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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 30, 2004
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) 361-3000
(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of December 8, 2004: 46,681,672
ONEIDA LTD.
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED STATEMENT OF OPERATIONS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
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.
2
(a) Exhibits:
10.1 Limited Waiver to the Second Amended and Restated Credit
Agreement dated as of August 9, 2004, between Oneida Ltd.,
JP Morgan Chase Bank and the various lenders named in the
Agreement. The Limited Waiver is dated as of September 23,
2004.
10.2 Amendment No. 1 to the Second Amended and Restated Credit
Agreement dated as of August 9, 2004, between Oneida Ltd.,
JP Morgan Chase Bank and the various lenders named in the
Agreement. Amendment No. 1 is dated as of October 15,
2004.
10.3 Agreement with executive officer of the Company, Andrew G.
Church, dated November 12, 2004, which is incorporated by
reference to the Registrant's Current Report on Form 8-K
dated November 22, 2004.
31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 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.
32.2 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.
(b) Current Reports on Form 8-K:
During the Company's fiscal quarter ended October 30, 2004, the
following Current Reports on Forms 8-K were filed:
Form 8-K dated August 3, 2004 announcing appointment of
BDO Seidman, LLP as the Company's independent auditor.
Form 8-K dated August 9, 2004 announcing the completion of
the comprehensive restructuring of the Company's existing
indebtedness and the resulting change in control of the
Company.
Form 8-K dated August 30, 2004 to accompany a press
release announcing the completion of the sale of
substantially all of the assets and operations of the
Company's Encore Promotions, Inc. subsidiary.
Form 8-K dated September 8, 2004 to accompany a press
release announcing the planned closure of the Company's
Sherrill, New York flatware manufacturing facility and
announcing certain of the Company's financial results for
the quarter ended July 31, 2004.
Form 8-K dated September 8, 2004 announcing material
impairments and costs associated with the planned closure
of the Company's Sherrill, New York flatware manufacturing
facility.
Form 8-K/A dated September 8, 2004 announcing additional
costs associated with the planned closure of the Company's
Sherrill, New York flatware manufacturing facility.
Form 8-K dated October 25, 2004 to accompany a press
release announcing the resignation of six existing
Directors and the appointment of six new Directors in
their places.
SIGNATURES
CERTIFICATIONS
3
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars, except per share data)
(Unaudited)
For the Three Months Ended For the Nine Months Ended
October 30, October 25, October 30, October 25,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenues:
Net sales..................................... $101,273 $117,146 $312,938 $331,304
License fees.................................. 951 354 1,838 1,044
-------- -------- -------- --------
Total Revenues.................................. 102,224 117,500 314,776 332,348
-------- -------- -------- --------
Cost of sales................................... 75,742 99,055 236,201 253,946
-------- -------- -------- --------
Gross Margin.................................... 26,482 18,445 78,575 78,402
-------- -------- -------- --------
Operating expenses:
Selling, distribution and administrative
expense................................. 27,591 32,878 94,051 96,536
Restructuring expense...................... 27 10,050 (110) 10,050
Impairment loss on depreciable assets.... - 17,519 34,016 17,519
Impairment loss on intangible assets....... 15,473 1,300 18,173 1,300
(Gain) loss on the sale of fixed assets.... 157 (2,842) (4,680) (2,773)
-------- -------- -------- --------
Total................................... 43,248 58,905 141,450 122,632
-------- -------- -------- --------
Operating loss.................................. (16,766) (40,460) (62,875) (44,230)
Other income.................................... - (89) (66,123) (970)
Other expense................................... 612 572 5,265 1,009
Interest expense including amortization of
deferred financing costs...................... 7,190 3,966 14,923 11,897
-------- -------- -------- --------
Loss before income taxes........................ (24,568) (44,909) (16,940) (56,166)
Income tax expense (benefit).................... (719) 29,856 815 25,691
-------- -------- -------- --------
Net loss........................................ $(23,849) $(74,765) $(17,755) $(81,857)
======== ======== ======== ========
Preferred Stock Dividends....................... (32) (32) (97) (97)
Net loss available to common shareholders....... $(23,881) $(74,797) $(17,852) $(81,954)
Loss per share of common stock
Net loss:
Basic................................. $(.57) $(4.50) $(.71) $(4.94)
Diluted............................... (.57) (4.50) (.71) (4.94)
See notes to consolidated financial statements.
4
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED BALANCE SHEETS
(Thousand of Dollars)
Unaudited Audited
October 30, Jan. 31,
2004 2004
----------- --------
ASSETS
Current assets:
Cash........................................................... $ 2,780 $ 9,886
Trade accounts receivables, less allowance for doubtful
accounts of $3,466 and $2,961, respectively.................. 61,146 58,456
Other accounts and notes receivable............................ 2,927 1,890
Inventories.................................................... 124,529 139,448
Other current assets........................................... 4,748 5,361
-------- --------
Total current assets...................................... 196,130 215,041
Property, plant and equipment, net.................................. 31,078 73,675
Assets held for sale (Note 2)....................................... 1,199 3,199
Goodwill............................................................ 120,937 136,118
Other assets........................................................ 16,941 13,468
-------- --------
Total assets.............................................. $366,285 $441,501
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................................ $ 8,932 $ 7,654
Accounts payable............................................... 18,375 21,231
Accrued liabilities............................................ 32,883 45,293
Accrued restructuring (Note 2)................................. 923 7,400
Current Portion of Long Term Debt (Note 6)..................... 1,811 223,214
-------- --------
Total current liabilities................................. 62,924 304,792
Long term debt (Note 6)............................................. 215,500
Accrued postretirement liability (Note 7)........................... 2,505 62,930
Accrued pension liability (Note 7).................................. 36,280 24,259
Deferred income taxes............................................... 10,041 9,823
Other liabilities................................................... 11,873 17,097
-------- --------
Total liabilities......................................... 339,123 418,901
Commitments and contingencies.......................................
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 47,781,288 and 17,883,460 shares respectively........... 47,781 17,883
Additional paid-in capital.......................................... 84,719 84,561
Accumulated deficit................................................. (50,688) (32,933)
Accumulated other comprehensive loss................................ (35,232) (27,493)
Less cost of common stock held in treasury; 1,149,364 and
1,149,364 shares, respectively................................. (21,569) (21,569)
-------- --------
Total stockholders' equity................................ 27,162 22,600
-------- --------
Total liabilities and stockholders' equity............ $366,285 $441,501
======== ========
See notes to consolidated financial statements.
5
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 30, 2004 AND OCTOBER 25, 2003
(Thousands of Dollars)
(Unaudited)
Accum.
Add'l Other
Common Common Preferred Paid-in Accum. Comp. Treasury
Shares Stock Stock Capital deficit Inc(Loss) Stock Total
------ ------ --------- ------- ------- --------- -------- -----
Balance January 31, 2004 ..... 17,883 $17,883 $2,151 $84,561 $(32,933) $(27,493) $(21,569) $22,600
Common Stock issuance related
to restructured debt.......... 29,853 29,853 147 30,000
Stock plan activity .......... 45 45 11 56
Minimum pension liability
adjustment, net of tax benefit
of $0 ........................ (7,825) (7,825)
Foreign currency translation
adjustment ................... 86 86
Net loss...................... (17,755) (17,755)
------ ------- ------ ------- -------- -------- -------- -------
Balance October 30, 2004...... 47,781 $47,781 $2,151 $84,719 $(50,688) $(35,232) $(21,569) $27,162
====== ======= ====== ======= ======== ======== ======== =======
Accum.
Add'l Other
Common Common Preferred Paid-in Retained Comp. Treasury
Shares Stock Stock Capital Earnings Inc(Loss) Stock Total
------ ------ --------- ------- ------- --------- -------- -----
Balance January 25, 2003...... 17,837 $17,837 $2,151 $84,318 $ 68,407 $(19,190) $(24,134) $129,389
Stock plan activity........... 46 46 239 (578) 907 614
Cash dividends declared
($.02 per share).............. (363) (363)
Foreign currency translation
adjustment.................... 2,371 2,371
Net loss...................... (81,857) (81,857)
------ ------- ------ ------- -------- -------- -------- --------
Balance October 25, 2003...... 17,883 $17,883 $2,151 $84,557 $(14,391) $(16,819) $(23,227) $50,154
====== ======= ====== ======= ======== ======== ======== =======
See notes to consolidated financial statements.
6
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Thousands of Dollars)
Three Months Ended Nine Months Ended
October 30, October 25, October 30, October 25,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net loss........................................ $(23,849) $(74,765) $(17,755) $(81,857)
Foreign currency translation adjustments........ 963 218 86 2,371
Other comprehensive income, net of tax:
Minimum pension liability adjustments........... - - (7,825) -
-------- -------- -------- --------
Other comprehensive income (loss)............... 963 218 (7,739) 2,371
-------- -------- -------- --------
Comprehensive loss.............................. $(22,886) $(74,547) $(25,494) $(79,486)
======== ======== ======== ========
Balance at end of quarter....................... $(35,232) $(16,819) $(35,232) $(16,819)
======== ======== ======== ========
See notes to consolidated financial statements.
7
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 30, 2004 AND OCTOBER 25, 2003
(Unaudited Thousands of Dollars)
Nine Months Ended
October 30, October 25,
2004 2003
----------- -----------
CASH FLOW USED BY OPERATING ACTIVITIES:
Net (loss)........................................................ $(17,755) $(81,857)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
(Gain) on disposal of fixed assets.............................. (4,680) (2,773)
Depreciation.................................................... 6,994 11,094
Deferred income taxes........................................... 143 24,627
Impairment of other long lived assets........................... 34,016 17,519
Impairment of other intangible assets........................... 18,173 1,300
Accrued restructuring........................................... (6,477) 10,050
Inventory write downs........................................... 9,607 12,506
Pension plan amendment (Note 7)................................. 2,577 -
Post retirement health care plan amendment (Note 7)............. (61,973) -
Changes in operating assets and liabilities:
Accounts receivable............................................. (2,708) 6,419
Inventories..................................................... 5,566 2,785
Other current assets............................................ 1,382 4,078
Other assets.................................................... (10,229) (4,526)
Accounts payable................................................ (3,181) 3,217
Accrued liabilities............................................. (8,489) (3,472)
Other liabilities............................................... (5,638) (2,479)
-------- --------
Net cash used by operating activities (42,672) (1,512)
-------- --------
CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES:
Capital expenditures.............................................. (3,381) (4,326)
Proceeds from sales of assets..................................... 13,565 4,484
-------- --------
Net cash provided by investing activities 10,184 158
-------- --------
CASH FLOW PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of common stock............................ 56 285
Increase (decrease) in short-term debt............................ 1,850 (2,535)
Proceeds from long-term debt...................................... 23,523 11,827
Dividends paid.................................................... - (363)
-------- --------
Net cash provided by financing activities 25,429 9,214
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................. (47) 1,028
-------- --------
NET (DECREASE) INCREASE IN CASH..................................... (7,106) 8,888
CASH AT BEGINNING OF YEAR........................................... 9,886 2,653
-------- --------
CASH AT END OF PERIOD............................................... $ 2,780 $ 11,541
======== ========
Non-cash contribution of treasury shares to ESOP.................... $ 907
Non-cash issuance of common stock................................... $ 30,000
See notes to consolidated financial statements.
8
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands of Dollars)
1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Oneida
Ltd. (the "Company,") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended October 30, 2004 are not
necessarily indicative of the results that may be expected for the year ending
January 29, 2005. These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
company's Annual Report on Form 10-K for the year ended January 31, 2004.
At the time the Report on Form 10-Q for the quarter ending on May 1, 2004 was
filed, the Company had no independent auditor. The Company subsequently engaged
BDO Seidman as its independent auditor.
Going Concern
The accompanying financial statements for the three and nine months ended
October 30, 2004 and October 25, 2003, respectively have been prepared on a
going concern basis which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
experienced operating losses of $16,766 and $62,875 for the three and nine
months respectively ended October 30, 2004. Excluding restructuring expenses,
impairment losses, and gains on the sale of fixed assets, operating losses were
$1,109 and $15,476 for the three and nine months respectively ended October 30,
2004. In addition, net cash used by operating activities was $14,279 and $42,983
during the same periods.
The Company has undertaken several initiatives to return to profitability,
increase liquidity and compete in a changing marketplace. These include reducing
product costs, reducing operating costs, restructuring debt, selling assets and
reducing employee benefits. Additionally, executive management compensation has
been reduced.
The Company has reduced product costs by closing several facilities with high
operating costs and outsourcing product lines. On September 9, 2004, the Company
announced the closing of the Sherrill, NY flatware manufacturing facility. The
Company has experienced unfavorable manufacturing variances of $12,379 through
October 30, 2004 from the facility as a result of unsustainably high operating
costs. Based upon the evaluation performed in accordance with Statement of
Financial Standards (SFAS) No. 144 "Accounting for the Impairment of Long Lived
Assets", the company recorded an impairment charge of $34, 016. The majority of
the products previously in this facility are in the process of being outsourced
to lower cost producers. The facility will be substantially closed during the
first quarter of fiscal year 2005.
The Company previously closed two manufacturing facilities in Mexico, a facility
in Buffalo, New York, a facility in Italy and a facility in China. The Company
sold the Buffalo, NY dinnerware manufacturing facility, the Mexican facilities,
and part of the Italy facility. The Company also closed and sold a warehousing
facility in Niagara Falls, Canada. The proceeds generated from these sales were
used to reduce the Company's debt. The production from these facilities has been
outsourced to lower cost producers.
In an effort to increase liquidity, the Company has reduced inventory $30,551
since October 25, 2003. As a result, the Nashville, Tennessee warehouse has been
closed and a warehousing service provider in Piedmont, North Carolina is no
longer utilized. On November 18, 2004 the Company announced a licensing
agreement with the Anchor Hocking Company, a leading glassware company. Under
the agreement, approximately $2.0 million of existing glassware inventory will
be sold to Anchor Hocking. Additionally, the Company is licensing the "Oneida"
name and will receive licensing fees based on sales levels. The agreement allows
the Company to reduce working capital requirements and provides a business
partnership with an industry leader in glassware. The Company also closed four
unprofitable
9
Oneida Home stores during the third quarter ended October 30, 2004 and six
stores since May 1, 2004. An additional nine unprofitable Oneida Home Stores
will be closed during the fourth quarter ending January 29, 2005.
On August 9, 2004 the Company completed the comprehensive restructuring of the
existing indebtedness with its lenders, along with new covenants based upon
current projections. The restructuring included the conversion of $30 million of
principal amount of debt into an issuance of a total of 29.85 million shares of
the common stock of the Company to the individual members of the lender group or
their respective nominees. The common shares were issued in blocks proportionate
to the amount of debt held by each lender. As of August 9, 2004 these shares of
common stock represented approximately 62% of the outstanding shares of common
stock of the Company. In addition to the debt to equity conversion, the Company
received a new $30 million revolving credit facility from the lenders and
restructured the balance of the existing indebtedness into a Tranche A loan of
$125 Million and a Tranche B loan of approximately $80 million. All the
restructured bank debt is secured by a first priority lien over substantially
all of the Company's and its domestic subsidiaries' assets. The Tranche A loan
will mature in three years and require amortization of principle based on
available cash flow for the first two years and fixed amortization of $1,500 per
quarter in the third year. Interest on the Tranche A loan will accrue at LIBOR
(London Inter Bank Offered Rate) plus 6%-8.25% depending on the leverage to cash
flow formula. The Tranche B loan will mature in 3 1/2 years with no required
amortization. Interest on the Tranche B loan will accrue at LIBOR plus 13% with
a maximum interest rate of 17%. The Tranche B loan has a Payment in Kind (PIK)
option that permits for the compounding of the interest in lieu of payment. The
debt and equity restructuring constituted a change in control of the Company.
There are several employee benefit plans that have triggers if a change of
control occurs. The appropriate plans were amended to allow the debt and equity
transaction without triggering the change in control provision. In addition, the
Shareholder Rights Plan was terminated.
On August 28, 2004 the Company completed the sale of substantially all of the
assets of its Encore Promotions Inc. subsidiary and has entered into a licensing
agreement with the buyer. The sale reduced inventory by $12,334. The proceeds
from the sale reduced debt and the licensing agreement provides an avenue to
offer Oneida-branded products under the licensing agreement to the supermarket
industry.
In order to improve liquidity and increase operating profits, the Company
significantly reduced employee benefits. During the first quarter of 2004, the
Company froze the Retirement Plan for the Employees of Oneida Ltd. and
terminated the Oneida Ltd Retiree Group Medical Plan. During the second quarter
the Company terminated the Long Term Disability Plan, the Oneida Limited
Security Plan, and froze the Supplemental Executive Retirement Plan. The Company
did not issue purchase options under the Employee Stock Purchase Plan and the
2002 Executive Stock Option Plan. Additionally the Company increased the co-pays
and deductibles associated with the Oneida Sterling Health Plan.
These aforementioned initiatives have improved financial results as operating
income, excluding restructuring and related expenses, impairment charges,
professional fees related to restructuring activities, and gains on the sale of
fixed assets was $860 for the quarter ended October 30, 2004, compared to a loss
of $14,433 for the quarter ended October 25, 2003.
The Company believes these initiatives will enhance profitability and increase
liquidity. If the Company is unable to achieve its operating and strategic plans
and objectives, the Company may need to raise additional capital, obtain further
covenant waivers from its lenders or seek additional investors. There can be no
assurance that the Company will be successful in any or all of these endeavors,
and failure may affect the Company's ability to continue to operate its
business.
Reclassifications
Certain reclassifications have been made to the prior year's information to
conform to the current year presentation. In 2003, shipping and handling costs
have been reclassified from net sales to cost of sales. Selling expense for the
Company owned European retail shops has been reclassified from cost of sales to
selling, distribution and administrative expenses. Amortization of deferred
financing costs has been reclassified from other expense to interest expense
including amortization of deferred financing costs. Additionally prior years'
cash flows have been reclassified to accurately report the effect of exchange
rate changes on cash.
10
Comprehensive Income (Loss)
SFAS No. 130, "Reporting Comprehensive Income", requires companies to report a
measure of operations called comprehensive income. This measure, in addition to
net income, includes as income or loss, the following items, which if present
are included in the equity section of the balance sheet: unrealized gains and
losses on certain investments in debt and equity securities; foreign currency
translation; gains and losses on derivative instruments designated as cash flow
hedges; and minimum pension liability adjustments. The Company has reported
comprehensive income in the Consolidated Statements of Comprehensive Income
(Loss).
Stock Option Plans
The Company has elected to continue following APB No. 25 in accounting for its
stock-based compensation plans for employees. Under APB No. 25, compensation
expense is not required to be recognized for the Company's stock-based
compensation plans "if the fair value of the underlying stock is less than or
equal to the option exercise prices on the dates of the grant." Under Statement
of Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock
Based Compensation", as amended by SFAS No 148. "Accounting for Stock-Based
Compensation Transition and Disclosure", compensation expense is recognized for
the fair value of the options on the date of grant over the vesting period of
the options.
Application of the fair-value based accounting provision of SFAS 123 results in
the following pro forma amounts of net income (loss) and earnings (loss) per
share:
(Thousands Except Per Share Amounts) (Thousands Except Per Share Amounts)
For the Three Months Ended For the Nine Months Ended
October 30, October 25, October 30, October 25,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net loss, as reported........................... $(23,849) $(74,765) $(17,755) $(81,857)
Deduct: Total stock-based employee
compensation expense determined under
Black-Scholes option pricing model,
net of related income tax effect........... (474) (634) (1,422) (1,901)
-------- -------- -------- --------
Pro forma net loss.............................. $(24,323) $(75,399) $(19,177) $(83,758)
======== ======== ======== ========
Earnings (loss) per share:
As reported: Basic........................ $(.57) $(4.50) $(.71) $(4.94)
Diluted...................... (.57) (4.50) (.71) (4.94)
Pro forma: Basic........................ $(.58) $(4.54) $(.77) $(5.06)
Diluted...................... (.58) (4.54) (.77) (5.06)
There was no stock based employee compensation expense included in the
Consolidated Statement of Operations.
2. RESTRUCTURING
As a result of the substantial manufacturing inefficiencies and negative
manufacturing variances, it was determined at the end of the third quarter of
fiscal year ending January 31, 2004 to close and sell the following factories:
Buffalo China dinnerware factory and decorating facility in Buffalo NY;
dinnerware factory in Juarez, Mexico; flatware factory in Toluca, Mexico;
hollowware factory in Shanghai China; and hollowware factory in Vercelli, Italy.
The Company continues to market the products primarily manufactured from these
sites, using independent suppliers. The Toluca, Mexico; Shanghai, China; and
Vercelli, Italy facilities closings were completed during the fourth quarter of
the year ended January 31, 2004. The Buffalo, NY factory buildings and
associated materials and supplies were sold to Niagara Ceramics Corporation on
March 12, 2004. The Buffalo China name and all other active Buffalo China
trademarks and logos remain the property of the Company. Niagara Ceramics is an
independent supplier to the Company. The Juarez, Mexico factory sale was
completed on April 22, 2004, and the Toluca Mexico factory sale was completed on
June 2,
11
2004. The Shanghai, China and remaining Vercelli, Italy assets are classified as
assets held for sale on the Consolidated Balance Sheet at October 30, 2004. The
Niagara Falls, Canada warehouse sale was completed on July 12, 2004 and part of
the Vercelli, Italy properties have been sold. The restructuring plans are
intended to reduce costs, increase the Company's liquidity and better position
the Company to compete under the current economic conditions.
Under the restructuring plan, approximately 1,150 employees will be terminated.
As of October 30, 2004, 1,085 of those terminations have occurred and 65
employees have accepted employment with Niagara Ceramics who purchased the
manufacturing assets of Buffalo China. Termination benefits have been recorded
in accordance with contractual agreements or statutory regulations. The Company
recognized a charge of $9,001 in the Statement of Operations under the caption
"Restructuring Expense" in the year ended January 31, 2004. Cash payments and
adjustments during the year ended January 31, 2004, and for the nine month
period ending October 30, 2004 under the restructuring were $7,633 and $445,
respectively, and the remaining liability at October 30, 2004 is $923.
On September 9, 2004 the Company announced that it is closing its Sherrill, NY
flatware factory because of unsustainably high operating costs that have heavily
contributed to substantial losses. The Company will continue to market the
products primarily manufactured from this site using independent suppliers.
Approximately 450 employees will be terminated. The Company has determined it
will incur cash costs of approximately $1,250 related to severance, incentive
and retention payments to affected factory employees. There have been no cash
payments and the severance liability at October 30, 2004 is $27. The incentive
and retention liability at quarter end is $336.
Below is a summary of the restructuring charges incurred through the period
ended October 30, 2004.
Payments
1/31/2004 Charges Uses 10/30/2004
========= ======= ======== ==========
Termination benefits 7,398 (110) (6,365) 923
Other associated costs 2 - (2) -
3. INCOME TAXES
The provision for income taxes for the three months ended October 30, 2004
includes the recording of a tax benefit for the reversal of deferred tax
liabilities associated with the recognition of impairment expense on the
goodwill of our United Kingdom operation, a foreign disregarded entity. The
previous recognition of these deferred tax liabilities resulted in additional
valuation allowance therefore the elimination of the liability due to the
goodwill impairment warrants the reversal of the corresponding reserve. The
provision for income taxes for the quarter also includes the continued
recognition of deferred tax liabilities for the remaining indefinite long-lived
intangibles (these liabilities cannot be used to offset deferred tax assets in
determining the amount of valuation allowance needed for the quarter).
During the third quarter ended October 30, 2004 the Company underwent a change
in ownership within the definition of Sec. 382 of the Internal Revenue Code. The
pre-change net operating loss carryforward is subject to annual limitation under
Sec. 382. The Company had previously placed a valuation allowance against all
its net deferred tax assets.
The provision for income taxes for the nine months ended October 30, 2004 is
primarily comprised of foreign tax expense related to foreign operations and
domestic deferred tax liabilities recognized on indefinite long-lived
intangibles reduced by the change discussed in the third quarter. In accordance
with the Statement of Financial Accounting Standards (SFAS) No.109, a full
valuation allowance was recorded against the Company's entire net deferred tax
assets during the third quarter ended October 2003. The Company continues to
provide a full valuation allowance against its domestic net deferred tax assets
and the net deferred tax assets of its United Kingdom operation. The Company has
not recorded any tax benefits relative to tax losses incurred during the three
and nine months ended October 30, 2004 since it is more likely than not that the
resulting asset would not be realized. The Company will continue to maintain a
valuation allowance until sufficient evidence exists to support its reversal.
12
The following table summarizes the Company's provision for income taxes and the
related effective tax rates for the three and nine months ended October 30, 2004
and 2003:
For the Three Months Ended For the Nine Months Ended
October 30, October 25, October 30, October 25,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Loss before income taxes........................ $(24,568) $(44,909) $(16,940) $(56,166)
Provision (benefit) from income taxes........... (719) 29,856 815 25,691
-------- -------- -------- --------
Effective tax rate.............................. 2.93% (66.48%) (4.81%) (45.74%)
======== ======== ======== ========
4. INVENTORIES
Inventories by major classification are as follows:
October 30, 2004 January 31, 2004
---------------- ----------------
Finished goods.......................................... $116,940 $122,769
Goods in process........................................ 3,255 7,096
Raw materials and supplies.............................. 4,334 9,583
-------- --------
Total.............................................. $124,529 $139,448
======== ========
5. EARNINGS PER SHARE
Basic and diluted earnings per share (EPS) are presented for each period in
which a statement of operations is presented. Basic earnings per share is
computed by dividing net income less preferred stock dividends earned, even if
not declared, by the weighted average shares actually outstanding for the
period. Diluted earnings per share include 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 1,150 and 1,414 for the
nine months ended October 30, 2004 and October 25, 2003, respectively.
Under the provisions of the amended revolving credit and note agreements, at
October 30, 2004, the Company was able to declare dividends on its 6% Cumulative
Preferred Stock up to $32 per quarter. However, no dividend was declared on the
preferred stock for quarter ended October 30, 2004 and the preferred dividends
in arrears is $97 for the current year. The preferred accumulated stock
dividends in arrears as of October 30, 2004 is $226.
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the three months ended October 30, 2004 and October 25,
2003:
Preferred
Net Stock Adjusted Average Loss
Loss Dividends Net Loss Shares Per Share
---- --------- -------- ------- ---------
2004:
Basic loss per share............................ $(23,849) $(32) $(23,881) 41,656 $(.57)
Effect of stock options.........................
Diluted loss per share.......................... $(23,849) $(32) $(23,881) 41,656 $(.57)
2003:
Basic loss per share............................ $(74,765) $(32) $(74,797) 16,631 $(4.50)
Effect of stock options.........................
Diluted loss per share.......................... $(74,765) $(32) $(74,797) 16,631 $(4.50)
13
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the nine months ended October 30, 2004 and October 25,
2003:
Preferred
Net Stock Adjusted Average Loss
Loss Dividends Net Loss Shares Per Share
---- --------- -------- ------- ---------
2004:
Basic loss per share............................ $(17,755) $(97) $(17,852) 25,056 $(.71)
Effect of stock options.........................
Diluted loss per share.......................... $(17,755) $(97) $(17,852) 25,056 $(.71)
2003:
Basic loss per share............................ $(81,857) $(97) $(81,954) 16,588 $(4.94)
Effect of stock options.........................
Diluted loss per share.......................... $(81,857) $(97) $(81,954) 16,588 $(4.94)
6. DEBT
On August 9, 2004 the Company completed the comprehensive restructuring of the
existing indebtedness with its lenders, along with new covenants based upon
current projections. The restructuring included the conversion of $30 million of
principal amount of debt into an issuance of a total of 29.85 million shares of
the common stock of the Company to the individual members of the lender group or
their respective nominees. The common shares were issued in blocks proportionate
to the amount of debt held by each lender. As of August 9, 2004 these shares of
common stock represented approximately 62% of the outstanding shares of common
stock of the Company. In addition to the debt to equity conversion, the Company
received a new $30 million revolving credit facility from the lenders and
restructured the balance of the existing indebtedness into a Tranche A loan of
$125 Million and a Tranche B loan of approximately $80 million. All the
restructured bank debt is secured by a first priority lien over substantially
all of the Company's and its domestic subsidiaries' assets. The Tranche A loan
will mature in three years and require amortization of principle based on
available cash flow for the first two years and fixed amortization of $1,500 per
quarter in the third year. Interest on the Tranche A loan will accrue at LIBOR
(London Inter Bank Offered Rate) plus 6%-8.25% depending on the leverage to cash
flow formula. The Tranche B loan will mature in 3 1/2 years with no required
amortization. Interest on the Tranche B loan will accrue at LIBOR plus 13% with
a maximum interest rate of 17%. The Tranche B loan has a Payment in Kind (PIK)
option that permits for the compounding of the interest in lieu of payment. The
debt and equity restructuring constituted a change in control of the Company.
There are several employee benefit plans that have triggers if a change of
control occurs. The appropriate plans were amended to allow the debt and equity
transaction without triggering the change in control provision. In addition, the
Shareholder Rights Plan was terminated.
The restructured debt agreement has several covenants including maximum total
leverage ratio, cash interest coverage ratio, total interest coverage ratio, and
consolidated minimum Earnings Before Interest, Taxes, Depreciation, Amortization
and Restructuring Expenses. (EBITDAR.) The covenants are effective beginning
with the quarter ending on January 29, 2005.
7. RETIREMENT BENEFIT PLANS
Pension Plans
The net periodic pension cost for the Company's United States (US) qualified
defined benefit plans for the three months and nine months ended October 30,
2004 and 2003 includes the following components:
For the Three Months Ended For the Nine Months Ended
October 30, 2004 October 25, 2003 October 30, 2004 October 25, 2003
---------------- ---------------- ---------------- ----------------
Service cost............................... $ 59 $339 $ 118 $1,088
Interest cost.............................. 1,235 735 3,245 2,364
14
Expected Return on Assets.................. (705) (443) (1,853) (1,423)
Net amortization........................... 381 48 1,013 155
Curtailment (Gain) Loss.................... 320
------ ---- ------ ------
Net periodic pension cost.................. 970 679 2,843 2,184
One-time recognition of remaining prior
service cost............................ 2,037
One-time charge for QSERP amendment........ 540
------ ---- ------ ------
Total net periodic pension cost............ $ 970 $679 $5,420 $2,184
====== ==== ====== ======
During the fourth quarter, the company expects to file a request with the
Internal Revenue Service seeking permission to waive expected quarterly funding
requirements for the plan year ended 2004. Final contributions for the plan year
ended 2003 have been made during the three months ended October 30, 2004. Cash
contributions of $4,323 to the Company's U.S. Pension Plans for the fiscal year
ended 2004 have been paid in their entirety through the third quarter.
The net periodic pension cost for the Company's non-United States qualified
defined benefit plans for the three months and nine months ended October 30,
2004 and 2003 includes the following components:
For the Three Months Ended For the Nine Months Ended
October 30, 2004 October 25, 2003 October 30, 2004 October 25, 2003
---------------- ---------------- ---------------- ----------------
Service cost............................... $ 22 $ 7 $ 99 $ 20
Interest cost.............................. 283 32 1,292 97
Expected Return on Assets.................. (192) (21) (876) (63)
Net amortization........................... 170 19 777 57
------ ---- ------ ------
Net periodic pension cost.................. $ 283 $ 37 $1,292 $ 111
====== ==== ====== ======
The Company expects to contribute cash contributions of $249 to its non-United
States pension plans for the fiscal year ended 2004. Through the third quarter,
$179 has been contributed.
During the first quarter ended May 1, 2004, the Company announced that it has
terminated the Oneida Ltd. Retiree Group Medical Plan, resulting in income
recognition of $61,973. Also, the Company amended two of its pension plans to
freeze benefit accruals, and as a result recognized a charge of $2,577.
8. OPERATIONS BY SEGMENT
During fiscal 2004, the Company determined that it should have historically been
reporting three reportable segments, as defined in SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information": Foodservice, Consumer
and International. Foodservice and Consumer segments operate in the US. The
Company previously reported that its Tableware segment was grouped around three
major product categories. The prior year disclosures have been restated to
report these three segments. This change in segment reporting has no effect on
reported earnings.
The Company's Consumer segment sells directly to a broad base of retail outlets
including department stores, mass merchandisers, Oneida Home stores and chain
stores. The Company's Foodservice segment sells directly or through distributors
to Foodservice operations, including hotels, restaurants, airlines, cruise
lines, schools and healthcare facilities. The Company's International segment
sells to a variety of distributors, foodservice operations and retail outlets.
The accounting policies of the reportable segments are the same as those
described in Note 1 of the Notes to Consolidated Financial Statements. The
Company evaluates the performance of its segments based on revenue, and reports
segment contributions before unallocated manufacturing costs, unallocated
selling, distribution and administrative costs, interest, other income/expenses,
corporate expenses and income taxes. The Company does not derive more than 10%
of its total revenues from any individual customer, government agency or export
sales.
15
Segment information for the first nine months of 2004 and 2003 were as follows:
2004 2003
---- ----
Revenues
Net Sales to external customers:
Foodservice ........................... $140,205 $143,782
Consumer .............................. 111,689 127,318
International ......................... 61,044 60,204
-------- --------
Total segment net sales ............... 312,938 331,304
Reconciling items:
License revenues ...................... 1,838 1,044
-------- --------
Total revenues ............................... $332,348 $314,776
======== ========
Income (loss) before income taxes
Segment contributions before unallocated costs
Foodservice ........................... $ 42,639 $ 42,791
Consumer .............................. 12,831 18,864
International ......................... (2,833) (4,643)
-------- --------
Total segment contributions ........... 52,637 57,012
-------- --------
Unallocated manufacturing costs .............. (17,993) (24,700)
Unallocated selling, distribution and
administrative costs ......................... (50,120) (50,446)
Restructuring costs .......................... 110 (10,050)
Impairment loss on depreciable assets ........ (34,016) (17,519)
Impairment loss on intangible assets.......... (18,173) (1,300)
(Gain) loss on sales of assets ............... 4,680 2,773
Other income ................................. 66,123 970
Other (expense) .............................. (5,265) (1,009)
Interest expense and deferred financing costs (14,923) (11,897)
-------- --------
Income (loss) before income taxes ............ $(16,940) $(56,166)
======== ========
October 30, 2004 January 31, 2004
---------------- ----------------
Goodwill
Foodservice ........................... $ 79,636 $ 79,636
Consumer .............................. 30,561 30,561
International ......................... 10,740 25,921
------- -------
Total segment goodwill................. $120,937 $136,118
======== ========
October 30, 2004 January 31, 2004
---------------- ----------------
Total Assets
Foodservice ........................... $171,069 $185,383
Consumer .............................. 109,897 124,049
International ......................... 56,718 81,142
Shared Assets(a) ...................... 28,601 50,927
------- -------
Total segment Assets .................. $366,285 $441,501
======== ========
(a) Shared Assets represent assets that provide economic benefit to all of the
Company's Operating segments. Shared assets are not allocated to operating
segments for internal reporting or decision making purposes.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarter ended October 30, 2004 compared with
the quarter ended October 25, 2003
(In Thousands)
Executive Summary
The accompanying financial statements for the three and nine months ended
October 30, 2004 and October 25, 2003, respectively have been prepared on a
going concern basis which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
experienced operating losses of $16,766 and $62,875 for the three and nine
months respectively ended October 30, 2004. Excluding restructuring expenses,
impairment losses, and gains on the sale of fixed assets, operating losses are
$1,109 and $15,476 for the three and nine months respectively ended October 30,
2004. In addition, net cash used by operating activities was $13,968 and $42,672
during the same periods.
The Company has undertaken several initiatives to return to profitability,
increase liquidity and compete in a changing marketplace. These include reducing
product costs, reducing operating costs, restructuring debt, selling assets and
reducing employee benefits. Additionally, the executive management team has
taken a reduction in compensation to assist the Company's return to
profitability. These initiatives have improved financial results as operating
income excluding restructuring and related expenses, impairment charges,
professional fees related to restructuring activities, and gains on the sale of
fixed assets was $860 for the quarter ended October 30, 2004 compared to a loss
of $14,433 for the quarter ended October 25, 2003.
The Company has reduced product costs by closing facilities with high operating
costs and outsourcing product lines. On September 9, 2004, the Company announced
the closing of the Sherrill, NY flatware manufacturing facility. The Company has
experienced unfavorable manufacturing variances of $12,379 through October 30,
2004 from the facility as a result of unsustainably high operating costs. The
majority of the products previously produced in this facility are in the process
of being outsourced to lower cost producers. The facility will be closed during
the first quarter of the next fiscal year.
The Company previously closed two manufacturing facilities in Mexico, a facility
in Italy and a facility in China. The Company sold the Buffalo, NY dinnerware
manufacturing facility, the Mexican facilities, and part of the Italy facility.
The Company also closed and sold a warehousing facility in Niagara Falls,
Canada. The proceeds generated from these sales were used to reduce the
Company's debt. The production from these facilities has been outsourced to
lower cost producers.
In an effort to increase liquidity, the Company has reduced inventory $30,551
since October 25, 2003. As a result, the Nashville, Tennessee warehouse has been
closed and a warehousing service provider in Piedmont, North Carolina is no
longer utilized. On November 18, 2004 the Company announced a licensing
agreement with the Anchor Hocking Company, a leading glassware company. Under
the agreement, approximately $2.0 million of existing glassware inventory will
be sold to Anchor Hocking. Additionally, the Company will license the "Oneida"
name and receive licensing fees based on sales levels. The agreement allows the
Company to reduce working capital requirements and provides a business
partnership with an industry leader in glassware. The Company also closed four
unprofitable Oneida Home stores during the third quarter ended October 30, 2004
and six stores since May 1, 2004. An additional nine unprofitable Oneida Home
Stores will be closed during the fourth quarter ending January 29, 2005.
On August 9, 2004 the Company completed the comprehensive restructuring of the
existing indebtedness with its lenders, along with new covenants based upon
current projections. The restructuring included the conversion of $30 million of
principal amount of debt into an issuance of a total of 29.85 million shares of
the common stock of the Company to the individual members of the lender group or
their respective nominees. The common shares were issued in blocks proportionate
to the amount of debt held by each lender. As of August 9, 2004 these shares of
common stock represented approximately 62% of the outstanding shares of common
stock of the Company. In addition to the debt to equity conversion, the Company
received a new $30 million revolving credit facility from the lenders and
restructured the balance of the existing indebtedness into a Tranche A loan of
$125 Million and a Tranche B loan of approximately $80 million. All the
restructured bank debt is secured by a first priority lien over substantially
all of the Company's and its domestic subsidiaries' assets. The Tranche A loan
will mature in three years and require amortization of
17
principle based on available cash flow for the first two years and fixed
amortization of $1,500 per quarter in the third year. Interest on the Tranche A
loan will accrue at LIBOR (London Inter Bank Offered Rate) plus 6%-8.25%
depending on the leverage to cash flow formula. The Tranche B loan will mature
in 3 1/2 years with no required amortization. Interest on the Tranche B loan
will accrue at LIBOR plus 13% with a maximum interest rate of 17%. The Tranche B
loan has a Payment in Kind (PIK) option that permits for the compounding of the
interest in lieu of payment. The debt and equity restructuring constituted a
change in control of the Company. There are several employee benefit plans that
have triggers if a change of control occurs. The appropriate plans were amended
to allow the debt and equity transaction without triggering the change in
control provision. In addition, the Shareholder Rights Plan was terminated.
On August 28, 2004 the Company completed the sale of substantially all of the
assets of its Encore Promotions Inc. subsidiary and has entered into a licensing
agreement with the buyer. The sale reduced inventory by $12,334. The proceeds
from the sale reduced debt and the licensing agreement provides an avenue to
offer Oneida-branded products under the licensing agreement to the supermarket
industry.
In order to improve liquidity and increase operating profits, the Company
significantly reduced benefits. During the first quarter of 2004, the Company
froze the Retirement Plan for the Employees of Oneida Ltd. and terminated the
Oneida Ltd Retiree Group Medical Plan. During the second quarter the Company
terminated the Long Term Disability Plan, the Oneida Limited Security Plan, and
froze the Supplemental Executive Retirement Plan. The Company did not issue
purchase options under the Employee Stock Purchase Plan and the 2002 Executive
Stock Option Plan. Additionally the Company increased the co-pays and
deductibles associated with the Oneida Sterling Health Plan.
The Company believes these initiatives will enhance profitability and increase
liquidity. If the Company is unable to achieve its operating and strategic plans
and objectives, the Company may need to raise additional capital, obtain further
covenant waivers from its lenders or seek additional investors. There can be no
assurance that the Company will be successful in any or all of these endeavors,
and failure may affect the Company's ability to continue to operate its
business.
Results of Operations - Third Quarter 2004 compared to Third Quarter 2003
Consolidated net sales for the three months ended October 30, 2004 decreased
$15,873 (13.5%) as compared to the same period in the prior year.
- -------------------------------------------------------------------------------------
For the three Months Ended
October 30, 2004 October 25, 2003
---------------- ----------------
- -------------------------------------------------------------------------------------
Net Sales:
- -------------------------------------------------------------------------------------
Foodservice............................... 44,140 51,314
- -------------------------------------------------------------------------------------
Consumer.................................. 35,578 47,679
- -------------------------------------------------------------------------------------
International............................. 21,555 18,153
- -------------------------------------------------------------------------------------
Total................................ 101,273 117,146
- -------------------------------------------------------------------------------------
Gross Margin................................ 26,482 18,445
- -------------------------------------------------------------------------------------
% Net Sales.............................. 26.1% 15.7%
- -------------------------------------------------------------------------------------
Operating Expenses.......................... 43,248 58,905
- -------------------------------------------------------------------------------------
% Net Sales.............................. 42.7% 50.3%
- -------------------------------------------------------------------------------------
Foodservice
Net sales of Foodservice products decreased by $7,174 (14.0%) over the same
period in the prior year. The financial uncertainty surrounding the Company
during the first six months of the current operating year resulted in certain
customers opting to dual source. The dual sourcing contributed to the reduced
sales in the third quarter. Additionally, certain chain restaurants purchased
higher quantities in the first quarter as a hedge against potential product flow
disruptions. These incremental first quarter purchases have displaced third
quarter shipments. Third quarter product shortages added to the decline in sales
as compared to the same period in the prior year. The order fill rate has
improved during the fourth quarter of the current operating year. Also
contributing to the sales decline is the current economic environment, which has
lead customers to "trade down" to less expensive product.
18
Consumer
Net sales of Consumer products decreased by $12,101 (25.4%) over the same three
month period in the prior year. On August 28, 2004, substantially all of the
assets of the Encore Promotions subsidiary were sold and the Company entered
into a licensing agreement with the buyer. Encore accounted for $1,312 of sales
in the current quarter compared with $7,800 in the prior year third quarter.
Overall, the table-top retail industry demand has decreased in the quarter
resulting in reduced sales. Also contributing to the reduced sales were
shortages in product lines. The product shorts were created by delivery issues
and late shipments from vendors. The order fill rate has improved during the
fourth quarter of the current operating year. During the current operating year,
six unprofitable Oneida Home Stores were closed. The closed Oneida Home Stores
contributed sales of $431 in the quarter ended October 30, 2004, compared to
$556 for the quarter ended October 25, 2003. The high number of storms in the
south eastern United States during the third quarter contributed to reduced
sales in the Oneida Home Stores of approximately $320.
International
Net sales from the International division increased by $3,400 (18.7%) as
compared to the same period in the prior year attributed to an increase in the
Australian market, an increase in United Kingdom retail sales and the positive
impact of foreign exchange translation. The increase was slightly offset by a
decline in United Kingdom consumer market sales.
Gross Margins
Gross margin for the three months ended October 30, 2004 was $26,482 or 26.1% as
a percentage of net sales, as compared to $18,445 or 15.7% for the same period
in the prior year. The closure of the international manufacturing facilities and
outsourcing of production eliminated unfavorable variances and increased margins
by approximately $731. The sale of the Buffalo, NY manufacturing facility and
improvements at the Sherrill, NY facility reduced unfavorable variances by
approximately $1,700. In connection with the Company's strategic initiative to
reduce inventory and warehouse space, the Company also recorded a $12,506
inventory reserve during the three months ended October 25, 2003. A similar
reserve was not required during the comparable quarter ended October 30, 2004.
The previously discussed improvements were offset primarily by reduced sales
volume and unfavorable product mix experienced by the Foodservice and Consumer
segments.
The Company anticipates that product costs will increase due to higher foreign
stainless steel prices as foreign steel demand continues to increase.
Additionally, higher freight costs as the result of higher fuel costs will
adversely affect future product costs.
Operating Expenses
Consolidated operating expenses for the three months ended October 30, 2004 were
$43,248, compared to $58,905 for the corresponding three month period in the
prior year. The current quarter operating expenses include restructuring expense
of $27 associated with the shutdown of the Sherrill, New York flatware
manufacturing facility, professional fees related to restructuring activities of
$1,658, warehouse closure costs of $31, and Oneida Home Store closure costs of
$113. The prior year's operating expenses included restructuring expense of
$10,050 and an impairment loss on depreciable assets of $17,519. The Company
performed its annual testing of goodwill under the provision of Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets"
(FAS 142). The testing resulted in a goodwill impairment charge of $15,473
associated with the United Kingdom operations in the International operating
segment. The prior year testing resulted in a goodwill impairment charge of
$1,300 associated with the United Kingdom operations during the quarter ended
October 25, 2003. Finally, operating expenses for each of the three month
periods ending October 30, 2004 and October 25, 2003 included a loss on the sale
of fixed assets of $157, and a gain on the sale of fixed assets of $2,842,
respectively. Excluding the previously noted expenses and gains or losses on the
sale of fixed assets, operating expenses for the quarter ended October 30, 2004
were $25,789, compared to $32,878 a year ago; a decrease of $7,089 or 21.6%
compared to the quarter ended October 25, 2003. Distribution costs accounted for
approximately $1,700 of the decrease and domestic employee benefit related costs
decreased by approximately $850. Additionally, the number of administrative
employees was reduced. The Company has undertaken several cost savings
initiatives to further reduce Selling, Distribution and Administrative expenses.
Other Income and Expense
Other Income was $0 for the three months ended October 30, 2004 compared to $89
for the three months ended October 25, 2003. The three months ended October 25,
2003 contained a realized gain on foreign currency exchange which was not
realized in the comparable quarter of the current year.
Other Expense was $612 for the three months ended October 30, 2004 compared to
$572 for the three months ended October 25, 2003. The increase is the result of
realized losses on foreign currency exchange in the current year.
19
Interest Expense Including Amortization of Deferred Financing Costs
Interest expense including amortization of deferred financing costs increased by
$3,224 or (81.3%) for the three months ended October 30, 2004 from the
comparable quarter in the prior year, primarily as a result of higher effective
interest rates on the restructured debt. Also contributing to the increased
expense is the amortization of deferred financing costs associated with the
restructured debt. Deferred financing costs associated with the restructured
debt were $6,078 and the amortization expense for the quarter was $520.
Income Tax Expense (Benefit)
The Company continues to provide a full valuation allowance against its net
deferred tax assets. The benefit for income taxes as a percentage of income
(loss) before income taxes was 2.9% or $719 for the three months ended October
30, 2004 as compared to expense of (66.5%) or $29,856 for the same period in the
prior year. The benefit for income taxes for the three months ended October 30,
2004 includes the recognition of a tax benefit for the reversal of deferred tax
liabilities associated with the charge to impairment expense on the goodwill of
our United Kingdom operation, a foreign disregarded entity. The previous
recognition of these deferred tax liabilities resulted in additional valuation
allowance, therefore the elimination of the liability due to the goodwill
impairment warrants the reversal of the corresponding reserve. The benefit for
income taxes for the quarter also includes a provision for the continued
recognition of deferred tax liabilities on the remaining indefinite long-lived
intangibles (these liabilities cannot be used to offset deferred tax assets in
determining the amount of valuation allowance needed for the quarter). The
Company has not recorded any tax benefits relative to losses incurred during the
three months ended October 30, 2004 since it is more likely than not that the
resulting asset would not be realized. The Company will continue to maintain a
valuation allowance until sufficient evidence exists to support its reversal.
During the third quarter ended October 30, 2004, the Company underwent a change
in ownership within the meaning of Sec. 382 of the Internal Revenue Code (Sec.
382) on a deal consummated with its primary lenders. Sec. 382 provides that,
after an ownership change, the amount of a loss corporation's taxable income for
any post-change year that may be offset by pre-change losses shall not exceed
the Sec. 382 limitation for that year. A loss corporation is any corporation
that has a net operating loss, a net operating loss carryforward, or a net
unrealized built-in loss for the taxable year in which the ownership change
occurs. The Sec.382 limitation generally equals the fair market value of the old
loss corporation multiplied by the long-term tax-exempt rate. The Company is in
the process of determining the annual limitation under Sec. 382.
The following table summarizes the Company's provision for income taxes and the
related effective tax rates:
- -----------------------------------------------------------------------------------------
For the Three Months Ended
- -----------------------------------------------------------------------------------------
October 30, 2004 October 25, 2003
---------------- ----------------
- -----------------------------------------------------------------------------------------
Income (loss) before income taxes................ (24,568) (44,909)
- -----------------------------------------------------------------------------------------
Provision (benefit) for income taxes............. (719) 29,856
- -----------------------------------------------------------------------------------------
Effective tax rate.............................. 2.9% (66.5%)
- -----------------------------------------------------------------------------------------
Results of Operations - nine months 2004 compared to nine months 2003
Consolidated net sales for the nine months ended October 30, 2004 decreased
$18,366 (5.5%) as compared to the same period in the prior year.
- -----------------------------------------------------------------------------------------
For the Nine Months Ended
- -----------------------------------------------------------------------------------------
October 30, 2004 October 25, 2003
---------------- ----------------
- -----------------------------------------------------------------------------------------
Net Sales:
- -----------------------------------------------------------------------------------------
Foodservice .................................. 140,205 143,782
- -----------------------------------------------------------------------------------------
Consumer ..................................... 111,690 127,318
- -----------------------------------------------------------------------------------------
International ................................ 61,043 60,204
- -----------------------------------------------------------------------------------------
Total .................................... 312,938 331,304
- -----------------------------------------------------------------------------------------
Gross Margin ................................... 78,575 78,402
- -----------------------------------------------------------------------------------------
% Net Sales .................................. 25.1% 23.7%
- -----------------------------------------------------------------------------------------
Operating Expenses ............................. 141,450 122,632
- -----------------------------------------------------------------------------------------
% Net Sales .................................. 45.2% 37.0%
- -----------------------------------------------------------------------------------------
20
Foodservice
Net sales of Foodservice products decreased $3,577 (2.5%) for the first nine
months of the year, compared to the first nine months of the prior fiscal year.
An increase in first quarter sales, attributed to customers increasing their
inventory levels as a hedge against the financial uncertainty of the Company,
was offset against lower third quarter shipments. Also, offsetting the increased
first quarter sales is the effect of dual sourcing and below target order fill
rates. Order fill rates have improved during the fourth quarter of the current
operating year. Also contributing to the sales decline is the current economic
environment, which has lead to customers to "trade down" to less expensive
product.
Consumer
Net sales of Consumer products decreased $15,628 (12.3%) for the nine months
ended October 30, 2004. The Encore Promotions subsidiary was sold and the
Company entered into a licensing agreement with the buyer. The sale of Encore
Promotions transaction, and reduced sales volume, accounted for approximately
$8,800 of the decline. Overall, the table-top retail industry demand has
decreased resulting in reduced sales. Product shortages resulted in reduced
sales to department stores and national accounts. The product shorts were
created by delivery issues and late shipments from vendors. The order fill rate
has improved during the fourth quarter of the current operating year. During the
current operating year, six unprofitable Oneida Home Stores were closed. The
closed Oneida Home Stores accounted for approximately $200 of the sales decline.
The unusual number of storms in the south eastern United States during the third
quarter contributed to reduced sales in the Oneida Home Stores of approximately
$320.
International
Net sales from the International division increased by $839 (1.4%), as compared
to the same period in the prior year, attributed to an increase in the
Australian retail market related to the opening of Oneida Home stores in retail
shopping centers. These increases were offset by a decline in the United Kingdom
consumer market related to department stores purchasing directly from suppliers.
Net sales in the Latin American have remained consistent with prior year. Also
contributing to the increase is the effect of foreign exchange translation.
Gross Margins
Gross margin for the nine months ended October 30, 2004 was $78,575 or (25.1%)
as a percentage of net sales, as compared to $78,402 or (23.7%) for the same
period in the prior year. The closure of the international manufacturing
facilities and outsourcing of production eliminated unfavorable variances and
increased margins by approximately $1,400. The sale of the Buffalo, NY
manufacturing facility and improvements at the Sherrill, NY facility reduced
unfavorable variances by approximately $4,600. The Company recorded inventory
reserves of $9,607 during the current year, compared to $12,506 recorded during
the same period in prior year. The current year inventory reserves were recorded
as a result of the sale of the Encore Promotions Inc. subsidiary, and for
glassware products, along with an additional $3,200 inventory write-down in the
first quarter in conjunction with the Company's focus on reducing warehousing
costs, inventory levels and improving cash flow. The recording of the prior
year's inventory reserve was also in connection with the Company's strategic
initiative to reduce inventory and related warehouse costs. The previously
discussed improvements were primarily offset by reduced sales volume and
unfavorable product mix experienced by the Foodservice and Consumer segments.
Operating Expenses
Consolidated operating expenses for the nine months ended October 30, 2004 were
$141,450, compared to $122,632 for the same nine month period in the prior year.
The current year operating expenses include several costs that the Company does
not anticipate recurring at the same levels in the future. These costs include:
o Professional fees related to restructuring related activities of
$4,973
o Costs related to employee rationalization of $1,083
o Warehouse closure costs of $519
o Oneida Home Store closure costs of $272
o Costs related to the Encore Promotions transaction of $345
o Restructuring benefit of $110 in the current year and expense of
$10,050 in the prior year
o Long lived asset impairments of $36,716 in the current year and
$17,519 in the prior year
o Goodwill impairments of $15,473 in the current year and $1,300 in the
prior year
o Gains on the sales of assets of $4,680 and $2,773 in the prior year.
Excluding the charges above, operating expenses for the nine months ended
October 30, 2004 were $86,859 compared to $96,536 for the nine months ended
October 25, 2003; a decrease of $9,677 or (10.0%). Distribution costs accounted
for approximately $2,945 of the decrease and domestic employee benefit related
costs decreased by approximately
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$1,647. Additionally, the number of administrative employees was reduced. The
Company has undertaken several cost savings initiatives to further reduce
Selling, Distribution and Administrative expenses.
Other Income and Expense
Other Income was $66,123 for the nine months ended October 30, 2004 compared to
$970 for the nine months ended October 25, 2003. This increase is primarily the
result of a decision by the Company to terminate the Oneida Ltd. Retiree Group
Medical Plan, the Long Term Disability and the Oneida Limited Security Plans.
The plan terminations resulted in a one-time benefit of $64,272.
Other Expense was $5,265 for the nine months ended October 30, 2004 compared to
$1,009 for the nine months ended October 25, 2003. This increase is primarily
the result of a decision by the Company to freeze benefit accruals for two of
its retirement plans and the Supplemental Executive Retirement Plan. The plan
amendments resulted in charges of $3,565.
Interest Expense Including Amortization of Deferred Financing Costs
Interest expense, including amortization of deferred financing costs, increased
by $3,026 or (25.4%) for the nine months ended October 30, 2004 versus the prior
year, primarily as a result of higher effective interest rates on the Company's
restructured debt. Also contributing to the increased expense is the
amortization of deferred financing costs associated with the restructured debt.
Income Tax Expense (Benefit)
The Company continues to provide a full valuation allowance against its net
deferred tax assets. The provision for income taxes as a percentage of income
(loss) before income taxes was (4.8%) or $815 for the nine months ended October
30, 2004, as compared to (45.7%) or $25,691 for the same period in the prior
year. The provision for income taxes for the nine months ended is primarily
comprised of foreign tax expense related to foreign operations and domestic
deferred tax liabilities recognized on indefinite long-lived intangibles,
reduced by the change discussed in the third quarter. The Company continues to
provide a full valuation allowance against its domestic net deferred tax assets
and the net deferred tax assets of the United Kingdom operation. The Company has
not recorded any tax benefits relative to losses incurred during the nine months
ended October 30, 2004, since it is more likely than not that the resulting
asset would not be realized. The Company will continue to maintain a valuation
allowance until sufficient evidence exists to support its reversal.
During the first quarter ended May 1, 2004, the Company recognized two
significant events that impact the year to date taxes. The Company announced
that it has terminated the Oneida Ltd. Retiree Group Medical Plan, resulting in
income recognition of $61,973. The inclusion of this income in the year to date
domestic tax calculation produced no tax expense since the deferred tax asset is
realized and the valuation allowance previously recognized against that asset is
reversed. Also, the Company amended two of its pension plans to freeze benefit
accruals, and as a result recognized a charge of $2,577. The inclusion of this
charge in the year to date domestic tax calculation produced no tax benefit
because a full valuation allowance is recorded against the deferred tax asset
resulting from this item.
The following table summarizes the Company's provision for income taxes and the
related effective tax rates:
- ------------------------------------------------------------------------------------------
For the Nine Months Ended
- ------------------------------------------------------------------------------------------
October 30, 2004 October 25, 2003
---------------- ----------------
- ------------------------------------------------------------------------------------------
Income (loss) before income taxes ............ (16,940) (56,166)
- ------------------------------------------------------------------------------------------
Provision (benefit) for income taxes ......... 815 25,691
- ------------------------------------------------------------------------------------------
Effective tax rate ........................... (4.8%) (45.7%)
- ------------------------------------------------------------------------------------------
Restructuring
On September 9, 2004 the Company announced that it is closing its Sherrill, NY
flatware factory because of unsustainably high operating costs that have heavily
contributed to substantial losses within the company. The Company will continue
to market the products primarily manufactured from this site using independent
suppliers. Under the restructuring, approximately 450 employees will be
terminated and termination benefits have been recognized in accordance with
Oneida Severance Pay Program. The Company recognized a charge of $27 in the
statement of Operations under the caption "Restructuring Expense" during the
quarter ended October 30, 2004. No cash payments have been made under the Oneida
Severance Pay Program. The Company has implemented a performance retention plan
where by employees earn incremental wages if certain weekly manufacturing
metrics are achieved. A portion of the incremental wages is paid weekly and the
remainder is paid upon employee termination.
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The employee must be terminated in connection with the facility closure in order
to receive the deferred portion of the performance retention plan. The flatware
factory will be closed during the first quarter of the next fiscal year.
As a result of the substantial manufacturing inefficiencies and negative
manufacturing variances, it was determined at the end of the third quarter of
fiscal year ending January 31, 2004 to close and sell the following factories:
Buffalo China dinnerware factory and decorating facility in Buffalo NY;
dinnerware factory in Juarez, Mexico; flatware factory in Toluca, Mexico;
hollowware factory in Shanghai China; and hollowware factory in Vercelli, Italy.
The Company continues to market the products primarily manufactured from these
sites, using independent suppliers. The Toluca, Mexico; Shanghai, China; and
Vercelli, Italy facilities closings were completed during the fourth quarter of
the year ended January 31, 2004. The Buffalo, NY factory buildings and
associated materials and supplies were sold to Niagara Ceramics Corporation on
March 12, 2004. The Buffalo China name and all other active Buffalo China
trademarks and logos remain the property of the Company. Niagara Ceramics is an
independent supplier to the Company. The Juarez Mexico factory sale was
completed on April 22, 2004, and the Toluca Mexico factory sale was completed on
June 2, 2004. The Niagara Falls, Canada warehouse sale was completed on July 12,
2004 and part of the Vercelli, Italy properties have been sold. The
restructuring plans are intended to reduce costs, increase the Company's
liquidity and better position the Company to compete under the current economic
conditions.
Under the restructuring plan implemented at the end of the third quarter ended
October 25, 2003, approximately 1,150 employees have been terminated. As of
October 30, 2004, 1,085 of those terminations have occurred and 65 employees
have accepted employment with Niagara Ceramics who purchased the manufacturing
assets of Buffalo China. Termination benefits have been recorded in accordance
with contractual agreements or statutory regulations. The Company recognized a
charge of $9,001 in the Statement of Operations under the caption "Restructuring
Expense" in the year ended January 31, 2004. Cash payments and adjustments
inception to date through October 30, 2004 under the restructuring were $7,633
and $445 respectively, and the liability at the quarter end is $923.
Fixed Asset Impairments
In conjunction with the announcement on September 9, 2004 that it is closing its
Sherrill flatware factory, the Company performed an evaluation in accordance
with Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment of Long Lived Assets", to determine if the manufacturing facilities
assets were subject to a possible impairment loss. Due to the cash flow being
less than the book value, it was determined that an impairment existed and as a
result, an impairment charge of $34,016 was recorded as a charge in the
consolidated statements of operations under the caption "Impairment loss on
depreciable assets" for the quarter ended July 31, 2004.
Impairment of Other Assets
As a result of the reduced use of barter credits, it became apparent that it is
probable that the Company will not use all of its remaining barter credits. The
Company performed an evaluation in accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment of Long Lived
Assets", to determine if the barter credits were subject to a possible
impairment loss. Due to the cash flow being less than the book value, it was
determined that an impairment existed and as a result, a $2,700 impairment was
recorded as a charge in the consolidated statements of operations under the
caption "Impairment loss on other assets" for the quarter ended July 31, 2004.
Goodwill Impairment
During the quarter ended October 30, 2004, the Company performed its annual
testing of goodwill and intangible assets under the provisions of FAS 142. Under
FAS 142 goodwill is tested under a two step approach. The first step requires
the determination of the fair value of the reporting unit compared to the book
value of that reporting unit. If the book value exceeds the fair value, a second
step impairment test is required to measure the amount of impairment. The
results of the impairment test performed as part of the Company's annual
impairment analysis resulted in an impairment charge of goodwill in the United
Kingdom operations of the International operating segment of $15,473. The fair
value of the Operations was determined through a combination of three valuation
methodologies. The charge is recorded in the statement of operations under the
caption "Impairment loss on goodwill".
Liquidity & Financial resources
Cash used in operating activities was $42,672 and $1,512 for the nine months
ended October 30, 2004 and October 25, 2003, respectively. Negative working
capital changes resulted in the unfavorable cash flow for the nine months ending
October 30, 2004. Trade accounts receivable balances have increased as the
result of increased product shipments during October. The increased shipments
were the result of customer demand that met with on-hand inventory and higher
fill rates. Inventory has decreased $15,173 since January 31, 2004. Excluding
the impact of the employee
23
benefit modifications, accounts payable and accrued expenses have decreased by
$11,670 since January 31, 2004. Also restructuring expense payments of $6,059
were made during the current year. The financial uncertainty surrounding the
Company during the first six months of the year resulted in certain vendors
requiring shorter payment cycles. The Company is anticipating to returning to
traditional payment terms as its financial strength improves. Also contributing
to the cash used in financing activities were professional fees paid for the
restructuring of the Company's debt and operational restructuring activities of
$4,973.
The net cash used in operating activities for the nine months ending October 25,
2003 was primarily due to net losses offset by positive changes in operating
assets and liabilities.
Cash flow generated from investing activities was $10,184 for the nine months
ending October 30, 2004 compared to cash generated of $158 for the same period
in the prior year. During the first six months of the year, the Company sold the
Buffalo, New York, manufacturing facility, the facilities in Mexico, the
Canadian facility and part of the Italian facility. These sales generated cash
of $13,565, which was used to reduce debt. Capital expenditures were $3,381 and
$4,326 for the nine months ending October 30, 2004 and October 25, 2003,
respectively. The reduction in capital spending is the result of the Company
effort to improve earnings by closing unproductive manufacturing facilities and
outsourcing production to less expensive producers. The Company does not
anticipate any significant capital spending for the remainder of the fiscal
year.
Financing activities generated cash of $25,429 and $9,214 for the nine months
ending October 30, 2004 and October 25, 2003, respectively. The Company
increased its outstanding balance on the revolving credit facility to fund
working capital needs.
On August 9, 2004 the Company completed the comprehensive restructuring of the
existing indebtedness with its lenders, along with new covenants based upon
current projections. The restructuring included the conversion of $30 million of
principal amount of debt into an issuance of a total of 29.85 million shares of
the common stock of the Company to the individual members of the lender group or
their respective nominees. The common shares were issued in blocks proportionate
to the amount of debt held by each lender. As of August 9, 2004 these shares of
common stock represented approximately 62% of the outstanding shares of common
stock of the Company. In addition to the debt to equity conversion, the Company
received a new $30 million revolving credit facility from the lenders and
restructured the balance of the existing indebtedness into a Tranche A loan of
$125 Million and a Tranche B loan of approximately $80 million. All the
restructured bank debt is secured by a first priority lien over substantially
all of the Company's and its domestic subsidiaries' assets. The Tranche A loan
will mature in three years and require amortization of principle based on
available cash flow for the first two years and fixed amortization of $1.500 per
quarter in the third year. Interest on the Tranche A loan will accrue at LIBOR
(London Inter Bank Offered Rate) plus 6%-8.25% depending on the leverage to cash
flow formula. The Tranche B loan will mature in 3 1/2 years with no required
amortization. Interest on the Tranche B loan will accrue at LIBOR plus 13% with
a maximum interest rate of 17%. The Tranche B loan has a Payment in Kind (PIK)
option that permits for the compounding of the interest in lieu of payment. The
debt and equity restructuring constituted a change in control of the Company.
There are several employee benefit plans that have triggers if a change of
control occurs. The appropriate plans were amended to allow the debt and equity
transaction without triggering the change in control provision. In addition, the
Shareholder Rights Plan was terminated.
The restructured debt agreement has several covenants including maximum total
leverage ratio, cash interest coverage ratio, total interest coverage ratio, and
consolidated minimum Earnings Before Interest Taxes Depreciation Amortization
and Restructuring Expenses (EBITDAR). The new covenants are effective beginning
with the quarter ending on January 29, 2005.
Working capital was $133,206 as of October 30, 2004 as compared to ($89,751) at
January 31, 2004. The negative working capital at January 31, 2004 was primarily
caused by the current classification of the revolving credit and note
agreements.
During the second quarter, the Company has determined it will not make any
scheduled remaining 2004 pension plan contributions in an effort to conserve
cash. The Retirement Plan for Employees of Oneida Ltd. and the Retirement Income
Plan for Employees of Buffalo China were previously frozen in the first quarter.
The anticipated deferred plan contributions are approximately $6,500. This is in
accordance with the Company's strategy of obtaining a waiver from the Internal
Revenue Service that allows current year pension contributions to be deferred.
The contributions related to 2003 plan year can not be waived and have been made
during the third quarter as scheduled.
24
On September 20, 2004, the Pension Benefit Guarantee Corporation perfected their
lien on Company assets as a result of non payment of scheduled contributions.
The Company received a covenant waiver from the leaders. There was no
compensation paid for the waiver.
Accounting Pronouncements
In May 2004, the financial Accounting Standards Board ("FASB") issued FASB Staff
Position No. FAS 106-2 (FSP 106-2), "Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003", which supersedes FSP 106-1. FSP 106-2 provides guidance on the accounting
for the effects of the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (the Act) for employers that sponsor postretirement health care
plans that provide prescription drug benefits. It also requires certain
disclosure regarding the effect of the federal subsidy provided by the Act. This
FSP is effective for the first interim or annual period beginning after June 15,
2004. As a result of the Company's decision to terminate the postretirement
health care plan as discussed in Note 7, this accounting pronouncement will not
apply.
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 30,
2004, a 1 percentage point change in the rate would result in a corresponding
change in interest expense of $2.3 million.
The Company has foreign exchange exposure related to its foreign operations in
Mexico, Canada, Italy, Australia, the United Kingdom and China. See Note 8 to
the Notes to Consolidated Financial Statements for details on the Company's
foreign operations. Translation adjustments reported in the income statement
were not of a material nature.
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-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based
upon that evaluation, each has concluded that at the end of the period covered
by this report 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. Notwithstanding the foregoing, a control system, no matter how well
designed and operated, can provide only reasonable not absolute assurance that
it will detect or uncover failure within the Company to disclose material
information otherwise required to be set fourth in the Company's periodic
reports.
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.
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, may
constitute forward-looking statements, within the meaning of the Federal
securities laws, including but not limited to the Private Securities Litigation
Reform Act of 1995. As such, 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
or implied herein. Such factors include, but are not limited to: changes in
national or international political conditions; civil unrest, war or terrorist
attacks; general economic conditions in the Company's own markets and related
markets; availability or shortage of raw materials; difficulties or delays in
the development, production and marketing of new products; financial stability
of the Company's contract manufacturers, and their ability to produce and
deliver acceptable quality product on schedule; 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; inability of the Company to maintain sufficient levels of
liquidity; failure of the company of obtain needed waivers and/or amendments
relative to it's
25
finance agreements; foreign currency fluctuations; major slowdowns in the
retail, travel or entertainment industries; the loss of several of the Company's
key executives, major customers or suppliers; underutilization of, or negative
variances at, some or all of the Company's plants and factories; the Company's
failure to achieve the savings and profit goals of any planned restructuring or
reorganization programs, including the failure to close the Sherrill, NY
manufacturing facility on schedule and within budget; future product shortages
resulting from the Company's transition to an outsourced manufacturing platform;
international health epidemics such as the SARS outbreak; impact of changes in
accounting standards; potential legal proceedings; changes in pension and
medical benefit costs; and the amount and rate of growth of the Company's
selling, general and administrative expenses.
26
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 9, 2004 By: /s/ PETER J. KALLET
-------------------------------------
Peter J. Kallet
Chairman of the Board, President and
Chief Executive Officer
/s/ ANDREW G. CHURCH
-------------------------------------
Andrew G. Church
Senior Vice President and
Chief Financial Officer
27