grant effective january 1 2004 provides flat income tax rate 4 tax effects significant items comprising company’s net deferred tax asset liability follows 2003 increase valuation allowance relates primarily losses temporary differences generated rauch upon liquidation sale rauch losses temporary differences expected capital nature company expect generate sufficient capital gains future offset capital losses december 31 2003 company available tax loss carryforwards united states approximately 21725 expire years 2018 2022 9 commitments contingencies company subsidiaries various operating lease commitments buildings equipment lease agreements generally require company pay insurance real estate taxes maintenance contain various renewal options future minimum rental payments noncancelable operating leases next five years thereafter follows rent expense operating leases related continuing operations approximately 5738 5005 4456 2003 2002 2001 respectively april 16 2003 company entered licensing agreement vewltd produce line branded sterling silver silverplate stainless steel flatware sterling silver giftware association designer vera wang agreement provides minimum guaranteed royalties 250 2003 aggregate 1925 5 year period ending december 31 2008 company committed advertising expenditures december 2008 follows certain subsidiaries contingently obligated outstanding letters credit trade acceptances similar instruments aggregating 5189 december 31 2003 note 7 10 employee benefit plans following information provided accordance provisions sfas 132 “employers’ disclosures pensions postretirement benefits” 401k savings plans company three 401k savings plans “plans” plans cover substantially employees domestic puerto rican subsidiaries subject certain minimum age length employment requirements two plans company matched 50 first five hundred twenty dollars contributed participants’ plan 30 remaining contributions made participants’ plan maximum 6 compensation third plan company matched 35 contributions 6 compensation company also savings plan established 1991 covering substantially employees company’s hong kong subsidiary hong kong plan company contributed 10 participants’ compensation company contributed aggregate 462 444 669 plans 2003 2002 2001 officers retirement plan company employment agreements certain officers terms three years agreements three company’s officers provide retirement benefit payments two agreements provide benefit payments based upon two percent average total annual compensation salary bonus threeyear period preceding executives’ retirement dates multiplied number years service addition one agreements provides 100 survivor benefit executive’s spouse one agreement provides benefit payments based upon greater 75 ii onehalf one percent average total annual compensation salary bonus threeyear period preceding executives’ retirement dates multiplied number years service agreements provide minimum annual salaries aggregating 1984 certain benefits pension expense determined using assumptions beginning year assumptions used determining actuarial present value projected benefit obligation include discount rate 600 2003 675 2002 2001 rate future increases benefit compensation 3 components net periodic benefit costs change projected benefit obligation funded status december 31 2003 2002 amounts recognized consolidated balance sheets consist company expects pay retirement benefits year 2004 2013 follows 11 stockholders’ equity preferred stock liquidation preference cumulative redeemable preferred stock 1000 per share plus accrued unpaid dividends holders cumulative redeemable preferred stock entitled subject rights creditors event voluntary involuntary liquidation company amount cash equal 1000 share outstanding plus accrued unpaid dividends rights holders cumulative redeemable preferred stock upon liquidation company rank prior holders common stock dividends shares cumulative redeemable preferred stock cumulative date issue payable declared time board directors company dividends accrue daily basis whether declared original date issue annual rate per share equal 12 original purchase price per share amount compounded annually december 31 dividend paid year unpaid amount added original purchase price cumulative redeemable preferred stock purpose calculating succeeding years’ dividends december 31 2003 20549 accrued cumulative redeemable preferred stock redeemable time option company whole part 1000 per share plus accumulated unpaid dividends date redemption subject company’s existing debt agreements company must redeem outstanding cumulative redeemable preferred stock event public offering equity change control certain sales assets 12 relatedparty transactions effective october 22 2003 leonard florence resigned chairman company’s board directors mr florence founded syratech 1986 also 96 shareholder stepped chief executive officer march 11 2002 terms agreement related resignation mr florence resigned officer director company subsidiaries released obligation provide advisory services company ii company paid mr florence 750 also 25 legal expense obligated pay mr florence additional 200 january 2005 iii company relieved obligation provide medical benefits january 22 2004 iv company agreed reimburse certain secretarial office costs april 16 2005 charges amounts aggregating 1215 included selling general administrative expenses 2003 consolidated statement operations connection 1997 merger company thl transaction corp delaware corporation controlled affiliates thomas h lee partners lp “thl” company entered management agreement thl company paid expensed 450 2003 2002 2001 arrangement thl affiliates 599 outstanding common stock 899 preferred stock company z event sales “a z” purchased company merchandise amount approximately 56 year ended december 31 2003 terms prices consistent offered comparable customers robert meers president chief executive officer director company director z since 2003 indirectly owns 267 z michael meers vice president operations z son robert meers 13 segment disclosures company identified one distinct reportable segment home entertainment decorative products company determined one reportable segment meeting criteria established sfas 131 “disclosures segments enterprise related information” company’s chief operating decision maker defined determined chief executive officer president board directors manage part company separately review evaluate company’s consolidated operating results company’s operations sales activities conducted primarily united states america us two locations representing individually 10 revenues income operations us hong kong company classified rauch cj vander discontinued operations rauch cj vander conduct operations united states europe respectively related revenues income operations excluded following information following presents information accordance sfas 131 14 litigation company named defendant certain legal actions arising normal business activities company carries insurance liability certain types risks although amount liability could result litigation cannot predicted opinion management company’s potential liability known claims would material adverse effect consolidated financial position results operations company 15 quarterly results unaudited certain adjustments described notes 2 3 recorded fourth quarter 2003 certain adjustments described notes 2 3 recorded fourth quarter 2002 16 supplemental consolidating financial statements following supplemental consolidating financial statements december 31 2003 2002 three years period ended december 31 2003 present separate financial information issuerguarantor parent guarantor subsidiaries nonguarantor subsidiaries note 7 separate financial statements guarantor presented management believes statements would materially different information presented herein supplemental consolidating balance sheets december 31 2003 supplemental consolidating balance sheets december 31 2002 supplemental consolidating statements operations year ended december 31 2003 supplemental consolidating statements operations year ended december 31 2002 supplemental consolidating statements operations year ended december 31 2001 supplemental consolidating statements cash flows year ended december 31 2003 supplemental consolidating statements cash flows year ended december 31 2002 supplemental consolidating statements cash flows year ended december 31 2001 item 9 item 8 financial statements supplementary data index consolidated financial statements independent auditors report board directors stockholders syratech corporation audited accompanying consolidated balance sheets syratech corporation company subsidiaries december 31 1998 1997 related consolidated statements operations stockholders equity cash flows three years period ended december 31 1998 audits also included consolidated financial statement schedule listed index item 14 financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position syratech corporation subsidiaries december 31 1998 1997 results operations cash flows three years period ended december 31 1998 conformity generally accepted accounting principles also opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein discussed note 2 consolidated financial statements company completed merger accounted recapitalization 1997 deloitte touche llp boston massachusetts march 26 1999 part financial information syratech corporation subsidiaries consolidated balance sheets thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements operations thousands except per share data see notes consolidated financial statements start syratech corporation subsidiaries consolidated statements stockholders equity years ended december 31 1998 1997 1996 thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements cash flows thousands see notes consolidated financial statements syratech corporation subsidiaries notes consolidated financial statements thousands dollars except share per share data 1 business summary significant accounting policies business syratech corporation designs manufactures imports markets diverse portfolio tabletop giftware seasonal products including sterling silver silverplated stainless steel flatware sterling silver silverplated brass hollowware picture frames photo albums glassware woodenware ceramics fine porcelain boxes figurines waterglobes christmas ornaments trim lighting tree skirts summary significant accounting policies basis consolidation consolidated financial statements include accounts syratech corporation subsidiaries company syratech holding corporation subsidiaries syratech security corporation wallace international silversmiths inc subsidiaries wallace leonard florence associates inc lfa towle manufacturing company subsidiaries towle rauch industries inc subsidiaries rauch silvestri inc silvestri syratech hk ltd subsidiaries syratech hk significant intercompany balances transactions eliminated recapitalization company accounted merger thl company related purchase common stock retirement recapitalization see note 2 earnings loss per share company applies provisions statement financial accounting standards 128 earnings per share statement 128 supersedes accounting principles board opinion 15 statement 128 specifies computation presentation disclosure requirements earnings per share eps entities publicly held common stock potential common stock basic earnings loss per share reflect weighedaverage number common shares outstanding period diluted earnings loss per share reflect impact potential common shares options warrants using treasurystock method companys dilutive potential common stock 1996 stock options companys stock options canceled 1997 effective date merger note 2 potential common shares approximately 30000 resulting stock options outstanding 1997 antidilutive due recorded net loss potential common shares 1998 comprehensive income effective january 1 1998 company adopted provisions statement financial accounting standards 130 reporting comprehensive income sfas 130 provides standards reporting items considered comprehensive income uses term comprehensive income refer revenues expenses gains losses included comprehensive income generally accepted accounting principles excluded net income currently items presented companys consolidated financial statements considered comprehensive income defined sfas 130 cumulative translation adjustments recorded components stockholders equity syratech corporation subsidiaries notes consolidated financial statements continued accumulated comprehensive income reported consolidated balance sheets consists foreign currency translation adjustments tax effected use estimates preparing financial statements conformity generally accepted accounting principles management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date consolidated financial statements revenues expenses reporting period actual results could differ estimates significant estimates include income taxes reserves potentially obsolete slow moving inventory reserves potential bad debts sales returns revenue recognition revenue recognized products shipped company provides allowances estimated doubtful accounts sales returns based historical experience evaluation specific accounts allowances excluding amounts related farberware inc see note 4 comprised following customers substantially customers retailers base customers one geographic area constitutes significant portion sales single customer represented 10 greater consolidated net sales 1998 1997 1996 cash equivalents cash equivalents consist highly liquid investments purchased remaining maturity three months less inventories stated lower cost market cost determined lastin firstout lifo method certain silver certain nonsilver inventories cost determined firstin firstout fifo method properties held sale properties held sale separately presented accompanying consolidated balance sheets stated lower cost estimated net realizable value syratech corporation subsidiaries notes consolidated financial statements continued property plant equipment purchased property plant equipment recorded cost leased equipment recorded present value minimum lease payments required lease term depreciation provided using straightline method estimated useful lives related assets terms shorter related leases follows impairment longlived assets recoverability longlived assets determined periodically comparing forecasted undiscounted net cashflows operations assets relate carrying amount including associated intangible assets operations purchase price excess net assets acquired purchase price excess net assets acquired amortized using straightline method 30 years see note 4 company evaluates carrying value goodwill based upon current anticipated net income undiscounted cash flows recognizes impairment probable estimated future net income andor cash flows less carrying value goodwill measurement amount impairment based upon difference carrying value estimated fair value assets consist principally deposits deferred fees deferred financing costs deferred longterm rent deferred financing costs amortized using interest method terms related loans accumulated amortization aggregated approximately 2345 1008 december 31 1998 1997 respectively advertising costs advertising costs charged operations incurred costs recorded selling general administrative expenses totaled 4417 4156 3690 years ended december 31 1998 1997 1996 respectively financial instruments carrying values cash equivalents accounts receivable accounts payable borrowings revolving credit facilities approximate fair value due shortterm nature instruments fair value notes note 2 estimated 133650 december 31 1998 based upon recent private market trades income taxes company domestic subsidiaries except wallaces puerto rican subsidiaries file consolidated federal income tax return puerto rican subsidiaries file separate returns accordance section 936 internal revenue code company uses liability method accounting income taxes deferred taxes determined based estimated future tax effects differences financial statement tax bases assets liabilities given provisions enacted tax laws company provides taxes substantially undistributed earnings foreign subsidiaries syratech corporation subsidiaries notes consolidated financial statements continued accordance statement financial accounting standards sfas 109 company records valuation allowances net deferred tax assets based upon available evidence likely deferred tax assets realized assessing realizability deferred assets management considers whether likely deferred tax assets realized ultimate realization deferred tax assets dependent upon generation future taxable income temporary differences become deductible company considers among available information uncertainties surrounding recoverability deferred tax assets scheduled reversals deferred tax liabilities projected future taxable income matters making assessment foreign currency translation assets liabilities denominated foreign currencies translated us dollars yearend exchange rates income expense items translated average rates exchange prevailing year effects foreign currency fluctuations foreign subsidiaries assets liabilities reflected separate component stockholders equity transaction gains losses insignificant recent accounting pronouncements march 1998 american institute certified public accountants released statement position 981 accounting costs computer software developed obtained internal use requires certain expenditures made internal use software capitalized provisions opinion adopted company effective january 1 1999 adoption expected material effect upon companys consolidated financial statements june 1998 financial accounting standards board issued statement financial accounting standards sfas 133 accounting derivative instruments hedging activities effective fiscal quarters fiscal years beginning june 15 1999 new standard requires companies record derivatives balance sheet assets liabilities measured fair value gains losses resulting changes values derivatives would accounted depending use derivative whether qualifies hedge accounting management currently assessing whether impact sfas 133 companys consolidated financial statements upon adoption required first quarter 2000 reclassification certain prior year amounts reclassified conform 1998 presentation cash flow information supplemental cash flow information follows syratech corporation subsidiaries notes consolidated financial statements continued 2 merger recapitalization april 16 1997 thl transaction corp thl delaware corporation controlled affiliates thomas h lee company thl merged company merger pursuant restated agreement plan merger thl company pursuant merger share companys common stock par value 001 per share common stock issued outstanding immediately prior effective time merger effective time april 16 1997 shares common stock held company whollyowned subsidiary thereof ii 35232 shares common stock contributed company leonard florence former principal shareholder upon merger canceled retired entitled receive election holder thereof stated either 3200 cash except leonard florence received 2800 cash b one fully paid nonassessable share companys common stock addition company stock option granted 1986 1993 stock plans outstanding immediately prior effective time vested canceled exchange excess cash 3200 exercise price per share companys common stock aggregate amount paid optionees 3685 188 related vesting options charged compensation expense upon merger thl acquired directly company aggregate 18000 shares represented 100 companys 12 cumulative redeemable preferred stock 2374793 shares represented 628 companys common stock exchange corresponding stock interests thl paid aggregate 93993 cash accordingly thl acquired control company effective time company entered debt financing arrangements consisting 165000 principal amount 11 senior notes senior revolving credit facility 130000 revolving credit facility amount invested thl purchase price cumulative redeemable preferred stock plus proceeds notes portion proceeds available pursuant revolving credit facility used finance acquisition shares companys outstanding common stock retained companys existing stockholders refinance companys outstanding indebtedness revolving credit facility also intended provide companys working capital requirements time following merger transaction accounted recapitalization effective time merger employment agreement chairman board chief executive officer amended changed term fulltime employment rolling fiveyear term fixed fiveyear term ii provided minimum base salary 1150 per annum iii established 1150 minimum amount upon chairmans retirement benefit survivors benefit surviving spouse computed iv created contractual rights respect certain perquisites accorded informally present arrangements company employment agreement vice president purchasing also amended change term fulltime employment rolling fiveyear term fixed fiveyear term 3 impairment longlived assets asset dispositions fourth quarter 1998 company wrote value certain assets primarily relating facilities el paso texas one facilities gastonia north carolina carrying values impaired aggregate 4307 managements decision shut sell facilities el paso facility ceased manufacturing activity prior december 311998 gastonia facility scheduled shut july 1 1999 4307 total 506 relates adjusting salvage value certain specialized equipment longer used production process alternative use value company 3801 represents adjustment carrying values properties estimated fair value approximately 893 based upon available market data net costs disposition included properties held sale accompanying consolidated balance sheet december 31 1998 also included charge 627 related impaired equipment tooling abandoned company facilities 236 representing decline estimated fair value property held sale since 1997 syratech corporation subsidiaries notes consolidated financial statements continued 4 acquisitions businesses february 15 1996 company indirect wholly owned subsidiary acquired outstanding shares rauch approximately 49626 including costs transaction acquisition accounted purchase method accounting results operations rauch included results company february 15 1996 purchase price excess net assets acquired 7224 amortized straightline basis 30 years accumulated amortization approximately 675 434 december 31 1998 1997 respectively rauch leading domestic manufacturer marketer christmas decorative seasonal products particular glass satin tree ornaments 1996 company received 23771 connection insurance claim relating 1994 fire rauch facility allocation purchase price follows syratech corporation subsidiaries notes consolidated financial statements continued following summarized pro forma unaudited information assumes acquisition occurred january 1 1996 may 8 1996 company one subsidiaries acquired outstanding common stock cj vander ltd manufacturer sterling silver silverplated flatware hollowware sheffield london england purchase price immaterial companys consolidated financial statements acquisition accounted purchase method accounting results operations cj vander included results company may 8 1996 results operations 1996 would differed significantly acquisition taken place january 1 1996 acquisition assets farberware april 2 1996 company indirect whollyowned subsidiary together lifetime hoan corporation lifetime acquired certain assets farberware inc subsidiary us industries inc company lifetime affiliates farberware inc manufacturer aluminum clad stainless steel cookware bakeware small electric kitchen appliances aggregate consideration paid company lifetime 45771 company paid approximately 32611 assets acquired company included certain inventory tradename farberware intellectual property including intellectual property relates cookware bakeware electric products major kitchen appliances certain tools dies machinery equipment 1996 company also acquired inventory pursuant transitional manufacturing services agreement 1997 sold disposed acquired inventory december 31 1997 longer manufactures sells farberware cookware bakeware products noncommercial electric products accordingly net sales year ended december 31 1998 1997 1996 exclude revenue sales farberware inventory 50 million 24 million 39 million respectively related sales licensing income net certain selling general administrative expenses recorded operating income separate transaction company entered agreement lifetime provided allocation assets acquired farberware inc company acquired farberware order expand licensing activities use farberware name certain companys existing new products syratech corporation subsidiaries notes consolidated financial statements continued june 27 1996 companys farberware inc subsidiary farberware entered license agreement meyer marketing co ltd meyer pursuant meyer granted term 200 years exclusive worldwide license use exploit farberware name certain related intellectual property rights connection sourcing manufacture distribution certain cookware bakeware products rights grant meyer made onetime payment company 25500 resulted recognition company 11900 nonrecurring income terms licensing agreement company obligation respect amount paid meyer entire proceeds received recognized revenue second quarter 1996 july 12 1996 farberware granted major retail chain exclusive license use exploit farberware name related intellectual property connection sourcing manufacture marketing sale certain electric products quarterly royalty payments pursuant agreement made lifetime contemporaneously agreement acquisition assets farberware inc company lifetime agreed share rights receive obligation pay certain commissions respect royalties specified license agreements assigned company prior owner farberware tradename subject certain intellectual property rights company reserved exclusively company lifetime expect continue grant licenses third parties use farberware tradename company also markets specific products time farberware tradename february 3 1997 company received waiver certain restrictions disposition tools machinery equipment formerly used bruckner manufacturing corp manufacture farberware products company sold majority tools machinery equipment 1997 retained remainder use existing businesses sale tools machinery equipment resulted net proceeds company 2184 recorded nonoperating income 1997 silvestri april 16 1996 company purchased finished goods inventory intangible assets silvestri division ffsc inc silvestri approximately 8600 silvestri products include christmas ornaments collectibles lighting trim well seasonal nonseasonal giftware decorative accessories potpourri press november 26 1996 whollyowned subsidiary company acquired inventory tangible property intellectual property rights certain records certain contract rights potpourri press inc north carolinabased manufacturer marketer christmas products purchase price approximately 2540 potpourri merged silvestri 1998 syratech corporation subsidiaries notes consolidated financial statements continued 5 inventories would approximately 956 1784 higher december 31 1998 1997 respectively fifo method used inventories decreases lifo inventory quantities effect decreasing consolidated net loss 617 1998 decreases lifo inventory quantities 1997 1996 6 property plant equipment property plant equipment comprised following capitalized interest material companys consolidated financial statements year presented unrecorded commitments property plant equipment material companys consolidated financial statements december 31 1998 syratech corporation subsidiaries notes consolidated financial statements continued 7 revolving loan facilities notes payable revolving loan facilities company senior revolving credit facility revolving credit facility dated april 16 1997 amended effective july 31 1997 december 31 1997 march 30 1998 december 31 1998 provides 130000 borrowings including 30000 sublimit issuance standby commercial letters credit borrowings made revolving credit facility bear interest rate equal companys option eurodollar rate plus 225 basis points 731 using 30 day eurodollar rate december 31 1998 prime rate plus 50 basis points 825 december 31 1998 weightedaverage interest rate borrowings outstanding facility year ended december 31 1998 818 december 31 1998 45000 outstanding facility borrowings eurodollar rate revolving credit facility expires april 16 2002 pursuant terms revolving credit facility amended company required february march year maintain excess availability least 25000 obligations company revolving credit facility secured inventory accounts receivable company issuerguarantor parent domestic subsidiaries pledge 100 domestic subsidiaries least 65 foreign subsidiaries outstanding capital stock guarantor subsidiaries note 16 revolving credit facility amended december 31 1998 contains customary covenants company subsidiary borrowers including limited capital expenditures minimum consolidated net worth december 31 1997 least 100 thousands addition revolving credit facility amended december 31 1998 includes covenants beginning first quarter 1999 requiring minimum ratio earnings income taxes depreciation amortization certain adjustments ebitda defined including funded debt ebitda fixed charge coverage ratios defined management believes company compliance covenants amended december 31 1998 year ended availability revolving credit facility net outstanding letters credit 42998 december 31 1998 notes payable company also debt financing 165000 11 senior notes due april 15 2007 require interest payments made semiannually april 15 october 15 notes general unsecured obligations company rank pari passu right payment current future unsubordinated indebtedness company including borrowings revolving credit facility however borrowings revolving credit facility secured first priority lien accounts receivable inventory company domestic subsidiaries guarantor subsidiaries foreign subsidiaries nonguarantor subsidiaries consequently obligations company notes effectively subordinated obligations revolving credit facility extent assets notes redeemable whole part companys option april 15 2002 companys ability pay dividends restricted terms revolving credit facility notes also include financial covenants less restrictive covenants contained revolving credit facility default notes trigger default revolving credit facility debt facilities company outstanding borrowings 843 one wallaces puerto rican subsidiaries 1000 facility expiring may 30 1999 facility bears interest rate equal companys option eurodollar rate plus 175 basis points 681 using 30day eurodollar rate december 31 1998 banks prime rate less 25 basis points 75 december 31 1998 availability facility 157 december 31 1998 weightedaverage interest rate borrowings outstanding facility year ended december 31 1998 732 borrowings facility uncollateralized however pledge assets owned one subsidiaries collateral loans prohibited borrowings facility guaranteed company crossguaranteed certain subsidiaries syratech corporation subsidiaries notes consolidated financial statements continued companys cj vander ltd subsidiary overdraft facility entered march 16 1998 overdraft facility provides borrowings pound500 borrowings made overdraft facility bear interest banks base rate plus 1 725 december 31 1998 overdraft facility contains customary covenants borrowings secured substantially assets cjvander ltd overdraft facility renewed september 18 1998 march 19 1999 due demand expires june 19 1999 availability overdraft facility pound298 december 31 1998 weightedaverage interest rate borrowings outstanding facility year ended december 31 1998 822 8 income taxes provisions benefit income taxes follows reconciliations companys effective income tax rate us federal statutory rate follows syratech corporation subsidiaries notes consolidated financial statements continued components income provision benefit income taxes comprised following provisions made taxes portion undistributed earnings syratech hk wallaces puerto rican subsidiaries permanently invested ultimately expected remitted parent company wallaces puerto rican subsidiaries operate grants commonwealth puerto rico exempting 90 income taxation december 2003 company eligible tax exemption net loss 1998 1997 would increased approximately 1105 1685 respectively net income 1996 would reduced approximately 1211 earnings per share would decreased approximately 21 32 14 respectively tax effects significant items comprising companys net deferred tax asset liability follows valuation allowance relates primarily potential unusable portion foreign tax loss carryforwards syratech corporation subsidiaries notes consolidated financial statements continued 9 commitments contingencies company subsidiaries various operating lease commitments buildings equipment lease agreements generally require company pay insurance real estate taxes maintenance contain various renewal options future minimum rental payments noncancellable operating leases next five years thereafter follows rent expense operating leases approximately 4570 6254 5209 1998 1997 1996 respectively certain subsidiaries contingently obligated outstanding letters credit trade acceptances similar instruments aggregating 10279 december 31 1998 note 7 assets syratech hk pledged collateral certain contingent obligations 10 employee benefit plans 1998 company adopted provisions sfas 132 employers disclosures pensions postretirement benefits following information provided accordance provisions statement 401k savings plans company two 401k savings plans 401k savings plans cover substantially employees domestic puerto rican subsidiaries 401k plans subject certain minimum age length employment requirements one plans company matches 30 participants contributions 6 compensation plan company matches 50 first five hundred twenty dollars contributed 30 thereafter participants contributions 6 compensation company also savings plan established 1991 covering substantially employees companys hong kong subsidiary hong kong plan company contributes 10 participants compensation company contributed aggregate 617 463 597 plans 1998 1997 1996 officers retirement plan company employment agreements certain officers employees terms ranging three five years provide minimum annual salaries aggregating 2243 certain benefits agreements five companys officers provide retirement benefit payments two agreements provide benefit payments based upon two percent average total annual compensation salary bonus threeyear period preceding executives retirement dates multiplied number years service addition one agreements provides 100 survivor benefit executives spouse two agreements provide benefit payments based upon greater 75000 ii onehalf one percent average total annual compensation salary bonus threeyear period preceding executives retirement dates multiplied number years service one agreement officer provides benefit payments based upon greater 75000 ii one percent average total annual compensation salary bonus threeyear period preceding executives retirement dates multiplied number years service syratech corporation subsidiaries notes consolidated financial statements continued upon consummation merger note 2 employment agreement officer amended change officers term fulltime employment rolling fiveyear term fixed fiveyear term ii provide minimum base salary 1150 per annum iii establish 1150 minimum amount upon officers retirement benefit survivors benefit surviving spouse computed iv create contractual rights respect certain perquisites accorded informally present arrangements company additionally employment agreement another officer amended change officers term fulltime employment rolling fiveyear term fixed fiveyear term july 29 1998 company entered amendment 1 mr florences amended restated employment agreement provides among things modification computation timing payments respect retirement benefit terms amendment provide acceleration payments first made upon execution amendment related retirement benefit provided payments allowed terms companys credit agreements amended terms material impact consolidated financial statements year ended december 31 1998 pension expense determined using assumptions beginning year assumptions used determining actuarial present value projected benefit obligation include discount rate 675 1998 1997 75 1996 rate future increases benefit compensation 3 effect change discount rate material consolidated financial statements change projected benefit obligation components net periodic benefit costs syratech corporation subsidiaries notes consolidated financial statements continued funded status december 31 1998 1997 companys c j vander subsidiary also employee benefit plan companys obligation plan material companys consolidated financial position results operations 11 stockholders equity preferred stock liquidation preference cumulative redeemable preferred stock 1000 per share plus accrued unpaid dividends holders cumulative redeemable preferred stock entitled subject rights creditors event voluntary involuntary liquidation company amount cash equal 1000 share outstanding plus accrued unpaid dividends rights holders cumulative redeemable preferred stock upon liquidation company rank prior holders common stock dividends shares cumulative redeemable preferred stock cumulative date issue payable declared time board directors company dividends accrue daily basis whether declared original date issue annual rate per share equal 12 original purchase price per share amount compounded annually december 31 dividend paid year unpaid amount added original purchase price cumulative redeemable preferred stock purpose calculating succeeding years dividends december 31 1998 3874 accrued cumulative redeemable preferred stock redeemable time option company whole part 1000 per share plus accumulated unpaid dividends date redemption subject companys existing debt agreements company must redeem outstanding cumulative redeemable preferred stock event public offering equity change control certain sales assets key employee stock option plans pursuant merger common stock option granted companys existing stock option plans outstanding immediately prior merger vested cancelled exchange payment optionees 3873 charged compensation expense syratech corporation subsidiaries notes consolidated financial statements continued summary stock option activity companys plans december 31 1997 follows stock options exercisable outstanding december 31 1998 1997 company applies accounting principles board opinion 25 related interpretations accounting stock option employee stockbased compensation plans compensation cost companys stock option plans determined based fair value grant dates awards plans granted january 1 1995 consistent method sfas 123 companys net income earnings per share year ended december 31 1996 would reduced pro forma amounts indicated pro forma results necessarily indicative results would reported options measured sfas 123 weighted average remaining contractual life options outstanding december 31 1996 699 years weighted average fair value options granted 1996 894 per share options granted 1998 1997 fair value options granted companys stock option plans 1996 estimated date grant using blackscholes option pricing model following weightedaverage assumptions used dividend yield expected volatility 306 riskfree interest rate 60 expected lives either 53 77 years syratech corporation subsidiaries notes consolidated financial statements continued transfer shares december 31 1996 companys chief executive officer principal shareholder principal shareholder company thl transaction corp entered agreements three executive officers whereby principal shareholder transfer 73068 shares syratech common stock company effect transfer equal number newly issued shares executive officers connection transfer shares stock agreements also provide executive receive company additional compensation annual lump sum cash payment lump sum payments reimbursement income taxes owed executive result transfer payment transfer shares principal shareholder lump sum payments executives irrevocable unconditional based upon executives future employment company december 31 1996 31812 shares transferred lump sum payments totaling 703 made executives january 14 1997 shares aggregating 31884 transferred lump sum payments totaling 705 made executives january 14 1998 remaining 9372 shares transferred executives estimated value shares recorded addition additional paidin capital 2338 total compensation expense equal estimated fair value shares plus estimate aggregate lump sum payments 3953 recorded fourth quarter 1996 shortterm compensation payable 207 december 31 1997 weightedaverage fair value shares 3150 fair value shares based provision sfas 123 materially different amounts recorded shareholder rights plan required merger recapitalization note 2 effective november 8 1996 company redeemed outstanding rights terminated shareholder rights plan pursuant rights issued 12 relatedparty transactions connection merger company entered management agreement thomas h lee company pays annual management fee amount 450 company incurred 450 320 1998 1997 respectively 1996 wacker industrial company wacker major supplier owned holder less 1 companys common stock 1998 1997 1996 company purchases supplier approximately 5960 5806 4478 respectively accounts payable supplier approximated 90 41 december 31 1998 1997 respectively transactions companies affiliated certain directorsstockholders include net sales approximately 1055 903 790 1998 1997 1996 respectively purchases products services 1998 1997 1996 accounts receivable companies approximated 127 19 december 31 1998 1997 respectively accounts payable syratech corporation subsidiaries notes consolidated financial statements continued 13 segment disclosures following presented accordance sfas 131 disclosures segments enterprise related information sfas 131 statement establishes new standards defining disclosing information companys business segments requires company define segments along internal structure reporting methodology company identified one distinct reportable segment home entertainment decorative products segment generates revenue two types product offerings tabletop giftware seasonal company determined one reportable segment meeting criteria established sfas 131 companys chief operating decision maker defined determined chief executive officer president board directors manage part company separately review evaluate companys consolidated operating results segment refer note 1 significant accounting policies companys operations conducted primarily united states america us two locations representing individually 10 revenues income operations us hong kong company also conducts operations united kingdom uk countries however operations individually insignificant included foreign following presents information accordance sfas 131 14 litigation company named defendant several legal actions arising normal business activities company carries insurance liability certain types risks although amount liability could result litigation cannot predicted opinion management companys potential liability known claims would material adverse effect consolidated financial position results operations company syratech corporation subsidiaries notes consolidated financial statements continued 15 quarterly results unaudited supplementary information quarterly results unaudited fourth quarter 1998 company recorded impairment long lived assets 5170 see note 3 adjusted tax benefit rate 25 full year slightly lower estimated effective income tax rate 28 recorded nine months ended september 30 1998 fourth quarter 1997 company recorded inventory adjustment 2800 related shrinkage excess material scrap costs related startup new manufacturing equipment syratech corporation subsidiaries notes consolidated financial statements continued 16 supplemental condensed consolidating financial statements following supplemental condensed consolidating financial statements december 31 1998 1997 three years period ended december 31 1998 present separate financial information company issuerguarantor parent guarantor subsidiaries note 7 nonguarantor subsidiaries note 7 separate financial statements guarantor presented management believes statements would materially different information presented herein syratech corporation subsidiaries notes consolidated financial statements continued syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating balance sheets december 31 1998 syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating balance sheets december 31 1997 syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating statements operations year ended december 31 1998 syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating statements operations year ended december 31 1997 syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating statements operations year ended december 31 1996 syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating statements cash flows year ended december 31 1998 syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating statements cash flows year ended december 31 1997 syratech corporation subsidiaries notes condensed consolidated financial statements continued supplemental condensed consolidating statements cash flows year ended december 31 1996 item 9 item 8 financial statements supplementary data index consolidated financial statements independent auditors report board directors stockholders syratech corporation audited accompanying consolidated balance sheets syratech corporation subsidiaries company december 31 2000 1999 related consolidated statements operations stockholders equity cash flows three years period ended december 31 2000 audits also included consolidated financial statement schedule listed index item 14 consolidated financial statements financial statement schedule responsibility companys management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall consolidated financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position syratech corporation subsidiaries december 31 2000 1999 results operations cash flows three years period ended december 31 2000 conformity accounting principles generally accepted united states america also opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein deloitte touche llp boston massachusetts march 30 2001 syratech corporation subsidiaries consolidated balance sheets thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements operations thousands except per share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements stockholders equity years ended december 31 2000 1999 1998 thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements cash flows thousands see notes consolidated financial statements syratech corporation subsidiaries notes consolidated financial statements thousands except share per share data 1 business summary significant accounting policies business syratech corporation designs manufactures imports markets diverse portfolio tabletop giftware seasonal products including sterling silver silverplated stainless steel flatware sterling silver silverplated brass hollowware picture frames photo albums glassware woodenware ceramics fine porcelain boxes figurines waterglobes christmas ornaments trim lighting tree skirts summary significant accounting policies basis consolidation consolidated financial statements include accounts syratech corporation subsidiaries company wallace international silversmiths inc subsidiaries wallace leonard florence associates inc lfa towle manufacturing company subsidiaries towle rauch industries inc subsidiaries rauch silvestri inc silvestri syratech hk ltd subsidiaries syratech hk significant intercompany balances transactions eliminated earnings loss per share company applies provisions statement financial accounting standards 128 earnings per share statement 128 specifies computation presentation disclosure requirements earnings per share eps entities publicly held common stock potential common stock basic earnings loss per share reflect weightedaverage number common shares outstanding period diluted earnings loss per share reflect impact potential common shares options warrants using treasury stock method potential common shares 2000 1999 1998 comprehensive income loss comprehensive income comprised net income foreign currency translation adjustments minimum pension liability adjustments use estimates preparing financial statements conformity accounting principles generally accepted united states america management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date consolidated financial statements revenues expenses reporting period actual results could differ estimates significant estimates include income taxes reserves potentially obsolete slow moving inventory reserves potential bad debts sales returns syratech corporation subsidiaries notes consolidated financial statements continued revenue recognition revenue recognized products shipped company provides allowances estimated doubtful accounts sales returns based historical experience evaluation specific accounts allowances comprised following december 1999 securities exchange commission issued staff accounting bulletin sab 101 revenue recognition financial statements amended sab 101a 101b effective later quarter ended december 31 2000 sab 101 clarifies secs views regarding recognition revenue company adopted sab 101 2000 adoption sab 101 significant impact companys consolidated financial statements concentrations credit risk financial instruments potentially subject company credit risk consist primarily cash equivalents accounts receivable company manages cash credit risk maintaining cash equivalents financial institutions believes financially sound regards accounts receivable company performs going credit evaluations customers company sells products multitude customers numerous geographical locations disproportionate concentration risk customers substantially customers retailers base customers one geographic area constitutes significant portion sales one customer represented 122 106 2000 1999 consolidated net sales respectively single customer represented 10 greater consolidated net sales 1998 2000 one customer represented 172 net accounts receivable 1999 another customer represented 139 net accounts receivable cash equivalents cash equivalents consist highly liquid investments purchased remaining maturity three months less inventories stated lower cost market cost determined firstin firstout fifo method see note 3 property plant equipment purchased property plant equipment recorded cost leased equipment recorded present value minimum lease payments required lease term depreciation provided using straightline method estimated useful lives related assets terms shorter related leases follows syratech corporation subsidiaries notes consolidated financial statements continued impairment longlived assets recoverability longlived assets determined periodically comparing forecasted undiscounted net cash flows operations assets relate carrying amount including associated intangible assets operations purchase price excess net assets acquired purchase price excess net assets acquired amortized using straightline method 30 years goodwill result companys purchase rauch subsidiary 1996 company evaluates carrying value goodwill based upon current anticipated net income undiscounted cash flows recognizes impairment probable estimated future net income andor cash flows less carrying value goodwill measurement amount impairment based upon difference carrying value estimated fair value assets consist principally deposits deferred fees deferred financing costs deferred longterm rent deferred financing costs amortized using interest method terms related loans accumulated amortization aggregated approximately 4744 3685 december 31 2000 1999 respectively advertising costs advertising costs charged operations incurred costs recorded selling general administrative expenses totaled 4440 4196 4417 years ended december 31 2000 1999 1998 respectively financial instruments carrying values cash equivalents accounts receivable accounts payable borrowings revolving credit facilities approximate fair value due shortterm nature instruments fair value notes note 5 estimated 89130 december 31 2000 based upon recent private market trades income taxes company domestic subsidiaries except wallaces puerto rican subsidiaries file consolidated federal income tax return puerto rican subsidiaries file separate returns accordance section 936 internal revenue code company uses liability method accounting income taxes deferred taxes determined based estimated future tax effects differences financial statement tax bases assets liabilities given provisions enacted tax laws company provides taxes substantially undistributed earnings foreign subsidiaries company records valuation allowances net deferred tax assets based upon available evidence likely deferred tax assets realized assessing realizability deferred assets management considers whether likely deferred tax assets realized ultimate realization deferred tax assets dependent upon generation future taxable income temporary differences become deductible company considers among available information uncertainties surrounding recoverability deferred tax assets scheduled reversals deferred tax liabilities projected future taxable income matters making assessment syratech corporation subsidiaries notes consolidated financial statements continued foreign currency translation assets liabilities denominated foreign currencies translated us dollars yearend exchange rates income expense items translated average rates exchange prevailing year effects foreign currency fluctuations foreign subsidiaries assets liabilities recorded directly comprehensive income included component stockholders equity gains losses foreign currency transactions included consolidated statement operations comprehensive income recent accounting pronouncements june 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities effective fiscal quarters fiscal years beginning june 15 2000 standard requires companies record derivatives balance sheet assets liabilities measured fair value gains losses resulting changes values derivatives would accounted depending use derivative whether qualifies hedge accounting company adopt sfas 133 required first quarter fiscal year 2001 adoption material impact consolidated financial statements reclassification certain prior year amounts reclassified conform 2000 presentation cash flow information supplemental cash flow information follows cash paid year syratech corporation subsidiaries notes consolidated financial statements continued 2 asset dispositions impairment longlived assets restructuring costs november 1999 company sold primary east coast distribution facility 29500 sale facility resulted net gain approximately 17140 company simultaneously entered shortterm leaseback approximately 40 distribution facility ended january 31 2001 also 1999 company sold undeveloped land adjacent facility gain approximately 756 connection disposition facility company recorded separation benefits approximately 532 42 hourly employees three salaried employees accrued december 31 1999 2000 separation benefits required 532 accrual reversed fourth quarter corresponding benefit recorded statement operations fourth quarter 1999 company wrote value certain assets approximately 1157 writedowns relate abandonment certain manufacturing equipment gastonia north carolina facility book value approximately 1057 remaining asset writedowns relate finalization amounts relative shutdown el paso facility discussed less significant asset writedowns adjustments aggregated net charge 611 amounts provided 1999 fully utilized 2000 fourth quarter 1998 company wrote value certain assets primarily relating facilities el paso texas one facility gastonia north carolina carrying values impaired aggregate 4307 managements decision shut sell facilities el paso facility sold december 1999 leased back june 30 2000 company relocated warehousing activities newly leased 85000 sq ft facility also el paso gastonia facility shut june 15 1999 additional charges credits required 1998 also included fourth quarter 1998 charge 627 related impaired equipment tooling abandoned company facilities 236 representing decline estimated fair value property held sale since 1997 3 inventories major classification follows syratech corporation subsidiaries notes consolidated financial statements continued 4 property plant equipment property plant equipment comprised following capitalized interest material companys consolidated financial statements year presented unrecorded commitments property plant equipment material companys consolidated financial statements december 31 2000 5 revolving loan facilities notes payable revolving loan facilities company senior revolving credit facility revolving credit facility dated april 16 1997 amended effective july 31 1997 december 31 1997 march 30 1998 december 31 1998 march 26 2001 december 31 2000 provided 123000 borrowings including 30000 sublimit issuance standby commercial letters credit accordance terms senior notes indenture revolving credit facility reduced 7000 effective november 21 2000 result permanent application certain proceeds november 22 1999 sale primary east coast facility borrowings made revolving credit facility bear interest rate equal companys option eurodollar rate plus 2125 basis points 869 using 30day eurodollar rate december 31 2000 prime rate plus 50 basis points 100 december 31 2000 weightedaverage interest rate borrowings outstanding facility year ended december 31 2000 99 revolving credit facility expires april 16 2002 pursuant terms revolving credit facility amended company required february march year maintain excess availability least 25000 obligations company revolving credit facility secured inventory accounts receivable company issuerguarantor parent domestic subsidiaries pledge 100 domestic subsidiaries guarantor subsidiaries least 65 foreign subsidiaries nonguarantor subsidiaries outstanding capital stock note 14 revolving credit facility amended contains customary covenants company subsidiary borrowers including limited capital expenditures minimum consolidated net worth december 31 1997 least 100 thousands addition revolving credit facility amended includes covenants requiring minimum ratios earnings income taxes depreciation amortization certain adjustments ebitda defined including funded debt ebitda fixed charge coverage defined management believes company compliance covenants amended december 31 2000 year ended december 31 2000 66441 outstanding facility borrowings 40000 eurodollar rate availability revolving credit facility net outstanding letters credit 43976 december 31 2000 syratech corporation subsidiaries notes consolidated financial statements continued notes payable company also debt financing 148550 11 senior notes due april 15 2007 require interest payments made semiannually april 15 october 15 fourth quarter 2000 company purchased aggregate 16450 notes open market resulting extraordinary gain 3636 net 2527 income taxes notes general unsecured obligations company rank pari passu right payment current future unsubordinated indebtedness company including borrowings revolving credit facility however borrowings revolving credit facility secured first priority lien accounts receivable inventory company domestic subsidiaries guarantor subsidiaries foreign subsidiaries see note 14 consequently obligations company notes effectively subordinated obligations revolving credit facility extent assets notes redeemable whole part companys option april 15 2002 companys ability pay dividends restricted terms revolving credit facility notes also include financial covenants less restrictive covenants contained revolving credit facility cross default provisions exist notes revolving credit facility debt facilities company outstanding borrowings 877 one wallaces puerto rican subsidiaries 1000 debt facility expiring may 31 2001 facility bears interest rate equal companys option eurodollar rate plus 175 basis points 831 using 30day eurodollar rate december 31 2000 banks prime rate less 25 basis points 925 december 31 2000 availability facility 123 december 31 2000 weightedaverage interest rate borrowings outstanding facility year ended december 31 2000 92 borrowings facility uncollateralized however pledge assets owned one subsidiaries collateral loans prohibited borrowings facility guaranteed company crossguaranteed certain subsidiaries companys cj vander ltd subsidiary overdraft facility entered march 16 1998 overdraft facility provides borrowings pound250 borrowings made overdraft facility bear interest banks base rate plus 1 70 december 31 2000 overdraft facility contains customary covenants borrowings secured substantially assets cjvander ltd overdraft facility renewed august 23 2000 due demand expires april 30 2001 availability overdraft facility pound241 december 31 2000 weightedaverage interest rate borrowings outstanding facility year ended december 31 2000 70 syratech corporation subsidiaries notes consolidated financial statements continued 6 income taxes provisions benefit income taxes continuing operations extraordinary gain excluding 2527 deferred tax expense reported reduction extraordinary item reported fiscal 2000 follows reconciliations companys effective income tax rate us federal statutory rate continuing operations extraordinary gain follows components income provision benefit income taxes continuing operations extraordinary gain comprised following syratech corporation subsidiaries notes consolidated financial statements continued provisions made taxes majority undistributed earnings syratech hk wallaces puerto rican subsidiaries ultimately expected remitted parent company addition company permanently invested portion undistributed earnings subsidiaries practical estimate amount unrecognized deferred tax liability attributable undistributed foreign earnings wallaces puerto rican subsidiaries operate grants commonwealth puerto rico exempting 90 income taxation december 2003 company eligible tax exemption net loss 2000 would increased 1217 net income 1999 would decreased 985 net loss 1998 would increased 1105 earnings per share would decreased approximately 32 26 29 respectively tax effects significant items comprising companys net deferred tax asset liability follows valuation allowance relates primarily potential unusable portion foreign tax loss carryforwards increased result fiscal 2000 losses foreign subsidiary 7 commitments contingencies company subsidiaries various operating lease commitments buildings equipment lease agreements generally require company pay insurance real estate taxes maintenance contain various renewal options future minimum rental payments noncancellable operating leases next five years thereafter follows 2001 3980 2002 3237 2003 2559 2004 1949 2005 1403 subsequent 2005 1623 rent expense operating leases approximately 5636 3951 4570 2000 1999 1998 respectively syratech corporation subsidiaries notes consolidated financial statements continued companys rauch inc subsidiary entered long term purchase commitments supply agreements two vendors located kentucky pennsylvania glass components used manufacture christmas ornaments supply agreements provide vendors supply rauch purchase certain minimum quantities end december 31 2000 approximate future purchase commitments supply agreements follows 2001 3950 2002 3950 certain subsidiaries contingently obligated outstanding letters credit trade acceptances similar instruments aggregating 7707 december 31 2000 note 5 assets syratech hk pledged collateral certain contingent obligations 8 employee benefit plans following information provided accordance provisions sfas 132 employers disclosures pensions postretirement benefits 401k savings plans company two 401k savings plans cover substantially employees domestic puerto rican subsidiaries subject certain minimum age length employment requirements plans company matches 50 first five hundred twenty dollars contributed 30 thereafter participants contributions 6 compensation company also savings plan established 1991 covering substantially employees companys hong kong subsidiary hong kong plan company contributes 10 participants compensation company contributed aggregate 581 510 617 plans 2000 1999 1998 officers retirement plan company employment agreements certain officers terms ranging three five years agreements five companys officers provide retirement benefit payments two agreements provide benefit payments based upon two percent average total annual compensation salary bonus threeyear period preceding executives retirement dates multiplied number years service addition one agreements provides 100 survivor benefit executives spouse two agreements provide benefit payments based upon greater 75000 ii onehalf one percent average total annual compensation salary bonus threeyear period preceding executives retirement dates multiplied number years service one agreement officer provides benefit payments based upon greater 75000 ii one percent average total annual compensation salary bonus threeyear period preceding executives retirement dates multiplied number years service april 16 1997 employment agreement officer amended change officers term fulltime employment rolling fiveyear term fixed fiveyear term ii provide minimum base salary 1150 per annum iii establish 1150 minimum amount upon officers retirement benefit survivors benefit surviving spouse computed iv create contractual rights respect certain perquisites accorded informally present arrangements company additionally employment agreement another officer amended change officers term fulltime employment rolling fiveyear term fixed fiveyear term july 29 1998 company entered amendment 1 mr florences amended restated employment agreement provides among things modification computation timing payments respect retirement benefit terms amendment provide acceleration payments first made upon execution amendment related retirement benefit provided payments allowed terms companys credit agreements amended syratech corporation subsidiaries notes consolidated financial statements continued agreements provide minimum annual salaries aggregating 2580 certain benefits pension expense determined using assumptions beginning year assumptions used determining actuarial present value projected benefit obligation include discount rate 675 2000 1999 1998 rate future increases benefit compensation 3 additional minimum liability 335 fiscal year 2000 recorded within comprehensive income change projected benefit obligation components net periodic benefit costs funded status december 31 2000 1999 companys c j vander subsidiary also employee benefit plan companys obligation plan material companys consolidated financial position results operations syratech corporation subsidiaries notes consolidated financial statements continued 9 stockholders equity preferred stock liquidation preference cumulative redeemable preferred stock 1000 per share plus accrued unpaid dividends holders cumulative redeemable preferred stock entitled subject rights creditors event voluntary involuntary liquidation company amount cash equal 1000 share outstanding plus accrued unpaid dividends rights holders cumulative redeemable preferred stock upon liquidation company rank prior holders common stock dividends shares cumulative redeemable preferred stock cumulative date issue payable declared time board directors company dividends accrue daily basis whether declared original date issue annual rate per share equal 12 original purchase price per share amount compounded annually december 31 dividend paid year unpaid amount added original purchase price cumulative redeemable preferred stock purpose calculating succeeding years dividends december 31 2000 9438 accrued cumulative redeemable preferred stock redeemable time option company whole part 1000 per share plus accumulated unpaid dividends date redemption subject companys existing debt agreements company must redeem outstanding cumulative redeemable preferred stock event public offering equity change control certain sales assets 10 relatedparty transactions connection 1997 merger company thl transaction corp delaware corporation controlled affiliates thomas h lee company thl company entered management agreement thl company pays annual management fee amount 450 company paid expensed 450 2000 1999 1998 arrangement 11 segment disclosures company identified one distinct reportable segment home entertainment decorative products segment generates revenue two types product offerings tabletop giftware seasonal company determined one reportable segment meeting criteria established sfas 131 disclosures segments enterprise related information companys chief operating decision maker defined determined chief executive officer president board directors manage part company separately review evaluate companys consolidated operating results companys operations conducted primarily united states america us two locations representing individually 10 revenues income operations us hong kong company also conducts operations united kingdom uk countries however operations individually insignificant included foreign syratech corporation subsidiaries notes consolidated financial statements continued following presents information accordance sfas 131 12 litigation company named defendant certain legal actions arising normal business activities company carries insurance liability certain types risks although amount liability could result litigation cannot predicted opinion management companys potential liability known claims would material adverse effect consolidated financial position results operations company syratech corporation subsidiaries notes consolidated financial statements continued 13 quarterly results unaudited supplementary information quarterly results unaudited fourth quarter 2000 separation benefits recorded 1999 result sale companys primary east coast warehouse required 532 accrual reversed corresponding benefit statement operations see note 2 subsidiary company recorded 1425 additional provisions excess slow moving inventory also fourth quarter fourth quarter 1999 company adjusted income tax rate 45 full year higher estimated effective income tax rate 25 recorded september 30 1999 increased income tax rate reflects impact gain recorded sale warehouse see note 2 syratech corporation subsidiaries notes consolidated financial statements continued 14 supplemental consolidating financial statements following supplemental consolidating financial statements december 31 2000 1999 three years period ended december 31 2000 present separate financial information company issuerguarantor parent guarantor subsidiaries note 5 nonguarantor subsidiaries note 5 separate financial statements guarantor presented management believes statements would materially different information presented herein syratech corporation subsidiaries notes consolidated financial statements continued supplemental consolidating balance sheets year ended december 31 2000 syratech corporation subsidiaries notes consolidated financial statements continued supplemental consolidating balance sheets year ended december 31 1999 syratech corporation subsidiaries notes consolidated financial statements continued supplemental consolidating statements operations year ended december 31 2000 syratech corporation subsidiaries notes consolidated financial statements continued supplemental consolidating statements operations year ended december 31 1999 syratech corporation subsidiaries notes consolidated financial statements continued supplemental consolidating statements operations year ended december 31 1998 syratech corporation subsidiaries notes consolidated financial statements continued supplemental consolidating statements cash flows year ended december 31 2000 syratech corporation subsidiaries notes consolidated financial statements continued supplemental consolidating statements cash flows year ended december 31 1999 syratech corporation subsidiaries notes consolidated financial statements continued supplemental consolidating statements cash flows year ended december 31 1998 item 9 item 8 financial statements supplementary data index consolidated financial statements independent auditors report board directors stockholders syratech corporation audited accompanying consolidated balance sheets syratech corporation subsidiaries december 31 1995 1996 related consolidated statements income stockholders equity cash flows three years period ended december 31 1996 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position syratech corporation subsidiaries december 31 1995 1996 results operations cash flows three years period ended december 31 1996 conformity generally accepted accounting principles deloitte touche llp boston massachusetts february 7 1997 february 14 1997 note 15 syratech corporation subsidiaries consolidated balance sheets thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated income statements thousands except per share data 1 consists income sale farberware inventory operating income net certain selling general administrative expenses 2 consists nonrecurring pretax income related licensing farberware name cookware bakeware see notes consolidated financial statements syratech corporation subsidiaries consolidated statements stockholders equity thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements cash flows thousands see notes consolidated financial statements syratech corporation subsidiaries notes consolidated financial statements thousands dollars except share per share data 1 business summary significant accounting policies business syratech corporation designs manufactures imports markets diverse portfolio tabletop giftware seasonal products including sterling silver silverplated stainless steel flatware sterling silver silverplated brass holloware picture frames photo albums glassware woodenware ceramics fine porcelain boxes figurines waterglobes christmas ornaments trim lighting tree skirts summary significant accounting policies basis consolidation consolidated financial statements include accounts syratech corporation subsidiaries company syratech holding corporation subsidiaries syratech security corporation wallace international silversmiths inc subsidiaries wallace leonard florence associates inc lfa towle manufacturing company subsidiaries towle rauch industries inc subsidiaries rauch silvestri inc subsidiaries silvestri syratech hk ltd subsidiaries syratech hk significant intercompany balances transactions eliminated adoption new accounting pronouncements effective january 1 1996 company adopted prospectively statement financial accounting standards sfas 121 accounting impairment longlived assets longlived assets disposed sfas 121 requires longlived assets reviewed impairment whenever circumstances indicate carrying value asset may recoverable adoption sfas 121 significant effect companys consolidated financial position results operations year ended december 31 1996 effective january 1 1996 company adopted sfas 123 accounting stockbased compensation permitted sfas 123 company continued account stockbased transactions employees accordance accounting principles board opinion 25 accounting stock issued employees required sfas 123 stock option grants nonemployees company calculates compensation expense using fair value based method amortizes compensation expense vesting period year ended december 31 1996 company grant options purchase shares common stock nonemployees marketable securities companys marketable securities classified trading securities carried fair value consolidated balance sheet use estimates preparing financial statements conformity generally accepted accounting principles management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date consolidated financial statements revenues expenses reporting period actual results could differ estimates syratech corporation subsidiaries notes consolidated financial statements continued revenue recognition revenue recognized products shipped company provides allowances estimated doubtful accounts sales returns based historical experience evaluation specific accounts allowances excluding amounts related farberware inc see note 2 comprised following customers substantially customers retailers base customers one geographic area constitutes significant portion sales single customer represented 10 greater consolidated net sales 1994 1995 1996 inventories stated lower cost market two subsidiaries determine cost lastin firstout lifo method silver certain nonsilver inventories cost determined firstin firstout fifo method property plant equipment purchased property plant equipment recorded cost leased equipment recorded present value minimum lease payments required lease term depreciation provided using straightline method estimated useful lives related assets terms shorter related leases follows purchase price excess net assets acquired purchase price excess net assets acquired amortized using straightline method 30 years note 2 company evaluates carrying value goodwill based upon current anticipated net income undiscounted cash flows recognizes impairment probable estimated future net income andor cash flows less carrying value goodwill measurement amount impairment based upon difference carrying value estimated fair value assets consist principally deposits deferred fees deferred financing costs deferred longterm rent deferred financing costs amortized using straightline method terms related loans accumulated amortization aggregated approximately 100 125 december 31 1995 1996 respectively syratech corporation subsidiaries notes consolidated financial statements continued advertising costs advertising costs charged operations incurred costs totaled 3035 3064 3690 years ended december 31 1994 1995 1996 respectively financial instruments carrying values cash equivalents accounts receivable accounts payable borrowings revolving credit facilities approximate fair value due shortterm nature instruments income taxes company domestic subsidiaries except wallaces puerto rican subsidiaries file consolidated federal income tax return puerto rican subsidiaries file separate returns accordance section 936 internal revenue code deferred income taxes provided certain income expense items accounted differently financial reporting income tax purposes foreign currency translation assets liabilities denominated foreign currencies translated us dollars yearend exchange rates income expense items translated average rates exchange prevailing year effects foreign currency fluctuations foreign subsidiaries assets liabilities reflected separate component stockholders equity transaction gains losses insignificant earnings per share earnings per share computed based weighted average common equivalent shares outstanding period presented common stock equivalents include common stock options treasury stock method primary fully diluted earnings per share periods presented reclassification certain prior year amounts reclassified conform 1996 presentation cash flow information supplemental cash flow information follows syratech corporation subsidiaries notes consolidated financial statements continued 2 acquisitions businesses february 15 1996 company indirect wholly owned subsidiary acquired outstanding shares rauch approximately 49626 including costs transaction acquisition accounted purchase method accounting results operations rauch included results company february 15 1996 purchase price excess net assets acquired 7224 amortized straight line basis 30 years rauch leading domestic manufacturer marketer christmas seasonal products particular glass satin tree ornaments 1996 company received 23771 connection insurance claim relating 1994 fire rauch allocation purchase price follows following summarized pro forma unaudited information assumes acquisition occurred january 1 1995 may 8 1996 company one subsidiaries acquired outstanding common stock cj vander ltd manufacturer sterling silver silverplated flatware hollowware sheffield london england purchase price immaterial companys consolidated financial statements acquisition accounted purchase method accounting syratech corporation subsidiaries notes consolidated financial statements continued acquisition assets february 1996 company entered agreement acquire certain assets including major portion tangible assets intellectual property corporate name farberware inc farberware inc effective april 2 1996 company indirect whollyowned subsidiary farb acquisition corp farb together lifetime hoan corporation lifetime acquired certain assets farberware inc subsidiary us industries inc company lifetime affiliates farberware inc manufacturer aluminum clad stainless steel cookware bakeware small electric kitchen appliances aggregate consideration paid farb lifetime 45771 subject adjustment farb paid approximately 32611 amount adjustment subject dispute settled february 3 1997 assets acquired company included certain inventory tradename farberware intellectual property including intellectual property relates cookware bakeware electric products major kitchen appliances certain tools dies machinery equipment effective april 2 1996 company farb entered manufacturing services agreement farberware inc transitional manufacturing services certain finished goods previously produced farberware inc company entered manufacturing services agreement part provide continuity product transition period order protect strength farberware name marketplace manufacturing services agreement terminated upon disposal acquired inventory company manufacture sell farberware cookware bakeware products noncommercial electric products accordingly net sales year ended december 31 1996 exclude revenue sales farberware inventory 3948 net certain selling general administrative expenses sales recorded operating income december 31 1996 accounts receivable net inventories company included 4972 3289 respectively related farberware separate transaction company farb entered agreement lifetime provided allocation assets acquired farberware inc granting longterm license lifetime use farberware name connection extensive list products granting lifetime longterm exclusive rights operate farberware outlet stores reservation certain exclusive rights farb including exclusive rights use farberware name corporate purposes marketing cookware bakeware products well electric products future formation joint venture administer certain licensing rights june 27 1996 companys farberware inc subsidiary formerly farb farberware entered license agreement meyer marketing co ltd meyer pursuant meyer granted term 200 years exclusive worldwide license use exploit farberware name certain related intellectual property rights connection sourcing manufacture distribution cookware bakeware products home use commercial industrial institutional size pots pans roasters ii nonexclusive shared rights use certain farberware technology intellectual property grant meyer made onetime payment company 25500 resulted recognition company 11900 nonrecurring income terms licensing agreement company obligation respect amount paid meyer entire proceeds received recognized revenue second quarter 1996 july 12 1996 farberware granted major retail chain exclusive license use exploit farberware name related intellectual property connection sourcing manufacture marketing sale certain electric products annual royalty payments october 25 1996 farberware granted fci corp license use exploit farberware name connection sourcing manufacturing marketing sale certain commercial products defined six specified commercial urns one specified commercial convection oven plus cookware syratech corporation subsidiaries notes consolidated financial statements continued bakeware electric products developed licensee solely exclusively commercial industrial institutional use prior written approval farberware payment annual royalties see note 12 february 3 1997 company farberware lifetime reached agreement settlement agreement bruckner manufacturing corp bmc us industries inc usi settle previous outstanding legal disputes arising farberware asset purchase agreement apa manufacturing services agreement msa terms settlement agreement farberware receive certain finished goods inventory cost pay certain finished goods inventories purchased msa farberware also receive waiver certain restrictions apa disposing tools machinery equipment formerly used bmc manufacture farberware products company intends sell majority tools machinery equipment retain remainder use existing businesses settlement result adjustment original purchase price loss expected incurred result settlement april 16 1996 company purchased finished goods inventory intangible assets silvestri division ffsc inc silvestri approximately 8600 prior companys purchase assets ffsc inc subsidiaries affiliated companies filed protection chapter 11 bankruptcy code united states bankruptcy court northern district texas bankruptcy court bankruptcy court approved acquisition company silvestri products include christmas ornaments collectibles lighting trim well seasonal nonseasonal giftware decorative accessories corporation given guaranty limited 4000 dated may 21 1996 obligations ff holding company ffsc inc certain related entities cit groupbusiness credit inc certain debtor possession financing agreement dated may 21 1996 request company nationsbank na south issued letter credit dated may 31 1996 amount 4000 cit groupbusiness credit inc secure companys aforesaid guaranty november 26 1996 whollyowned subsidiary company acquired inventory tangible property intellectual property rights certain records including customer lists customer files supplier information catalogs certain contract rights potpourri press inc north carolinabased manufacturer marketer christmas products purchase price approximately 2300 plus 240 promissory note 7 3 discontinued operations april 11 1995 pursuant agreement entered march 28 1995 company subsidiary syratech holding corporation sold syroco inc syroco net proceeds received costs sale income taxes 133931 september 25 1995 company reached final settlement regarding sale syroco terms settlement company reacquired certain assets reassumed certain liabilities syroco recorded estimated net fair value 1834 december 31 1995 company expect liquidation assets material effect previously recognized gain disposal tax gain disposal syroco 30451 recognized second quarter 1995 sale resulted discontinuation companys casual furniture accessories business assets liabilities relating discontinued business included net assets discontinued operations consolidated balance sheets december 31 1995 results operations cash flows discontinued segment included discontinued operations consolidated income statements consolidated statements cash flows years ended december 31 1994 1995 1996 syratech corporation subsidiaries notes consolidated financial statements continued net assets discontinued operations december 31 1995 consisted following operating results discontinued segment consisted following operating results discontinued segment exclude previously allocated corporate expenses 4 marketable securities december 31 1995 marketable securities consisted 30000 shortterm high grade notes original maturities six months marketable securities carried fair value approximates cost plus accrued interest earned december 31 1995 paid 561 included interest income year ended december 31 1995 marketable securities december 31 1996 5 inventories would approximately 2752 3430 higher december 31 1995 1996 respectively fifo method used inventories decreases lifo inventory quantities effect increasing consolidated net income 4 1994 decreasing consolidated net income 59 1996 decreases lifo inventory quantities 1995 syratech corporation subsidiaries notes consolidated financial statements continued 6 property plant equipment property plant equipment comprised following capitalized interest material companys consolidated financial statements january 17 1997 company purchased parcel land mira loma california 3179 company plans begin construction warehouse distribution facility land 1997 7 revolving loan facilities notes payable revolving loan facilities effective october 31 1996 companys amended restated loan security agreement company loan agreement provides maximum permitted borrowings 100000 december 31 1996 60000 earlier april 30 1997 completion refinancing contemplated respect agreement plan merger thl transaction corp note 15 interest borrowings charged banks prime rate less 75 december 31 1996 option borrow 10 eurodollar rate 653 using 30 day eurodollar rate december 31 1996 weighted average interest rate borrowings outstanding facility year ended december 31 1996 729 company loan agreement amended expires april 30 1997 december 31 1996 5878 outstanding company loan agreement credit availability net letters credit outstanding 83770 january 1 1997 availability reduced 40000 borrowings collateralized substantially assets company subsidiaries exception cj vander company loan agreement restricts payment cash dividends 33 13 net income prior year addition limits repurchases companys outstanding capital stock capital expenditures contains covenants require among things minimum levels consolidated tangible net worth maintenance certain financial ratios december 1995 restriction repurchase outstanding capital stock modified allow company repurchase 3064751 shares companys stock owned affiliates katy industries inc katy stock repurchase agreement modified december 1995 permit acquisition rauch referred note 2 1996 modifications made permit farberware silvestri cj vander potpourri acquisitions december 31 1996 company 6783 unrestricted retained earnings available payment cash dividends 1996 one wallaces puerto rican subsidiaries lender entered amended restated line credit agreement facility provides borrowings maximum 10000 expires may 31 1997 interest borrowings charged banks prime rate minus 30 795 december 31 1996 option borrow eurodollar rate plus 170 72313 using syratech corporation subsidiaries notes consolidated financial statements continued 30 day eurodollar rate december 31 1996 weighted average interest rate borrowings outstanding facility year ended december 31 1996 808 december 31 1996 558 outstanding facility credit availability 9442 borrowings uncollateralized however pledge assets owned one subsidiaries collateral loans prohibited borrowings facility guaranteed company crossguaranteed certain subsidiaries notes payable december 31 1996 company note payable 200 related purchase potpourri note 2 december 31 1995 company notes payable 51735 related purchase 3064751 shares companys common stock december 29 1995 note 11 notes paid january 2 1996 8 income taxes provisions income taxes comprised following syratech corporation subsidiaries notes consolidated financial statements continued reconciliations companys effective income tax rate us federal statutory rate follows components income provision income taxes comprised following provisions made taxes undistributed earnings syratech hk wallaces puerto rican subsidiaries ultimately expected remitted parent company permanently invested portion undistributed earnings puerto rican syratech hk subsidiaries practical estimate amount unrecognized deferred tax liability attributable undistributed foreign earnings wallaces puerto rican subsidiaries operate grants commonwealth puerto rico exempting 90 income taxation december 2003 company eligible tax exemption net income 1994 1995 1996 would reduced approximately 1330 1198 1211 earnings per share would decreased approximately 11 10 14 respectively syratech corporation subsidiaries notes consolidated financial statements continued tax effects significant items comprising companys net deferred tax asset liability follows valuation allowance relates potential unusable portion foreign tax loss carryforwards 530 contribution carryforwards 1066 9 commitments contingencies company subsidiaries various operating lease commitments buildings equipment lease agreements generally require company pay insurance real estate taxes maintenance contain various renewal options future minimum rental payments noncancellable operating leases next five years thereafter follows rent expense operating leases approximately 1789 1821 5209 1994 1995 1996 respectively certain subsidiaries contingently obligated outstanding letters credit trade acceptances similar instruments aggregating 10348 december 31 1996 note 7 assets syratech hk pledged collateral certain contingent obligations 10 employee benefit plans company three 401k savings plans 401k savings plans cover substantially employees domestic puerto rican subsidiaries 401k plans subject certain minimum age length employment requirements two plans company matches 30 participants syratech corporation subsidiaries notes consolidated financial statements continued contributions 6 compensation plan company matches 50 first five hundred twenty dollars contributed 25 thereafter participants contributions 15 compensation company also savings plan established 1991 covering substantially employees companys hong kong subsidiary hong kong plan company contributes 10 participants compensation company contributed aggregate 197 256 597 plans 1994 1995 1996 companys c j vander subsidiary also employee benefit plan companys obligation plan material companys consolidated financial position results operations company employment agreements certain officers employees terms ranging three five years provide minimum annual salaries aggregating 2451 certain benefits agreements companys five officers provide retirement benefit payments respect two officers year ended december 31 1994 agreements provided benefit payments amounts equal two percent officers final year base salaries multiplied number years service company 1995 two agreements amended provide benefit payments based upon two percent average total annual compensation salary bonus three year period preceding executives retirement dates multiplied number years service addition one agreements amended 1995 plan amendment provide 100 survivor benefit executives spouse 1996 existing employment agreements two officers amended also provide retirement benefit additionally third officer employment agreement company granted retirement benefit two agreements amended provide benefit payments based upon greater 75000 ii one half one percent average total annual compensation salary bonus three year period preceding executives retirement dates multiplied number years service one agreements amended provide benefit payments based upon greater 75000 ii one percent average total annual compensation salary bonus three year period preceding executives retirement dates multiplied number years service upon consummation merger note 15 employment agreement officer amended change officers term fulltime employment rolling fiveyear term fixed fiveyear term ii provide minimum base salary 1150 per annum iii establish 1150 minimum amount upon officers retirement benefit survivors benefit surviving spouse computed iv create contractual rights respect certain perquisites accorded informally present arrangements company additionally employment agreement another officer amended change officers term fulltime employment rolling fiveyear term fixed fiveyear term pension expense determined using assumptions beginning year assumptions used determining actuarial present value projected benefit obligation include discount rate 85 1994 1995 75 1996 rate future increases benefit compensation 5 effect change discount rate material consolidated financial statements syratech corporation subsidiaries notes consolidated financial statements continued net pension cost included following components following table summarizes amounts recognized consolidated balance sheets december 31 1995 1996 11 stockholders equity key employee stock option plans companys 1986 key employee stock option plan 1986 plan qualified nonqualified options purchase maximum 1300000 shares common stock granted certain employees exercise prices less 85 fair market value date grant options become exercisable ratably fiveyear period expire ten years date grant shares available grant 1986 plan december 31 1996 compensation cost recognized companys 1986 plan amount equal 15 fair market value date grant ratably five year period became exercisable 1993 company established 1993 key employee stock option plan 1993 plan provisions similar 1986 plan 1993 plan qualified nonqualified options purchase maximum 400000 shares common stock may granted certain employees exercise price less fair market value date grant december 31 1996 67000 options outstanding 1993 plan 1995 company established 1995 key employee stock option plan 1995 plan 1995 plan contains certain provisions similar 1993 plan would allow grant 800000 options exercise price less fair market value date grant december 31 1996 20000 options outstanding 1995 plan compensation cost recognized companys 1993 1995 plans syratech corporation subsidiaries notes consolidated financial statements continued summary stock option activity plans follows following table sets forth information regarding options outstanding december 31 1996 company applies accounting principles board opinion 25 related interpretations accounting stock option employee stock based compensation plans compensation cost companys stock option plans determined based fair value grant dates awards plans granted january 1 1995 consistent method sfas 123 companys net income earnings per share two years ended december 31 1996 would reduced pro forma amounts indicated syratech corporation subsidiaries notes consolidated financial statements continued pro forma results necessarily indicative results would reported options measured sfas 123 weighted average remaining contractual life options outstanding december 31 1996 699 years weighted average fair value options granted 1995 1996 803 894 per share respectively fair value options granted companys stock option plans 1995 1996 estimated date grant using blackscholes option pricing model following weightedaverage assumptions used dividend yield expected volatility 306 risk free interest rate 60 expected lives either 53 77 years transfer shares december 31 1996 companys chief executive officer principal shareholder principal shareholder company thl transaction corp entered agreements three executive officers whereby principal shareholder transfer 73068 shares syratech common stock company effect transfer equal number newly issued shares executive officers connection transfer shares stock agreements also provide executive receive company additional compensation annual lump sum cash payment lump sum payments reimbursement income taxes owed executive result transfer payment transfer shares principal shareholder lump sum payments executives irrevocable unconditional based upon executives future employment company december 31 1996 31812 shares transferred lump sum payments totaling 703 made executives shares aggregating 31884 transferred january 14 1997 additional shares 9372 transferred january 14 1998 estimated value shares recorded addition additional paidin capital 2338 total compensation expense equal estimated fair value shares plus estimate aggregate lump sum payments 3953 recorded fourth quarter 1996 short longterm compensation payable 705 207 respectively december 31 1996 weighted average fair value shares 3150 fair value shares based provision sfas 123 materially different amounts recorded purchase common stock december 29 1995 company effected katy stock repurchase aggregate purchase price 52054 represented approximately 17 per share purchase financed issuance two promissory notes due january 2 1996 subsidiaries katy assumption shortterm bank debt aggregating 51735 two promissory notes shortterm bank debt paid january 2 1996 companys par additional paidin capital values decreased reflect purchase shareholder rights plan october 26 1992 companys board directors adopted shareholder rights plan company distributed dividend one right purchase shares preferred stock stockholders record october 31 1992 authorized issuance one right share common stock becomes outstanding record date right entitles registered holder purchase company one onehundredth share new series preferred stock series preferred stock price 50 subject adjustment amended july 5 1994 rights become exercisable individual group acquiring person acquires 15 syratech corporation subsidiaries notes consolidated financial statements continued outstanding common stock commences tender offer would result ownership 30 outstanding common stock case person beneficially owned 20 outstanding common stock october 26 1992 person acquires additional 1 outstanding common stock required agreement plan merger note 15 effective november 8 1996 company redeemed outstanding rights terminated shareholder rights plan pursuant rights issued redemption price right one cent holders rights received payment redemption price prior effective time redemption price rights added payment cash price shares company common stock merger 12 related party transactions beneficial owner less 1 company holds significant management role service merchandise co inc service different person director company also director service company net sales service approximately 9909 10706 12432 1994 1995 1996 respectively company accounts receivable service approximately 756 1260 december 31 1995 1996 respectively effective july 12 1996 company indirect whollyowned subsidiary granted license service use certain trademarks patents copyrights relating certain electric products agreement subject cancellation six months notice licensee wacker industrial company wacker major supplier owned holder less 1 companys common stock 1994 1995 1996 company purchases supplier approximately 6176 5371 4478 respectively accounts payable supplier approximated 75 93 december 31 1995 1996 respectively transactions companies affiliated certain directorsstockholders include net sales approximately 297 735 790 purchases products services 1228 746 1994 1995 respectively purchases products services 1996 december 31 1996 amounts receivable companies approximated 7 accounts payable addition included operating income 1996 revenue disposal farberware inventory 10166 service 5033 lifetime 1660 company affiliated certain directorstockholder december 31 1996 amounts receivable service lifetime 316 455 respectively syratech corporation subsidiaries notes consolidated financial statements continued 13 foreign operations companys foreign operations relate hong kong subsidiary may 8 1996 cj vander subsidiary sales hong kong subsidiary substantially customers united states sales cj vander subsidiary primarily foreign customers summarized financial information companys operations different geographic areas follows 14 litigation company named defendant several legal actions arising normal business activities company carries insurance liability certain types risks although amount liability could result litigation cannot predicted opinion management companys potential liability known claims would material adverse effect consolidated financial position results operations company 15 agreement plan merger october 23 1996 company thl transaction corp company organized controlled affiliates thomas h lee company entered agreement plan merger dated november 27 1996 effective october 23 1996 amended effective february 14 1997 pursuant thl transaction corp merged company merger pursuant transaction stockholders company receive 3200 cash per share except principal shareholder receive 2800 cash per share may elect receive portion consideration retaining stock surviving entity upon consummation merger company would pro forma basis december 31 1996 outstanding debt approximately 162319 unaudited transaction expected close first half 1997 intended transaction accounted recapitalization common equity contribution made thl transaction corp constitute approximately 100217 unaudited syratech corporation subsidiaries notes consolidated financial statements continued 18000 unaudited cumulative redeemable preferred stock issued less value shares retained stockholders companys principal shareholder 63696 shares issued retained certain management stockholders companys stockholders equity pro forma basis 22048 unaudited december 31 1996 considering effects merger distribution stockholders well approximately onethird merger expenses reduce stockholders equity consummation merger conditioned upon availability adequate financing debt equity expected financing include issuance 155000 senior notes senior notes senior notes expected general unsecured obligations company ranking senior existing future subordinated indebtedness company including indebtedness 130000 including 30000 letter credit sublimit 5 year credit facility revolving credit facility however obligations company revolving credit facility expected secured accounts receivable inventory company domestic subsidiaries accordingly indebtedness would effectively rank senior notes extent assets revolving credit facility expected include requirement maintain excess availability least 450 million certain periods year senior notes fully unconditionally guaranteed joint several basis companys whollyowned domestic subsidiaries guarantor subsidiaries following condensed consolidating financial statements december 31 1995 1996 three years period ended december 31 1996 present separate financial information company issuerguarantor parent guarantor subsidiaries non guarantor subsidiaries discontinued operations separate financial statements guarantor presented management believes statements would materially different information presented herein syratech corporation subsidiaries notes consolidated financial statements continued condensed consolidating balance sheets december 31 1995 syratech corporation subsidiaries notes consolidated financial statements continued condensed consolidating balance sheets december 31 1996 syratech corporation subsidiaries notes consolidated financial statements continued condensed consolidating income statements year ended december 31 1994 syratech corporation subsidiaries notes consolidated financial statements continued condensed consolidating income statements year ended december 31 1995 syratech corporation subsidiaries notes consolidated financial statements continued condensed consolidating income statements year ended december 31 1996 syratech corporation subsidiaries notes consolidated financial statements continued condensed consolidating statements cash flows year ended december 31 1994 syratech corporation subsidiaries notes consolidated financial statements continued condensed consolidating statements cash flows year ended december 31 1995 syratech corporation subsidiaries notes consolidated financial statements continued condensed consolidating statements cash flows year ended december 31 1996 supplementary information quarterly results unaudited item 9 item 8 financial statements supplementary data index consolidated financial statements independent auditors report board directors stockholders syratech corporation audited accompanying consolidated balance sheets syratech corporation company subsidiaries december 31 1997 1996 related consolidated statements operations stockholders equity cash flows three years period ended december 31 1997 audits also included consolidated financial statement schedule listed index item 14 financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position syratech corporation subsidiaries december 31 1997 1996 results operations cash flows three years period ended december 31 1997 conformity generally accepted accounting principles also opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein discussed note 2 consolidated financial statements company completed merger accounted recapitalization 1997 deloitte touche llp boston massachusetts february 16 1998 march 30 1998 note 16 syratech corporation subsidiaries consolidated balance sheets thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements operations thousands except per share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements stockholders equity years ended december 31 1997 1996 1995 thousands except share data see notes consolidated financial statements syratech corporation subsidiaries consolidated statements cash flows thousands see notes consolidated financial statements syratech corporation subsidiaries notes consolidated financial statements thousands dollars except share per share data 1 business summary significant accounting policies business syratech corporation designs manufactures imports markets diverse portfolio tabletop giftware seasonal products including sterling silver silverplated stainless steel flatware sterling silver silverplated brass hollowware picture frames photo albums glassware woodenware ceramics fine porcelain boxes figurines waterglobes christmas ornaments trim lighting tree skirts summary significant accounting policies basis consolidation consolidated financial statements include accounts syratech corporation subsidiaries company syratech holding corporation subsidiaries syratech security corporation wallace international silversmiths inc subsidiaries wallace leonard florence associates inc lfa towle manufacturing company subsidiaries towle rauch industries inc subsidiaries rauch silvestri inc subsidiaries silvestri syratech hk ltd subsidiaries syratech hk significant intercompany balances transactions eliminated recapitalization company accounted merger thl company related purchase common stock retirement recapitalization see note 2 earnings per share effective fourth quarter 1997 company adopted provisions statement financial accounting standards 128 earnings per share statement 128 supersedes accounting principles board opinion 15 statement 128 specifies computation presentation disclosure requirements earnings per share eps entities publicly held common stock potential common stock prior periods restated reflect adoption statement 128 use estimates preparing financial statements conformity generally accepted accounting principles management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date consolidated financial statements revenues expenses reporting period actual results could differ estimates syratech corporation subsidiaries notes consolidated financial statements continued revenue recognition revenue recognized products shipped company provides allowances estimated doubtful accounts sales returns based historical experience evaluation specific accounts allowances excluding amounts related farberware inc see note 3 comprised following december 31 1997 1996 sales returns allowances 5977 3501 doubtful accounts 1231 1861 7208 5362 customers substantially customers retailers base customers one geographic area constitutes significant portion sales single customer represented 10 greater consolidated net sales 1997 1996 1995 inventories stated lower cost market two subsidiaries determine cost lastin firstout lifo method silver certain nonsilver inventories cost determined firstin firstout fifo method properties held sale properties held sale consist 29 acres land revere massachusetts cost 1151 two buildings sheffield england cost 685 january 28 1998 company entered contract sell 29 acres land 19 million pursuant agreement january 28 1998 company entered escrow agreement buyer deposit 200 paid company buyer held escrow closing scheduled occur november 28 1998 december 31 1997 properties held sale separately presented accompanying consolidated balance sheet stated cost lower estimated net realizable values properties property plant equipment purchased property plant equipment recorded cost leased equipment recorded present value minimum lease payments required lease term depreciation provided using straightline method estimated useful lives related assets terms shorter related leases follows years buildings improvements 4 39 tools dies 3 50 machinery equipment 3 10 3 10 1997 company changed estimated useful lives certain tools dies ten fifty years change useful lives material impact net loss company year ended december 31 1997 syratech corporation subsidiaries notes consolidated financial statements continued purchase price excess net assets acquired purchase price excess net assets acquired amortized using straightline method 30 years see note 3 company evaluates carrying value goodwill based upon current anticipated net income undiscounted cash flows recognizes impairment probable estimated future net income andor cash flows less carrying value goodwill measurement amount impairment based upon difference carrying value estimated fair value assets consist principally deposits deferred fees deferred financing costs deferred longterm rent deferred financing costs amortized using interest method terms related loans accumulated amortization aggregated approximately 1008 125 december 31 1997 1996 respectively advertising costs advertising costs charged operations incurred costs recorded selling general administrative expenses totaled 4156 3690 3064 years ended december 31 1997 1996 1995 respectively financial instruments carrying values cash equivalents accounts receivable accounts payable borrowings revolving credit facilities approximate fair value due shortterm nature instruments fair value notes note 2 estimated 151800 december 31 1997 based upon recent private market trades income taxes company domestic subsidiaries except wallaces puerto rican subsidiaries file consolidated federal income tax return puerto rican subsidiaries file separate returns accordance section 936 internal revenue code deferred income taxes provided certain income expense items accounted differently financial reporting income tax purposes foreign currency translation assets liabilities denominated foreign currencies translated us dollars yearend exchange rates income expense items translated average rates exchange prevailing year effects foreign currency fluctuations foreign subsidiaries assets liabilities reflected separate component stockholders equity transaction gains losses insignificant recent accounting pronouncements june 1997 financial accounting standards board issued statements financial accounting standards nos 130 131 reporting comprehensive income disclosures segments enterprise related information sfas 130 sfas 131 respectively company required adopt provisions statements fiscal 1998 sfas 130 provides standards reporting items considered comprehensive income uses term comprehensive income refer revenues expenses gains losses included comprehensive income generally accepted accounting principles excluded net income currently items presented companys consolidated financial statements would considered comprehensive income defined sfas 130 cumulative translation adjustments recorded components stockholders equity sfas 131 establishes new standards reporting information operating syratech corporation subsidiaries notes consolidated financial statements continued segments company believes segment information required disclosed sfas 131 comprehensive previously provided including expanded disclosure statement operations balance sheet items reportable operating segment company yet completed analysis operating segments report company believes provisions sfas 130 adopted material impact companys consolidated financial statements february 1998 financial accounting standards board issued statement financial accounting standards 132 sfas 132 employers disclosures pensions postretirement benefits sfas 132 standardizes disclosure requirement pensions postretirement benefits extent practicable change measurement recognition plans company required adopt provisions statement 1998 adoption provisions material impact upon companys consolidated financial statements reclassification certain prior year amounts reclassified conform 1997 presentation cash flow information supplemental cash flow information follows 2 merger recapitalization april 16 1997 thl transaction corp thl delaware corporation controlled affiliates thomas h lee company thl merged company merger pursuant restated agreement plan merger dated november 27 1996 effective october 23 1996 amended february 14 1997 thl company pursuant merger share companys common stock par value 001 per share common stock issued outstanding immediately prior effective time merger effective time april 16 1997 shares common stock held company whollyowned subsidiary thereof ii 35232 shares common stock contributed company leonard florence former principal shareholder upon merger canceled retired entitled receive election holder thereof stated either 3200 cash except leonard florence received 2800 cash b one fully paid nonassessable share companys common stock common stock retained limited case stockholder management stockholders 3475 stockholders shares common stock also aggregate 868250 shares companys common stock could retained stockholders management stockholders right retain companys common stock subject proration addition company stock option granted 1986 1993 stock plans outstanding immediately prior effective time vested canceled exchange excess cash 3200 exercise price per share companys common stock aggregate amount paid optionees 3685 188 related vesting options syratech corporation subsidiaries notes consolidated financial statements continued charged compensation expense upon merger thl acquired directly company aggregate 18000 shares represented 100 companys 12 cumulative redeemable preferred stock 2374793 shares represented 628 companys common stock exchange corresponding stock interests thl paid aggregate 93993 cash accordingly thl acquired control company effective time company entered debt financing arrangements consisting 165000 principal amount 11 senior notes senior revolving credit facility 130000 revolving credit facility amount invested thl purchase price cumulative redeemable preferred stock plus proceeds notes portion proceeds available pursuant revolving credit facility used finance acquisition shares companys outstanding common stock retained companys existing stockholders refinance companys outstanding indebtedness revolving credit facility also intended provide companys working capital requirements time following merger transaction accounted recapitalization effective time merger employment agreement chairman board chief executive officer amended changed term fulltime employment rolling fiveyear term fixed fiveyear term ii provided minimum base salary 1150 per annum iii established 1150 minimum amount upon chairmans retirement benefit survivors benefit surviving spouse computed iv created contractual rights respect certain perquisites accorded informally present arrangements company employment agreement vice president purchasing also amended change term fulltime employment rolling fiveyear term fixed fiveyear term syratech corporation subsidiaries notes consolidated financial statements continued 3 acquisitions businesses february 15 1996 company indirect wholly owned subsidiary acquired outstanding shares rauch approximately 49626 including costs transaction acquisition accounted purchase method accounting results operations rauch included results company february 15 1996 purchase price excess net assets acquired 7224 amortized straightline basis 30 years rauch leading domestic manufacturer marketer christmas seasonal products particular glass satin tree ornaments 1996 company received 23771 connection insurance claim relating 1994 fire rauch facility allocation purchase price follows cash paid rauch shareholders 48042 acquisition costs incurred 1584 total purchase price 49626 allocated cash 2084 accounts receivable 8461 insurance receivable 23771 inventories 19206 deferred income taxes 2518 prepaid expenses 983 property plant equipment net 23081 assets 89 purchase price excess net assets required 7224 current liabilities 22303 deferred income taxes 15488 total 49626 syratech corporation subsidiaries notes consolidated financial statements continued following summarized pro forma unaudited information assumes acquisition occurred january 1 1996 net sales 271450 income continuing operations 19657 net income 19657 basic earnings per share continuing operations 226 net income per common share 226 weightedaverage number shares outstanding 8695 diluted earnings per share continuing operations 223 net income per common share 223 weightedaverage number shares outstanding 8695 effect dilutive stock options 104 adjusted weightedaverage number shares outstanding 8799 may 8 1996 company one subsidiaries acquired outstanding common stock cj vander ltd manufacturer sterling silver silverplated flatware hollowware sheffield london england purchase price immaterial companys consolidated financial statements acquisition accounted purchase method accounting results operations cj vander included results company may 8 1996 results operations 1996 would differed significantly acquisition taken place january 1 1996 acquisition assets farberware april 2 1996 company indirect whollyowned subsidiary farb acquisition corp farb together lifetime hoan corporation lifetime acquired certain assets farberware inc subsidiary us industries inc company lifetime affiliates farberware inc manufacturer aluminum clad stainless steel cookware bakeware small electric kitchen appliances aggregate consideration paid farb lifetime 45771 farb paid approximately 32611 assets acquired company included certain inventory tradename farberware intellectual property including intellectual property relates cookware bakeware electric products major kitchen appliances certain tools dies machinery equipment effective april 2 1996 company farb entered manufacturing services agreement farberware inc transitional manufacturing services certain finished goods previously produced farberware inc company entered manufacturing service agreement part provide continuity product transition period order protect strength farberware name marketplace manufacturing service agreement terminated 1996 1997 company sold disposed acquired inventory longer manufactures sells farberware cookware bakeware products noncommercial electric products accordingly net sales year ended december 31 1997 1996 exclude revenue sales farberware inventory 26 million 39 million respectively related sales licensing income net certain selling general administrative expenses recorded operating income company acquired farberware order expand farberwares licensing activities use farberware name certain companys existing new products separate transaction company farb entered agreement lifetime provided allocation assets acquired farberware inc granting longterm license lifetime use farberware name connection extensive list products granting lifetime longterm exclusive rights operate farberware syratech corporation subsidiaries notes consolidated financial statements continued outlet stores reservation certain exclusive rights farb including exclusive rights use farberware name corporate purposes marketing cookware bakeware products well electric products administration certain licensing rights june 27 1996 companys farberware inc subsidiary formerly farb farberware entered license agreement meyer marketing co ltd meyer pursuant meyer granted term 200 years exclusive worldwide license use exploit farberware name certain related intellectual property rights connection sourcing manufacture distribution cookware bakeware products home use commercial industrial institutional size pots pans roasters ii nonexclusive shared rights use certain farberware technology intellectual property grant meyer made onetime payment company 25500 resulted recognition company 11900 nonrecurring income terms licensing agreement company obligation respect amount paid meyer entire proceeds received recognized revenue second quarter 1996 july 12 1996 farberware granted major retail chain exclusive license use exploit farberware name related intellectual property connection sourcing manufacture marketing sale certain electric products quarterly royalty payments october 25 1996 farberware granted fci corp license use exploit farberware name connection sourcing manufacturing marketing sale certain commercial products defined six specified commercial urns one specified commercial convection oven plus cookware bakeware electric products developed licensee solely exclusively commercial industrial institutional use prior written approval farberware payment quarterly royalties pursuant agreement made lifetime contemporaneously agreement acquisition assets farberware inc company lifetime agreed share rights receive obligation pay certain commissions respect royalties specified license agreements assigned company prior owner farberware tradename subject certain intellectual property rights company reserved exclusively company lifetime expect continue grant licenses third parties use farberware tradename company also markets specific products time farberware tradename agreement lifetime provides period sixty days following change control either company lifetime coowner joint venture right require coowner experienced change control set price onehalf interest venture thereupon coowner ie one experienced change control elect either buy coowners interest price set sell interest price coowner set subsequent acquisition assets farberware inc legal disputes arose amongst parties alleged breaches agreements february 3 1997 company farberware lifetime reached agreement settlement agreement bruckner manufacturing corp bmc us industries inc usi settle previous outstanding legal disputes arising farberware asset purchase agreement apa manufacturing services agreement msa terms settlement agreement company received certain finished goods inventory cost paid certain finished goods inventories purchased msa company also received waiver certain restrictions apa disposing tools machinery equipment formerly used bmc manufacture farberware products company sold majority tools machinery equipment 1997 retained remainder use existing businesses sale tools machinery equipment resulted net proceeds company 2184 recorded nonoperating income 1997 silvestri april 16 1996 company purchased finished goods inventory intangible assets silvestri division ffsc inc silvestri approximately 8600 silvestri products include christmas ornaments collectibles lighting trim well seasonal nonseasonal giftware decorative accessories january 1998 connection managements plan reduce costs improve operating efficiencies integrating recent acquisition company announced plans close certain silvestri administrative distribution operations move corporate headquarters syratech corporation subsidiaries notes consolidated financial statements continued potpourri press november 26 1996 whollyowned subsidiary company acquired inventory tangible property intellectual property rights certain records certain contract rights potpourri press inc north carolinabased manufacturer marketer christmas products purchase price approximately 2300 plus 240 promissory note 7 4 discontinued operations april 11 1995 pursuant agreement entered march 28 1995 company subsidiary syratech holding corporation sold syroco inc syroco net proceeds received costs sale income taxes 133931 september 25 1995 company reached final settlement regarding sale syroco terms settlement company reacquired certain assets reassumed certain liabilities syroco recorded estimated net fair value 1834 december 31 1995 sale resulted discontinuation companys casual furniture accessories business resulted aftertax gain disposal 30451 recognized second quarter 1995 operating results unaudited discontinued segment three months ended march 31 1995 includes net sales 33626 income provision income taxes 4217 provision income taxes 1645 resulting income discontinued operations 2572 results operations cash flows discontinued segment included discontinued operations consolidated statement operations consolidated statement cash flows year ended december 31 1995 operating results discontinued segment exclude previously allocated corporate expenses substantially assets sold disposed effect previously recognized gain disposal 5 inventories december 31 1997 1996 inventories comprised following raw materials 10169 9020 workinprocess 4917 5980 finished goods 69209 64355 total 84295 79355 inventories would approximately 1784 3430 higher december 31 1997 1996 respectively fifo method used inventories increases lifo inventory quantities effect decreasing consolidated net loss 74 1997 decreasing income 59 1996 decreases lifo inventory quantities 1995 syratech corporation subsidiaries notes consolidated financial statements continued 6 property plant equipment property plant equipment comprised following december 31 1997 1996 land improvements 10345 8305 buildings improvements 43092 41838 tools dies 16501 14635 machinery equipment 30911 25388 1984 1619 construction progress 16950 4923 total 119783 96708 less accumulated depreciation 37379 32753 net 82404 63955 capitalized interest material companys consolidated financial statements year presented company commitments contracts construction warehouse distribution facility mira loma california portions contracts completed december 31 1997 reflected consolidated financial statements unrecorded commitments approximately 3947 december 31 1997 7 revolving loan facilities notes payable 1997 revolving loan facilities notes payable effective date merger company entered senior revolving credit facility revolving credit facility terminated 60000 amended restated loan security agreement loan agreement revolving credit facility amended july 31 1997 december 31 1997 provides 130000 borrowings including 30000 sublimit issuance standby commercial letters credit borrowings made revolving credit facility bear interest rate equal companys option eurodollar rate plus 225 basis points 797 using 30 day eurodollar rate december 31 1997 prime rate plus 50 basis points 9 december 31 1997 weightedaverage interest rate borrowings outstanding facility year ended december 31 1997 881 december 31 1997 6000000 outstanding borrowings eurodollar rate balance outstanding borrowings prime rate revolving credit facility expires april 16 2002 pursuant terms revolving credit facility company required february march year maintain excess availability least 45000 except february march 1998 minimum availability must 30000 obligations company revolving credit facility secured inventory accounts receivable company issuerguarantor parent domestic subsidiaries pledge 100 domestic subsidiaries least 65 foreign subsidiaries outstanding capital stock guarantor subsidiaries note 17 revolving credit facility contains customary covenants company subsidiary borrowers including limited minimum earnings income taxes depreciation amortization certain adjustments ebitda defined funded debt ebitda fixed charge coverage ratios defined revolving credit facility minimum consolidated net worth december 31 1997 least 100 thousands company compliance covenants amended december 31 1997 year ended availability revolving credit facility net outstanding letters credit 61837 december 31 1997 furthermore connection merger company entered debt financing 165000 11 senior notes due april 15 2007 require interest payments made semiannually april 15 october 15 notes general unsecured obligations company rank pari passu right payment current future syratech corporation subsidiaries notes consolidated financial statements continued unsubordinated indebtedness company including borrowings revolving credit facility however borrowings revolving credit facility secured first priority lien accounts receivable inventory company domestic subsidiaries guarantor subsidiaries foreign subsidiaries nonguarantor subsidiaries consequently obligations company notes effectively subordinated obligations revolving credit facility extent assets notes redeemable whole part companys option april 15 2002 companys ability pay dividends restricted terms revolving credit facility notes also include financial covenants less restrictive covenants contained revolving credit facility default notes trigger default revolving credit facility 1996 revolving loan facilities 1996 revolving loan facility repaid entirety upon completion merger weightedaverage interest rate borrowings outstanding facility year ended december 31 1996 729 december 31 1996 5878 outstanding facility credit availability net letters credit outstanding 83770 debt facilities effective date merger company paid outstanding borrowings 252 one wallaces puerto rican subsidiaries 10000 amended restated line credit agreement credit facility may 1 1997 company entered 1000 facility expiring may 31 1998 lender facility bears interest rate equal companys option eurodollar rate plus 175 basis points 747 using 30day eurodollar rate december 31 1997 banks prime rate less 25 basis points 825 december 31 1997 availability facility 49 december 31 1997 weightedaverage interest rate borrowings outstanding facility year ended december 31 1997 780 borrowings 1997 1996 facilities uncollateralized however pledge assets owned one subsidiaries collateral loans prohibited borrowings credit facility guaranteed company crossguaranteed certain subsidiaries weighted average interest rate borrowings outstanding facility year ended december 31 1996 808 december 31 1996 558 outstanding facility credit availability 9442 december 31 1996 company note payable 200 related purchase potpourri note 3 8 income taxes provisions benefit income taxes follows year ended december 31 1997 1996 1995 current federal 3121 11379 6518 state 448 3542 1674 foreign 825 1307 937 1848 16228 9129 deferred federal 4 3344 1805 state 16 900 383 foreign 20 4244 2188 tax effect stock options federal 193 60 state 57 18 250 78 total 1868 12234 6863 syratech corporation subsidiaries notes consolidated financial statements continued reconciliation companys effective income tax rate us federal statutory rate follows year ended december 31 1997 1996 1995 federal statutory rate 350 state taxes net federal income tax benefit 12 49 25 foreign income taxes including puerto rico 20 45 36 29 21 04 effective income tax rate 289 375 343 components income provision benefit income taxes comprised following year ended december 31 1997 1996 1995 domestic 10226 25457 14480 foreign 3762 7166 5559 total 6464 32623 20039 provisions made taxes undistributed earnings syratech hk wallaces puerto rican subsidiaries ultimately expected remitted parent company permanently invested portion undistributed earnings puerto rican syratech hk subsidiaries practical estimate amount unrecognized deferred tax liability attributable undistributed foreign earnings wallaces puerto rican subsidiaries operate grants commonwealth puerto rico exempting 90 income taxation december 2003 company eligible tax exemption net loss 1997 would increased approximately 1685 net income 1996 1995 would reduced approximately 1211 1198 respectively tax effects significant items comprising companys net deferred tax asset liability follows december 31 1997 1996 current deferred tax assets accounts receivable 3078 4475 inventory 2330 2336 reserves accruals 1596 2266 foreign operating loss carryforwards 5203 175 92 296 total 12299 9548 valuation allowance 962 608 net current deferred tax asset 11337 8940 noncurrent deferred tax asset liability property plant equipment 17252 17263 deferred compensation 1402 1876 foreign earnings remitted 4233 206 2525 net noncurrent deferred tax liability 20083 17706 syratech corporation subsidiaries notes consolidated financial statements continued valuation allowance relates primarily potential unusable portion foreign tax loss carryforwards 1997 december 31 1996 valuation allowance related potential unusable portion foreign tax loss carryforwards 530 contribution carryforwards 1066 9 commitments contingencies company subsidiaries various operating lease commitments buildings equipment lease agreements generally require company pay insurance real estate taxes maintenance contain various renewal options future minimum rental payments noncancellable operating leases next five years thereafter follows 1998 3393 1999 3121 2000 2551 2001 1602 2002 899 subsequent 2002 1779 rent expense operating leases approximately 6254 5209 1821 1997 1996 1995 respectively certain subsidiaries contingently obligated outstanding letters credit trade acceptances similar instruments aggregating 8199 december 31 1997 note 7 assets syratech hk pledged collateral certain contingent obligations 10 employee benefit plans 401k savings plans company three 401k savings plans 401k savings plans cover substantially employees domestic puerto rican subsidiaries 401k plans subject certain minimum age length employment requirements two plans company matches 30 participants contributions 6 compensation plan company matches 50 first five hundred twenty dollars contributed 25 thereafter participants contributions 15 compensation company also savings plan established 1991 covering substantially employees companys hong kong subsidiary hong kong plan company contributes 10 participants compensation company contributed aggregate 463 597 256 plans 1997 1996 1995 officers retirement plan company employment agreements certain officers employees terms ranging three five years provide minimum annual salaries aggregating 2901 certain benefits agreements five companys officers provide retirement benefit payments two agreements provide benefit payments based upon two percent average total annual compensation salary bonus threeyear period preceding executives retirement dates multiplied number years service addition one agreements provides 100 survivor benefit executives spouse two agreements provide benefit payments based upon greater 75000 ii onehalf one percent average total annual compensation salary bonus threeyear period preceding executives retirement dates multiplied number years service one agreement officer provides benefit payments based upon greater 75000 ii one percent average total annual compensation salary bonus threeyear period preceding executives retirement dates multiplied number years service upon consummation merger note 2 employment agreement officer amended change officers term fulltime employment rolling fiveyear term fixed fiveyear term ii provide minimum base salary syratech corporation subsidiaries notes consolidated financial statements continued 1150 per annum iii establish 1150 minimum amount upon officers retirement benefit survivors benefit surviving spouse computed iv create contractual rights respect certain perquisites accorded informally present arrangements company additionally employment agreement another officer amended change officers term fulltime employment rolling fiveyear term fixed fiveyear term pension expense determined using assumptions beginning year assumptions used determining actuarial present value projected benefit obligation include discount rate 675 75 85 1997 1996 1995 respectively rate future increases benefit compensation 3 effect changes discount rates material consolidated financial statements net pension cost included following components 1997 1996 1995 service cost benefits earned 279 317 196 interest cost benefit obligation 195 199 123 amortization prior service cost 33 620 476 amortization loss 4 191 net periodic pension cost 445 1327 795 following table summarizes amounts recognized consolidated balance sheets december 31 1997 1996 1997 1996 actuarial present value obligations vested benefit obligation 3261 3287 projected benefit obligation 3529 3612 fair value plan assets projected benefit obligation excess plan assets 3529 3612 unrecognized prior service cost 366 610 unrecognized gainloss 759 311 additional minimum liability 597 net accrued pension liability 3136 3288 companys c j vander subsidiary also employee benefit plan companys obligation plan material companys consolidated financial position results operations 11 stockholders equity preferred stock liquidation preference cumulative redeemable preferred stock 1000 per share plus accrued unpaid dividends holders cumulative redeemable preferred stock entitled subject rights creditors event voluntary involuntary liquidation company amount cash equal 1000 share outstanding plus accrued unpaid dividends rights holders cumulative redeemable preferred stock upon liquidation company rank prior holders common stock dividends shares cumulative redeemable preferred stock cumulative date issue payable declared time board directors company dividends accrue daily basis whether declared original date issue annual rate per share equal 12 original purchase price per share amount compounded annually december 31 dividend paid year unpaid amount syratech corporation subsidiaries notes consolidated financial statements continued added original purchase price cumulative redeemable preferred stock purpose calculating succeeding years dividends december 31 1997 1530 accrued cumulative redeemable preferred stock redeemable time option company whole part 1000 per share plus accumulated unpaid dividends date redemption subject companys existing debt agreements company must redeem outstanding cumulative redeemable preferred stock event public offering equity change control certain sales assets key employee stock option plans pursuant merger common stock option granted companys 1986 stock option plan 1986 plan 1993 key employee stock option plan 1993 plan 1995 key employee stock option plan 1995 plan outstanding immediately prior effective time vested cancelled exchange excess 3200 exercise price per share aggregate amount paid optionees 3685 188 related vesting stock options charged compensation expense summary stock option activity companys plans follows weighted average exercise price shares per share outstanding january 1 1995 300750 1064 canceled 90900 1291 granted 54500 1687 exercised 44150 729 outstanding december 31 1995 220200 1192 canceled 102000 2447 granted 139500 2468 exercised 28200 717 outstanding december 31 1996 229500 1468 canceled 221500 1471 granted exercised 8000 1390 outstanding december 31 1997 exercisable december 31 1996 107080 company applies accounting principles board opinion 15 related interpretations accounting stock option employee stockbased compensation plans compensation cost companys stock option plans determined based fair value grant dates awards plans granted january 1 1995 consistent method sfas 123 companys net income earnings per share year ended december 31 1996 would reduced pro forma amounts indicated syratech corporation subsidiaries notes consolidated financial statements continued 1996 1995 net income loss reported 20389 46199 pro forma 20036 45762 basic earnings per share reported 234 395 pro forma 230 391 weighted average number shares outstanding 8695 11707 diluted earnings per share reported 232 391 pro forma 228 388 weighted average number shares outstanding 8695 11707 effect dilutive stock options 104 96 adjusted weighted average number shares outstanding 8799 11803 pro forma results necessarily indicative results would reported options measured sfas 123 weighted average remaining contractual life options outstanding december 31 1996 699 years weighted average fair value options granted 1995 1996 803 894 per share respectively options granted 1997 fair value options granted companys stock option plans 1995 1996 estimated date grant using blackscholes option pricing model following weightedaverage assumptions used dividend yield expected volatility 306 riskfree interest rate 60 expected lives either 53 77 years transfer shares december 31 1996 companys chief executive officer principal shareholder principal shareholder company thl transaction corp entered agreements three executive officers whereby principal shareholder transfer 73068 shares syratech common stock company effect transfer equal number newly issued shares executive officers connection transfer shares stock agreements also provide executive receive company additional compensation annual lump sum cash payment lump sum payments reimbursement income taxes owed executive result transfer payment transfer shares principal shareholder lump sum payments executives irrevocable unconditional based upon executives future employment company december 31 1996 31812 shares transferred lump sum payments totaling 703 made executives january 14 1997 shares aggregating 31884 transferred lump sum payments totaling 705 made executives january 14 1998 remaining 9372 shares transferred executives estimated value shares recorded addition additional paidin capital 2338 total compensation expense equal estimated fair value shares plus estimate aggregate lump sum payments 3953 recorded fourth quarter 1996 shortterm compensation payable 207 705 december 31 1997 1996 respectively longterm compensation payable december 31 1996 207 weightedaverage fair value shares 3150 fair value shares based provision sfas 123 materially different amounts recorded syratech corporation subsidiaries notes consolidated financial statements continued purchase common stock december 29 1995 company effected katy stock repurchase aggregate purchase price 52054 represented approximately 17 per share purchase financed issuance two promissory notes due january 2 1996 subsidiaries katy assumption shortterm bank debt aggregating 51735 two promissory notes shortterm bank debt paid january 2 1996 companys par additional paidin capital values decreased reflect purchase shareholder rights plan october 26 1992 companys board directors adopted shareholder rights plan company distributed dividend one right purchase shares preferred stock stockholders record october 31 1992 authorized issuance one right share common stock becomes outstanding record date right entitles registered holder purchase company one onehundredth share new series preferred stock series preferred stock price 50 subject adjustment amended july 5 1994 rights become exercisable individual group acquiring person acquires 15 outstanding common stock commences tender offer would result ownership 30 outstanding common stock case person beneficially owned 20 outstanding common stock october 26 1992 person acquires additional 1 outstanding common stock required merger recapitalization note 2 effective november 8 1996 company redeemed outstanding rights terminated shareholder rights plan pursuant rights issued redemption price right one cent holders rights received payment redemption price prior effective time redemption price rights added payment cash price shares company common stock merger 12 relatedparty transactions connection merger company entered management agreement thomas h lee company pays annual management fee amount 450 320 incurred year ended december 31 1997 1996 beneficial owner less 1 company held significant management role service merchandise co inc service different person director company also director service company net sales service approximately 6867 12432 10706 1997 1996 1995 respectively effective july 12 1996 company indirect whollyowned subsidiary granted license service use certain trademarks patents copyrights relating certain electric products agreement subject cancellation six months notice licensee 1996 wacker industrial company wacker major supplier owned holder less 1 companys common stock 1997 1996 1995 company purchases supplier approximately 5806 4478 5371 respectively accounts payable supplier approximated 41 93 december 31 1997 1996 respectively transactions companies affiliated certain directorsstockholders include net sales approximately 903 790 735 1997 1996 1995 respectively purchases products services 1997 1996 1995 accounts receivable companies approximated 19 7 december 31 1997 1996 respectively accounts payable syratech corporation subsidiaries notes consolidated financial statements continued 13 foreign operations companys foreign operations relate hong kong subsidiary may 8 1996 cj vander subsidiary sales hong kong subsidiary substantially customers united states sales cj vander subsidiary primarily foreign customers summarized financial information companys operations different geographic areas follows year ended december 31 1997 1996 1995 net sales united states 231152 212516 122950 hong kong 54950 54749 46570 foreign 4760 3666 0 total 290862 270931 169520 income loss operations united states 2851 15372 9846 hong kong 4841 8235 5599 foreign 570 505 0 total 7122 23102 15445 identifiable assets united states 250899 212377 213162 hong kong 6245 7754 7404 foreign 8856 7123 0 total 266000 227254 220566 14 litigation company named defendant several legal actions arising normal business activities company carries insurance liability certain types risks although amount liability could result litigation cannot predicted opinion management companys potential liability known claims would material adverse effect consolidated financial position results operations company syratech corporation subsidiaries notes consolidated financial statements continued 15 quarterly results unaudited supplementary information quarterly results unaudited fourth quarter 1997 company recorded inventory adjustment 2800 related shrinkage excess material scrap costs related startup new manufacturing equipment syratech corporation subsidiaries notes consolidated financial statements continued 16 subsequent events march 30 1998 company amended revolving credit facility change financial covenants company subsidiary borrowers including limited revising funded debt ebitda defined fixed charge coverage ratios capital expenditure covenants company expects compliance covenants amended fiscal 1998 note 17 supplemental condensed consolidating financial statements following supplemental condensed consolidating financial statements december 31 1997 1996 three years period ended december 31 1997 present separate financial information company issuerguarantor parent guarantor subsidiaries note 7 nonguarantor subsidiaries note 7 discontinued operations note 4 separate financial statements guarantor presented management believes statements would materially different information presented herein syratech corporation subsidiaries notes consolidated financial statements continued supplemental condensed consolidating balance sheets december 31 1997 syratech corporation subsidiaries notes consolidated financial statements continued supplemental condensed consolidating balance sheets december 31 1996 syratech corporation subsidiaries notes consolidated financial statements continued supplemental condensed consolidating statements operations year ended december 31 1997 syratech corporation subsidiaries notes consolidated financial statements continued supplemental condensed consolidating statements operations year ended december 31 1996 syratech corporation subsidiaries notes consolidated financial statements continued supplemental condensed consolidating statements operations year ended december 31 1995 syratech corporation subsidiaries notes consolidated financial statements continued supplemental condensed consolidating statements cash flows year ended december 31 1997 syratech corporation subsidiaries notes consolidated financial statements continued supplemental condensed consolidating statements cash flows year ended december 31 1996 syratech corporation subsidiaries notes consolidated financial statements concluded supplemental condensed consolidating statements cash flows year ended december 31 1995 item 9 item 15 exhibits financial statement schedules reports form 8k florence company incorporated reference exhibit 108 form s4 registration statement 33316917 109 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 109 form s4 registration statement 33316917 1010 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 1010 form s4 registration statement 33316917 1011 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1011 form s4 registration statement 33316917 1012 agreement dated december 31 1996 company thl transaction corp leonard florence melvin l levine incorporated reference exhibit 1012 form s4 registration statement 33316917 1013 agreement dated december 31 1996 company thl transaction corp leonard florence e merle randolph incorporated reference exhibit 1013 form s4 registration statement 33316917 1014 agreement dated december 31 1996 company thl transaction corp leonard florence alan r kanter incorporated reference exhibit 1014 form s4 registration statement 33316917 1015 asset purchase agreement dated february 2 1996 farberware inc company lifetime hoan corporation farb acquisition corp inc incorporated reference exhibit 1 form 8k dated april 16 1996 1016 settlement agreement dated february 3 1997 among bruckner manufacturing corp formerly farberware inc us industries inc farberware inc formerly farb acquisition corp lifetime hoan corporation incorporated reference exhibit 1016 form s4 registration statement 33316917 1017 agreement dated december 7 1995 among company syr acquisition inc rauch industries inc incorporated reference exhibit 1 form 8k company dated december 7 1995 incorporated reference exhibit 1017 form s4 registration statement 33316917 1018 amended restated line credit agreement among wallace international de puerto rico inc international silver de puerto rico inc banco popular de puerto rico dated october 15 1996 incorporated reference exhibit 1018 form s4 registration statement 33316917 1019 agreement dated february 2 1996 among company lifetime hoan corporation farb acquisition corp incorporated reference exhibit 1019 form s4 registration statement 33316917 1020 agreement dated may 3 1996 among company farberware inc meyer manufacturing co ltd incorporated reference exhibit 1020 form s4 registration statement 33316917 1021 license agreement dated july 12 1996 farberware inc service merchandise company inc redacted omit certain royalty information incorporated reference exhibit 1021 form s4 registration statement 33316917 1022 agreement dated october 16 1996 among farberware inc service merchandise company inc windmeredurable holdings inc amending item 1021 incorporated reference exhibit 1022 form s4 registration statement 33316917 1023 commitment letter banco popular de puerto rico wallace international de pr inc dated may 1 1997 incorporated reference exhibit 101 form 10q dated august 13 1997 1024 letter agreement banco popular de puerto rico wallace international de pr inc dated may 12 1997 incorporated reference exhibit 102 form 10q dated august 13 1997 1025 amendment 1 dated july 31 1997 loan security agreement dated april 16 1997 incorporated reference exhibit 101 form 10q dated november 12 1997 1026 amendment 2 dated december 31 1997 loan security agreement dated april 16 1997 incorporated reference exhibit 1026 10k dated march 31 1998 1027 amendment 3 dated january 26 1998 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1027 10k dated march 31 1998 1028 purchase sale agreement dated january 28 1998 among claremont company inc faye florence leonard florence e merle randolph trustees 175 amlegion realty trust incorporated reference exhibit 1028 10k dated march 31 1998 1029 escrow agreement dated january 28 1998 among faye florence leonard florence e merle randolph trustees 175 amlegion realty trust claremont company hutchins wheeler dittmar professional corporation incorporated reference exhibit 1029 10k dated march 31 1998 1030 agreement rauch industries inc guy yocom construction inc dated july 31 1997 incorporated reference exhibit 1030 10k dated march 31 1998 1031 agreement rauch industries inc cas construction inc dated august 25 1997 incorporated reference exhibit 1031 10k dated march 31 1998 1032 varcopruden purchase order dated june 16 1997 incorporated reference exhibit 1032 10k dated march 31 1998 1033 amendment 3 dated march 30 1998 loan security agreement dated april 16 1997 incorporated reference exhibit 1033 10k dated march 31 1998 1034 amendment 4 dated march 26 1999 loan security agreement dated april 16 1997 incorporated reference exhibit 1034 10k dated march 31 1999 1035 advice borrowing terms c j vander ltd nat west bank plc dated march 19 1999 incorporated reference exhibit 1035 10k dated march 31 1999 1036 advice borrowing terms c j vander ltd nat west bank plc dated august 5 1999 incorporated reference exhibit 102 10q dated june 30 1999 1037 letter agreement banco popular wallace international de puerto rico inc dated june 1 1999 incorporated reference exhibit 101 10q dated june 30 1999 1038 employment agreement dated july 8 1999 ami trauber company incorporated reference exhibit 103 10q dated june 30 1999 1039 lyme properties llc incorporated reference exhibit 102 10q dated september 30 1999 1040 advice borrowing terms cj vander ltdinternational silver company ltd nat west plc dated march 10 2000 incorporated reference exhibit 1040 10k dated december 31 1999 1041 letter agreement dated december 31 1998 farberware inc excel importing corp incorporated reference exhibit 1036 10k dated march 31 1999 1042 report form 15 certification notice termination registration section 12g securities exchange act 1934 suspension duty file reports sections 13 15d securities exchange act 1934 filed december 7 1998 incorporated reference exhibit 1037 10k dated march 31 1999 1043 letter agreement banco popular wallace international de puerto rico inc dated july 31 2000 incorporated reference exhibit 10 form 10q dated june 30 2000 1044 advice borrowing terms c j vander ltd nat west bank plc dated august 23 2000 incorporated reference exhibit 101 form 10q dated september 30 2000 1045 letter agreement dated august 24 2000 syratech corporation affiliates bank america na administrative agent lenders loan security agreement incorporated reference exhibit 102 form 10q dated september 30 2000 1046 amendment 5 dated march 26 2001 loan security agreement dated april 16 1997 incorporated reference exhibit 1046 form 10k dated march 30 2001 1047 advice borrowing terms c j vander ltdinternational silver company ltd nat west plc dated march 20 2001 incorporated reference exhibit 101 form 10q dated march 31 2001 1048 promissory note 10000000 dated april 2 2001 ml distribution center llc sunamerica life insurance company incorporated reference exhibit 102 form 10q dated march 31 2001 1049 letter agreement banco popular wallace international de puerto rico inc dated august 2 2001 incorporated reference exhibit 101 form 10q dated june 30 2001 1050 amendment 6 dated august 13 2001 loan security agreement dated april 16 1997 incorporated reference exhibit 102 form 10q dated june 30 2001 1051 advice borrowing terms c j vander ltdinternational silver company ltd nat west plc dated september 28 2001 incorporated reference exhibit 101 form 10q dated september 30 2001 1052 employment noncompetition agreement dated february 27 2002 robert meers company incorporated reference exhibit 1052 10k dated december 31 2001 1053 amendment 2 amended restated employment agreement dated april 16 1997 leonard florence company incorporated reference exhibit 1053 10k dated december 31 2001 1054 amendment 7 consent dated march 22 2002 loan security agreement dated april 16 1997 incorporated reference exhibit 1054 10k dated december 31 2001 1055 acquisition agreement dated december 31 2001 farberware inc company incorporated reference exhibit 1055 10k dated december 31 2001 1056 employment agreement dated june 1 2001 gregory hunt company incorporated reference exhibit 1056 10k dated december 31 2001 1057 amendment 4 dated february 22 2001 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1057 10k dated december 31 2001 1058 advice borrowing terms c j vander ltdinternational silver company ltd nat west plc dated april 1 2002 incorporated reference exhibit 101 form 10q dated march 31 2002 1059 amendment 4 dated april 11 2002 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 102 form 10q dated march 31 2002 1060 letter agreement banco popular wallace international de puerto rico inc dated april 30 2002 incorporated reference exhibit 103 form 10q dated march 31 2002 1061 amendment 3 dated january 1 2002 employment agreement dated august 16 signatures pursuant requirements section 13 15d securities act 1934 registrant duly caused annual report form 10k signed behalf undersigned thereunto duly authorized city boston state massachusetts 31st day march 2003 pursuant requirements securities act 1934 annual report form 10k signed following persons capacities dates indicated signature title date robert meers president chief executive march 31 2003 officer director robert meers gregory w hunt senior vice president chief march 31 2003 financial officer treasurer gregory w hunt principal financial accounting officer director thomas hagerty director march 31 2003 thomas hagerty david v harkins director march 31 2003 david v harkins alan r kanter director march 31 2003 alan r kanter melvin l levine director march 31 2003 melvin l levine scott schoen director march 31 2003 scott schoen kent r weldon director march 31 2003 kent r weldon george r taylor director march 31 2003 george r taylor syratech corporation certifications pursuant section 302 sarbanesoxley act 2002 certification robert meers president chief executive officer syratech corporation certify 1 reviewed annual report form 10k syratech corporation 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a 15d registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 31 2003 syratech corporation certifications pursuant section 302 sarbanesoxley act 2002 certification gregory w hunt senior vice president chief financial officer treasurer syratech corporation certify 1 reviewed annual report form 10k syratech corporation 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a 15d registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 31 2003 schedule ii syratech corporation subsidiaries valuation qualifying accounts thousands doubtful accounts written b sales returns item 15 exhibits financial statement schedules reports form 8k exhibits 21 restated agreement plan merger dated november 27 1996 effective october 23 1996 syratech thl transaction corp amendment dated february 14 1997 restated agreement plan merger incorporated reference exhibit 21 form s4 registration statement 33316917 31 restated certificate incorporation syratech incorporated reference exhibit 31 form s1 registration statement 3341619 32 syratech corporation certificate designations respect series preferred stock dated october 26 1992 incorporated reference exhibit 32 form s4 registration statement 33316917 33 bylaws syratech incorporated reference exhibit 32 form s1 registration statement 3341619 34 amendment section 29 bylaws syratech effective august 15 1991 incorporated reference exhibit 33 form s1 registration statement 3341619 35 certificate ownership merger wsc liquidating inc syratech corporation dated may 9 1996 incorporated reference exhibit 35 form s4 registration statement 33316917 36 specimen common stock certificate incorporated reference exhibit 41 form 10k syratech year ended december 31 1993 101 form amended restated employment agreement dated april 16 1997 leonard florence company incorporated reference exhibit 101 form s4 registration statement 33316917 1011 amendment 1 dated july 29 1998 employment agreement dated april 16 1997 leonard florence company incorporated reference exhibit 102 10q dated june 30 1998 102 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1017 form s1 registration statement 3341619 103 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 1018 form s1 registration statement 3341619 104 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1019 form s1 registration statement 3341619 105 amendment 1 dated july 27 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 105 form s4 registration statement 33316917 106 amendment 1 dated may 11 1995 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 108 form 10k syratech year ended december 31 1995 107 amendment 1 dated july 27 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 107 form s4 registration statement 33316917 108 retirement benefit agreement dated july 27 1996 faye florence company incorporated reference exhibit 108 form s4 registration statement 33316917 109 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 109 form s4 registration statement 33316917 1010 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 1010 form s4 registration statement 33316917 1011 amendment 2 dated january 31 1997 effective december 31 1996 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 1011 form s4 registration statement 33316917 1012 agreement dated december 31 1996 company thl transaction corp leonard florence melvin l levine incorporated reference exhibit 1012 form s4 registration statement 33316917 1013 agreement dated december 31 1996 company thl transaction corp leonard florence e merle randolph incorporated reference exhibit 1013 form s4 registration statement 33316917 1014 agreement dated december 31 1996 company thl transaction corp leonard florence alan r kanter incorporated reference exhibit 1014 form s4 registration statement 33316917 1015 asset purchase agreement dated february 2 1996 farberware inc company lifetime hoan corporation farb acquisition corp inc incorporated reference exhibit 1 form 8k dated april 16 1996 1016 settlement agreement dated february 3 1997 among bruckner manufacturing corp formerly farberware inc us industries inc farberware inc formerly farb acquisition corp lifetime hoan corporation incorporated reference exhibit 1016 form s4 registration statement 33316917 1017 agreement dated december 7 1995 among company syr acquisition inc rauch industries inc incorporated reference exhibit 1 form 8k company dated december 7 1995 incorporated reference exhibit 1017 form s4 registration statement 33316917 1018 amended restated line credit agreement among wallace international de puerto rico inc international silver de puerto rico inc banco popular de puerto rico dated october 15 1996 incorporated reference exhibit 1018 form s4 registration statement 33316917 1019 agreement dated february 2 1996 among company lifetime hoan corporation farb acquisition corp incorporated reference exhibit 1019 form s4 registration statement 33316917 1020 agreement dated may 3 1996 among company farberware inc meyer manufacturing co ltd incorporated reference exhibit 1020 form s4 registration statement 33316917 1021 license agreement dated july 12 1996 farberware inc service merchandise company inc redacted omit certain royalty information incorporated reference exhibit 1021 form s4 registration statement 33316917 1022 agreement dated october 16 1996 among farberware inc service merchandise company inc windmeredurable holdings inc amending item 1021 incorporated reference exhibit 1022 form s4 registration statement 33316917 1023 commitment letter banco popular de puerto rico wallace international de pr inc dated may 1 1997 incorporated reference exhibit 101 form 10q dated august 13 1997 1024 letter agreement banco popular de puerto rico wallace international de pr inc dated may 12 1997 incorporated reference exhibit 102 form 10q dated august 13 1997 1025 amendment 1 dated july 31 1997 loan security agreement dated april 16 1997 incorporated reference exhibit 101 form 10q dated november 12 1997 1026 amendment 2 dated december 31 1997 loan security agreement dated april 16 1997 incorporated reference exhibit 1026 10k dated march 31 1998 1027 amendment 3 dated january 26 1998 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1027 10k dated march 31 1998 1028 purchase sale agreement dated january 28 1998 among claremont company inc faye florence leonard florence e merle randolph trustees 175 amlegion realty trust incorporated reference exhibit 1028 10k dated march 31 1998 1029 escrow agreement dated january 28 1998 among faye florence leonard florence e merle randolph trustees 175 amlegion realty trust claremont company hutchins wheeler dittmar professional corporation incorporated reference exhibit 1029 10k dated march 31 1998 1030 agreement rauch industries inc guy yocom construction inc dated july 31 1997 incorporated reference exhibit 1030 10k dated march 31 1998 1031 agreement rauch industries inc cas construction inc dated august 25 1997 incorporated reference exhibit 1031 10k dated march 31 1998 1032 varcopruden purchase order dated june 16 1997 incorporated reference exhibit 1032 10k dated march 31 1998 1033 amendment 3 dated march 30 1998 loan security agreement dated april 16 1997 incorporated reference exhibit 1033 10k dated march 31 1998 1034 amendment 4 dated march 26 1999 loan security agreement dated april 16 1997 incorporated reference exhibit 1034 10k dated march 31 1999 1035 advice borrowing terms c j vander ltd nat west bank plc dated march 19 1999 incorporated reference exhibit 1035 10k dated march 31 1999 1036 advice borrowing terms c j vander ltd nat west bank plc dated august 5 1999 incorporated reference exhibit 102 10q dated june 30 1999 1037 letter agreement banco popular wallace international de puerto rico inc dated june 1 1999 incorporated reference exhibit 101 10q dated june 30 1999 1038 employment agreement dated july 8 1999 ami trauber company incorporated reference exhibit 103 10q dated june 30 1999 1039 lyme properties llc incorporated reference exhibit 102 10q dated september 30 1999 1040 advice borrowing terms cj vander ltdinternational silver company ltd nat west plc dated march 10 2000 incorporated reference exhibit 1040 10k dated december 31 1999 1041 letter agreement dated december 31 1998 farberware inc excel importing corp incorporated reference exhibit 1036 10k dated march 31 1999 1042 report form 15 certification notice termination registration section 12g securities exchange act 1934 suspension duty file reports sections 13 15d securities exchange act 1934 filed december 7 1998 incorporated reference exhibit 1037 10k dated march 31 1999 1043 letter agreement banco popular wallace international de puerto rico inc dated july 31 2000 incorporated reference exhibit 10 form 10q dated june 30 2000 1044 advice borrowing terms c j vander ltd nat west bank plc dated august 23 2000 incorporated reference exhibit 101 form 10q dated september 30 2000 1045 letter agreement dated august 24 2000 syratech corporation affiliates bank america na administrative agent lenders loan security agreement incorporated reference exhibit 102 form 10q dated september 30 2000 1046 amendment 5 dated march 26 2001 loan security agreement dated april 16 1997 incorporated reference exhibit 1046 form 10k dated march 30 2001 1047 advice borrowing terms c j vander ltdinternational silver company ltd nat west plc dated march 20 2001 incorporated reference exhibit 101 form 10q dated march 31 2001 1048 promissory note 10000000 dated april 2 2001 ml distribution center llc sunamerica life insurance company incorporated reference exhibit 102 form 10q dated march 31 2001 1049 letter agreement banco popular wallace international de puerto rico inc dated august 2 2001 incorporated reference exhibit 101 form 10q dated june 30 2001 1050 amendment 6 dated august 13 2001 loan security agreement dated april 16 1997 incorporated reference exhibit 102 form 10q dated june 30 2001 1051 advice borrowing terms c j vander ltdinternational silver company ltd nat west plc dated september 28 2001 incorporated reference exhibit 101 form 10q dated september 30 2001 1052 employment noncompetition agreement dated february 27 2002 robert meers company incorporated reference exhibit 1052 10k dated december 31 2001 1053 amendment 2 amended restated employment agreement dated april 16 1997 leonard florence company incorporated reference exhibit 1053 10k dated december 31 2001 1054 amendment 7 consent dated march 22 2002 loan security agreement dated april 16 1997 incorporated reference exhibit 1054 10k dated december 31 2001 1055 acquisition agreement dated december 31 2001 farberware inc company incorporated reference exhibit 1055 10k dated december 31 2001 1056 employment agreement dated june 1 2001 gregory hunt company incorporated reference exhibit 1056 10k dated december 31 2001 1057 amendment 4 dated february 22 2001 employment agreement dated august 16 1991 e merle randolph company incorporated reference exhibit 1057 10k dated december 31 2001 1058 advice borrowing terms c j vander ltdinternational silver company ltd nat west plc dated april 1 2002 incorporated reference exhibit 101 form 10q dated march 31 2002 1059 amendment 4 dated april 11 2002 employment agreement dated august 16 1991 melvin l levine company incorporated reference exhibit 102 form 10q dated march 31 2002 1060 letter agreement banco popular wallace international de puerto rico inc dated april 30 2002 incorporated reference exhibit 103 form 10q dated march 31 2002 1061 amendment 3 dated january 1 2002 employment agreement dated august 16 1991 alan r kanter company incorporated reference exhibit 101 form 10q dated june 30 2002 1062 syratech corporation 2002 stock incentive plan incorporated reference exhibit 102 form 10q dated june 30 2002 1063 amendment 8 waiver dated november 12 2002 loan security agreement dated april 16 1997 incorporated reference exhibit 101 form 10q dated september 30 2002 1064 amendment 9 dated december 18 2002 loan security agreements dated april 16 1997 incorporated reference exhibit 991 form 8k dated december 18 2002 1065 purchase sales agreement dated december 13 2002 ml distribution center idi inc syratech corporation incorporated reference exhibit 991 8k dated january 15 2003 1066 first amendment purchase sales agreement dated december 18 2002 ml distribution center idi inc syratech corporation incorporated reference exhibit 992 8k dated january 15 2003 1067 first amendment purchase sales agreement dated december 18 2002 ml distribution center idi inc syratech corporation incorporated reference exhibit 993 8k dated january 15 2003 1068 mira loma industrial lease agreement 11640 harrell syratech dated january 15 2003 incorporated reference exhibit 1068 10k dated december 31 2002 1069 amendment 10 consent waiver dated march 14 2003 loan security agreement dated april 16 1997 incorporated reference exhibit 1069 10k dated december 31 2002 1070 share sale agreement dated march 21 2003 relating sale c j vander syratech hlw limited incorporated reference exhibit 1070 10k dated december 31 2002 1071 letter agreement banco popular wallace international de puerto rico inc dated may 14 2003 incorporated reference exhibit 101 10q dated march 31 2003 1072 license agreement dated april 16 2003 vew ltd syratech corporation incorporated reference exhibit 102 10q dated march 31 2003 1073 agreement dated october 22 2003 leonard florence company incorporated reference exhibit 102 10q dated september 30 2003 1074 amendment 11 dated march 5 2004 loan security agreements dated april 16 1997 1075 amended restated loan security agreement dated march 25 2004 syratech corporation bank america na congress financial corporation southwest 1076 purchase sale agreement dated november 26 2003 leonard florence associates inc berkeley investments inc syratech corporation 1077 lease dated december 18 2003 175 mcclellan highway llc syratech corporation 1078 first amendment purchase sale agreement dated december 11 2003 among leonard florence associates inc 175 mcclellan highway llc syratech corporation computation ratio earnings fixed charges fixed charges list subsidiaries 311 certification pursuant section 302 sarbanesoxley act 2002 312 certification pursuant section 302 sarbanesoxley act 2002 321 certification pursuant to18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification pursuant to18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 b financial statement schedule ii valuation qualifying accounts signatures pursuant requirements section 13 15d securities act 1934 registrant duly caused annual report form 10k signed behalf undersigned thereunto duly authorized city boston state massachusetts 30th day march 2004 pursuant requirements securities act 1934 annual report form 10k signed following persons capacities dates indicated schedule ii syratech corporation subsidiaries valuation qualifying accounts thousands doubtful accounts written b sales returns