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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 April 30, 2005
Commission file number 1-5452
ONEIDA LTD.
(Exact name of Registrant as specified in its charter)
NEW YORK 15-0405700
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
ONEIDA, NEW YORK 13421
(Address of principal executive offices) (Zip code)
(315) 361-3636
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of June 8, 2005: 46,631,924
1
ONEIDA LTD.
FORM 10-Q
FOR THE THREE MONTHS ENDED APRIL 30, 2005
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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. UNREGISTERED SALES OF EQUITY 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
ITEM 6. EXHIBITS
Exhibits:
3.1 The Company's Restated Articles of Incorporation, as amended and
restated, which are incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 29, 2005.
3.2 The Company's By-Laws, as amended and restated, which are incorporated
by reference to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 29, 2005.
10.1 Second Amended and Restated Credit Agreement dated as of August 9, 2004
between Oneida Ltd., the financial institutions named in the Second
Amended and Restated Credit Agreement and JPMorgan Chase Bank as
Administrative Agent and Collateral Agent, which is incorporated by
reference to the Registrant's Current Report on Form 8-K dated as of
August 9, 2004.
10.2 Amended and Restated Security Agreement dated as of August 9, 2004,
between Oneida Ltd., those domestic subsidiaries of Oneida Ltd. which
are named as Guarantors in the Amended and Restated Security Agreement
and JPMorgan Chase Bank, as Collateral Agent, which is incorporated by
reference to the Registrant's Current Report on Form 8-K dated as of
August 9, 2004.
10.3 Amended and Restated Pledge Security Agreement dated as of August 9,
2004, between Oneida Ltd., those domestic subsidiaries of Oneida Ltd.
which are named as Guarantors in the Amended and Restated Pledge
Security Agreement and JPMorgan Chase Bank, as Collateral Agent, which
is incorporated by reference to the Registrant's Current Report on Form
8-K dated as of August 9, 2004.
10.4 Second Amended and Restated Collateral Agency and Intercreditor
Agreement dated as of August 9, 2004, between Oneida Ltd., those
domestic subsidiaries of Oneida Ltd. which are named as Guarantors in
the Second Amended and Restated Collateral Agency and Intercreditor
Agreement, JPMorgan Chase Bank as Collateral Agent, Administrative
Agent, Swingline Lender, Issuing Bank, and Existing Trade L/C Issuer,
the Lenders as defined in the Second Amended and Restated Collateral
Agency and Intercreditor Agreement, Bank of America, N.A., as issuer of
the Bank of America L/C, and HSBC Bank USA, National Association, as
issuer of the HSBC China L/C, which is incorporated by reference to the
Registrant's Current Report on Form 8-K dated as of August 9, 2004.
10.5 Amended and Restated Consolidated Subsidiary Guarantee Agreement dated
as of August 9, 2004, between Oneida Ltd., those domestic subsidiaries
of Oneida Ltd. which are named as Guarantors in the Amended and Restated
Consolidated Subsidiary Guarantee Agreement and JPMorgan Chase Bank, as
Collateral Agent and Administrative Agent, which is incorporated by
reference to the Registrant's Current Report on Form 8-K dated as of
August 9, 2004.
10.6 Amended and Restated Consolidated Subsidiary Subordination Agreement
dated as of August 9, 2004, between Oneida Ltd., those domestic
subsidiaries of Oneida Ltd. which are named as Guarantors in the Amended
and Restated Consolidated Subsidiary Subordination Agreement and
JPMorgan Chase Bank, as Collateral Agent and Administrative Agent, which
is incorporated by reference to the Registrant's Current Report on Form
8-K dated as of August 9, 2004.
10.7 Securities Exchange Agreement dated as of August 9, 2004, between Oneida
Ltd. and the purchasers set forth in the Securities Exchange Agreement,
which is incorporated by reference to the Registrant's Current Report on
Form 8-K dated as of August 9, 2004.
3
10.8 Registration Rights Agreement dated as of August 9, 2004, between Oneida
Ltd. and the entities set forth on Schedule 1 to the Registration Rights
Agreement, which is incorporated by reference to the Registrant's
Current Report on Form 8-K dated as of August 9, 2004.
10.9 Amended and Restated Mortgage, Assignment of Leases and Rents and
Security Agreement and Fixture Filing in the amount of $8,432,000.00
dated as of August 18, 2004, between Oneida Food Service, Inc., The Erie
County Industrial Development Agency and JPMorgan Chase Bank, as
collateral agent, which is incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31, 2004.
10.10 Amended and Restated Mortgage, Assignment of Leases and Rents and
Security Agreement and Fixture Filing in the amount of $6,600,000.00
dated as of August 18, 2004, between Oneida Food Service, Inc., The Erie
County Industrial Development Agency and JPMorgan Chase Bank, as
collateral agent, which is incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31, 2004.
10.11 Amended and Restated Mortgage, Assignment of Leases and Rents and
Security Agreement and Fixture Filing in the amount of $20,115,000.00
dated as of August 31, 2004, between Oneida Silversmiths, Inc., The
Oneida County Industrial Development Agency and JPMorgan Chase Bank, as
collateral agent, which is incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31, 2004.
10.12 Mortgage Spreader Agreement in the amount of $20,115,000.00 dated as of
August 31, 2004, between Oneida Silversmiths, Inc., The Oneida County
Industrial Development Agency and JPMorgan Chase Bank, as collateral
agent, which is incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 31, 2004.
10.13 Amended and Restated Mortgage, Assignment of Leases and Rents and
Security Agreement and Fixture Filing in the amount of $20,943,726.74
dated as of August 31, 2004, between Oneida Silversmiths, Inc., The
Oneida County Industrial Development Agency and JPMorgan Chase Bank, as
collateral agent, which is incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31, 2004.
10.14 Mortgage Spreader Agreement in the amount of $20,943,726.74 dated as of
August 31, 2004, between Oneida Silversmiths, Inc. The Oneida County
Industrial Development Agency and JPMorgan Chase Bank, as collateral
agent, which is incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 31, 2004.
10.15 Amended and Restated Mortgage, Assignment of Leases and Rents and
Security Agreement and Fixture Filing in the amount of $191,500.00 dated
as of August 9, 2004, between Oneida Ltd. and JPMorgan Chase Bank, as
collateral agent, which is incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31, 2004.
10.16 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, which is incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended October 30, 2004. The Limited Waiver is dated as of
September 23, 2004.
10.17 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, which is incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended October 30, 2004. Amendment No. 1 is dated as of October
15, 2004.
4
10.18 Consent and Amendment No. 2 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 which is
incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 29, 2005. The Consent and Amendment
No. 2 is dated as of February 2, 2005.
10.19 Consent, Waiver and Amendment No. 3 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 which
is incorporated by reference to the Registrant's Current Report on Form
8-K dated April 12, 2005. The Consent, Waiver and Amendment No. 3 is
dated as of April 7, 2005.
10.20 Agreement with former executive officer of the Company, Allan H.
Conseur, dated July 22, 2004, which is incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended October
30, 2004.
10.21 Letter Agreement with former executive officer of the Company, Allan H.
Conseur dated November 22, 2004 which is incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
January 29, 2005.
10.22 Agreement with former executive officer of the Company, Harold J.
DeBarr, dated August 2, 2004, which is incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended October
30, 2004.
10.23 Agreement with former executive officer of the Company, Gregg R. Denny,
dated July 28, 2004, which is incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended October
30, 2004.
10.24 Agreement with executive officer of the Company, J. Peter Fobare dated
July 28, 2004, which is incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 30, 2004.
10.25 Agreement with executive officer of the Company, James E. Joseph, dated
July 28, 2004, which is incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 30, 2004.
10.26 First Amendment to the Letter Agreement Dated July 28, 2004 with
executive officer of the Company, James E. Joseph dated February __,
2005, which is incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 29, 2005.
10.27 Agreement with executive officer of the Company, Catherine H. Suttmeier,
dated July 28, 2004, which is incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended October
30, 2004.
10.28 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.
10.29 Letter agreement with executive officer of the Company, Paul Masson,
dated January 17, 2005, which is incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 29, 2005.
5
10.30 Deed of Agreement between the Company, the Company's Oneida U.K. Limited
subsidiary and executive officer of the Company, Paul Masson, dated
April 12, 2005 which is incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 29, 2005.
10.31 Agreement with former executive officer of the Company, Peter J. Kallet,
dated March 23, 2005, which is incorporated by reference to the
Registrant's Current Report on Form 8-K dated as of March 23, 2005.
10.32 Oneida Ltd. 2002 Stock Option Plan adopted by the Board of Directors and
approved by stockholders on May 29, 2002, which is incorporated by
reference to the Registrant's Annual Report on Form 10-K for the year
ended January 25, 2003.
10.33 Oneida Ltd. 2003 Non-Employee Director Stock Option Plan adopted by the
Board of Directors and approved by stockholders on May 29, 2002, as
amended and restated, which is incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 29, 2005.
10.34 Oneida Ltd. Employee Security Plan adopted by the Board of Directors on
July 26, 1989, as amended, which is incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 29, 2005.
10.35 Amended and Restated Oneida Ltd. Restricted Stock Award Plan adopted by
the Board of Directors on March 29, 2000, and approved by the
stockholders on May 31, 2000, as amended and restated, which is
incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 29, 2005.
10.36 Amended and Restated Oneida Ltd. Deferred Compensation Plan for Key
Employees adopted by the Board of Directors on October 27, 1999, and
effective November 1, 1999, as amended and restated, which is
incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 29, 2005.
10.37 Oneida Ltd. Restoration Plan adopted by the Board of Directors on
February 28, 2000, as amended and restated, which is incorporated by
reference to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 29, 2005.
10.38 Oneida Ltd. 2000 Non-Employee Directors' Equity Plan adopted by the
Board of Directors on March 29, 2000, and approved by the stockholders
on May 31, 2000, which is incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended January 27, 2001.
10.39 1st Amendment to the Retirement Plan for Employees of Oneida Ltd. dated
as of December 11, 2002, and adopted by the Board of Directors on
December 11, 2002, which is incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended January 25,
2003.
10.40 4th Amendment to the Retirement Plan for Employees of Oneida Ltd. dated
as of April 8, 2004, and adopted by the Board of Directors on April 8,
2004, which is incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31, 2004.
10.41 Oneida Ltd. Management Annual Incentive Plan Fiscal Year January 2006
Cash Bonus adopted by the Board of Directors on April 5, 2005, which is
incorporated by reference to the Registrant's Current Report on Form 8-K
dated April 11, 2005.
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.
6
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.
SIGNATURES
CERTIFICATIONS
7
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
April 30, May 1,
2005 2004
--------- ---------
Revenues:
Net sales ...................................... $89,736 $110,645
License fees ................................... 486 581
------- --------
Total Revenues .................................... 90,222 111,226
Cost of sales ..................................... 58,521 80,254
------- --------
Gross margin ...................................... 31,701 30,972
------- --------
Operating expenses:
Selling, distribution and administrative
expense .................................. 26,334 32,894
Restructuring expense (Note 2) .............. 341 --
(Gain) loss on the sale of fixed assets ..... (436) (14)
------- --------
Total .................................... 26,239 32,880
Operating income (loss) ........................... 5,462 (1,908)
Other income ...................................... (558) (63,738)
Other expense ..................................... 561 2,890
Interest expense including amortization of
deferred financing costs ....................... 7,959 3,771
------- --------
(Loss) income before income taxes ................. (2,500) 55,169
Income tax expense (Note 3) ....................... 800 784
------- --------
Net (loss) income ................................. $(3,300) $ 54,385
======= ========
Preferred stock dividends ......................... (32) (32)
------- --------
Net (loss) income available to common
shareholders ................................... $(3,332) $ 54,353
======= ========
(Loss) income per share of common stock
Net loss:
Basic $(0.07) $3.25
Diluted (0.07) 3.25
See notes to consolidated financial statements.
8
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED BALANCE SHEETS
(Thousand of Dollars)
Unaudited Audited
April 30, Jan. 29,
2005 2005
--------- --------
ASSETS
Current assets:
Cash .................................................. $ 905 $ 2,064
Trade accounts receivables, less allowance for doubtful
accounts of $3,546 and $3,483, respectively ........ 53,308 53,226
Other accounts and notes receivable ................... 2,690 1,398
Inventories, net of reserves of $13,915 and $22,405,
respectively (Note 4) .............................. 98,734 106,951
Other current assets .................................. 3,935 3,789
-------- --------
Total current assets ............................... 159,572 167,428
Property, plant and equipment, net ....................... 17,824 23,149
Assets held for sale ..................................... 5,587 1,263
Goodwill ................................................. 120,972 121,103
Other assets ............................................. 15,522 15,869
-------- --------
Total assets ....................................... $319,477 $328,812
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt ....................................... $ 8,299 $ 9,577
Accounts payable ...................................... 12,341 14,735
Accrued liabilities ................................... 28,618 33,651
Accrued restructuring ................................. 719 524
Accrued pension liabilities ........................... 15,106 17,667
Deferred income taxes ................................. 1,214 1,214
Long term debt classified as current .................. 640 2,572
-------- --------
Total current liabilities .......................... 66,937 79,940
Long term debt (Note 6) .................................. 207,649 204,344
Accrued postretirement liability ......................... 2,646 2,633
Accrued pension liability ................................ 27,826 24,254
Deferred income taxes .................................... 9,498 9,087
Other liabilities ........................................ 12,541 12,173
-------- --------
Total liabilities .................................. 327,097 332,431
-------- --------
Commitments and contingencies ............................
Stockholders' (deficit):
Cumulative 6% preferred stock--$25 par value; authorized
95,660 shares, issued 86,036 shares, callable at $30
per share respectively ................................ 2,151 2,151
Common stock--$l.00 par value; authorized 48,000,000
shares, issued 47,781,288 shares for both periods ..... 47,781 47,781
Additional paid-in capital ............................... 84,719 84,719
Retained deficit ......................................... (87,362) (84,062)
Accumulated other comprehensive loss ..................... (33,340) (32,639)
Less cost of common stock held in treasury; 1,149,364
shares for both periods ............................... (21,569) (21,569)
-------- --------
Total stockholders' (deficit): (7,620) (3,619)
-------- --------
Total liabilities and stockholders' (deficit) ... $319,477 $328,812
======== ========
See notes to consolidated financial statements.
9
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED APRIL 30, 2005 AND MAY 1, 2004
(Thousands of Dollars)
(Unaudited)
Accum.
Add'l Other
Common Common Preferred Paid-in Retained Comp. Treasury
Shares Stock Stock Capital Earnings Inc(Loss) Stock Total
------ ------- --------- ------- -------- --------- -------- -------
Balance January 29, 2005 ..... 47,781 $47,781 $2,151 $84,719 $(84,062) $(32,639) $(21,569) $(3,619)
Stock plan activity........... -- -- -- -- -- -- -- --
Cash dividends declared
($.02 per share) .......... -- -- -- -- -- -- -- --
Foreign currency
translation adjustment .... -- -- -- -- -- (701) -- (701)
Net loss ..................... -- -- -- -- (3,300) -- -- (3,300)
------ ------- ------ ------- -------- -------- -------- -------
Balance April 30, 2005 ....... 47,781 $47,781 $2,151 $84,719 $(87,362) $(33,340) $(21,569) $(7,620)
====== ======= ====== ======= ======== ======== ======== =======
Accum.
Add'l Other
Common Common Preferred Paid-in Retained Comp. Treasury
Shares Stock Stock Capital Earnings Inc(Loss) Stock Total
------ ------- --------- ------- -------- --------- -------- -------
Balance January 31, 2004 ..... 17,883 $17,883 $2,151 $84,561 $(32,933) $(27,493) $(21,569) $22,600
Stock plan activity .......... 33 33 -- 10 -- -- -- 43
Minimum pension liability
adjustment, net of tax
benefit of $0 ............. -- -- -- -- -- (7,886) -- (7,886)
Foreign currency
translation adjustment .... -- -- -- -- -- 1,048 -- 1,048
Net income ................... -- -- -- -- 54,385 -- -- 54,385
------ ------- ------ ------- -------- -------- -------- -------
Balance May 1, 2004 .......... 17,916 $17,916 $2,151 $84,571 $ 21,452 $(34,331) $(21,569) $70,190
====== ======= ====== ======= ======== ======== ======== =======
See notes to consolidated financial statements.
10
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Thousands of Dollars)
Three Months Ended
-------------------
April 30, May 1,
2005 2004
--------- -------
Net (loss) income ........................... $(3,300) $54,385
Foreign currency translation adjustments .... (701) 1,048
Other comprehensive (loss), net of tax:
Minimum pension liability adjustments .... -- (7,886)
------- -------
Other comprehensive (loss) .................. (701) (6,838)
------- -------
Comprehensive income (loss) ................. $(4,001) $47,547
======= =======
See notes to consolidated financial statements.
11
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 2005 AND MAY 1, 2004
(Unaudited)
(In Thousands)
Three months ended
--------------------
April 30, May 1,
2005 2004
--------- --------
CASH FLOW (USED) FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $(3,300) $ 54,385
Adjustments to reconcile net (loss) income to net cash provided by (used in)
operating activities:
Non-cash interest (Payment in Kind) ..................................... 3,382 --
(Gain) on disposal of fixed assets ...................................... (436) (14)
Depreciation and amortization ........................................... 609 2,217
Deferred income taxes ................................................... 1,567 1,099
Pension plan amendment (Note 7) ......................................... -- 2,577
Post retirement health care plan amendment (Note 7) ..................... -- (63,277)
(Increase) decrease in operating assets:
Receivables ............................................................. (1,546) (5,623)
Inventories ............................................................. 7,921 11,907
Other current assets .................................................... (166) 141
Other assets ............................................................ 438 (1,297)
Decrease in accounts payable ............................................ (2,184) (3,533)
Decrease in accrued liabilities ......................................... (4,059) (11,102)
Decrease in other liabilities ........................................... (1,307) (3,477)
------- --------
Net cash provided (used) by operating activities ..................... 919 (15,997)
------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of properties and equipment ...................................... (167) (1,279)
Proceeds from dispositions of properties and equipment ..................... 1,402 5,517
------- --------
Net cash provided in investing activities ............................ 1,235 4,238
------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ..................................... -- 43
Decrease in short-term debt ................................................ (1,278) (980)
Payment of long-term debt .................................................. (2,009) (769)
Proceeds from issuance of long-term debt ................................... 0 9,000
------- --------
Net cash (used) provided by financing activities ..................... (3,287) 7,294
------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ....................................... (26) (206)
------- --------
NET (DECREASE) IN CASH ........................................................ (1,159) (4,671)
CASH AT BEGINNING OF YEAR ..................................................... 2,064 9,886
------- --------
CASH AT END OF PERIOD ......................................................... $ 905 $ 5,215
======= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the quarter for :
Interest ................................................................ $ 3,689 $ 3,571
See notes to consolidated financial statements.
12
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Thousands)
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 (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-month
period ended April 30, 2005 are not necessarily indicative of the results that
may be expected for the year ending January 28, 2006. For further information,
refer to the consolidated financial statements and notes thereto included in the
annual report on Form 10-K for the fiscal year ended January 29, 2005.
Reclassifications
Certain reclassifications have been made to the prior year's information to
conform to the current year presentation.
Comprehensive Income (Loss)
SFAS No. 130, "Reporting Comprehensive Income", requires companies to report a
measure of operations called comprehensive income (loss). This measure, in
addition to net income (loss), 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. Under APB No. 25, compensation expense is not
required to be recognized for the Company's stock-based compensation plans.
Under Statement of Financial Accounting Standards No. 123 ("SFAS 123")
"Accounting for Stock Based Compensation", compensation expense is recognized
for the fair value of the options on the date of grant over the vesting period
of the options.
13
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)
For the Three Months Ended
------------------------------------
April 30, May 1,
2005 2004
--------- -------
Net income (loss), as reported ............................. $(3,300) $54,385
Deduct: Total stock-based employee compensation expense
determined under Black-Scholes option pricing model, net
of related income tax effect ............................ (206) (596)
------- -------
Pro forma net (loss) income ................................ $(3,506) $53,789
======= =======
Earnings (loss) per share:
As reported: Basic ................................... $ (.07) $ 3.25
Diluted ................................. (.07) 3.25
Pro forma: Basic ..................................... (.08) 3.21
Diluted ................................... (.08) 3.21
There was no stock based employee compensation expense included in the
Consolidated Statement of Operations.
Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51. The objective of this interpretation is to provide guidance on how to
identify a variable interest entity ("VIE") and requires the VIE to be
consolidated by its primary beneficiary. The primary beneficiary is the party
that absorbs a majority of the VIE's expected losses and/or receives a majority
of the entity's expected residual returns, if they occur. In December 2003, the
FASB issued FIN 46(R) ("Revised Interpretations") delaying the effective date
for certain entities created before February 1, 2003 and making other amendments
to clarify the application of the guidance. In adopting FIN 46(R) the Company
has evaluated its variable interests to determine whether they are in fact VIE's
and secondarily whether the Company was the primary beneficiary of the VIE. This
evaluation resulted in a determination that the Company has a VIE, whereby the
Company guarantees minimum purchases. The Company has determined that it is not
the primary beneficiary of the VIE. The adoption of this interpretation did not
have a material effect on the Company's financial statements.
On March 12, 2004, the Company completed the sale of its Buffalo China
manufacturing and decorating facility. The agreement stipulated a purchase
commitment of $30,000 over the five-year term. The Company's maximum exposure to
loss, as a result of its involvement with the variable interest entity is the
potential loss of $30,000 of product that was guaranteed.
The Company sold its Sherrill, New York manufacturing facility to Sherrill
Manufacturing, Inc. on March 22, 2005. The agreement stipulates a purchase
commitment of $14,600 over the three year term of the agreement. Additionally,
the agreement stipulates that the Company will make lease payments of $550 over
the three year term. The Company's maximum exposure to loss as a result of its
involvement with the variable interest entity, is the loss of future lease
space and the potential loss of $14,600 of product that was guaranteed.
In October 2004, the FASB issued EITF 04-10, "Determining Whether to Aggregate
Operating Segments That Do Not Meet the Quantitative Thresholds." The consensus
addresses the issue of how an enterprise should evaluate the aggregation
criteria in paragraph 17 of SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," when determining whether operating segments
that do not meet the quantitative thresholds may be aggregated. The effective
date of this issue has been delayed and is anticipated to occur in 2005 to
coincide with the final issuance of the FSP (FASB Staff Position), which will
provide guidance in determining whether two or more operating segments have
similar economic characteristics. However, earlier adoption is permitted. The
application of this guidance is not expected to have a material effect on our
financial position or results of operations.
14
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4," which clarifies the types of costs that should be
expensed rather than capitalized as inventory. This statement also clarifies the
circumstances under which fixed overhead costs associated with operating
facilities involved in inventory processing should be capitalized. The
provisions of SFAS No. 151 are effective for fiscal years beginning after June
15, 2005 and the Company will adopt this standard in fiscal 2006. The Company
has not determined the impact, if any, that this statement will have on its
consolidated financial position or results of operations.
In November 2004, the FASB issued Emerging Issues Task Force ("EITF") 03-13,
"Applying the Conditions in Paragraph 42 of SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report
Discontinued Operations." This guidance is applied to a component of an
enterprise that is either disposed of or classified as "held for sale" in fiscal
periods after December 15, 2004. The application of this guidance is not
expected to have a material effect on our financial position or results of
operations.
In November 2004, the FASB issued EITF 04-8, "The Effect of Contingently
Convertible Instruments on Diluted Earnings per Share," which is effective for
reporting periods ending after December 15, 2004. This consensus addresses when
contingently convertible instruments should be included in diluted earnings per
share. The application of this guidance is not expected to have a material
effect on our financial position or results of operations.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary
Assets--An Amendment of APB Opinion No. 29, Accounting for Non-monetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair value
measurement for non-monetary exchanges of similar productive assets in paragraph
21(b) of APB Opinion No. 29, "Accounting for Non-monetary Transactions," and
replaces it with an exception for exchanges that do not have commercial
substance. SFAS 153 specifies that a non-monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is effective for the fiscal
periods beginning after June 15, 2005 and is required to be adopted by the
Company in the first quarter of fiscal 2006, beginning on January 30, 2005. The
Company is currently evaluating the effect that the adoption of SFAS 153 will
have on its consolidated results of operations and financial condition but does
not expect it to have a material impact.
In December 2004, the FASB issued SFAS 123R, "Share-Based Payment." This
statement is a revision of SFAS 123, "Accounting for Stock-Based Compensation"
and supersedes APB 25, "Accounting for Stock Issued to Employees," and is
effective as of the beginning of the first interim or annual reporting period
that begins after June 15, 2005. SFAS 123R establishes standards on accounting
for transactions in which an entity obtains employee services in share-based
payment transactions. This statement requires measurement of the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award. That cost will be recognized over the
period during which an employee is required to provide service in exchange for
the award, which is usually the vesting period. SFAS 123R also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. The Company has
not determined the impact, if any, that this statement will have on its
consolidated financial position or results of operations.
2. RESTRUCTURING
As a result of substantial manufacturing inefficiencies and negative
manufacturing variances, it was determined at the end of the third quarter of
fiscal year ended 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 fiscal year ended January 31, 2004. The Buffalo, NY factory buildings and
associated equipment, 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 became 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 sale of the Shanghai, China facility was completed on March 14, 2005.
The Buffalo China warehouse facilities and remaining Vercelli, Italy assets are
classified as assets held for sale on the Consolidated Balance Sheet at April
30, 2005. These restructuring plans are intended to reduce costs, increase the
Company's liquidity, and better position the Company to compete under the
current economic conditions.
15
Under the restructuring plan described above, approximately 1,150 employees were
terminated. As of April 30, 2005 1,085 of those terminations have occurred and
an additional 65 employees accepted employment with Niagara Ceramics, the
purchaser of Buffalo China's manufacturing assets. Termination benefits have
been recorded in accordance with contractual agreements or statutory
regulations. The Company recognized a charge of $7,400 in the consolidated
Statement of Operations under the caption "Restructuring Expense" in the fiscal
year ended January 31, 2004. Cash payments and adjustments through April 30,
2005 under the restructuring were $6,593 and $657, respectively. The Company
recognized an additional charge of $552 in the fiscal quarter ended April 30,
2005 for termination costs associated with the pending closure of the Buffalo
China warehouse facilities. Hence, the remaining liability at April 30, 2005 is
$702.
On September 9, 2004 the Company announced that it was closing its Sherrill, NY
flatware factory due to unsustainably high operating costs that contributed to
substantial losses. The Company continues to market the products primarily
manufactured from this site using independent suppliers. In the Fall of 2004
approximately 450 employees were notified that their positions would be
eliminated as a result of this closure. As of April 30, 2005, all of these
employee positions had been eliminated. The Company determined it would incur
cash costs of approximately $1,250 related to severance, incentive and retention
payments to affected factory employees. Cash payments through April 30, 2005
were $1,213, and the remaining severance cost is estimated to be $20. The
incentive and retention liability at April 30, 2005 is $17.
As a result of the restructuring, the number of employees accumulating benefits
under the defined benefit plans has been reduced significantly.
As described above, since the Company's restructuring activities began at the
end of the third quarter of fiscal year ended January 31, 2004, approximately
1,600 employees left the Company, which constitutes a curtailment of both the
pension and postretirement plans. A curtailment is defined as an event that
significantly reduces the expected years of future service of active plan
participants. Curtailment accounting requires immediate recognition of actuarial
gains and losses and prior service costs related to those employees that would
otherwise have been recognized in the future over the future lives of the
related employees. The headcount reductions resulted in curtailment losses of
$2,863 and $383 in the pension plan and curtailment gains of $122 and $556 in
the postretirement plan for the fiscal years ended January 29, 2005 and January
31, 2004, respectively. As a result of the announcement on March 8, 2005
regarding the closure of the Buffalo China warehouse facilities and the
headcount reductions associated with the closure, the Company recorded an
additional curtailment loss of $222 in other expense on the Consolidated
Statement of Operations for the fiscal quarter ended April 30, 2005.
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 projected 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 fiscal year ended January 29,
2005.
On March 8, 2005, the Company met with Buffalo China Union officials to discuss
the potential consolidation of its Buffalo warehouse operations into existing
Company facilities in Oneida, New York and elsewhere throughout the United
States, and the closure of the Buffalo China distribution facility. 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 Buffalo China warehouse facilities were subject to a possible
impairment loss. Due to the projected cash flow being less than the book value,
it was determined that an impairment existed and as a result, an impairment
charge of $3,298 was recorded in the consolidated statements of operations under
the caption "Impairment loss on depreciable assets" for the fiscal year ended
January 29, 2005.
Below is a summary reconciliation of accrued restructuring related charges for
the three months ended April 30, 2005:
- -----------------------------------------------------------------------------------------------------------------
Balance Balance
January 29, 2005 Additions Adjustments Payments April 30, 2005
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Termination benefits and other costs ... $524 $552 $(211) $(146) $719
- -----------------------------------------------------------------------------------------------------------------
During the three months ended April 30, 2005, the Company recorded restructuring
expense of $341. This restructuring expense consists of $552 attributed to the
Buffalo China warehouse facility closure, offset by the reversal of $211 of
16
restructuring accruals established at January 31, 2004 for severance attributed
to the closure and/or sale of the Buffalo, NY manufacturing facility.
3. INCOME TAXES
The provision for income taxes for the three months ended April 30, 2005 is
primarily comprised of foreign tax expense related to foreign operations and
domestic deferred tax liabilities recognized on indefinite long-lived
intangibles. 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 months ended April 30, 2005 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 fiscal 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 carry forward 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 three months ended May 1, 2004 was
primarily attributable to foreign tax related to foreign operations and domestic
deferred tax liabilities recognized on indefinite long lived intangible assets
(these liabilities cannot be used to offset deferred tax assets in determining
the amount of valuation allowance needed for the quarter).
During the first fiscal quarter ended May 1, 2004, the Company recognized two
significant events that impact taxes. The Company announced that it was
terminating the Oneida Ltd. Retiree Group Medical Plan, resulting in income
recognition of $63,277. The inclusion of this income in the first quarter
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 first quarter 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 Three Months Ended
----------------------------
April 30, 2005 May 1, 2004
-------------- -----------
(Loss) income before income taxes ............ $(2,500) $55,169
(Expense) benefit for income taxes ........... (800) (784)
Effective tax rate ........................... (32.00%) 1.42%
4. INVENTORIES
Inventories by major classification are as follows:
April 30, 2005 January 29, 2005
-------------- ----------------
Finished goods ............... $94,595 $101,982
Goods in process ............. 606 1,854
Raw materials and supplies ... 3,533 3,115
------- --------
Total ..................... $98,734 $106,951
======= ========
5. EARNINGS PER SHARE
Basic and diluted earnings per share are presented for each period in which a
statement of operations is presented. Basic earnings per share is computed by
dividing net income (loss) 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
number of diluted shares is equal to basic shares since the stock equivalents
were anti-dilutive.
17
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 750 and 884 for the three
months ended April 30, 2005 and May 1, 2004, respectively.
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the three months ended April 30, 2005 and May 1, 2004:
Net Preferred Adjusted Earnings
Income Stock Net Income Average (Loss)
(Loss) Dividends (Loss) Shares Per Share
------- --------- ---------- ------- ---------
2005:
Basic earnings (loss) per share .... $(3,300) $(32) $(3,332) 46,632 $(.07)
Effect of stock options ............
Diluted earnings (loss) per share .. (3,300) (32) (3,332) 46,632 (.07)
2004:
Basic earnings (loss) per share .... $54,385 $(32) $54,353 16,740 $3.25
Effect of stock options ............ 10
Diluted earnings (loss) per share .. 54,385 (32) 54,353 16,750 3.25
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 the
current financial 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 requires
amortization of principal based on available cash flow and fixed amortization of
$1,500 per quarter beginning in the second year of the Tranche A loan. Interest
on the Tranche A loan will accrue at LIBOR (London Inter Bank Offered Rate) plus
6%-8.25% depending on the leverage ratio. 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, at the Company's discretion, that permits
the compounding of the interest in lieu of payment. During the third and fourth
quarters of the fiscal year ended January 29, 2005, and during the first quarter
of the fiscal year ending January 28, 2006, the Company chose the PIK option and
cash interest was not paid on the Tranche B debt. During the first quarter ended
April 30, 2005, the Tranche B loan outstanding increased by $4,445 as a result
of the Company exercising the PIK option.
The debt and equity restructuring constituted a change in control of the
Company. There were several Company employee benefit plans that contained
triggers if a change of control occurred. Such plans were amended to allow the
debt and equity transaction without triggering the change in control provisions.
In addition, the Shareholder Rights Plan was terminated.
The restructured debt agreement contains several covenants including a maximum
total leverage ratio, minimum cash interest coverage ratio, minimum total
interest coverage ratio, and minimum consolidated Earnings Before Interest,
Taxes, Depreciation, Amortization and Restructuring Expenses (EBITDAR). The
Company was in compliance with its covenants as of January 29, 2005, but
anticipated violating the covenants at the end of the second quarter of the
fiscal year ending January 28, 2006. On April 7, 2005, the Company's lending
syndicate approved an amendment to the Company's credit agreement providing less
restrictive financial covenants (beginning with the first quarter of the fiscal
year ending January 2006), consenting to the sale of certain non-core assets,
and authorizing the release of certain proceeds from the assets sold. The
revised financial covenants extend through the fiscal year ending January 2007.
The Company was in compliance with its covenants as of April 30, 2005.
18
Short-term debt consists of the following at April 30, 2005 and January 29,
2005:
April 30, 2005 January 29, 2005
-------------- ----------------
Barclay's Bank (United Kingdom) .... $6,904 $8,623
Italian IRB ........................ 1,395 --
HSBC (Shanghai) .................... -- 954
------ ------
Total Short-term debt: .......... $8,299 $9,577
====== ======
The following table is a summary of the long-term debt at April 30, 2005 and
January 29, 2005 respectively:
Outstanding at Outstanding at
April 30, 2005 January 29, 2005
-------------- ----------------
Debt Instrument
- ---------------
Tranche A - Base Rate, due August 9, 2007 .............................. $ 139 $ 632
Tranche A - LIBOR, due August 9, 2007 .................................. $115,128 115,000
Tranche B - Base Rate, due February 9, 2008 ............................ 133 --
Tranche B - LIBOR, due February 9, 2008 ................................ 87,359 82,914
Revolver - LIBOR, due February 9, 2007 ................................. 3,000 5,000
Swingline - Base Rate, due February 9, 2007 ............................ 1,800 700
Other debt at various interest rates (3.00%-8.33%), due through 2010 ... 730 2,670
-------- --------
Total Debt: ......................................................... 208,289 206,916
Less Current Portion: ............................................... (640) (2,572)
-------- --------
Long Term Debt: ..................................................... $207,649 $204,344
======== ========
At April 30, 2005 and January 29, 2005 the Company had outstanding letters of
credit of $17,892 and $18,731, respectively.
7. RETIREMENT BENEFIT PLANS
Pension Plans
The net periodic pension cost for the Company's United States (U.S.) qualified
defined benefit plans for the three months ended April 30, 2005 and May 1, 2004
includes the following components:
For the Three Months Ended
April 30, 2005 May 1, 2004
-------------- -----------
Service cost ........................................... $ 35 $ 13
Interest cost .......................................... 1,132 945
Expected return on assets .............................. (615) (553)
Net amortization ....................................... 395 292
Curtailment loss ....................................... 222 320
------ ------
Net periodic pension cost ........................... 1,169 1,017
One-time recognition of remaining prior service cost ... -- 2,037
One-time charge for QSERP amendment .................... -- 540
------ ------
Total net periodic pension cost ........................ $1,169 $3,594
====== ======
During the first quarter of the fiscal year ending January 2006, the Company
recognized a curtailment charge of $222 related to the pending closure of the
Buffalo, NY distribution facilities.
In March 2005 the Company filed an application with the Internal Revenue Service
seeking permission to waive the plan year 2004 minimum funding requirements of
$7,811 for the Retirement Plan for Employees of Oneida Ltd. If the waiver is not
granted, the Company will be required to make this payment by September 15,
2005. Assuming the waiver is granted, the Company expects to make cash
contributions of $4,872 to its U.S. pension plans through January 28, 2006. If
the waiver is not approved, the Company would contribute the $7,811 related to
the 2004 plan year in addition to the $4,872. During the three month period
ending April 30, 2005, there were contributions of $100 made to the U.S. pension
plans.
For the year ended January 29, 2005, the Company disclosed that it would be
making cash contributions of $9,173 to its U.S. pension plans through 2006.
Those cash contributions have been adjusted for 2006 to $4,872 based on actual
19
and expected deferrals of first and second quarter U.S. pension plan
contributions. The amounts deferred will be paid to the plan during the fiscal
year ended January, 27 2007.
During the first fiscal quarter ended May 1, 2004, the Company announced that it
was terminating 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.
Non-United States Pension Plan
The Company maintains a defined benefit pension plan covering the employees of
its U.K. subsidiary. There are no other Non-United States defined benefit
pension plans. The net periodic pension cost for the non-United States defined
benefit plans includes the following components:
Three Months Ended
April 30, 2005
------------------
Service cost .................... $ 7
Interest cost ................... 123
Expected return on plan assets .. (83)
Net amortization ................ 25
----
Net periodic pension cost .... $ 72
====
The Company began recording the U.K. pension plan under SFAS 87 during the third
quarter of the fiscal year ended January 29, 2005. The pension plan was not
material to the prior year financial statements.
The Company expects to contribute cash contributions of $285 to its non-United
States pension plans through January 28, 2006. Through the first fiscal quarter
ended April 30, 2005, $72 has been contributed.
8. OPERATIONS BY SEGMENT
The Company has three reportable segments: Foodservice, Consumer and
International.
The Company's consumer segment sells directly to a broad base of retail outlets
including department stores, mass merchandisers, Oneida Home stores and
specialty stores. The Company's foodservice segment sells directly or through
distributors to foodservice operations worldwide, 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, restructuring charges, gain
(loss) on sales of assets, other income, other expense, interest expense and
deferred financing costs, and income taxes. The Company does not derive more
than 10% of its total revenues from any individual customer, government agency
or export sales.
20
Segment information for the fiscal quarters ended April 30, 2005 and May 1, 2004
were as follows:
2005 2004
------- --------
Revenues
Sales to external customers:
Foodservice .............................................. $42,441 $ 50,411
Consumer ................................................. 29,929 39,765
International ............................................ 17,366 20,469
------- --------
Total segment revenues ................................... 89,736 110,645
Reconciling items:
License revenues ......................................... 486 581
------- --------
Total revenues .............................................. 90,222 111,226
Income (loss) before income taxes
Segment contributions before unallocated costs
Foodservice .............................................. 10,577 16,294
Consumer ................................................. 3,440 4,913
International ............................................ (519) (508)
------- --------
Total segment contributions .............................. 13,498 20,699
Unallocated manufacturing costs ............................. (219) (8,445)
Unallocated selling, distribution and administrative costs .. (7,912) (14,176)
Restructuring charges ....................................... (341) --
Gain (loss) on sales of assets .............................. 436 14
Other income ................................................ 558 63,738
Other (expense) ............................................. (561) (2,890)
Interest expense and deferred financing costs ............... (7,959) (3,771)
------- --------
(Loss) income before income taxes ........................... $(2,500) $ 55,169
======= ========
9. SUBSEQUENT EVENTS
On May 25, 2005 the shareholders approved amendments to the Company's Article of
Incorporation increasing the number of authorized shares of Series Preferred
Stock and Common Stock to 10,000,000 shares and 100,000,000 shares,
respectively.
21
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarter ended April 30, 2005 compared with
the quarter ended May 1, 2004
(In Thousands)
The following discussion and analysis should be read in conjunction with the
Company's financial statements and notes thereto included elsewhere in this
Form10-Q. Except for the historical information contained herein, the discussion
in this Form 10-Q contains certain forward looking statements that involve risks
and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Form 10-Q
should be read as being applicable to all related forward looking statements
wherever they appear in this Form 10-Q. The Company's actual results could
differ materially from those discussed here. For a discussion of certain factors
that could cause actual results to be materially different, refer to the
Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2005.
Executive Summary
Since its inception, Oneida Ltd. has designed and marketed tableware - initially
silverplated and, later, sterling and stainless steel flatware. By acquiring
subsidiaries, entering into strategic distributorship and licensing arrangements
and expanding its own tableware lines, the Company has diversified into the
design and distribution of other tableware, kitchenware and gift items, most
notably china dinnerware, silverplated and stainless steel holloware, crystal
and glass stemware, barware and giftware, cookware, cutlery and kitchen utensils
and gadgets. This diversification has permitted the Company to progress toward
its goal of becoming a "total tabletop" supplier.
Since 1999, the Company has gone through a number of significant changes that
have redirected its focus from manufacturing to sourcing. These changes include
the closure and sale of the Canadian and Mexican flatware manufacturing
facilities operated by the Company's Oneida Canada, Limited and Oneida Mexicana
SA de SV subsidiaries in 1999 and 2004, respectively; the cessation of
hollowware manufacturing at the Company's Sherrill, New York manufacturing
facility in 1999; the sale of the Buffalo, New York dinnerware manufacturing
facility operated by the Company's Buffalo China, Inc. subsidiary in 2004; the
closure of the Mexican dinnerware manufacturing facility operated by Buffalo
China, Inc.'s Ceramica de Juarez SA de CV subsidiary in 2004; the closure of the
Italian hollowware manufacturing facility operated by the Company's Oneida
Italy, srl subsidiary in 2004; the closure in 2004 and subsequent sale in March
2005 of the Chinese holloware manufacturing facility; and the closure and sale
of the Company's Sherrill, New York flatware manufacturing facility in March
2005. With the March 2005 closure and sale of the Company's Sherrill, New York
flatware manufacturing facility, the Company has completed its transition from a
combination manufacturing and sourcing supplier to a supplier of products wholly
sourced from third party manufacturers.
Coupled with these plant closures, several strategic acquisitions and supply
arrangements have advanced the Company's presence and abilities in the tableware
sourcing arena. In 1996, the Company acquired the assets of THC Systems, Inc., a
leading importer and marketer of vitreous china and porcelain dinnerware for the
Foodservice industry under the Rego tradename. In 1998 the Company acquired the
assets of Stanley Rogers & Son, a leading importer and marketer of stainless
steel and silverplated flatware to retail customers in Australia and New
Zealand, and Westminster China, a leading importer and marketer of porcelain
dinnerware to the foodservice, domestic tourism and promotion industries in
Australia and New Zealand. In the summer of 2000 the Company acquired the assets
of Sakura, Inc., a leading marketer of consumer ceramic, porcelain and melamine
dinnerware and accessories; all outstanding shares of London-based Viners of
Sheffield Limited, the leading marketer of consumer flatware and cookware in the
U.K.; and all outstanding shares of Delco International, Ltd., a leading
marketer of foodservice tableware to foodservice distributors, chains and
airlines. In conjunction with the 2004 sale of the Company's Buffalo, New York
dinnerware manufacturing facility, the Company entered into a supply agreement
with the purchasers, Niagara Ceramics Corporation, whereby Niagara Ceramics will
act as a key supplier of foodservice dinnerware. Similarly, the March 2005 sale
of the Company's Sherrill, New York flatware manufacturing facility included a
supply agreement with the purchaser, Sherrill Manufacturing Inc., whereby
Sherrill Manufacturing will act as a key supplier of flatware and silverplating
services.
22
The Company believes that this redirection of focus from manufactured to sourced
product will help to maintain its ability to compete in the highly competitive
tableware industry by permitting it to provide the widest range of products
suited to its great variety of customers in the most timely, efficient and cost
effective manner.
For the Three Months Ended
----------------------------
Net Sales: April 30, 2005 May 1, 2004
-------------- -----------
Foodservice $42,441 $ 50,411
Consumer 29,929 39,765
International 17,366 20,469
------- --------
Total $89,736 $110,645
Gross Margin $31,701 $ 30,972
% Net Sales 35.3% 28.0%
Operating Expenses $26,239 $ 32,880
% Net Sales 29.2% 29.7%
Results of Operations
Consolidated net sales for the three months ended April 30, 2005 decreased by
$20,909 (18.9%) as compared to the same period in the prior year.
Foodservice
Net sales of Foodservice Division products during the three months ended April
30, 2005 decreased by $7,970 (15.8%), compared to the corresponding period in
the prior year. The financial uncertainty surrounding the Company during the
fiscal year ended January 2004 and through August 2005 resulted in certain chain
restaurants purchasing higher quantities in the first quarter of the prior year
as a hedge against potential product flow disruptions. In addition, this also
resulted in certain customers opting to dual source which has resulted in lower
sales in the first quarter of the current year. Also, sales to airline customers
have declined by approximately $1 million due to the difficulties experienced by
the sector. Finally, the Company's decision at the end of 2004 to discontinue
distribution of common glassware products resulted in approximately $1.7 million
lower sales in the first quarter of the current year.
Consumer
Net sales of Consumer products decreased by $9,836 (24.7%), compared to the
corresponding 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, Bradshaw International, Inc. Hence,
approximately $6,264 of the year-over-year quarterly net sales decline is
attributed to the sale of Encore Promotions. Furthermore, 22 unprofitable Oneida
Home Stores were closed since the first quarter of the prior fiscal year,
accounting for approximately $1,722 of the net sales reduction. Overall, the
tabletop retail industry demand is lower in the current quarter compared to last
year's first quarter. Also contributing to the reduced sales were temporary
shortages in certain product lines, precipitated by delivery issues and late
shipments from foreign vendors.
International
Net sales of the International Division declined by $3,103 (15.2%), as compared
to the same period in the prior year. The Canadian market accounted for
approximately $2.3 million of the reduction, with the remaining decrease in net
sales attributed to the European and Latin American markets as a result of a
soft economy.
Gross Margins
Gross margin for the quarter was $31,701 (or 35.3% as a percentage of net
sales), as compared to $30,972 (28.0%) for the same period in the prior year.
The majority of the gross margin improvement was attributed to the March 2005
closure and sale of the Sherrill, NY manufacturing facility (which had
generated significant negative variances during the past several years), the
outsourcing of manufacturing operations, reduction in LIFO valued inventory
levels, and a $3.2 million reduction in the write-down of excess and obsolete
inventory.
Operating Expenses
Consolidated operating expenses for the quarter were $26,239, compared to
$32,880 for the same period in the prior year, a reduction of approximately $6.6
million. Approximately $1.1 million of the reduction was due to the sale of the
Encore Promotions subsidiary on August 28, 2004, with the majority of the
remaining expense reduction attributed to
23
the cost reduction programs implemented by the company during the past fiscal
year. These actions included reductions in personnel, benefit plan reductions,
warehousing and distribution expense reductions, and other selling, general and
administrative expense reductions. During the current quarter ended April 30,
2005, $341 of Restructuring Expense was incurred due to the decision to close
the Buffalo Distribution Center.
Other Income and Expense
Other Income was $558 for the quarter compared to $63,738 for the same period in
the prior year. The decrease is primarily due to the decision by the Company in
the prior year's first quarter to terminate the Oneida Ltd. Retiree Medical Plan
and the Long Term Disability Plan. These plan terminations resulted in a
one-time benefit of $63,277.
Other Expense was $561 for the current quarter compared to $2,890 for the same
period in the prior year. The decrease is primarily the result of a decision in
last year's first quarter by the Company to freeze benefit accruals for two
retirement plans and the Restoration Plan. The plan amendments resulted in plan
curtailment charges of $2,577.
Interest Expense Including Amortization of Deferred Financing Costs
Interest expense, including amortization of deferred financing costs, was $7,959
in the current quarter compared to $3,771 for the same period in the prior year.
The increase is primarily due to the higher effective interest rates on the
Company's restructured debt. Also contributing to the increased expense is the
amortization of deferred financing expenses of $887 associated with the
restructured debt.
Income Tax Expense
The provision for income taxes, as a percentage of loss before income taxes was
(32.0%), or $800, for the current quarter compared to 1.42% or $784 in the prior
year's first quarter. The provision for income taxes for both this year's and
last year's quarter is primarily comprised of foreign tax expense related to
foreign operations and domestic deferred tax liabilities recognized on
indefinite long-lived intangibles. 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 in the current year, 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.
The following table summarizes the Company's provision for income taxes and the
related effective tax rates:
Quarter Ended 4/30/2005 Quarter Ended 5/01/04
----------------------- ---------------------
Income (loss) before income taxes ... $(2,500) $55,169
Provision for income taxes .......... (800) (784)
Effective tax rate .................. (32.0%) 1.42%
Restructuring
During the quarter ended April 30, 2005 the Company's last remaining
manufacturing facility located in Sherrill, New York was sold to Sherrill
Manufacturing Inc. The sale agreement included a supply agreement whereby the
Company would purchase minimum quantities of products and services from Sherrill
Manufacturing Inc. during a three year period. The sale also included a lease
agreement whereby the Company would rent warehouse space from Sherrill
Manufacturing Inc. for a two year period.
On March 12, 2005, the Company sold the real property associated with its
Shanghai, China facility that was closed in fiscal year 2004.
Finally, on April 12, 2005 the Company announced the closure of its foodservice
distribution center located in Buffalo, N.Y. It is anticipated that the
distribution center will be closed during the second quarter of the current
year. Net Restructuring Expense of $341, consisting of future payments to the
distribution employees, was recorded during the current quarter.
Liquidity & Financial Resources
Cash provided by operating activities was $919 for the three months ended April
30, 2005 compared to cash used of $15,997 for the same period in the prior year.
The net cash provided by operating activities for the three months ended April
30, 2005 was primarily due to negative changes in working capital of which the
largest components were accounts receivable, accounts payable, and accrued
liabilities, offset by a reduction in inventory. The changes to
24
working capital were offset by a non-cash positive adjustment to net loss for
Payment-In-Kind interest changes.
Cash generated from investing activities was $1,235 and $4,238 for the three
months ended April 30, 2005 and May 1, 2004, respectively. The sale of the
Company's Shanghai manufacturing facility in March of 2005 generated cash of
$852, and the sale of the Company's Buffalo China manufacturing facility in
March of 2004 generated cash of $5,517. Cash used for capital expenditures was
$167 and $1,279 for the three months ended April 30, 2005 and May 1, 2004,
respectively.
Net cash used by financing activities was $3,287 for the three months ended
April 30, 2005 versus cash generated of $7,294 for the three months ended May 1,
2004. During the three months ended April 30, 2005, the Company decreased its
outstanding balance on the revolving credit facility needed to fund operations.
On August 9, 2004 the Company completed the comprehensive restructuring of the
existing indebtedness with its lenders, along with new covenants based upon the
current financial 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 requires
amortization of principal based on available cash flow and fixed amortization of
$1,500 per quarter beginning in the second year of the Tranche A loan. Interest
on the Tranche A loan will accrue at LIBOR (London Inter Bank Offered Rate) plus
6%-8.25% depending on the leverage ratio. 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, at the Company's discretion, that permits
the compounding of the interest in lieu of payment. During the third and fourth
quarters of the fiscal year ended January 29, 2005, and during the first quarter
of the fiscal year ending January 28, 2006, the Company chose the PIK option and
cash interest was not paid on the Tranche B debt. During the first quarter ended
April 30, 2005, the Tranche B loan outstanding increased by $4,445 as a result
of the Company exercising the PIK option.
The debt and equity restructuring constituted a change in control of the
Company. There were several Company employee benefit plans that contained
triggers if a change of control occurred. Such plans were amended to allow the
debt and equity transaction without triggering the change in control provisions.
In addition, the Shareholder Rights Plan was terminated.
The restructured debt agreement contains several covenants including a maximum
total leverage ratio, minimum cash interest coverage ratio, minimum total
interest coverage ratio, and minimum consolidated minimum Earnings Before
Interest, Taxes, Depreciation, Amortization and Restructuring Expenses
(EBITDAR). The Company was in compliance with its covenants as of January 29,
2005, but anticipated violating the covenants at the end of the second quarter
of the fiscal year ending January 28, 2006. On April 7, 2005, the Company's
lending syndicate approved an amendment to the Company's credit agreement
providing less restrictive financial covenants (beginning with the first quarter
of the fiscal year ending January 2006), consenting to the sale of certain
non-core assets, and authorizing the release of certain proceeds from the assets
sold. The revised financial covenants extend through the fiscal year ending
January 2007. The Company was in compliance with its covenants as of April 30,
2005.
The Company believes that cash from operating activities and available
borrowings under the revolving credit agreement, and other short term
lines of credit, will be sufficient to fund our operating requirements
over the next twelve months.
Accounting Pronouncements
See Note No. 1 of the unaudited consolidated financial statements.
25
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk is impacted by changes in interest rates and foreign
currency exchange rates. The Company's United Kingdom subsidiary periodically
enters into forward exchange contracts in order to hedge its exposure to foreign
exchange risk. The amount of open forward exchange contracts at the end of the
fiscal quarter ended April 30, 2005 was $6,009.
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 April 30,
2005, a 1% change in the rate would result in a corresponding change in interest
expense of $2.1 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 of
Notes to Consolidated Financial Statements for details on the Company's
international operations. Translation adjustments recorded in the income
statement were not of a material nature.
ITEM 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer have carried out an
evaluation, with the participation of the Company's management, of the design
and operation of the Company's "disclosure controls and procedures" (as defined
in Rules 13a-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 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, future product shortages resulting
from the Company's transition to an outsourced manufacturing platform;
international health epidemics such as the SARS outbreak; impact
26
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.
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: June 9, 2005 By: /s/ TERRY G WESTBROOK
-------------------------------------
Terry G. Westbrook
President and Chief Executive Officer
/s/ ANDREW G. CHURCH
-------------------------------------
Andrew G. Church
Senior Vice President and
Chief Financial Officer
27