EXHIBIT 13
CONSOLIDATED STATEMENTS OF OPERATIONS
ONEIDA LTD.
For the years ended January 2002, 2001 and 2000
(Thousands except per share amounts)
Year ended in January 2002 2001 2000
- --------------------------------------------------------------------------------
Net sales .................................... $499,237 $515,522 $495,056
Cost of sales ................................ 336,113 329,758 299,071
Inventory writedown .......................... 24,000 3,000
-------- -------- --------
Gross margin ................................. 163,124 161,764 192,985
Other operating revenues ..................... 1,513 6,466 861
-------- -------- --------
164,637 168,230 193,846
-------- -------- --------
Operating expenses:
Selling, distribution and administrative
charges ................................ 134,574 133,113 128,038
Restructuring costs and unusual charges ... 15,008 41,300
-------- --------
Total ........................................ 134,574 148,121 169,338
-------- -------- --------
Income from operations ....................... 30,063 20,109 24,508
Other income (expense) ....................... 7,134 (579) 202
Interest expense ............................. 23,171 21,602 10,875
-------- -------- --------
Income (loss) before income taxes ............ 14,026 (2,072) 13,835
(Provision) credit for income taxes .......... (5,525) 772 (8,324)
-------- -------- --------
Net income (loss) ............................ $ 8,501 $ (1,300) $ 5,511
======== ======== ========
Earnings (loss) per share of common stock
Basic ........................................ $.51 $(.09) $.33
Diluted ...................................... .51 (.09) .32
See notes to consolidated financial statements.
<Page>
CONSOLIDATED BALANCE SHEETS
ONEIDA LTD.
(Dollars in Thousands)
January 26, 2002 January 27, 2001
- ------------------------------------------------------------------------------------------
ASSETS
Cash ............................................... $ 11,112 $ 2,163
Receivables ........................................ 80,944 89,993
Inventories ........................................ 169,523 214,988
Other current assets ............................... 18,540 27,757
-------- --------
Total current assets ............................... 280,119 334,901
-------- --------
Property, plant and equipment ...................... 108,372 112,213
Goodwill--net of accumulated amortization
of $19,214 and $14,492 ........................ 134,073 141,195
Deferred income taxes .............................. 19,181 22,833
Other assets ....................................... 4,390 8,047
-------- --------
Total assets ....................................... $546,135 $619,189
======== ========
LIABILITIES
Short-term debt .................................... $ 11,430 $ 8,046
Accounts payable ................................... 24,848 33,097
Accrued liabilities ................................ 42,009 70,873
Current installments of long-term debt ............. 3,956 9,239
-------- --------
Total current liabilities .......................... 82,243 121,255
-------- --------
Long-term debt ..................................... 256,170 282,815
Accrued postretirement liability ................... 56,410 56,108
Accrued pension liability .......................... 15,206 15,557
Other liabilities .................................. 8,725 19,146
-------- --------
Total liabilities .................................. 418,754 494,881
-------- --------
STOCKHOLDERS' EQUITY
Cumulative 6% preferred stock--$25 par value;
authorized 95,660 shares, issued 86,036 and
86,698 shares; callable at $30 per share ...... 2,151 2,167
Common stock--$l.00 par value; authorized
48,000,000 shares, issued 17,809,235 and
17,702,666 shares ............................. 17,809 17,703
Additional paid-in capital ......................... 83,965 82,956
Retained earnings .................................. 63,918 57,495
Accumulated other comprehensive loss ............... (16,328) (11,423)
Less cost of common stock held in treasury;
1,285,679 and 1,314,508 shares ................ (24,134) (24,590)
Stockholders' equity ............................... 127,381 124,308
-------- --------
Total liabilities and stockholders' equity ......... $546,135 $619,189
======== ========
See notes to consolidated financial statements.
2
<Page>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ONEIDA LTD.
for the years ended January 2002, 2001 and 2000
(Thousands)
- ----------------------------------------------------------------------------------------------------------------------------
Accum.
Addt'l Other Unalloc.
Comp. Common Common Preferred Paid-in Retained Comp. Treasury ESOP
Income Shares Stock Stock Capital Earnings Inc.(loss) Stock Shares
------- ------ ------- --------- ------- -------- ---------- -------- --------
Balance January 1999....... 17,423 $17,423 $2,185 $79,737 $65,870 $(11,079) $(13,888)
Stock plan activity, net... 187 187 2,151
Purchase/retirement of
treasury stock--net........ (6,471)
Cancelled stock............ (7) (7) (10) (1)
Cash dividends declared
($.40 per share)........... (6,751)
Net income................. $ 5,511 5,511
Other comprehensive loss... (711) (711)
-------
Comprehensive income....... $ 4,800
=======
ESOP activity--net......... 647 $(1,486)
-------- -------
Balance January 2000....... 17,603 17,603 2,175 81,887 64,630 (11,790) (19,712) (1,486)
Stock plan activity, net... 109 109 1,067
Purchase/retirement of
treasury stock--net........ (5,976)
Cancelled stock............ (9) (9) (8) 2
Cash dividends declared
($.35 per share)........... (5,835)
Net loss................... $(1,300) (1,300)
Other comprehensive
income..................... 367 367
-------
Comprehensive loss......... $ (933)
=======
ESOP activity-net.......... 1,098 1,486
--------
Balance January 2001....... 17,703 17,703 2,167 82,956 57,495 (11,423) (24,590)
Stock plan activity, net... 106 106 1,009
Purchase/retirement of
treasury stock--net........ (16) 456
Cash dividends declared
($.17 per share)........... (2,078)
Net income................. $ 8,501 8,501
Other comprehensive loss... (4,905) (4,905)
-------
Comprehensive income $ 3,596
=======
Balance January 2002....... 17,809 $17,809 $2,151 $83,965 $63,918 $(16,328) $(24,134)
====== ======= ====== ======= ======= ======== ========
See notes to consolidated financial statements.
3
<Page>
CONSOLIDATED STATEMENTS OF CASH FLOWS
ONEIDA LTD.
for the years ended January 2002, 2001 and 2000
(Thousands)
Year ended in January 2002 2001 2000
- ---------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) ................................ $ 8,501 $ (1,300) $ 5,511
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 17,095 15,449 13,812
Impairment of long-term assets................. 29,000 11,100
Gain on marketable securities.................. (8,646)
Deferred taxes and other non-cash charges ..... (5,277) (8,293) 1,294
Decrease (increase) in operating assets:
Receivables ................................ 9,049 7,923 (8,690)
Inventories ................................ 44,828 (30,343) 3,600
Other current assets ....................... 14,795 1,683 (1,729)
Other assets ............................ (2,947) 9,913 3,092
Increase (decrease) in accounts payable ....... (8,249) (1,425) 4,947
Increase (decrease) in accrued liabilities .... (27,204) (5,790) 8,975
-------- --------- --------
Net cash provided by (used in) operating
activities............................... 41,945 (3,009) 41,912
-------- --------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Sale/(purchase) of subsidiaries and minority
interest....................................... 6,604 (122,190)
Property, plant and equipment expenditures--net... (7,895) (14,685) (22,156)
Proceeds from sale of marketable securities....... 1,547
Proceeds from disposal of assets held for sale.... 3,823
Other--net ....................................... (26) 552 (1,020)
-------- --------- --------
Net cash provided by (used in) investing
activities .............................. 4,053 (136,323) (23,176)
-------- --------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ........... 1,107 1,166 2,320
(Purchase)/issuance of treasury stock--net........ 447 (4,883) (5,824)
(Purchase)/allocation of ESOP shares--net ........ 1,486 (1,486)
(Payments)/borrowings of short-term debt--net..... 3,384 (24,671) (24,408)
Proceeds from issuance of long-term debt.......... 1,025 275,000 25,790
Payment of long-term debt ........................ (32,953) (105,871) (5,680)
Dividends paid ................................... (4,238) (4,998) (6,751)
-------- --------- --------
Net cash provided by (used in)
financing activities .................... (31,228) 137,229 (16,039)
-------- --------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,821) 367 (711)
-------- --------- --------
NET INCREASE (DECREASE) IN CASH ..................... 8,949 (1,736) 1,986
CASH AT BEGINNING OF YEAR ........................... 2,163 3,899 1,913
-------- --------- --------
CASH AT END OF YEAR ................................. $ 11,112 $ 2,163 $ 3,899
======== ========= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for:
Interest ..................................... $25,309 $19,695 $10,993
Income taxes ................................. 1,056 7,629 6,089
Non-cash investing activity:
Receipt of marketable securities............... 7,099
Unrealized gain on marketable securities.... 916
See notes to consolidated financial statements.
4
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The Company uses a 52-53 week fiscal year ending on the last
Saturday in January. The financial statements of certain foreign subsidiaries
are consolidated with those of the parent on the basis of years ending in
December. Certain reclassifications have been made to the financial statements
for prior years to conform to the presentation for 2002.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
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; and minimum pension liability adjustments. The Company has reported
comprehensive income within Consolidated Statements of Shareholders' Equity.
Foreign Currency Translation
Assets and liabilities of certain non-U.S. subsidiaries are translated at
current exchange rates, and related revenues and expenses are translated at
average exchange rates in effect during the period. Resulting translation
adjustments are recorded as a component of accumulated other comprehensive
income.
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 less preferred stock dividends by the weighted average
shares actually outstanding for the period. Diluted earnings per share includes
the potentially dilutive effect of shares issuable under the employee stock
purchase and incentive stock option plans.
Inventories
Inventories are valued at the lower of cost or market. Approximately 8% and 18%
of inventories are valued under the last-in, first-out (LIFO) method in 2002 and
2001, respectively, with the remainder valued under the first-in, first-out
(FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the related assets, generally using the
straight-line method. The depreciable lives assigned to buildings are 20-50
years while equipment is depreciated over 2-16 years.
Interest relating to the cost of acquiring certain fixed assets is capitalized
and amortized over the asset's estimated useful life.
Investments in Marketable Securities
The Company classifies its marketable securities as available for sale in
accordance with the provisions of Statement of Financial Accounting Standards
No. 115 "Accounting for Certain Investments in Debt and Equity Securities".
These securities are carried at fair market value in other current assets, with
unrealized gains and losses, net of tax, reported in stockholders' equity as a
component of other comprehensive income (loss).
5
<Page>
In 2002, the Company had other income of $8,646,000 related to the receipt of
Prudential Financial common shares. These shares were received by the Company, a
Prudential shareholder, as part of Prudential's conversion from a mutual
insurance company to a stock enterprise. One-sixth of the shares were sold in
2002. Unrealized gains on the remaining shares of $577,000 (net of tax) were
recorded as a component of other comprehensive income (loss) in the Company's
equity section.
Goodwill
Goodwill resulted from the allocation of the purchases price of the acquisition
of certain businesses. These assets are amortized using the straight-line method
over 10-40 years. Amortization expense was $4,722,000, $4,431,000 and $2,905,000
in 2002, 2001 and 2002, respectively. During 2001 the Company revised the
estimated life of one asset from 15 to 40 years. This change in estimate
increased 2002 and 2001 income by $400,000 compared to 2000. The Company
assesses the recoverability of its intangible assets by determining whether the
amortization over the remaining life of its goodwill can be recovered through
undiscounted future operating cash flows and reviews for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable.
Fair Value of Financial Instruments
The estimated fair market values of the Company's financial instruments,
principally long-term debt, are estimated using discounted cash flows, based on
current market rates for similar borrowings. The carrying amounts for short-term
borrowings approximate their recorded values.
Revenue Recognition
For financial accounting purposes, sales are recorded when goods are shipped.
The Company's general policy is not to allow customer returns unless they are
specifically preauthorized.
Treasury Stock
Treasury stock purchases are recorded at cost. During 2001 and 2000 the Company
purchased 319,100 and 305,000 shares of treasury stock at an average cost of
$18.78 and $22.27, respectively. The Company purchases treasury stock primarily
to improve stockholder value. As of January 2002, the Company has been
authorized by the Board of Directors to repurchase up to 252,900 additional
shares.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses amounted to
$3,315,000, $4,145,000, and $3,817,000, during 2002, 2001 and 2000,
respectively.
Restructuring and Unusual Costs
In the year ended January 2001, the Company recorded a $39,008,000 charge for
restructuring and other unusual items. This charge reduced 2001 net income by
$24,500,000, or $1.50 per share. This total includes $10,008,000 related
primarily to the consolidation of sales, marketing, logistics and administrative
functions, along with the realignment of product lines, warehouses and "make
versus buy" decisions primarily related to the Company's ongoing efforts to
streamline operations, as well as remove acquisition-related redundancies
involving Delco, Sakura and Viners (See Note 2 of Notes to the Consolidated
Financial Statements for a complete discussion on acquisition activity). Through
January 2002, $9,520,000 was expended towards these efforts; the remainder will
be paid in 2003. The 2001 earnings also included an inventory writedown of
$24,000,000 related to product rationalization. A $24,000,000 inventory reserve
was established; through 2002, $20,858,000 of this reserve was utilized to
liquidate excess and obsolete product. The remaining product will be disposed of
in 2003. The Company also recorded a charge of $5,000,000 to recognize
impairment of certain manufacturing tools and product procurement assets. All
impaired assets have been written down to their net realizable value in 2001.
There are no anticipated adjustments needed for any of the restructuring or
unusual expense accruals.
In the year ended January 2000, the Company recorded a $44,300,000 charge for
restructuring and other unusual items. This total included $3,000,000 of
inventory writedowns due to discontinuing certain product lines,
6
<Page>
$11,000,000 of charges related to operations restructuring, $12,000,000 of
long-term asset impairments and $18,300,000 of other unusual charges. These
charges reduced net income by $1.83 per share.
Key components of the 2000 restructuring included the closure of the Company's
flatware manufacturing facility in Niagara Falls, Canada; consolidation of the
Company's international operations; and further elimination of positions and
underperforming product lines.
The majority of the $11,000,000 restructuring charge related to early retirement
benefits, severance and associated employee benefit costs. The closure of the
Canadian manufacturing facility, which was substantially completed in the first
quarter, resulted in the reduction of approximately 150 jobs. The intent of the
total strategic restructuring plan was to reduce the Company's worldwide
employment. This was accomplished by means of the above mentioned plant closure
and further international and domestic job consolidations, as well as through
normal attrition and the extension of early retirement and termination packages.
The Company actually paid all 2000 restructuring costs by the end of 2001.
The asset writedowns were related to goodwill associated with the purchase of a
subsidiary and the writedown of manufacturing fixed assets that will no longer
be utilized due to the closing of the Oneida Canada plant and the exiting of
certain product lines. The full $12,000,000 of non-cash charges were recorded
against the respective assets to reduce them to net realizable value. The
Company recorded a $3,000,000 non-cash inventory reserve charge as a component
of cost of sales to reduce discontinued product lines to net realizable value.
This reserve was fully utilized to dispose of the discontinued products in 2000.
In the year ended January 2000, the Company expensed $18,300,000 of unusual
items. These were costs related to an unsolicited takeover attempt, litigation
costs and costs incurred to overcome unique market barriers in the foodservice
glassware market. Approximately $16,000,000 of these unusual expense payments
were made during that year; the rest occurred in 2001.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board approved Statements of
Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and
No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 is
currently effective and SFAS 142 is effective January 27, 2002 for the
Corporation. SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. Under SFAS 142,
amortization of goodwill, including goodwill recorded in past business
combinations, will discontinue upon adoption of the this standard. All goodwill
and intangible assets will be tested for impairment in accordance with the
provisions of the Statement. The Corporation is currently reviewing the
provisions of SFAS 141 and SFAS 142 and assessing the impact of adoption. In
October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets" ("SFAS 144"). SFAS 144 provides guidance on the accounting
for long-lived assets to be held and used and for assets to be disposed of
through sale or by other means. SFAS 144 is effective for the fiscal years
beginning after December 15, 2001. The Company does not expect the adoption of
SFAS 144 to have a material impact on the earnings or financial position of the
Company.
2. ACQUISITIONS
On June 13, 2000, the Company purchased all of the stock of Viners of Sheffield,
Ltd. (Viners) for approximately $25,000,000 in cash. London based Viners is a
long established marketer of flatware and cookware in the United Kingdom.
On June 30, 2000, the Company acquired all of the net assets of Sakura, Inc.
(Sakura) for approximately $40,000,000 in cash. Sakura, based in New York City,
is a leading importer and marketer of consumer dinnerware.
On August 9, 2000, the Company completed the acquisition of the stock of Delco
International Ltd. (Delco) (including its wholly owned subsidiary Delco
Tableware International and its ABCO International division)
7
<Page>
for approximately $60,000,000 in cash. Delco, headquartered in Long Island, New
York, is a leading supplier of tableware products to the foodservice industry.
The above three acquisitions were recorded using the purchase method of
accounting and accordingly, the operating results of Viners, Sakura and Delco
have been included in the accompanying consolidated financial statements since
their respective dates of acquisition. Excess purchase price over the net fair
value of assets acquired (including certain acquisition costs) totaled
$113,346,000. These intangible assets (primarily goodwill) are being amortized
over forty years using the straight line method.
On June 2, 2000, the Company entered into a three year $275,000,000 bank
revolving credit agreement. This facility was utilized to fund the above three
acquisitions, as well as to refinance the majority of the Company's outstanding
credit facilities and term loans. See Note 10 for further discussion of long
term debt arrangements.
As the Company's 2001 financial statements only include a partial year of the
three acquired companies operating results, the following unaudited pro forma
information is provided to present a summary of the operations of the Company,
Viners, Sakura and Delco, as if the acquisitions had occurred on January 31,
1999.
(thousands except per share amounts)
2001 2000
-------- --------
Net sales $570,565 $611,051
Net income (loss) (4,462) 3,868
Earnings (loss) per share of common stock
Basic (.28) .23
Diluted (.28) .23
The pro forma data given above is for informational purposes only and does not
purport to be indicative of the results that would have been obtained if the
operations had been combined during the periods presented. This information is
not intended to be indicative of future results or trends.
3. INCOME TAXES
The Company accounts for taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
use of the liability method of computing deferred income taxes. Under the
liability method, deferred income taxes are based on the tax effect of temporary
differences between the financial statement and tax bases of assets and
liabilities and are adjusted for tax rate changes as they occur.
The components of the deferred tax assets and liabilities are as follows:
(Thousands)
2002 2001
------- -------
Deferred income taxes:
Postretirement benefits ...................... $22,310 $22,058
Employee benefits ............................ 12,189 12,764
Inventory reserves ........................... 2,219 5,889
(2,010) 2,068
------- -------
Other ...........................................
Total deferred tax assets .................... 34,708 42,779
Depreciation ................................. (9,694) (9,506)
Marketable securities ........................ (2,966) 0
Acquisition intangibles ...................... (3,946) 939
------- -------
18,102 34,212
Total ...........................................
Current deferred (benefit) liability ......... (1,079) 11,379
------- -------
Non-Current deferred tax assets .............. $19,181 $22,833
======= =======
8
<Page>
The provision (credit) for income taxes consists of the following:
(Thousands)
2002 2001 2000
-------- ------- -------
Current tax (benefit) expense:
U.S. Federal ............................ $(14,255) $ 3,002 $ 8,255
Foreign ................................. 3,497 3,805 2,502
State ................................... 174 573 643
-------- ------- -------
(10,584) 7,380 11,400
Deferred tax expense (benefit) ............. 16,109 (8,152) (3,076)
-------- ------- -------
Total tax expense (benefit) ............. $ 5,525 $ (772) $ 8,324
======== ======= =======
The income tax provision differed from the total income tax expense as computed
by applying the statutory U.S. Federal income tax rate to income before income
taxes. The reasons for the differences are as follows:
(Thousands)
2002 2001 2000
------ ------- ------
Statutory U.S. Federal taxes .................. $4,769 $ (704) $4,842
Difference due to:
Foreign taxes .............................. 474 844 2,522
State taxes ................................ 115 378 418
Other ...................................... 167 (1,290) 542
------ ------- ------
Provision (credit) for taxes ............... $5,525 $ (722) $8,324
====== ======= ======
The following presents the U.S. and non-U.S. components of income before income
taxes.
(Thousands)
2002 2001 2000
------- -------- -------
U.S. income (loss) ........................... $ 5,134 $(10,806) $15,606
Non-U.S. income (loss) ....................... 8,892 8,734 (1,771)
------- -------- -------
Income (loss) before income taxes ......... $14,026 $ (2,072) $13,835
======= ======== =======
9
4. RECEIVABLES
Receivables by major classification are as follows:
(Thousands)
2002 2001
------- -------
Accounts receivable .................................... $81,895 $90,793
Other accounts and notes receivable .................... 2,524 2,272
Less allowance for doubtful accounts ................... (3,475) (3,072)
------- -------
Receivables ............................................ $80,944 $89,993
======= =======
5. INVENTORIES
Inventories by major classification are as follows:
(Thousands)
2002 2001
-------- --------
Finished goods ........................................... $147,097 $194,806
Goods in process ......................................... 13,112 11,018
Raw materials and supplies ............................... 9,314 9,164
-------- --------
Total ................................................. $169,523 $214,988
======== ========
Excess of replacement cost over LIFO value
of inventories ........................................ $9,300 $13,000
======== ========
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment by major classification are as follows:
(Thousands)
2002 2001
-------- --------
Land and buildings ....................................... $ 70,141 $ 71,065
Machinery and equipment .................................. 182,003 176,656
-------- --------
Total .................................................... 252,144 247,721
Less accumulated depreciation ............................ 143,772 135,508
-------- --------
Property, plant and equipment--net ....................... $108,372 $112,213
======== ========
Depreciation expense totalled $12,373,000, $11,018,000, and $10,907,000 for
2002, 2001 and 2000, respectively.
10
<Page>
7. COMMITMENTS
The Company leases factory stores, equipment, warehouses and office facilities.
Lease expense charged to operations was $8,476,000, $8,888,000, and $7,169,000
for 2002, 2001 and 2000, respectively.
In September 2001, the Company entered into a new three year distribution
agreement with a supplier. This contract stipulates purchase commitments through
the term of the agreement. In addition, the Company is required to maintain a
$1,000,000 stand-by letter of credit for the first two years of the agreement.
In 2002 purchase commitments under this agreement amounted to $1,933,000.
Future minimum payments for all non-cancelable operating leases and purchase
commitments having a remaining term in excess of one year at January 2002 are as
follows:
(Thousands) Commitment
----------
2003 ........................................ $13,747
2004 ........................................ 13,470
2005 ........................................ 9,183
2006 ........................................ 2,254
2007 ........................................ 1,438
Remainder ................................... 3,632
-------
Total ....................................... $43,724
=======
Under the provisions of some leases, the Company pays taxes, maintenance,
insurance and other operating expenses related to leased premises.
8. SHORT-TERM DEBT AND COMPENSATING BALANCES
The Company has been granted lines of credit to borrow at interest rates up to
the prime rate from various banks. At January 2002, the Company had lines of
credit of $24,301,000 of which $12,870,000 was available.
The weighted average outstanding balances of short-term debt for the fiscal
years ending January 2002 and 2001 were $11,062,000 and $25,687,000; the
weighted interest rates for the same periods were 6.0% and 6.6%, respectively.
The weighted average interest rates on short-term debt outstanding at year end
was 4.85% and 6.95% for 2002 and 2001, respectively.
9. ACCRUED LIABILITIES
Accrued liabilities by major classification are as follows:
(Thousands)
2002 2001
------- -------
Accrued vacation pay ................... $ 5,385 $ 5,929
Accrued wage incentive ................. 4,973
Accrued wages and commissions .......... 5,174 7,230
Accrued income taxes ................... 3,696 12,769
Accrued workers' compensation .......... 9,575 9,699
Dividends payable ...................... 363 2,522
Accrued acquisition costs .............. 3,436 7,579
Accrued other employee benefits ........ 6,233 6,687
Accrued interest payable ............... 1,076 3,214
Other accruals ......................... 7,071 10,271
------- -------
Total ............................... $42,009 $70,873
======= =======
11
<Page>
10. LONG-TERM DEBT
Long-term debt at January 2002 and 2001 consisted of the following:
(Thousands)
2002 2001
---------- --------
Senior notes, 8.52% due January 15, 2002,
payable annually ............................................. $ 4,286
Senior notes, 8.99% due May 31, 2005,
payable $3,890,000 annually .................................. $ 27,220 31,110
Notes payable at various interest rates (2.38%-5.44%),
due February 1, 2004 ......................................... 231,000 246,500
Other debt at various interest rates (3.00%-8.95%)
due through 2010 ............................................. 1,906 10,158
---------- --------
260,126 292,054
Total
Less current portion ............................................ 3,956 9,239
---------- --------
Long-term debt .................................................. $ 256,170 $282,815
========== ========
On June 2, 2000, the Company entered into a three year $275,000,000 revolving
credit agreement. This facility was utilized to fund the three acquisitions made
in 2001 and to refinance the majority of the Company's outstanding credit
facilities and term loans. This debt carries a floating interest rate indexed to
LIBOR plus 3.5%. Interest is payable either at the earlier of quarterly or note
maturity.
During the first quarter of 2002, the Company and its lenders negotiated revised
covenant levels and entered into a security agreement collateralizing the
Company's debt with all of the domestic assets (excluding real estate holdings)
of the Company and certain of its material domestic subsidiaries, as well as its
investment in Oneida UK Limited. At the end of the third and fourth quarters of
2002, the Company was not in compliance with its consolidated interest coverage
and consolidated leverage covenants. In December the Company entered into a
Waiver and Amendment with its lenders to resolve the third quarter
non-compliance.
In April 2002 the Company and its lenders entered into an amendment to the
facility. The amendment waived the year-end non-compliance and made a number of
changes to the revolving credit agreement. Under the amendment, the maturity of
the revolving debt has been extended to February 1, 2004 from May 31, 2003. The
Company has provided additional collateral to the lenders in the form of
domestic real estate holdings. The commitments under the facility stepped down
to $245,000,000 upon signing of the amendment and will further step down to
$235,000,000 at February 3, 2003 and to $205,000,000 on January 31, 2004. In
addition,
12
there are limitations on dividends, capital expenditures, intercompany
indebtedness and letters of credit. After giving effect to the amendment, the
Company could have borrowed up to an additional $14,000,000 under the revolving
credit agreement at January 26, 2002. The amendments continue certain financial
covenants, the most restrictive of which limits the Company's total debt
outstanding to a pre-determined multiple of the prior rolling twelve months
earnings before interest, taxes, depreciation and amortization. The estimated
fair value of the Company's long-term debt at January 2002 approximated book
value. At January 2001 the carrying value of the Company's long-term debt
approximated $291,344,000.
The aggregate amounts of long-term maturities due each fiscal year are as
follows:
(Thousands)
2002 ........................................................... $ 3,956
2003 ........................................................... 5,585
2004 ........................................................... 234,918
2005 ........................................................... 15,570
2006 ........................................................... 21
After .......................................................... 76
--------
Total .......................................................... $260,126
========
Total interest costs incurred by the Company are presented net of capitalized
interest of $407,000, $1,112,000 and $1,346,000 for 2002, 2001 and 2000,
respectively.
11. RETIREMENT BENEFIT AND EMPLOYEE SECURITY PLANS
Pension Plans
The Company maintains defined benefit plans covering the majority of employees
in the United States. Employees of the Silversmiths Division are covered by both
an Employee Stock Ownership Plan (ESOP), and a defined benefit floor plan.
Dividends on all ESOP shares are added to participant accounts. Future
contributions to the ESOP will be in the form of either cash or treasury shares.
The Company also maintains a salary deferral 401(k) plan covering substantially
all employees.
The net periodic pension cost for the Company's various defined benefit plans
for 2002, 2001 and 2000 were as follows:
(Thousands)
2002 2001 2000
------- ------- -------
Service cost ............................ $ 1,497 $ 1,078 $ 1,697
Interest cost ........................... 2,682 2,213 2,710
Expected return on plan assets .......... (2,198) (2,226) (2,611)
Net amortization ........................ (388) (830) (296)
Effect of settlement/curtailment ........ 4,487
------- ------- -------
Net periodic pension cost ............... $ 1,593 $ 235 $ 5,987
======= ======= =======
13
<Page>
Plan assets consist primarily of stocks, bonds, and cash equivalents. The
following table presents a reconciliation of the funded status of the plans and
assumptions used at January 2002 and 2001.
(Thousands)
2002 2001
-------- --------
Change in benefit obligation
Benefit obligation-beginning of year .................. $(37,374) $(32,661)
Service cost .......................................... (1,497) (1,078)
Interest cost ......................................... (2,682) (2,213)
Benefits paid ......................................... 2,932 2,610
Actuarial gain (loss) ................................. (5,752) (4,032)
-------- --------
Benefit obligation-end of year ........................ (44,373) (37,374)
-------- --------
Change in plan assets
Fair value of plan assets-beginning of year ........... 27,156 27,528
Actual return on plan assets .......................... (1,827) 1,528
Employer contribution ................................. 2,035 710
Benefits paid ......................................... (2,932) (2,610)
-------- --------
Fair value of plan assets-end of year ................. 24,432 27,156
-------- --------
Funded status ......................................... (19,941) (10,218)
Unrecognized net (gains)/losses ....................... 3,764 (6,090)
Unrecognized prior service cost ....................... 1,466 1,398
Unrecognized net asset ................................ (495) (647)
-------- --------
Accrued benefit cost .................................. $(15,206) $(15,557)
======== ========
Weighted average assumptions as of the end of January
Discount rate ......................................... 6.9% 7.4%
Expected return on plan assets ........................ 8.4% 8.4%
Rate of compensation increase ......................... 3.4% 3.6%
The net pension cost associated with the Company's defined contribution plans
was $1,490,000 and $1,854,000 for 2001 and 2000, respectively.
Postretirement Health Care and Life Insurance Benefits
The Company reimburses a portion of the health care and life insurance benefits
for the majority of its retired employees who have attained specified age and
service requirements.
14
Net periodic postretirement benefit cost for 2002, 2001 and 2000 included the
following components:
(Thousands)
2002 2001 2000
------- ------ ------
Service cost .................................... $ 1,354 $1,316 $1,734
Interest cost ................................... 5,233 4,298 4,287
Net amortization ................................ 198 (681) (55)
Curtailment gain ................................ (1,384)
-------
Net periodic postretirement benefit cost ........ $ 5,401 $4,933 $5,966
======= ====== ======
The Company recorded a curtailment gain of $1,384,000 as a component of 2002 net
periodic postretirement expense. This gain resulted from reductions in the
Company's domestic workforce.
The following table sets forth the status of the Company's postretirement plans,
which are unfunded, at January 2002 and 2001:
(Thousands)
2002 2001
-------- --------
Change in benefit obligation
Benefit obligation - beginning of year ........... $(61,924) $(59,943)
Service cost ..................................... (1,354) (1,316)
Interest cost .................................... (5,233) (4,298)
Benefits paid .................................... 6,267 5,031
Employee contributions ........................... (568) (635)
Amendments ....................................... (540) 5,278
Actuarial loss ................................... (15,172) (6,041)
-------- --------
Benefit obligation - end of year ................. $(78,524) $(61,924)
======== ========
Funded status .................................... $(78,524) $(61,924)
Unrecognized net losses .......................... 22,488 11,562
Unrecognized prior service cost .................. (4,374) (9,146)
-------- --------
Accrued postretirement benefit cost .............. (60,410) (59,508)
Less current portion ......................... 4,000 3,400
-------- --------
Accrued postretirement benefit cost .............. $(56,410) $(56,108)
======== ========
Weighted average assumptions as of the end
of January
Discount rate .................................... 6.9% 7.3%
Healthcare inflation rate ........................ 11.2% 6.5%
15
The 2002 health care inflation rate was assumed to decrease gradually to 5% by
the year 2008 and remain at that level thereafter. A 1% variation in the assumed
health care inflation rates would cause the accumulated postretirement benefit
obligation at January 2002 to increase by $11,736,000 and decrease by
$10,149,000. Additionally, this would increase and decrease the net periodic
postretirement benefit cost for 2002 by $1,110,000 and $939,000 respectively.
Employee Security Plan
The Company maintains an employee security plan which provides severance
benefits for all eligible employees of the Company and its subsidiaries who lose
their jobs in the event of a change in control as defined by the plan. Employees
are eligible if they have one year or more of service and are not covered by a
collective bargaining agreement. The plan provides two and one half months of
pay for each year of service, up to twenty-four months maximum, and a
continuation of health care and life insurance benefits on the same basis.
12. STOCK PLANS
Stock Purchase Plan
At January 2002, under the terms of a stock purchase plan, the Company has
reserved 407,012 shares of common stock for issuance to its employees. The
purchase price of the stock is the lower of 90% of the market price at the time
of grant or at the time of exercise. The option price for the shares outstanding
at January 26, 2002 is $11.25.
2002 2001 2000
--------- --------- ---------
Outstanding at beginning of year .............. 342,212 406,324 396,821
Exercised during the year ..................... (110,803) (56,192) (62,232)
Expired during the year ....................... (268,139) (403,701) (354,715)
Granted during the year ....................... 363,151 395,781 426,450
--------- --------- ---------
Outstanding at end of year .................... 326,421 342,212 406,324
========= ========= =========
Average per share price of rights exercised ... $16.35 $20.30 $22.28
========= ========= =========
Rights to purchase are exercisable on date of grant. Unexercised rights expire
on June 30 of each year and become available for future grants. Employees are
entitled to purchase one share of common stock for each $250 of their earnings
for the calendar year preceding July 1.
The consolidated statement of operations does not contain any compensation
expense as a result of accounting for this plan.
Stock Option Plans
At January 2002, under the terms of its incentive stock option plans, the
Company has reserved shares of common stock for issuance to selected key
employees and non-employee directors.
Options were granted at exercise prices equal to the fair market value on the
date of the grant and may be paid for in cash or by tendering previously held
common stock of the Company at the time the option is exercised. Stock options
are non-transferable other than on death, vest over five years from date of
grant and expire ten years from date of grant.
16
Option Price
--------------------------
No. of Per (Thousands)
Shares Share Total
--------- ------------ -----------
Outstanding at
January 1999 ...................... 732,293 $ 6.00-28.13 $11,677
Granted ........................... 176,000 25.56-25.88 4,501
Exercised ......................... (127,338) 6.00-22.58 (1,491)
Expired ........................... (35,999) (641)
--------- -------
Outstanding at
January 2000 ...................... 744,956 7.58-28.13 14,046
Granted ........................... 344,000 18.38-19.00 6,327
Exercised ......................... (29,972) 7.58-9.08 (255)
Expired ........................... (35,929) (781)
--------- -------
Outstanding at
January 2001 ...................... 1,023,055 7.58-28.13 19,337
Granted ........................... 319,500 16.60-17.40 5,308
Exercised ......................... (80,083) 7.58-16.60 (851)
Expired ........................... (87,615) (1,761)
--------- -------
Outstanding at
January 2002 ...................... 1,174,857 7.58-28.13 $22,033
========= =======
Options exercisable under the plan at January 2002, 2001 and 2000 amounted to
428,436, 311,310, and 217,296, respectively. The weighted average exercise price
of options exercisable at January 2002, 2001 and 2000 were $18.68, $16.47, and
$12.73, respectively.
Options Outstanding at January 2002
- ------------------------------------------------------------------------------
Weighted
Average Weighted
Range of Options Remaining Life Average
Exercise Prices Outstanding In Years Exercise Price
- ------------------------------------------------------------------------------
$ 7.58 14,400 1.25 $ 7.58
9.08-12.42 131,087 4.32 11.41
16.60-19.00 623,036 8.50 17.53
21.88-28.13 406,334 6.82 23.39
- ------------------------------------------------------------------------------
1,174,857
==============================================================================
Options Exercisable at January 2002
- -------------------------------------------------------------------------------
Weighted
Range of Number Average
Exercise Prices Exercisable Exercise Price
- -------------------------------------------------------------------------------
$ 7.58 14,400 $ 7.58
9.08-12.42 115,974 11.28
16.60-19.00 69,912 18.44
21.88-28.13 228,150 23.21
- -------------------------------------------------------------------------------
428,436
===============================================================================
At the time options are exercised, the proceeds of the shares issued are
credited to the related stockholders' equity accounts. There are no charges to
income in connection with the options.
17
<Page>
Restricted Stock Award Plan
The Company has a restricted stock award plan for key employees who are expected
to have a significant impact on the performance of the Company. The stock is
restricted from being sold, transferred or assigned and is forfeitable until it
vests, generally over a three year period. Amounts of awards are determined by
the Management Development and Executive Compensation Committee of the Company's
Board of Directors. Compensation expense, amounts of which are immaterial,
relating to awards of restricted stock are recognized over the vesting period.
Shareholder Rights Plan
The Company maintains a shareholder rights plan. The rights were distributed to
shareholders at the rate of one right per share. The rights entitle the holder
to purchase one additional share of voting common stock at a substantial
discount and are exercisable only in the event of the acquisition of 20% or more
of the Company's voting common stock, or the commencement of a tender or
exchange offer under which the offeror would own 20% or more of the Company's
voting common stock. The rights will expire on December 13, 2009.
Accounting for Stock 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.
Application of the fair-value-based accounting provision of SFAS 123 results in
the following pro forma amounts of net income and earnings per share:
(Thousands Except Per Share Amounts)
------------------------------------
2002 2001 2000
------ ------- ------
Net Income (loss):
As reported $8,501 $(1,300) $5,511
Pro forma 6,268 (3,228) 2,667
Earnings (loss) Per Share:
As reported: Basic .51 (.09) .33
Diluted .51 (.09) .32
Pro forma: Basic .37 (.21) .15
Diluted .37 (.21) .15
The fair value for both the Stock Purchase Plan and Stock Option Plan was
estimated at the date of grant using a Black-Scholes options pricing model.
The valuation of the Stock Purchase Plan used the following weighted average
assumptions for 2002, 2001 and 2000, respectively: risk-free interest rates of
3.37%, 5.83% and 4.82%; dividend yields of .98%, 2.25% and 1.42%; volatility
factors of the expected market price of the Company's common stock of 39.1%,
29.3% and 58.5% and a weighted average expected life of the option of 9 months.
The fair value per share for the options granted during 2002, 2001 and 2000 was
$5.51, $4.37 and $9.15, respectively. The estimated fair value of the options is
expensed in the year of issue in calculating pro forma amounts.
The valuation of the Stock Option Plan used the following weighted average
assumptions for 2002, 2001 and 2000, respectively: risk free interest rate of
4.99%, 6.53% and 5.71%; dividend yield of 1.05%, 2.0% and 2.0%; volatility
factor of the expected price of the Company's common stock of 37.7%, 36.2% and
33.2% and an expected life of 5.56, 5.74 and years. The fair value per share for
the options granted during 2002, 2001 and 2000 was $6.50, $6.90 and $6.83,
respectively. The estimated fair value of the options is expensed over the
five-year vesting period in calculating pro forma amounts.
18
<Page>
13. EARNINGS PER SHARE
The following is a reconciliation of basic earnings per share to diluted
earnings per share for 2002, 2001 and 2000:
Preferred
Net Stock Adjusted Average Earnings
(Thousands except per share amounts) Income Dividends Net Income Shares Per Share
- --------------------------------------------------------------------------------------------------
2002: Basic earnings per share $ 8,501 (130) 8,371 16,468 $ .51
Effect of stock options 51
Diluted earnings per share 8,501 (130) 8,371 16,519 .51
- --------------------------------------------------------------------------------------------------
2001: Basic earnings (loss) per share (1,300) (130) (1,430) 16,300 (.09)(1)
Effect of stock options
Diluted earnings (loss) per share (1,300) (130) (1,430) 16,300 (.09)(1)
- --------------------------------------------------------------------------------------------------
2000: Basic earnings per share 5,511 (130) 5,381 16,524 .33 (2)
Effect of stock options 148
Diluted earnings per share 5,511 (130) 5,381 16,672 .32 (2)
- --------------------------------------------------------------------------------------------------
(1) The year ended January 2001 includes an amount for restructuring and other
unusual charges totaling $39,008 or $1.50 per basic share. See Note 1 of Notes
to Consolidated Financial Statements.
(2) The year ended January 2000 includes an amount for restructuring and unusual
charges totaling $44,300 or $1.83 per basic share. See Note 1 of Notes to
Consolidated Financial Statements.
14. OPERATIONS BY INDUSTRY SEGMENT
The Company's operations and assets are in one principal industry: tableware
products. The Company's reportable segments are grouped around the manufacture
and distribution of three major product categories: metal tableware, china
dinnerware and glass tabletop products. The Company also distributes a variety
of other tabletop accessories. These products are sold directly to a broad base
of retail outlets including department stores, mass merchandisers, Oneida Home
stores and chain stores. Additionally, these products are sold to special sales
markets, which include customers who use them as premiums, incentives and
business gifts. The Company also sells directly or through distributors to
foodservice operations worldwide, including hotels, restaurants, airlines,
cruise lines, schools and healthcare facilities. The Company's tableware
operations are located in the United States, Canada, Mexico, Italy, Australia,
the United Kingdom, China and Hong Kong.
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 upon operating income
excluding restructuring and unusual charges, interest, miscellaneous income and
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.
Segment information for the three years ended January 2002, 2001 and 2000 are as
follows:
(Thousands) Metal Dinnerware Glass Other Total
2002: Net sale $324,100 $137,300 $32,400 $ 5,437 $499,237
Operating income 16,300 20,600 (300) (502) 36,098
Depreciation and amortization 13,661 3,434 17,095
2001: Net sales $338,600 $130,000 $38,900 $ 8,022 $515,522
Operating income 43,100 20,500 700 (222) 64,078
Depreciation and amortization 11,949 3,500 15,449
2000: Net sales $337,600 $106,200 $37,100 $14,156 $495,056
Operating income 58,400 13,400 2,200 311 74,311
Depreciation and amortization 9,781 4,031 13,812
19
<Page>
The following table reconciles segment operating income to pretax income (loss):
(Thousands)
2002 2001 2000
------- ------- -------
Total segment operating income ........... $36,098 $64,078 $74,311
Restructuring and unusual charges ........ 39,008 44,300
Corporate expenses ....................... 6,035 4,961 5,503
------- ------- -------
Consolidated operating income ............ 30,063 20,109 24,508
Interest expense ......................... 23,171 21,602 10,875
Other income/(expense) ................... 7,134 (579) 202
------- ------- -------
Pretax income (loss) ..................... $14,026 $(2,072) $13,835
======= ======= =======
Financial information relating to the Company's sales and long-lived assets by
geographic area is as follows:
(Thousands)
2002 2001 2000
-------- -------- --------
Net Sales:
Domestic .................... $414,240 $434,145 $426,121
Foreign operations ......... 84,997 81,377 68,935
-------- -------- --------
Total .......................... $499,237 $515,522 $495,056
======== ======== ========
Long-lived assets:
Domestic .................... $228,246 $240,207 $148,310
Foreign operations .......... 37,770 39,755 19,185
-------- -------- --------
Total .......................... $266,016 $279,962 $167,495
======== ======== ========
15. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(Thousands except per share amounts)
Quarter Ended
--------------------------------------------------------------------
2002 April 28, 2001 July 28, 2001 October 27, 2001 January 26, 2002
- ---------------------------------------------------------------------------------------------------
Net sales .................. $126,806 $119,428 $128,548 $124,455
Gross margin ............... 41,525 41,776 40,846 38,977
Net income ................. 441 1,703 300 6,057
Earnings per share:
Basic ................... .02 .10 .02 .37
Diluted ................. .02 .10 .02 .36
Quarter Ended
--------------------------------------------------------------------
2001 April 29, 2000 July 29, 2000 October 28, 2000 January 27, 2001
- ---------------------------------------------------------------------------------------------------
Net sales .................. $118,201 $104,010 $151,951 $141,360
Gross margin ............... 45,755 13,920 53,684 48,405
Net income (loss) .......... 7,467 (16,817) 4,106 3,944
Earnings (loss) per share:
Basic(1) ................ .45 (1.04) .25 .24
Diluted(1) .............. .45 (1.04) .25 .24
(1) The quarter ended July 29, 2000 included restructuring and unusual charges
totaling $32,000 ($24,000 as a reduction of gross margin) or $1.23 per basic
share. The quarter ended October 28, 2000 included additional restructuring
charges of $7,008 or $.27 per basic share.
20
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Oneida Ltd.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of Oneida
Ltd. and its subsidiaries at January 26, 2002 and January 27, 2001 and the
results of their operations and their cash flows for each of the three years in
the period ended January 26, 2002 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
/s/ PRICEWATERHOUSE COOPERS LLP
Syracuse, New York
February 25, 2002, except for Note 10, as to which the date is April 25, 2002
21
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2002 2001 2000
-------- -------- --------
Net Sales:
Metal Products ....................... $324,100 $338,600 $337,600
Dinnerware Products .................. 137,300 130,000 106,200
Glass Products ....................... 32,400 38,900 37,100
Other Products ....................... 5,437 8,022 14,156
-------- -------- --------
Total ............................. 499,237 515,522 495,056
Gross Margin(1) ......................... 163,124 185,764 195,985
% Net Sales .......................... 32.7% 36.0% 39.6%
Operating Expenses-recurring ............ 134,574 133,113 128,038
% Net Sales .......................... 27.0% 25.8% 25.9%
(1) Adjusted for non-recurring restructuring costs of $24,000 and $3,000 in 2001
and 2000, respectively.
Fiscal year ended January 2002 compared
With fiscal year ended January 2001
Strategic Acquisitions
In 2001, the Company made three strategic acquisitions, laying the foundation
for future growth.
On June 13, 2000, the Company completed the acquisition of Viners of Sheffield,
Ltd., a privately held company, for approximately $25,000,000 in cash. London
based Viners is a long established marketer of flatware and cookware in the
United Kingdom. Viners has been integrated with the Company's United Kingdom
branch operation, allowing for a much greater market share in that country,
while maintaining the fixed costs of one operation. The above table, as well as
the Consolidated Statements of Operations and Cash Flows include six and
one-half months of Viners activity in 2001.
On June 30, 2000, Oneida purchased substantially all of the net assets of
Sakura, Inc. for approximately $40,000,000 in cash. Sakura is a leading importer
and marketer of consumer dinnerware in the United States. This acquisition has
greatly enhanced the Company's presence in the consumer dinnerware segment. The
above table, as well as the Company's consolidated financial statements reflect
seven months of Sakura operations in 2001.
On August 9, 2000, the Company purchased the stock of Delco International Ltd.,
a privately owned concern, for approximately $60,000,000 in cash. Delco is a
leading marketer of tableware products in the foodservice industry. The Company
has integrated Delco's operations and systems with its own. Included in the
accompanying consolidated financial statements is one-half year of Delco 2001
operating results.
For a more complete discussion of the Company's acquisition activities, see Note
2 of the Notes to the Consolidated Financial Statements.
Operations
(2002 results include a full year of sales for the acquisitions above, as
compared to a half year in 2001.) 2002 sales decreased from 2001 levels by
$16,285 or 3.2%. This decrease occurred in all product groups except for
dinnerware. Sales of domestic consumer products (primarily metal) were 11% lower
than in the prior year. Lagging consumer demand was experienced throughout the
year, especially after the terrorist attacks and subsequent erosion of the
United States economy. Domestic foodservice sales accounted for approximately
43% of the Company's total sales in 2002. While foodservice sales were strong
throughout the first half of the year, the events of September 11, and the
resultant decline in the travel and entertainment industries, had an immediate
and significant negative effect on the Company's foodservice business. It is
expected that the Company will regain all of its foodservice business, with the
possible exception of flatware sales to airlines, which are not material. The
increase in dinnerware sales, which occurred in the consumer market, is related
to the inclusion of a full year of
22
<Page>
Sakura operations. The decreases in sales of glass and other products were
distributed among all customer groups. International sales increased by 4.3%, to
$85,000, primarily due to the Viners acquisition.
Gross margin as a percentage of net sales was 32.7% in 2002, as compared to 36%
in 2001. Throughout 2002, the Company slowed down all of its manufacturing
facilities to match lower customer demand, while continuing to decrease
inventories. This decrease in volume generated negative manufacturing variances
which is the reason for the margin decline.
Operating expenses (excluding restructuring and unusual charges) increased by
$1,461, or 1.1% over 2001, primarily due to a full year of non-cash amortization
of acquisition related intangibles. The Company has fully integrated the Viners
and Delco organizations into its existing operations.
In 2002, the Company had miscellaneous income of $8,646,000 related to the
receipt of Prudential Financial common shares. These shares were received by the
Company, a Prudential policyholder, as part of Prudential's conversion from a
mutual insurance company to a stock enterprise. One sixth of these shares were
sold in 2002. It is the intention of management to sell the remaining shares in
2003 and use the proceeds to reduce debt.
Interest expense, prior to capitalized interest, was $23,578,000 in 2002, an
increase of $864,000 over the prior year. This increase is due to higher average
borrowings throughout 2002, the effect of which was somewhat offset by lower
prevailing interest rates. In mid 2001, the Company increased outstanding debt
by $122,000,000 to make the three acquisitions described above. The Company's
2002 debt levels dropped by $28,544,000 over the course of the year.
Fiscal year ended January 2001 compared
with fiscal year ended January 2000
Operations
2001 net sales increased by $20,466,000 or 4.1% over 2000. This growth stemmed
from the combination of increased sales from the above acquisitions, offset by a
decline in the Company's core consumer business. Sales of metal products were
flat with 2000 levels. Metal sales to the Company's consumer channels decreased
significantly, as continued softness prevailed in the retail marketplace. This
was somewhat offset by the inclusion of a half year of Delco sales. The increase
in dinnerware sales is directly attributable to the addition of the Sakura
consumer product offering in the second half of 2001. Sales of glass products
increased nearly 5% over 2000 levels. Sales of other products have declined,
reflecting the discontinuance of certain lower profit product lines.
Excluding a $24,000,000 restructuring charge related to inventory reduction,
gross margin was 36.0% in 2001,as compared to 39.6% in the prior year. Several
factors contributed to this decline in gross margin. The product offerings of
the acquired companies have lower gross margins than the existing Oneida
business. Product mix in the traditional business was also a factor, as the
decline in retail sales included products that carry higher margins. Finally, in
the fourth quarter of 2000, the Company made a conscious decision to slow
production in its manufacturing facilities to avoid increasing inventories
during the current market slowdown. This resulted in the realization of negative
manufacturing variances.
Operating expenses (excluding restructuring and unusual charges) decreased
slightly as a percentage of net sales.
In the year ended January 2001, the Company recorded a $39,008,000 charge for
restructuring and other unusual items. This charge reduced net income by
$24,500,000 or $1.50 per share. This total includes $10,008,000 related
primarily to the consolidation of sales, marketing, logistics and administrative
functions, along with the realignment of product lines, warehouses and "make
versus buy" decisions. This has been the continuation of the Company's ongoing
efforts to streamline operations, as well as remove acquisition-related
redundancies involving Delco, Sakura and Viners (See Note 2 of Notes to the
consolidated Financial Statements for a complete discussion on acquisition
activity.) Restructuring expenditures were $6,200,000 and $3,320,000 in 2001 and
2002, respectively. The remainder will be paid in 2003.
23
<Page>
2001 earnings also included an inventory writedown of $24,000,000 related to
product rationalization as a result of the recent acquisitions as well as
significant other stockkeeping unit reductions. A $24,000,000 inventory reserve
was established; through year end 2001, approximately half of this reserve was
utilized to liquidate excess and obsolete product. $8,900,000 of the reserve was
utilized for product liquidations in 2002. The remainder will be used in 2003.
The Company recorded a charge of $5,000,000 to recognize impairment of certain
manufacturing tools and product procurement assets. All impaired assets have
been written down to their net realizable value in 2001. There are no
anticipated adjustments needed for any of the restructuring or unusual expense
accruals.
2001 interest expense (prior to capitalized interest) increased to $22,714,000
from $12,221,000 in the prior year. The increase is due to higher average
borrowings and interest rates incurred by the Company in 2001. Debt levels
increased to fund the Company's acquisitions, as well as for working capital
needs.
Liquidity and Financial Resources
In the year ended 2002, the Company generated cash flow from operations of
$41,945,000. A prime objective of the Company has been to strengthen its balance
sheet and reduce debt. Considerable progress has been made toward that goal, as
inventories decreased by over $45,000,000 and debt and current liabilities have
declined by over $65,000,000. In addition to debt repayments of $28,544,000, the
Company significantly reduced liabilities related to compensation and benefits,
acquisition related costs, interest and dividends payable. In 2002,
approximately $8,000,000 was spent on capital projects, focused primarily on
manufacturing facilities and retail fixturing. A similar level of capital
expenditures is projected for 2003.
The following table details the Company's long term commitments by due date:
Less than After
Obligation Total 1 year 1-3 years 3 years
- --------------------------------------------------------------------------------
Long term debt $260,126 $ 3,956 $256,073 $ 97
Operating leases 25,506 7,570 12,866 5,070
Unconditional purchase
obligations 18,218 6,177 12,041
-------- ------- -------- ------
Total $303,850 $17,643 $280,980 $5,167
======== ======= ======== ======
On June 2, 2000, the Company entered into a three-year $275,000,000 revolving
credit agreement. This facility was utilized to fund the three acquisitions made
in 2001 and to refinance the majority of the Company's outstanding credit
facilities and term loans. This debt carries a floating interest rate indexed to
LIBOR plus 3.5%. Interest is payable either at the earlier of quarterly or note
maturity.
During the first quarter of 2002, the Company was not in compliance with its
consolidated interest coverage and consolidated leverage convenants in the
revolving credit agreement. The most restrictive of these covenants limits the
Company's total debt outstanding to a predetermined multiple of the prior
rolling twelve months earnings before interest, taxes, depreciation and
amortization. The lenders waived violation of these covenants and amended the
covenants to new agreed upon levels. The Company collateralized its debt under
this facility with all of its domestic assets (excluding real estate holdings)
and a majority of its investment in Oneida UK Limited. At the end of the third
quarter of 2002, the Company was not in compliance with these covenants in the
facility, which the lenders waived.
At the end of the 2002 fiscal year, the Company was again not in compliance with
its consolidated interest coverage and consolidated leverage covenants. In April
2002 the Company and its lenders entered into an amendment to the facility. The
amendment waived the year-end non-compliance and made a number of changes to the
revolving credit agreement.
24
<Page>
Under the amendment, the maturity of the revolving debt has been extended to
February 1, 2004 from May 31, 2003. The Company has provided additional
collateral to the lenders in the form of domestic real estate holdings. The
commitments under the facility stepped down to $245,000,000 upon signing of the
amendment and will further step down to $235,000,000 at February 3, 2003 and to
$205,000,000 on January 31, 2004. In addition, there are limitations on
dividends, capital expenditures, intercompany indebtedness and letters of
credit. The consolidated interest coverage and consolidated leverage covenants
have been amended to new agreed upon levels. Under the amendment, until the
second fiscal quarter of 2004, the Company may declare dividends of up to
$375,000 per quarter, so long as its net income (as defined in the facility) for
the preceding rolling four quarters equals or exceeds $4,000,000. Thereafter,
dividend declarations may be increased if certain improved results are achieved.
So long as the Company achieves the required $4,000,000 of net income and
otherwise remains in compliance with the revolving credit facility, it can
continue paying dividends at the current rate.
After giving effect to the amendment, the Company could have borrowed up to an
additional $14,000,000 under the revolving credit agreement at January 26, 2002.
The Company believes that it will remain in compliance during 2003 with the
covenants and other provisions of its revolving credit agreement. However, the
Company might not be able to remain in compliance if its net sales in 2003 were
to decline from the level achieved in 2002. A number of other factors could also
cause the Company to cease complying with its facility. In that event, if the
lenders were unwilling to waive the non-compliance, they could restrict the
ability of the Company to borrow undrawn funds under the facility and could
require the immediate repayment of all outstanding borrowings thereunder.
Management believes there is sufficient liquidity to support the Company's
ongoing funding requirements from future operations as well as the availability
of bank lines of credit. Working capital as of January 2002 totaled
$197,876,000.
The Company has foreign exchange exposure related to its foreign operations in
Mexico, Canada, Italy, Australia, the United Kingdom, China and Hong Kong (see
Note 14 for details on the Company's foreign operations). Translation
adjustments recorded in the income statement were not of a material nature.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board approved Statements of
Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and
No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 is
currently effective and SFAS 142 is effective January 27, 2002 for the
Corporation. SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. Under SFAS 142,
amortization of goodwill, including goodwill recorded in past business
combinations, will discontinue upon adoption of the this standard. All goodwill
and intangible assets will be tested for impairment in accordance with the
provisions of the Statement. The Company is currently reviewing the provisions
of SFAS 141 and SFAS 142 and assessing the impact of adoption. In October 2001,
the Financial Accounting Standards Board issued Statement of Financial
Accounting No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). SFAS 144 provides guidance on the accounting for
long-lived assets to be held and used and for assets to be disposed of through
sale or by other means. SFAS 144 is effective for the fiscal years beginning
after December 15, 2001. The Company does not expect the adoption of SFAS 144 to
have a material impact on the earnings or financial position of the Company.
Forward Looking Information
With the exception of historical data, the information contained in this report,
is forward-looking. For the purposes of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, the Company cautions readers
that changes in certain factors could affect the Company's future results and
could cause the Company's future consolidated results to differ materially from
those expressed herein. Such factors include, but are not limited to: general
economic conditions in the Company's markets; difficulties or delays in the
development, production and marketing of new products; the impact of competitive
products and pricing; certain assumptions related to consumer purchasing
patterns; significant increases in interest rates or the level of the Company's
indebtedness; major slowdowns in the retail, travel or entertainment industries;
the loss of several of
25
<Page>
the Company's major customers; under utilization of the Company's plants and
factories; the amount and rate of growth of the Company's selling, general and
administrative expenses.
Dividends and Price Range of the Company's Common Stock
The Company's Common Stock is listed on the New York Stock Exchange and trades
under the symbol OCQ. The total number of stockholders of record at January 2002
was 3,790. The following table sets forth the high and low sale prices per share
of the Company's Common Stock for the periods indicated on the Composite Tape,
and cash dividends declared for the quarters in the Company's 2002 and 2001
fiscal years.
JANUARY 2002
------------
Fiscal Dividends
Quarter High Low Per Share
- -------------------------------------
First $18.10 $15.50 $.05
Second 20.33 16.24 .05
Third 18.35 12.55 .05
Fourth 14.05 11.35 .02
JANUARY 2001
------------
Fiscal Dividends
Quarter High Low Per Share
- ---------------------------------------------
First........ $21.06 $16.00 $.10
Second....... 19.94 17.25 .10
Third........ 18.13 10.94 .10
Fourth....... 18.50 10.06 .05
26
<Page>
FIVE YEAR SUMMARY
ONEIDA LTD.
(Millions except per share amounts)
Year ended January 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------
OPERATIONS
Net sales............................... $499.2 $515.5 $495.1 $465.9 $442.9
Gross margin(1) ........................ 163.1 185.8 196.0 173.0 168.1
Depreciation and amortization expense... 17.1 15.4 13.8 15.8 13.8
Operating income(1)..................... 30.1 59.1 68.8 45.1 50.7
Income from continuing operations....... 8.5 23.2 35.9 22.8 26.1
Income from discontinued operations..... 2.6
Net income.............................. 8.5 23.2 35.9 22.8 28.7
Cash dividends declared
Preferred stock .................... .1 .1 .1 .1 .1
Common stock........................ 2.0 5.7 6.6 8.4 7.6
PER SHARE OF COMMON STOCK
Continuing operations(1)&(2)............ .51 1.41 2.15 1.35 1.55
Discontinued operations(1)&(2).......... .16
Net income(1)&(2)....................... .51 1.41 2.15 1.35 1.71
Dividends declared(1)&(2)............... .17 .35 .40 .50 .45
FINANCIAL DATA
Total assets............................ 546.1 619.2 449.2 442.1 363.6
Working capital ........................ 197.9 213.6 145.1 140.1 119.3
Total debt ............................. 271.6 300.1 146.2 150.5 86.8
Stockholders' equity.................... 127.4 124.3 133.3 140.3 135.3
SHARES OF CAPITAL STOCK
Outstanding at end of year
Preferred .......................... 86 87 87 87 88
Common ............................. 16,523 16,388 16,465 16,607 16,609
Weighted average number of common shares
outstanding during the year(2) 16,519 16,300 16,672 16,888 16,740
SALES OF MAJOR PRODUCTS BY PERCENT OF TOTAL
SALES
Metal products ......................... 65% 66% 68% 73% 77%
Dinnerware products..................... 27% 25% 21% 20% 19%
Glass products.......................... 7% 8% 8% 4% 3%
Other products.......................... 1% 1% 3% 3% 1%
(1) Amounts are before restructuring and other unusual charges of $39.0, $44.3
and $5.0 in the years ended January 2001, 2000 and 1999, respectively. In 2001
and 2000, restructuring charges included in cost of sales were $24.0 and $3.0.
These charges reduced net income by $24.5, or $1.50 per share; $30.4, or $1.83
per share and $3.1, or $.19 per share in 2001, 2000 and 1999, respectively.
(2)diluted basis
27