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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 26, 2002
Commission file number 1-5452
ONEIDA LTD.
(Exact name of Registrant as specified in its charter)
NEW YORK 15-0405700
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
ONEIDA, NEW YORK 13421
(Address of principal executive offices) (Zip code)
(315) 361-3636
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of December 9, 2002: 16,545,422.
ONEIDA LTD.
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 26, 2002
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED STATEMENT OF OPERATIONS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.2. Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.3. Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
2
(b) During the quarter ended October 26, 2002 no Reports on Form 8-K
were filed by the registrant.
SIGNATURES
CERTIFICATIONS
3
ONEIDA LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE
MONTHS ENDED
RESTATED
(NOTE 1)
(Thousands except per OCT 26, OCT 27,
share amounts) 2002 2001
-------- --------
NET SALES ......................... $124,178 $128,548
COST OF SALES ..................... 83,897 87,702
-------- --------
GROSS MARGIN ...................... 40,281 40,846
OPERATING REVENUES ................ 324 379
-------- --------
40,605 41,225
-------- --------
OPERATING EXPENSES:
Selling, distribution and
administrative expenses ........ 32,941 34,486
-------- --------
INCOME FROM OPERATIONS ............ 7,664 6,739
OTHER (INCOME)EXPENSE - NET ....... 1,103 695
INTEREST EXPENSE .................. 4,041 5,732
-------- --------
INCOME BEFORE INCOME TAXES ........ 2,520 312
PROVISION FOR INCOME TAXES ........ 929 116
-------- --------
NET INCOME ........................ $ 1,591 $ 196
======== ========
EARNINGS PER SHARE OF COMMON STOCK:
Net income:
Basic ......................... $ .09 $ .01
Diluted (NOTE 3) .............. .09 .01
SHARES USED IN PER SHARE DATA:
Basic ......................... 16,543 16,494
Diluted (NOTE 3) .............. 16,579 16,546
CASH DIVIDENDS DECLARED (Common) $ .02
See notes to consolidated financial statements.
4
ONEIDA LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE NINE
MONTHS ENDED
RESTATED
(NOTE 1)
(Thousands except per OCT 26, OCT 27,
share amounts) 2002 2001
-------- --------
NET SALES ......................... $350,424 $374,782
COST OF SALES ..................... 235,413 251,829
-------- --------
GROSS MARGIN ...................... 115,011 122,953
OPERATING REVENUES ................ 1,003 1,119
-------- --------
116,014 124,072
-------- --------
OPERATING EXPENSES:
Selling, distribution and
administrative expenses ........ 96,204 103,392
-------- --------
INCOME FROM OPERATIONS ............ 19,810 20,680
OTHER (INCOME)EXPENSE - NET ....... (1,900) 161
INTEREST EXPENSE .................. 11,917 18,792
-------- --------
INCOME BEFORE INCOME TAXES ........ 9,793 1,727
PROVISION FOR INCOME TAXES ........ 3,640 649
-------- --------
NET INCOME ........................ $ 6,153 $ 1,078
======== ========
EARNINGS PER SHARE OF COMMON STOCK:
Net income:
Basic ......................... $ .37 $ .06
Diluted (NOTE 3) .............. .37 .06
SHARES USED IN PER SHARE DATA:
Basic ......................... 16,538 16,453
Diluted (NOTE 3) .............. 16,577 16,544
CASH DIVIDENDS DECLARED (Common) $ .06 $ .10
See notes to consolidated financial statements.
5
ONEIDA LTD.
CONSOLIDATED BALANCE SHEETS
OCTOBER 26, 2002 AND JANUARY 26, 2002
(Dollars in Thousands)
RESTATED
(NOTE 1)
OCT 26, JAN 26,
2002 2002
-------- --------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash .......................................... $ 2,673 $ 11,112
Accounts receivable, net of allowance for
Doubtful accounts of $4,328 and $3,475 ....... 78,795 78,420
Other accounts and notes receivable ........... 3,164 2,524
Inventories - Net:
Finished goods ............................... 158,858 147,097
Goods in process ............................. 13,101 13,112
Raw materials and supplies ................... 9,509 9,314
Other current assets .......................... 11,194 17,687
-------- --------
Total current assets ....................... 277,294 279,266
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment ................. 258,452 252,306
Less accumulated depreciation ................. 154,413 143,772
-------- --------
Property, plant and equipment-net .......... 104,039 108,534
-------- --------
OTHER ASSETS:
Goodwill - Net ................................ 133,287 131,796
Deferred income taxes ......................... 21,583 21,567
Other assets .................................. 7,695 4,390
-------- --------
TOTAL ..................................... $543,898 $545,553
======== ========
See notes to consolidated financial statements.
6
ONEIDA LTD.
CONSOLIDATED BALANCE SHEETS
OCTOBER 26, 2002 AND JANUARY 26, 2002
(Dollars in Thousands)
RESTATED
(NOTE 1)
OCT 26, JAN 26,
2002 2002
-------- --------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ............................... $ 10,656 $11,430
Accounts payable .............................. 27,544 24,848
Accrued liabilities ........................... 34,897 39,099
Accrued income taxes .......................... 5,808 5,245
Dividends payable ............................. 363 363
Current installments of long-term debt ........ 6,204 3,956
-------- --------
Total current liabilities .................. 85,472 84,941
-------- --------
LONG-TERM DEBT ................................. 238,427 256,170
-------- --------
OTHER LIABILITIES:
Accrued postretirement liability .............. 57,727 56,410
Accrued pension liability ..................... 15,157 15,206
Other liabilities ............................. 16,483 8,725
-------- --------
Total other liabilities .................... 89,367 80,341
-------- --------
STOCKHOLDERS' EQUITY:
Cumulative 6% preferred stock; $25 par
value; authorized 95,660 shares, issued
86,036 shares, callable at $30 per share ..... 2,151 2,151
Common stock $1 par value; authorized
48,000,000 shares, issued 17,828,832
and 17,809,235 shares ........................ 17,829 17,809
Additional paid-in capital .................... 84,151 83,965
Retained earnings ............................. 65,702 60,638
Accumulated other comprehensive loss .......... (15,067) (16,328)
Less cost of common stock held in
treasury; 1,285,679 shares ................... (24,134) (24,134)
-------- -------
Stockholders' Equity ........................ 130,632 124,101
-------- --------
TOTAL ..................................... $543,898 $545,553
======== ========
See notes to consolidated financial statements.
7
ONEIDA LTD.
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 26, 2002
(Unaudited)
Add'l
(Thousands) Comp. Common Common Pref'd Paid-in Retained
Income Shares Stock Stock Capital Earnings
---------------------------------------------------------------------
Balance at Jan 26, 2002
Restated (Note 1).................. 17,809 $17,809 $2,151 $83,965 $60,638
Stock plan activity, net.............. 20 20 186
Cash dividends declared
($.06 per share) .................. (1,089)
Net income ...........................$ 6,153 6,153
Other comprehensive gain ............. 1,261
-------
Comprehensive income .................$ 7,414
=======
----------------------------------------------------------
Balance at Oct 26, 2002............... 17,829 $17,829 $2,151 $84,151 $65,702
==========================================================
Accum.
Other Comp Treasury
Income (Loss) Stock
------------------------------
Balance at Jan 26, 2002
Restated (Note 1)......... $(16,328) $(24,134)
Other comprehensive
gain ..................... 1,261
------------------------------
Balance at Oct 26, 2002 ..... $(15,067) $(24,134)
==============================
See notes to consolidated financial statements.
8
ONEIDA LTD.
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 27, 2001
(Unaudited)
Add'l
(Thousands) Comp. Common Common Pref'd Paid-in Retained
Income Shares Stock Stock Capital Earnings
-------------------------------------------------------------------------------
Balance at Jan 27, 2001
Restated (Note 1) ........... 17,703 $ 17,703 $ 2,167 $ 82,956 $ 55,693
Stock plan activity, net........ 88 88 832
Purchase/retirement of
Treasury stock, net............. (16)
Cash dividends declared
($.10 per share)............. (1,750)
Net income ..................... $ 1,078 1,078
Other comprehensive loss ....... (4,038)
--------
Comprehensive loss ............. $ (2,960)
========
-----------------------------------------------------------------
Balance at Oct 27, 2001.......... 17,791 $ 17,791 $ 2,151 $ 83,788 $ 55,021
=================================================================
Accum.
Other Comp Treasury
Income (Loss) Stock
------------------------------
Balance at Jan 27, 2001
Restated (Note 1)......... $(11,423) $(24,590)
Purchase/retirement of
Treasury stock, net .......... 347
Other comprehensive
loss ...................... (4,038)
------------------------------
Balance at Oct 27, 2001 ...... $(15,461) $(24,243)
==============================
See notes to consolidated financial statements.
9
ONEIDA LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 26, 2002 AND OCTOBER 27, 2001
(Unaudited)
(In Thousands)
FOR THE NINE
MONTHS ENDED
RESTATED
(NOTE 1)
OCT 26, OCT 27,
2002 2001
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income ..................................... $ 6,153 $ 1,078
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ................. 12,566 13,950
Deferred taxes and other non-cash
charges and credits ........................ 5,257 (1,931)
Decrease (increase) in operating assets:
Receivables .................................. (1,015) (3,164)
Inventories .................................. (11,945) 24,252
Other current assets ......................... (1,906) 196
Other assets ................................. (3,346) (3,498)
Increase (decrease) in accounts payable ....... 2,696 (3,314)
Increase (decrease) in accrued liabilities .... (3,139) (8,768)
-------- --------
Net cash provided by operating activities .. 5,321 18,801
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Property, plant and equipment expenditures-net . (6,327) (7,701)
Proceeds from sale of marketable securities .... 8,399
Other, net ..................................... 58 6,580
-------- --------
Net cash provided(used)in investing activities 2,130 (1,121)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ......... 206 913
Issuance (purchase) of treasury stock .......... 338
(Decrease) increase in short-term debt-net ..... (774) 2,409
Decrease in long-term debt - net ............... (15,494) (11,660)
Dividends paid ................................. (1,089) (3,085)
-------- --------
Net cash used by financing activities ........ (17,151) (11,085)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .......... 1,261 (4,038)
-------- --------
NET INCREASE (DECREASE) IN CASH .................. (8,439) 2,557
CASH AT BEGINNING OF YEAR ........................ 11,112 2,163
-------- --------
CASH AT END OF PERIOD ............................ $ 2,673 $ 4,720
======== ========
See notes to consolidated financial statements.
10
ONEIDA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands)
1. The consolidated financial statements for the three and nine months ended
October 26, 2002 and October 27, 2001 are unaudited; in the opinion of the
Company such unaudited consolidated financial statements include all adjustments
(which comprise only normal recurring accruals, except as discussed below with
respect to the restatement) necessary for a fair presentation of the results of
such periods. The results of operations for the three and nine months ended
October 26, 2002 are not necessarily indicative of the results of operations to
be expected for the year ending January 25, 2003. The consolidated financial
statements and notes thereto should be read in conjunction with the consolidated
financial statements and notes for the years ended in January 2002 and 2001
included in the Company's January 26, 2002 Annual Report to the Securities and
Exchange Commission on Form 10-K. The company will file amended Form 10-K and
Form 10-Q reports with respect to the restatement discussed below as soon as
possible.
Restatement
In November, 2002 the company announced that it would restate financial results
for its accounting for the August 2000 acquisition of Delco International Ltd.
The company concluded that adjustments were needed to its initial purchase price
allocation to record compensation related to employment agreements previously
recorded as goodwill, integration and other period costs and to appropriately
recognize the deferred tax effects of the acquisition. In addition,
reclassifications were made between various balance sheet accounts, including
inventory, receivables, fixed assets, goodwill, other assets, and accrued
liabilities to properly classify fair value and other adjustments associated
with the acquisition. The cumulative effect of these restatements results in the
recognition from August 2000 through July 2002 of additional compensation
expense, integration expenses, and tax expense totaling $3.4 million as compared
to what was previously reported.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED OCT 27, 2001
As Prev. Increase
Reported (Decrease) Restated
-------- -------- --------
Selling, distribution
and administrative expenses .... $ 34,319 $ 167 $ 34,486
Provision for income taxes ...... 179 (63) 116
Net income ...................... 300 (104) 196
Earnings per share
(basic and diluted)............. $ .02 $(.01) $ .01
Net income for the quarter ended October, 2001 decreased from $300 as previously
reported to $196 as restated. This reduction results from recognition of
additional compensation expense and integration costs of $109 and $58,
respectively, net of an associated income tax benefit of $63.
11
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCT 27, 2001
As Prev. Increase
Reported (Decrease) Restated
-------- -------- --------
Cost of Sales ................... $250,635 $1,194 $251,829
Selling, distribution
and administrative expenses .... 102,419 973 103,392
Provision for income taxes ...... 1,451 (802) 649
Net income ...................... 2,443 (1,365) 1,078
Earnings per share
(basic and diluted)............. $ .14 $(.08) $ .06
Net income for the nine month period ended October, 2001 decreased from $2.4
million as previously reported to $1.1 million as restated. This reduction
results from the recognition of additional cost of sales, compensation expense,
and integration costs of $1.2 million, $327 and $646, respectively, net of an
associated income tax benefit of $802.
BALANCE SHEET AT JANUARY 26,2002
As Prev. Increase
Reported (Decrease) Restated
-------- -------- --------
Other current assets ............ $ 18,540 $ (853) $ 17,687
Property, plant & equipment ..... 252,144 162 252,306
Goodwill - net .................. 134,073 (2,277) 131,796
Deferred income taxes ........... 19,181 2,386 21,567
Accrued liabilities ............. 37,950 1,149 39,099
Accrued income taxes ............ 3,696 1,549 5,245
Retained earnings ............... 63,918 (3,280) 60,638
The consolidated balance sheet as of January 2002 has been restated to reflect
the effects of the adjustments described above. Retained earnings has been
decreased $3.3 million from $63.9 million as previously reported to $60.6
million as restated to recognize the cumulative effect of increased compensation
expense of $1.0 million, increased cost of sales of $1.2 million, increased
integration costs of $500, reduced goodwill amortization of $640, and increased
income tax expense of $1.2 million. Goodwill has been restated downward from
$134.1 million as previously reported to $131.8 million as restated principally
to reflect the reversal of compensation and integration costs included in the
purchase price allocation approximating $3.2 million, reclassify $2.2 million of
fair value adjustments and exit costs from accrued liabilities into goodwill, to
increase net deferred tax assets related to the acquisition of $1.9 million, and
to reduce accumulated amortization of goodwill by $640.
Net income (loss) for the three month period ended April 2001 decreased from
$444 and $.02 per share as previously reported to ($418) and ($.03) per share as
restated as a result of the recognition of additional compensation expense of
$339, cost of sales of $956, integration costs of $73, less an income tax
benefit of $506. Net income for the three month period ended April 2002
decreased from $1,702 as previously reported to $1,648 as restated and earnings
per share remained unchanged, as a result of the recognition of additional
compensation expense of $86, less an income tax benefit of $32.
12
Net income for the three month period ended July 2001 decreased from $1,699 and
$.10 per share as previously reported to $1,301 and $.08 per share as restated
as a result of the recognition of additional compensation expense of $109, cost
of sales of $238, integration costs of $285, less an income tax benefit of $234.
Net income for the three month period ended July 2002 decreased from $2,969 as
previously reported to $2,915 as restated and earnings per share remained
unchanged, as a result of the recognition of additional compensation expense of
$86 less an income tax benefit of $32.
Net income for the six-month period ended July 2001 decreased from $2,143 and
$.13 per share as previously reported to $883 and $.05 per share as restated as
a result of the recognition of additional compensation expense of $448, cost of
sales of $1,194, integration costs of $358 less an income tax benefit of $740.
Net income for the six-month period ended July 2002 decreased from $4,671 as
previously reported to $4,563 as restated and earnings per share remained
unchanged, as a result of the recognition of additional compensation expense of
$172 less an income tax benefit of $64.
For the year ended January, 2001, net loss was increased by $1.8 million; net
loss per share was increased by $0.11, from ($0.09) as previously reported to
($0.20) as restated. For the year ended January, 2002, net income was reduced by
$1.48 million; earnings per share was reduced by $0.09, from $0.51 as previously
reported to $0.42 as restated.
Due to the restated financial results for the 2001 fiscal year, the company was
not in compliance with certain of its loan covenants with respect to its senior
notes and revolving credit agreement. Waivers for the non-compliance have been
obtained from the company's lenders.
2. The provision for income taxes is based on pre-tax income for financial
statement purposes with an appropriate deferred tax provision to give effect to
changes in temporary differences between the financial statements and tax bases
of assets and liabilities. The temporary differences arise principally from
postretirement benefits, depreciation and other employee benefits.
3. Basic and diluted earnings per share are presented for each period in which a
statement of operations is presented. Basic earnings per share is computed by
dividing income less preferred stock dividends by the weighted average shares
actually outstanding for the period. Diluted earnings per share includes the
potentially dilutive effect of shares issuable under the employee stock purchase
and incentive stock option plans.
The shares used in the calculation of diluted EPS exclude options to purchase
shares where the exercise price was greater than the average market price of
common shares for the period. Such shares aggregated 2,134 and 1,689 for the
three months ended October 2002 and 2001, respectively, and 2,040 and 1,361 for
the nine months ended October 2002 and 2001, respectively.
13
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the three months ended October 26, 2002 and October 27,
2001:
Preferred Earnings
Net Stock Adjusted Average Per
Income Dividends Net Income Shares Share
- --------------------------------------------------------------------------------
2002:
Basic earnings
per share ............. $1,591 $(32) $1,559 16,543 $.09
Effect of stock options. 36
Diluted earnings
per share ............. 1,591 (32) 1,559 16,579 .09
- --------------------------------------------------------------------------------
2001 Restated:
Basic earnings(loss)
per share.............. $ 196 $(32) $ 164 16,494 $.01
Effect of stock options. 52
Diluted earnings(loss)
per share ............. 196 (32) 164 16,546 .01
- --------------------------------------------------------------------------------
2001 As Reported:
Basic earnings(loss)
per share ............. $ 300 $(32) $ 268 16,494 $.02
Effect of stock options. 52
Diluted earnings(loss)
per share ............. 300 (32) 268 16,546 .02
- --------------------------------------------------------------------------------
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the nine months ended October 26, 2002 and October 27,
2001:
Net Preferred Adjusted Earnings
Income Stock Net Income Average Per
Dividends Shares Share
- --------------------------------------------------------------------------------
2002:
Basic earnings
per share ............. $6,153 $(97) $6,056 16,538 $.37
Effect of stock options. 39
Diluted earnings
per share ............. 6,153 (97) 6,056 16,577 .37
- --------------------------------------------------------------------------------
2001 Restated:
Basic earnings (loss)
per share ............. $1,078 $(96) $ 982 16,453 $.06
Effect of stock options. 91
Diluted earnings (loss)
per share ............. 1,078 (96) 982 16,544 .06
- --------------------------------------------------------------------------------
2001 As Reported:
Basic earnings (loss)
per share ............. $2,443 $(96) $2,347 16,453 $.14
Effect of stock options. 91
Diluted earnings (loss)
per share ............. 2,443 (96) 2,347 16,544 .14
- --------------------------------------------------------------------------------
14
4. Included in the long-term debt caption on the balance sheet are various
senior notes. The note agreements relating thereto contain provisions which,
among other things require maintenance of certain financial ratios related to
levels of indebtedness, minimum net worth and interest coverage levels. The
covenants limit certain types of payments including dividends, capital
expenditures, intercompany indebtedness and letters of credit. Under the
provisions of the amended note agreements, at October 26, 2002, the company was
able to declare dividends of up to $375 per quarter.
5. The Company's operations and assets are in one principal industry; tableware
products. The Company's reportable segments are grouped around the manufacture
and distribution of three major product categories: metal tableware, china
dinnerware and glass tabletop products. The Company also distributes a variety
of other tabletop accessories. These products are sold directly to a broad base
of retail outlets including department stores, mass merchandisers, Oneida Home
stores and chain stores. Additionally, these products are sold to special sales
markets, which include customers who use them as premiums, incentives and
business gifts. The Company also sells directly or through distributors to
foodservice operations worldwide, including hotels, restaurants, airlines,
cruise lines, schools and healthcare facilities. The Company's operations are
located in the United States, Canada, Mexico, Italy, Australia, The United
Kingdom and China.
Sales and operating income for the reportable segments for the third quarter and
first nine months of 2002 and 2001 were as follows:
(000)
Third Quarter
Metal Dinnerware Glass Other Total
------- ---------- ------ ------ --------
2002 Net Sales $71,800 $42,500 $7,900 $1,978 $124,178
2001 Net Sales 80,400 38,400 8,900 848 128,548
2002 Operating Income $ 1,632 $ 6,083 $ 100 $ (151) $ 7,664
2001 Operating Income
Restated 1,267 5,866 (300) (94) 6,739
2001 Operating Income
As Reported 1,400 5,900 (300) (94) 6,906
Year to date
Metal Dinnerware Glass Other Total
------- ---------- ------ ------ --------
2002 Net Sales $211,300 $111,000 $22,300 $5,824 $350,424
2001 Net Sales 242,300 105,100 24,000 3,382 374,782
2002 Operating Income $ 6,796 $13,449 $ (100) $ (335) $ 19,810
2001 Operating Income
Restated 9,166 12,567 (700) (353) 20,680
2001 Operating Income
As Reported 10,900 13,000 (700) (353) 22,847
15
6. In June 2001, the Financial Accounting Standards Board approved Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets"
("SFAS 142"). We adopted SFAS 142 effective January 27, 2002. Under this
standard, amortization of goodwill and certain intangible assets, including
certain intangibles recorded as a result of past business combinations, is to be
discontinued upon adoption of SFAS 142. The new standard requires that goodwill
and intangible assets be tested for impairment on an annual basis. The Company
performed the impairment test in the second fiscal quarter of 2002 and the
analysis indicated there is no impairment. The increase in restated goodwill of
$1.49 million from January 26, 2002 to October 26, 2002 represents translation
adjustments in the company's foreign subsidiaries.
The following is a reconciliation assuming goodwill and other intangible assets
had been accounted for in accordance with the provisions of SFAS 142 in the nine
months ended October 27, 2001. The net income is restated as discussed in Note
1.
Three months ended Nine months ended
Restated Restated
(Note 1) (Note 1)
Oct 26, Oct 27, Oct 26, Oct 27,
2002 2001 2002 2001
--------- -------- --------- ---------
Net income .................................................. $ 1,591 $ 196 $ 6,153 $ 1,078
Adjustments(net of income taxes):
Goodwill amortization ..................................... 579 1,666
-------- -------- --------- ---------
Adjusted net income ......................................... $ 1,591 $ 775 $ 6,153 $ 2,744
======== ======== ========= =========
Earnings per share:
Basic:
Net income ................................................ $ .09 $ .01 $ .37 $ .06
Adjusted net income ....................................... .09 .04 .37 .16
Diluted:
Reported net income ....................................... $ .09 $ .01 $ .37 $ .06
Adjusted net income ....................................... .09 .04 .37 .16
7. Other income (expense) for the nine months ended October 26, 2002 was
principally generated from insurance proceeds of $3,000 for recovery of legal
costs incurred in connection with a fiscal 2000 unsolicited takeover attempt and
gain on the sale of the remaining shares of Prudential stock of $1,300.
8. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses accounting for restructuring
and similar costs. SFAS No. 146 replaces previous accounting guidance,
principally Emerging issues Task Force Issue No. 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." Under Issue 94-3, a
liability for an exit cost was recognized at the date of the company's
commitment to an exit plan. SFAS No. 146 requires that the liability costs
associated with an exit or disposal activity be recognized when the liability is
incurred. SFAS No. 146 also established that the liability should initially be
measured and recorded at fair value. This standard is effective beginning
January 1, 2003 and will impact the accounting for exit or disposal activities,
if any, initiated on or after that date.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and
Results of Operations presented below reflects the impact of the restatements to
the Company's previously reported Consolidated Financial Statements as further
discussed below.
Restatement
In November, 2002 the company announced that it would restate financial results
for its accounting for the August 2000 acquisition of Delco International Ltd.
The company concluded that adjustments were needed to its initial purchase price
allocation to record compensation related to employment agreements previously
recorded as goodwill, integration and other period costs and to appropriately
recognize the deferred tax effects of the acquisition. In addition,
reclassifications were made between various balance sheet accounts, including
inventory, receivables, fixed assets, goodwill, other assets, and accrued
liabilities to properly classify fair value and other adjustments associated
with the acquisition. The cumulative effect of these restatements results in the
recognition from August 2000 through July 2002 of additional compensation
expense, integration expenses, and tax expense totaling $3.4 million as compared
to what was previously reported.
Net income for the quarter ended October, 2001 decreased from $300 as previously
reported to $196 as restated. This reduction results from recognition of
additional compensation expense and integration costs of $109 and $58,
respectively, net of an associated income tax benefit of $63. Net income for the
nine month period ended October, 2001 decreased from $2.4 million as previously
reported to $1.1 million as restated. This reduction results from the
recognition of additional cost of sales, compensation expense, and integration
costs of $1.2 million, $327 and $646, respectively, net of an associated income
tax benefit of $802.
Net income (loss) for the three month period ended April 2001 decreased from
$444 and $.02 per share as previously reported to ($418) and ($.03) per share as
restated as a result of the recognition of additional compensation expense of
$339, cost of sales of $956, integration costs of $73, less an income tax
benefit of $506. Net income for the three month period ended April 2002
decreased from $1,702 as previously reported to $1,648 as restated and earnings
per share remained unchanged, as a result of the recognition of additional
compensation expense of $86, less an income tax benefit of $32.
Net income for the three month period ended July 2001 decreased from $1,699 and
$.10 per share as previously reported to $1,301 and $.08 per share as restated
as a result of the recognition of additional compensation expense of $109, cost
of sales of $238, integration costs of $285, less an income tax benefit of $234.
Net income for the three month period ended July 2002 decreased from $2,969 as
previously reported to $2,915 as restated and earnings per share remained
unchanged, as a result of the recognition of additional compensation expense of
$86 less an income tax benefit of $32.
Net income for the six-month period ended July 2001 decreased from $2,143 and
$.13 per share as previously reported to $883 and $.05 per share as restated as
a result of the recognition of additional compensation expense of $448, cost of
sales of $1,194, integration costs of $358 less an income tax benefit of $740.
Net income for the six-month period ended July 2002 decreased from $4,671 as
previously reported to $4,563 as restated and earnings per share remained
unchanged, as a result of the recognition of additional compensation expense of
$172 less an income tax benefit of $64.
17
The consolidated balance sheet as of January 2002 has been restated to reflect
the effects of the adjustments described above. Retained earnings has been
decreased $3.3 million from $63.9 million as previously reported to $60.6
million as restated to recognize the cumulative effect of increased compensation
expense of $1.0 million, increased cost of sales of $1.2 million, increased
integration costs of $500, reduced goodwill amortization of $640, and increased
income tax expense of $1.2 million. Goodwill has been restated downward from
$134.1 million as previously reported to $131.8 million as restated principally
to reflect the reversal of compensation and integration costs included in the
purchase price allocation approximating $3.2 million, reclassify $2.2 million
of fair value adjustments and exit costs from accrued liabilities into goodwill,
to increase net deferred tax assets related to the acquisition of $1.9 million,
and to reduce accumulated amortization of goodwill by $640.
For the year ended January, 2001, net loss was increased by $1.8 million; net
loss per share was increased by $0.11, from ($0.09) as previously reported to
($0.20) as restated. For the year ended January, 2002, net income was reduced by
$1.48 million; earnings per share was reduced by $0.09, from $0.51 as previously
reported to $0.42 as restated.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarter ended October 26, 2002 compared with
the quarter ended October 27, 2001
(In Thousands)
Operations
Net Sales by Product Line:
Three Months Ended October
2002 2001 %Change
------- ------- -------
Metal products....... $ 71,800 $ 80,400 (10.7)
Dinnerware Products.. 42,500 38,400 10.7
Glass products....... 7,900 8,900 (11.2)
Other Products....... 1,978 848 133.3
-------- -------- -------
Total............... $124,178 $128,548 ( 3.4)
======== ======== =======
Quarterly Review
Comparative amounts have been restated as discussed above.
Consolidated net sales for the quarter ended October 26, 2002 decreased $4,370
over the same period a year ago. Sales through Consumer channels for the quarter
were flat compared to prior year. Consumer sales totaled 44.7% of the Company's
sales in the current quarter. Sales in Foodservice markets decreased 8.5% from
the third quarter of 2001 as the airline and hotel industries continue to be
soft. During the same period, International sales increased by 2.3%. The
International division accounted for 16.0% of the company's total third quarter
sales.
Gross margin as a percentage of net sales was 32.4% in the third quarter of 2002
as compared to 31.8% for the same period of 2001. The increase in gross margin
this quarter is due to slightly improved performance in the company's
manufacturing plants.
Total operating expenses decreased by $1,545, or 4.5%, from the same quarter
last year. This decrease is attributable to the reduction of goodwill
amortization of $923, in accordance with the adoption of FAS #142, and continued
efforts to reduce operating costs. As a percentage of sales, operating expenses
were slightly lower than the same quarter last year at 26.5% compared to 26.8%.
Interest expense, prior to capitalized interest, was $4,072 for the quarter
ended October 26, 2002, a decrease of $1,766 from the same period last year.
This decrease is due to significantly lower average borrowings and lower
prevailing interest rates throughout the current quarter.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine months ended October 26, 2002 compared with
the nine months ended October 27, 2001
(In Thousands)
Operations
Net Sales by Product Line:
Nine Months Ended October
2002 2001 %Change
-------- -------- -------
Metal products....... $211,300 $242,300 (12.8)
Dinnerware Products.. 111,000 105,100 5.6
Glass products....... 22,300 24,000 (7.1)
Other Products....... 5,824 3,382 72.2
-------- -------- -------
Total............... $350,424 $374,782 (6.5)
======== ======== =======
Year to date review
Comparative amounts have been restated as discussed above.
Consolidated net sales for the nine months ended October 26, 2002 decreased
$24,358 from the same period a year ago, reflecting continuing softness in the
overall economy. Year to date, sales of consumer products have declined less
than 1% over the same period last year. This is mainly due to the performance of
the Encore supermarket division, which increased sales 48.6% over the first nine
months of 2001. Foodservice sales, which represent 42.9% of the company's total
2002 sales to date, decreased $19,055, or 11.2%, from the same period last year.
International sales decreased $4,379, or 7.1% from the nine months ended October
27, 2001. Sales in the International division represent 16.4% of the Company's
total through nine months of 2002.
Gross margin as a percentage of net sales for the first nine months of the
current year was 32.8% as compared to 32.8% for the same period of 2001. The low
gross margin in both 2002 and 2001 is primarily the result of unfavorable
factory variances as the company's manufacturing plants operated at a lower
capacity due to reduced demand.
Total operating expenses decreased by $7,188, or 7.0%, compared to the first
nine months of the prior year. This decrease is attributable to the reduction of
goodwill amortization of $2,815, in accordance with the adoption of FAS #142,
and continued efforts to reduce operating costs. As a percentage of sales,
operating expenses were 27.5% in the current year to date, compared to 27.6% in
2001.
Other income of $1,900 was reported for the nine months ended October 26, 2002
compared to expense of $161 for the same period last year (See Note 7).
Interest expense, prior to capitalized interest, was $12,004 for the nine months
ended October 26, 2002, a decrease of $7,082 from the same period in 2001. This
decrease is due to significantly lower average borrowings and lower prevailing
interest rates throughout the current year.
20
Liquidity & Financial Resources
A prime objective of the company since mid-2000 has been to strengthen its
balance sheet and reduce debt. During the first nine months of 2002, continued
progress was made toward these goals. Debt was reduced by approximately $16,000
in the nine-month period. Cash flow generated from operations for the nine
months ended October 26, 2002 was $5,321, as compared to $18,801 for the same
period in 2001 due primarily to increases in inventory resulting from declining
sales. During the first half of 2002, the company received approximately $8,400
from the sale of marketable equity securities. These proceeds were directly
applied to pay down debt. The Company spent approximately $6,800 in the first
nine months on capital projects focused primarily on its manufacturing
facilities. Capital spending for the remaining three months of the fiscal year
is anticipated to be approximately $2,200.
Included in the long-term debt caption on the balance sheet are various senior
notes. The note agreements relating thereto contain provisions which, among
other things require maintenance of certain financial ratios related to levels
of indebtedness, minimum net worth and interest coverage levels. The covenants
limit certain types of payments including dividends, capital expenditures,
intercompany indebtedness and letters of credit. Under the provisions of the
amended note agreements, at October 26, 2002, the company was able to declare
dividends of up to $375 per quarter.
Management believes there is sufficient liquidity to support the company's
funding requirements for the next year from future operations as well as the
unused bank lines of credit of $40 million. Working capital was $191,822 as of
October 26, 2002 as compared to $194,325 at January 26, 2002.
Due to the restated financial results for the 2001 fiscal year, the company was
not in compliance with certain of its loan covenants with respect to its senior
notes and revolving credit agreement. Waivers for the non-compliance have been
obtained from the company's lenders.
Critical Accounting Policies
The company's accounting policies are more fully described in Footnote 1 of the
Notes to Consolidated Financial Statements in its Annual Report for the years
ended January 2002 and 2001 included in the January 26, 2002 Annual Report to
the Securities and Exchange Commission on Form 10-K filed in April, 2002. As
disclosed in Note 1, the preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions about future events that affect the amounts reported in the
financial statements and accompanying footnotes. Future events and their effects
cannot be determined with absolute certainty. Therefore, the determination of
estimates requires the exercise of judgment. Actual results occasionally will
differ from those estimates, and such differences may be material to the
Consolidated Financial Statements.
The most significant accounting estimates inherent on the preparation of the
company's financial statements includes estimates as to the recovery of accounts
receivable, inventory, goodwill, other long-lived assets and deferred tax
assets. Various assumptions and other factors underlie the determination of
these significant estimates. The process of determining significant estimates is
fact specific and takes into account factors such as historical experience,
current and expected economic conditions, product mix and actuarial
determinations. The Company re-evaluates these significant factors as facts and
circumstances dictate. Historically, actual results have not differed
significantly from those determined using the estimates described above.
21
The valuation of the company's pension, other post-retirement plans and self
insured workers compensation plan require the use of assumptions and estimates
that are used to develop actuarial valuations of expenses and
assets/liabilities. These assumptions include discount rates, investment
returns, projected salary increases and benefits, and mortality rates. The
actuarial assumptions used in the company's pension reporting are reviewed
annually and compared with external benchmarks to help assure that they
actuarially account for the company's future pension and other post-retirement
obligations. Changes in assumptions and future investment returns could
potentially have a material impact on pension expense and related funding
requirements.
The company offers various sales discounts and co-op advertising incentives to a
broad base of customers. These discounts and incentives, along with net freight
costs, are recorded as a reduction of sales. The company records accruals for
these discounts and incentives as sales occur. Management regularly reviews the
adequacy of the accruals based on current customer purchases. The amounts due to
customers are paid or deducted from accounts receivable balances throughout the
year.
Forward Looking Information
With the exception of historical data, the information contained in this Form
10-Q, as well as those other documents incorporated by reference herein, is
forward-looking. For the purposes of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, the company cautions readers that
changes in certain factors could affect the company's future results and could
cause the company's future consolidated results to differ materially from those
expressed herein. Such factors include, but are not limited to: general economic
conditions in the company's markets; difficulties or delays in the development,
production and marketing of new products; the impact of competitive products and
pricing; certain assumptions related to consumer purchasing patterns;
significant increases in interest rates or the level of the company's
indebtedness; major slowdowns in the retail, travel or entertainment industries;
the loss of several of the company's major customers; under utilization of the
company's plants and factories; the amount and rate of growth of the company's
selling, general and administrative expenses.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The company's market risk is impacted by changes in interest rates and foreign
currency exchange rates. Pursuant to the company's policies, the company does
not hold or issue any significant derivative financial instruments.
The company's primary market risk is interest rate exposure in the United
States. Historically, the company manages interest rate exposure through a mix
of fixed and floating rate debt. The majority of the company's debt is currently
at floating rates. Based on floating rate borrowings outstanding at October
2002, a 1% change in the rate would result in a corresponding change in interest
expense of $2.3 million.
There have been no other material changes to the Company's disclosures related
to certain market risks as reported under Part II, Item 7A, "Quantitative and
Qualitative Disclosures About Market Risk," in the Annual Report of the Company
to the U.S. Securities and Exchange Commission on Form 10-K for the year ended
January 26, 2002.
ITEM 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer have carried out an
evaluation, with the participation of the company's management, of the design
and operation of the Company's "disclosure controls and procedures" (as defined
in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) within 90 days of the date of this report. That evaluation
included consideration of those controls in light of the just completed review
of the Company's financial statements for the prior 8 quarters. Based upon that
evaluation, each has concluded that the Company's "disclosure controls and
procedures" are effective to insure that information required to be disclosed in
the reports that we file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified by the Securities and
Exchange Commission's rules and regulations.
Changes in Internal Controls
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls, nor any significant
deficiencies or material weaknesses in such controls requiring corrective
actions, subsequent to the date of their evaluation.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ONEIDA LTD.
(Registrant)
Date: December 10, 2002
/s/ GREGG R. DENNY
------------------
Gregg R. Denny
Chief Financial Officer
24
CERTIFICATION
I, Peter J. Kallet certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oneida Ltd.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
25
Date: December 10, 2002 By: /s/ PETER J. KALLET
-------------------
Peter J. Kallet
Chairman of the Board, President and
Chief Executive Officer
26
CERTIFICATION
I, Gregg R. Denny certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oneida Ltd.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
b) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
27
Date: December 10, 2002 By: /s/ GREGG R. DENNY
------------------
Gregg R. Denny
Chief Financial Officer
28