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 July 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of September 7, 2005: 46,631,924
ONEIDA LTD.
FORM 10-Q
FOR THE SIX MONTHS ENDED JULY 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
ITEM 5. OTHER INFORMATION
None.
2
ITEM 6. EXHIBITS
Exhibits:
3.1 The Company's Restated Articles of Incorporation.
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.
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.
3
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.
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
4
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 Amendment No. 4 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.
Amendment No. 4 is dated as of June 23, 2005.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 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.
10.28 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.
10.29 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.
10.30 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
10.31 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.
10.32 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.
10.33 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.
10.34 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.
10.35 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.
10.36 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.
10.37 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.
10.38 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.
10.39 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.
10.40 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.
10.41 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.
10.42 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 For the Six Months Ended
July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
------------- ------------- ------------- -------------
Revenues:
Net sales....................................... $78,692 $101,020 $168,429 $211,665
License fees.................................... 603 306 1,089 887
------- -------- -------- --------
Total Revenues.................................... 79,295 101,326 169,518 212,552
------- -------- -------- --------
Cost of sales..................................... 51,408 80,206 109,929 160,460
------- -------- -------- --------
Gross margin...................................... 27,887 21,120 59,589 52,092
------- -------- -------- --------
Operating expenses:
Selling, distribution and administrative
expense................................... 25,630 33,567 51,964 66,460
Restructuring expense (Note 2)............... 835 (137) 1,176 (137)
Impairment loss on depreciable assets........ - 34,016 - 34,016
Impairment loss on other assets.............. 242 2,700 242 2,700
(Gain) loss on the sale of fixed assets...... (10) (4,823) (445) (4,837)
------- -------- -------- --------
Total.................................... 26,697 65,323 52,937 98,202
------- -------- -------- --------
Operating income (loss)........................... 1,190 (44,203) 6,652 (46,110)
Other income...................................... (1,043) (2,390) (1,601) (66,128)
Other expense..................................... 741 1,764 1,302 4,656
Interest expense including amortization of
deferred financing costs........................ 8,023 3,963 15,982 7,733
------- -------- -------- --------
(Loss) income before income taxes................. (6,531) (47,540) (9,031) 7,629
Income tax expense (Note 3)....................... 233 751 1,033 1,535
------- -------- -------- --------
Net (loss) income................................. $(6,764) $(48,291) $(10,064) $ 6,094
======= ======== ======== ========
Preferred stock dividends......................... (32) (32) (64) (64)
Net (loss) income available to common
shareholders.................................... $(6,796) $(48,323) $(10,128) $ 6,030
(Loss) income per share of common stock.
Net income:
Basic.................................... $(0.15) $(2.88) $(0.22) $.36
Diluted.................................. $(0.15) $(2.88) $(0.22) $.36
See notes to consolidated financial statements.
8
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED BALANCE SHEETS
(Thousand of Dollars)
Unaudited Audited
July 30, Jan. 29,
2005 2005
--------- --------
ASSETS
Current assets:
Cash...................................................... $ 1,368 $ 2,064
Trade accounts receivables, less allowance for doubtful
accounts of $3,027 and $3,483, respectively........... 51,893 53,226
Other accounts and notes receivable....................... $ 3,376 $ 1,398
Inventories, net of reserves of $10,587 and $22,405,
respectively (Note 4)................................. 96,581 106,951
Other current assets...................................... 4,976 3,789
-------- --------
Total current assets............................... 158,194 167,428
Property, plant and equipment, net............................... 17,568 23,149
Assets held for sale............................................. 5,610 1,263
Goodwill......................................................... 120,563 121,103
Other assets..................................................... 12,677 15,869
-------- --------
Total assets....................................... $314,612 $328,812
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................... $ 7,217 $ 9,577
Accounts payable.......................................... 11,902 14,735
Accrued liabilities....................................... 28,137 33,651
Accrued restructuring..................................... 1,050 524
Accrued pension liabilities............................... 17,307 17,667
Deferred income taxes..................................... 1,214 1,214
Long term debt classified as current...................... 661 2,572
-------- --------
Total current liabilities.......................... 67,488 79,940
Long term debt (Note 6).......................................... 210,303 204,344
Accrued postretirement liability ................................ 2,716 2,633
Accrued pension liability........................................ 26,474 24,254
Deferred income taxes............................................ 9,897 9,087
Other liabilities................................................ 12,330 12,173
-------- --------
Total liabilities.................................. 329,208 332,431
Commitments and contingencies...................................
Stockholders' (deficit):
Cumulative 6% preferred stock--$25 par value; authorized
10,000,000 shares, issued 86,036 shares, callable at
$30 per share respectively................................... 2,151 2,151
Common stock--$l.00 par value; authorized 100,000,000 shares,
issued 47,781,288 shares for both periods.................... 47,781 47,781
Additional paid-in capital....................................... 84,719 84,719
Retained deficit................................................. (94,126) (84,062)
Accumulated other comprehensive loss............................. (33,552) (32,639)
Less cost of common stock held in treasury; 1,149,364 shares
for both periods............................................. (21,569) (21,569)
-------- --------
Total stockholders' (deficit):..................... (14,596) (3,619)
-------- --------
Total liabilities and stockholders' (deficit)... $314,612 $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 SIX MONTHS ENDED JULY 30, 2005 AND JULY 31, 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)
Foreign currency
translation adjustment........ - - - - - (913) - (913)
Net loss...................... - - - - (10,064) - - (10,064)
------ ------- ------ ------- -------- -------- -------- --------
Balance July 30, 2005......... 47,781 $47,781 $2,151 $84,719 $(94,126) $(33,552) $(21,569) $(14,596)
====== ======= ====== ======= ======== ======== ======== ========
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........... 45 45 - 11 - - - 56
Minimum pension liability
adjustment, net of tax benefit
of $0......................... - - - - - (7,825) - (7,825)
Foreign currency translation
adjustment.................... - - - - - (877) - (877)
Net income.................... - - - - 6,094 - - 6,094
------ ------- ------ ------- -------- -------- -------- -------
Balance July 31, 2004.......... 17,928 $17,928 $2,151 $84,572 $(26,839) $(36,195) $(21,569) $20,048
====== ======= ====== ======= ======== ======== ======== =======
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 Six Months Ended
July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
------------- ------------- ------------- -------------
Net (loss) income...................................... $(6,764) $(48,291) $(10,064) $6,094
Foreign currency translation adjustments............... (212) (1,925) (913) (877)
Other comprehensive (loss), net of tax:
Minimum pension liability adjustments.................. - 61 - (7,825)
------- -------- -------- -------
Other comprehensive (loss)............................. (212) (1,864) (913) (8,702)
------- -------- -------- -------
Comprehensive income (loss)............................ $(6,976) $(50,155) $(10,977) $(2,608)
======= ======== ======== =======
See notes to consolidated financial statements.
11
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 30, 2005 AND JULY 31, 2004
(Unaudited)
(In Thousands)
Six months ended
July 30,2005 July 31,2004
------------ ------------
CASH FLOW PROVIDED BY (USED) FROM OPERATING ACTIVITIES:
Net income (loss)............................................................. $(10,064) $ 6,094
Adjustments to reconcile net (loss) income to net cash provided by (used in)
operating activities:
Non-cash interest (Payment in Kind)......................................... 7,018 -
(Gain) on disposal of fixed assets.......................................... (445) (4,837)
Depreciation and amortization............................................... 1,265 4,328
Deferred income taxes....................................................... (448) 798
Impairment of long lived assets............................................. - 34,016
Impairment of other assets.................................................. 242 2,700
Inventory write-downs....................................................... - 9,519
Pension plan amendment (Note 7)............................................. - 2,577
Post retirement health care plan amendment (Note 7)......................... - (63,277)
(Increase) decrease in working capital:
Receivables................................................................. (566) (1,798)
Inventories................................................................. 9,402 5,022
Other current assets........................................................ 1,020 878
Other assets................................................................ 1,018 851
Decrease in accounts payable................................................ (2,866) (8,410)
Decrease in accrued liabilities............................................. (2,356) (12,807)
Increase (decrease) in other liabilities.................................... 985 (4,358)
-------- --------
Net cash provided by (used in) operating activities...................... 4,205 (28,704)
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of properties and equipment......................................... (783) (2,906)
Proceeds from dispositions of properties and equipment........................ 1,402 12,760
-------- --------
Net cash provided by investing activities 619 9,854
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Payment of short-term debt.................................................... (2,360) (616)
Payment of long-term debt..................................................... (2,970) 11,341
Net cash (used in) provided by financing activities....................... (5,330) 10,725
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH......................................... (190) (164)
-------- --------
NET (DECREASE) IN CASH.......................................................... (696) (8,289)
CASH AT BEGINNING OF YEAR....................................................... 2,064 9,886
-------- --------
CASH AT END OF PERIOD........................................................... $1,368 $1,597
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the six months for:
Interest................................................................... $14,423 $7,071
======== ========
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 six-month period
ended July 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.
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.
Application of the fair-value based accounting provision of SFAS 123 results in
the following pro forma amounts of net income (loss) and earnings (loss) per
share:
(Thousands Except Per Share Amounts) (Thousands Except Per Share Amounts)
For the Three Months Ended For the Six Months Ended
July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
------------- ------------- ------------- -------------
Net income (loss), as reported..... $(6,764) $(48,291) $(10,064) $6,094
Deduct: Total stock-based employee
compensation expense determined
under Black-Scholes option pricing
model.............................. (1,445) (351) (1,651) (948)
------- ----- ------- -----
Pro forma net (loss) income........ $(8,209) $(48,642) $(11,715) $5,146
======== ========= ========= ======
Earnings (loss) per share:
As reported: Basic.... $(.15) $(2.88) $(.22) $.36
Diluted.. $(.15) $(2.88) $(.22) $.36
Pro forma: Basic...... $(.18) $(2.90) $(.25) $.31
Diluted.... $(.18) $(2.90) $(.25) $.31
13
There was no stock based employee compensation expense included in the
Consolidated Statement of Operations. In August 2004, the Company underwent a
change in control which triggered accelerated vesting of certain unvested
employee stock options. During the quarter ended July 30, 2005 the Company
re-visited the accounting of its stock option plans and realized that a change
in vesting occurred as a result of the August 2004 change in control. The
Company determined the impact of the accelerated vesting, taking into
consideration the amount of pro-forma expense reported to date, and has reported
the remaining vesting cost in the above pro-forma calculation.
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 two VIE's, 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 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 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 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
adoption of SFAS 153 will not have a material effect on the Company's financial
statements.
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 beginning with the first interim or annual reporting period of the
Company's first fiscal year beginning 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
14
settled by the issuance of those equity instruments. The Company has not yet
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 Corporation 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 July 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.
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 July 30, 2005, all 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 July 30, 2005 were $1,213.
Under the restructuring plan described above, approximately 1,600 employees were
terminated. As of July 30, 2005 1,535 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 charges of $1,176 through the first six months ending July 30, 2005
in the consolidated Statement of Operations under the caption "Restructuring
Expense". Cash payments and adjustments through the first six months ending
July 30, 2005 under the restructuring were $439 and $211, respectively. Hence,
the remaining liability at July 30, 2005 was $1,050.
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
15
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 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 distribution 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 six months ended July 30, 2005:
Balance Balance
January 29, 2005 Additions Adjustments Payments July 30, 2005
---------------- --------- ----------- -------- -------------
Termination benefits and other costs.. $524 $1,176 $(211) $(439) $1,050
During the first three months of the current year, 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 restructuring accruals established at January 31, 2004 for
severance attributed to the closure and/or sale of the Buffalo, NY manufacturing
facility. During the second quarter ending July 30, 2005 the Company recorded
additional restructuring expense of $835. This restructuring expense consists of
additional termination benefits attributed to the Buffalo distribution facility
closure and termination benefits associated with the down sizing of several
International subsidiaries. The Company expects to pay these liabilities by the
end of the current fiscal year.
3. INCOME TAXES
The provision for income taxes for the three months ended July 30, 2005 is
comprised of $179 of foreign tax benefit related to foreign operations and $412
of domestic deferred tax expense recognized as part of tax deductions taken on
indefinite long-lived intangibles. The Company has not recorded any tax benefits
relative to Domestic and United Kingdom book losses incurred during the three
months ended July 30, 2005 since it is more likely than not that the resulting
asset would not be realized. 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.
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 six months ended July 30, 2005 is
comprised of $209 of foreign tax expense related to foreign operations and $824
of domestic deferred tax expense 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). The
Company has not recorded any tax benefits relative to Domestic and United
Kingdom book losses incurred during the six months ended July 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 first fiscal quarter ended May 1, 2004, the Company recognized two
significant events that impact income tax expense. 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
16
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 For the Six Months Ended
July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
------------- ------------- ------------- -------------
(Loss) income before income taxes....... $(6,531) $(47,540) $(9,031) $7,629
Expense for income taxes................ (233) (751) (1,033) (1,535)
Effective tax rate...................... (3.6%) (1.6%) (11.4%) (20.1%)
4. INVENTORIES
Inventories by major classification are as follows:
July 30, 2005 January 29, 2005
------------- ----------------
Finished goods.................................. $92,827 $101,982
Goods in process................................ 461 1,854
Raw materials and supplies...................... 3,293 3,115
------- --------
Total...................................... $96,581 $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.
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 792 for both the three and
six month periods ending July 30, 2005 and 737 and 1,515 for the three and six
months ended July 31, 2004, respectively.
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the three months ended July 30, 2005 and July 31, 2004:
Net Preferred Adjusted Earnings
Income Stock Net Income Average (Loss)
(Loss) Dividends (Loss) Shares Per Share
------ --------- ---------- ------- ----------
2005:
Basic earnings (loss) per share.......... $(6,764) $(32) $(6,796) 46,632 $(.15)
Effect of stock options.................. -
Diluted earnings (loss) per share........ $(6,764) $(32) $(6,796) 46,632 $(.15)
2004:
Basic earnings (loss) per share.......... $(48,291) $(32) $(48,323) 16,773 $(2.88)
Effect of stock options.................. -
Diluted earnings (loss) per share........ $(48,291) $(32) $(48,323) 16,773 $(2.88)
17
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the six months ended July 30, 2005 and July 31, 2004:
Net Preferred Adjusted Earnings
Income Stock Net Income Average (Loss)
(Loss) Dividends (Loss) Shares Per Share
------ --------- ---------- ------- ----------
2005:
Basic earnings (loss) per share...... $(10,064) $(64) $(10,128) 46,632 $(.22)
Effect of stock options.............. -
Diluted earnings (loss) per share.... $(10,064) $(64) $(10,128) 46,632 $(.22)
2004:
Basic earnings (loss) per share...... $6,094 $(64) $6,030 16,756 $.36
Effect of stock options.............. -
Diluted earnings (loss) per share.... $6,094 $(64) $6,030 16,756 $.36
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 on August 9, 2007 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 and second quarters 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 six months ended July 30, 2005, the Tranche B loan
outstanding increased by $8,078 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 for each of the first two
quarters of the fiscal year ending January 2006.
18
Short-term debt consists of the following at July 30, 2005 and January 29, 2005:
July 30, 2005 January 29, 2005
------------- ----------------
Barclay's Bank (United Kingdom)..... $5,660 $8,623
Italian IRB......................... 1,302 -
HSBC (Shanghai)..................... - 954
NAB (Australia)..................... 255
------ ------
Total Short-term debt: $7,217 $9,577
====== ======
The following table is a summary of the long-term debt at July 30, 2005 and
January 29, 2005 respectively:
Outstanding at Outstanding at
July 30, 2005 January 29, 2005
------------- ----------------
Debt Instrument
- ---------------
Tranche A - Base Rate, due August 9, 2007............................. $ - $ 632
Tranche A - LIBOR, due August 9, 2007................................. 115,267 115,000
Tranche B - Base Rate, due February 9, 2008........................... - -
Tranche B - LIBOR, due February 9, 2008............................... 91,125 82,914
Revolver - LIBOR, due February 9, 2007................................ 2,000 5,000
Swingline - Base Rate, due February 9, 2007........................... 1,700 700
Other debt at various interest rates (3.78%-8.50%), due through 2010.. 872 2,670
-------- --------
Total Debt: 210,964 206,916
Less Current Portion: (661) (2,572)
-------- --------
Long Term Debt: $210,303 $204,344
======== ========
At July 30, 2005 and January 29, 2005 the Company had outstanding letters of
credit of $17,877 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 and six months ended July 30, 2005 and July
31, 2004 includes the following components:
For the Three Months Ended For the Six Months Ended
July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
------------- ------------- ------------- -------------
Service cost............................... $35 $46 $70 $59
Interest cost.............................. 1,104 1,065 2,236 2,010
Expected return on assets.................. (603) (595) (1,219) (1,148)
Net amortization........................... 384 339 780 630
Curtailment loss........................... - - 222 320
----- ----- ------- -------
Net periodic pension cost........ 920 855 2,089 1,871
One-time recognition of remaining
prior service cost......................... - - - 2,037
One-time charge for QSERP
amendment.................................. - - - 540
----- ----- ------- -------
Total net periodic pension cost............ $920 $855 $2,089 $4,448
===== ===== ======= =======
During the first quarter ended April 30, 2005, 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 is scheduled 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 is scheduled to contribute the $7,811
related to the 2004
19
plan year in addition to the $4,872. During the six month period ending July 30,
2005, contributions to the U.S. pension plans were $100.
For the year ended January 29, 2005, the Company disclosed that it is scheduled
to make cash contributions of $9,173 to its U.S. pension plans through 2006.
Those cash contributions have been adjusted for year ending 2006 to $4,872 based
on actual and expected deferrals of first and second quarter U.S. pension plan
contributions. The amounts deferred are scheduled to 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:
For the Three Months Ended For the Six Months Ended
July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
------------- ------------- ------------- -------------
Service cost.......................... $7 $ 74 $14 $ 77
Interest cost......................... 111 971 234 1,009
Expected return on plan assets........ (75) (658) (158) (684)
Net amortization...................... 23 584 48 607
Net periodic pension cost... $66 $971 $138 $1,009
=== ==== ==== ======
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 is scheduled to contribute cash contributions of $285 to its
non-United States pension plans through January 28, 2006. Through the second
fiscal quarter ended July 30, 2005, $138 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, specialty stores and direct to
consumers through the Oneida Home Store network. 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 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
expense (income), impairment loss on depreciable assets, impairment loss on
other assets, gain (loss) on sale of fixed 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 three and six months of 2005 and 2004 were as
follows:
For the Three Months Ended For the Six Months Ended
July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
------------- ------------- ------------- -------------
Revenues
Sales to external customers:
Foodservice.................................. $36,475 $45,654 $78,916 $96,065
Consumer..................................... 24,153 36,346 54,082 76,111
International................................ 18,064 19,020 35,431 39,489
------- -------- -------- --------
Total segment revenues....................... 78,692 101,020 168,429 211,665
Reconciling items:
License revenues............................. 603 306 1,089 887
------- -------- -------- --------
Total revenues...................................... 79,295 101,326 $169,518 $212,552
======= ======== ======== ========
Income (loss) before income taxes
Segment contributions before unallocated costs
Foodservice.................................. 8,749 13,123 19,326 29,417
Consumer..................................... 2,661 3,700 6,101 8,613
International................................ (1,218) (493) (1,737) (1,001)
------- -------- -------- --------
Total segment contributions.................. 10,192 16,330 23,690 37,029
Unallocated manufacturing costs..................... (730) (11,612) (949) (20,057)
Unallocated selling, distribution and
administrative costs................................ (7,204) (17,164) (15,116) (31,340)
Restructuring (expense) income...................... (835) 137 (1,176) 137
Impairment loss on depreciable assets............... - (34,016) - (34,016)
Impairment loss on other assets..................... (242) (2,700) (242) (2,700)
Gain (loss) on the sale of fixed assets............. 9 4,823 445 4,837
Other income........................................ 1,043 2,390 1,601 66,128
Other (expense)..................................... (741) (1,766) (1,302) (4,656)
Interest expense and deferred financing costs....... (8,023) (3,962) (15,982) (7,733)
-------- --------- -------- --------
(Loss) income before income taxes................... $(6,531) $(47,540) $(9,031) $7,629
======== ========= ======== ========
21
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six months ended July 30, 2005 compared with
the quarter ended July 31, 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 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
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 supplier of flatware and silverplating services.
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.
22
Three Month Period Ending July 30, 2005 versus July 31, 2004
For the Three Months Ended
Total Revenues: July 30, 2005 July 31, 2004
------------- -------------
Foodservice $36,475 $45,654
Consumer 24,153 36,346
International 18,064 19,020
------- --------
Net Sales 78,692 101,020
License Fees 603 306
------- --------
Total $79,295 $101,326
Gross Margin $27,887 $21,120
% Total Revenue 35.2% 20.8%
Operating Expenses $26,697 $65,323
% Total Revenue 33.7% 64.5%
Results of Operations
Consolidated net sales for the three months ended July 30, 2005 decreased by
$22,328 (22.1%) as compared to the same period in the prior year.
Foodservice
Net sales of Foodservice Division products during the three months ended July
30, 2005 decreased by $9,179 (20.1%), compared to the corresponding period in
the prior year. The financial uncertainty surrounding the Company during the
fiscal year ended January 2005 resulted in certain chain restaurants purchasing
higher quantities in the second 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 their tabletop product requirements which has
resulted in lower sales in the second quarter of the current year. Also, sales
to airline customers have declined by approximately $1.0 million due to the
financial difficulties experienced by the sector. The Company's decision at the
end of fiscal year 2005 to discontinue distribution of common glassware products
resulted in approximately $1.3 million lower sales in the second quarter of the
current year. Finally, foodservice sales volume was also adversely impacted by
the direct import strategy of a certain large volume customer in the Company's
commodity flatware and dinnerware segments.
Consumer
Net sales of Consumer products decreased by $12,193 (33.6%), 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 $3,577 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 $2,912 of the net sales reduction. Overall, the
tabletop retail industry demand is lower in the current quarter compared to last
year's second quarter. Also contributing to the reduced sales were temporary
shortages in certain product lines, precipitated by delivery issues and late
shipments from foreign vendors. In addition, the Company's decision at the end
of fiscal year 2005 to discontinue distribution of common glassware products
resulted in approximately $177 lower sales in the second quarter of the current
year. Finally, revenues have also been adversely impacted by the Company's
decisions to withdraw from certain product categories, reduce advertising and
promotional activity, and pricing adjustments.
International
Net sales of the International Division declined by $956 (5.0%), as compared to
the same period in the prior year. The decrease in net sales was attributed to
the European and Latin American markets as a result of softening economies.
Gross Margins
Gross margin for the quarter was $27,887 (or 35.2% as a percentage of total
revenue, as compared to $21,120 (20.8%) 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, and a $6.6 million reduction in the write-down of
excess and obsolete inventory.
23
Operating Expenses
Consolidated operating expenses for the quarter were $26,697, compared to
$65,323 for the same period in the prior year, a reduction of $38,626. In the
second quarter of the prior year the Company booked an impairment charge of
$34,016 in connection with the announcement of the closing of the Company's
flatware factory in Sherrill, New York. Approximately $500 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 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 three months ended July 30, 2005, $835 of
additional Restructuring Expense was incurred for termination benefits
associated with the closure of the Buffalo China warehouse facility and the down
sizing of various International locations.
Other Income and Expense
Other Income was $1,043 for the current quarter compared to $2,390 for the same
period in the prior year. The decrease is attributed to the prior year's second
quarter termination of the Long Term Disability and Oneida Limited Security
Plans resulting in the reversal of previously accrued liabilities.
Other Expense was $741 for the current quarter compared to $1,764 for the same
period in the prior year. The decrease is primarily the result of a decision in
last year's second quarter by the Company to freeze the Supplemental Executive
Retirement Plan and the realization of the unamortized prior service costs.
Interest Expense Including Amortization of Deferred Financing Costs
Interest expense, including amortization of deferred financing costs, was $8,023
in the current quarter compared to $3,963 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
3.6%, or $233, for the current quarter compared to 1.6% or $751 in the prior
year's second 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 7/30/2005 Quarter Ended 7/31/04
----------------------- ---------------------
Income (loss) before income taxes........... $(6,531) $(47,540)
Provision for income taxes.................. (233) (751)
Effective tax rate.......................... (3.6%) (1.6%)
Six Month Period Ending July 30, 2005 versus July 31, 2004
For the Six Months Ended
July 30, 2005 July 31, 2004
------------- -------------
Total Revenues:
Foodservice ...................... $78,916 $96,065
Consumer ......................... 54,082 76,111
International .................... 35,431 39,489
-------- --------
Net Sales ........................ 168,429 211,665
License Fees ..................... 1,089 887
-------- --------
Total ........................ $169,518 $212,552
Gross Margin ......................... $59,589 $52,092
% Total Revenue .................. 35.2% 24.5%
Operating Expenses ................... $52,937 $98,202
% Total Revenue .................. 31.2% 46.2%
24
Results of Operations
Consolidated net sales for the six months ended July 30, 2005 decreased by
$43,236 (20.4%) as compared to the same period in the prior year.
Foodservice
Net sales of Foodservice Division products during the six months ended July 30,
2005 decreased by $17,149 (17.9%), compared to the corresponding period in the
prior year. The financial uncertainty surrounding the Company during the fiscal
year ended January 2005 resulted in certain chain restaurants purchasing higher
quantities in the first six months 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
six months of the current year. Also, sales to airline customers have declined
by approximately $1.8 million due to the difficulties experienced by the sector.
Finally, the Company's decision at the end of fiscal year 2005 to discontinue
distribution of common glassware products resulted in approximately $3.0 million
lower sales in the first six months of the current year. Foodservice sales
volume was also adversely impacted by the direct import strategy of a certain
large volume customer in the Company's commodity flatware and dinnerware
segments.
Consumer
Net sales of Consumer products decreased by $22,029 (28.9%), 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 $9,842 of the year-over-year 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 $4,356 of the net sales reduction. Overall, the tabletop retail
industry demand is lower in the first six months of the current year as compared
to the same period in the prior year. Also contributing to the reduced sales
were temporary shortages in certain product lines, precipitated by delivery
issues and late shipments from foreign vendors. Finally, the Company's decision
at the end of fiscal year 2005 to discontinue distribution of common glassware
products resulted in approximately $313 lower sales in the first half of the
current year. Revenues have also been adversely impacted by the Company's
decisions to withdraw from certain product categories, reduced advertising and
promotional activity, and pricing adjustments.
International
Net sales of the International Division declined by $4,058 (10.3%), as compared
to the same period in the prior year. The Canadian market accounted for
approximately $2.5 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 six month period ended July 30, 2005 was $59,589 (or 35.2%
as a percentage of total revenue), as compared to $52,092 (24.5%) 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 reserves of $4.5 million and a $9.8 million reduction in
inventory write-downs from the prior year.
Operating Expenses
Consolidated operating expenses for the six month period ended July 30, 2005
were $52,937, compared to $98,202 for the same period in the prior year, a
reduction of $45,265 million. In the second quarter of the prior year the
Company booked an impairment charge of $34,016 in connection with the
announcement of the closing of the Company's flatware factory in Sherrill, New
York. Approximately $2,135 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 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 six months ended July 30, 2005, $1,176 of Restructuring Expense was
incurred due to the decision to close the Buffalo China warehouse facility which
accounted for $760 with the remainder attributable to the down sizing of various
International locations.
Other Income and Expense
Other Income was $1,601 for the six months ended July 30, 2005 compared to
$66,128 for the same period in the prior year. Other income in the current year
was primarily gains on foreign exchange transactions. The decrease from the
25
prior year six month period was the result of a decision made in the prior year
to terminate the Oneida Ltd. Retiree Group Medical Plan, the Long Term
Disability and the Oneida Limited Security Plans. The plan termination resulted
in a one-time benefit of $65,684.
Other Expense was $1,302 for the six months ended July 30, 2005 compared to
$4,656 for the same period in the prior year. The decrease is primarily the
result of a decision in last year's second quarter by the Company to freeze
benefit accruals for two of its Retirement Plans and the Restoration Plan. The
plan amendments resulted in plan curtailment charges of $3,565.
Interest Expense Including Amortization of Deferred Financing Costs
Interest expense, including amortization of deferred financing costs, were
$15,982 for the six month period ended July 30, 2005 compared to $7,733 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
$1,558 associated with the restructured debt.
Income Tax Expense
The provision for income taxes, as a percentage of loss before income taxes was
(11.4%), or $1,033, for the six months ending July 30, 2005 compared to 20.1% or
$1,535 for the same period in the prior year. The provision for income taxes for
both this year and last year 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:
Six Months Ended 7/30/2005 Six Months Ended 7/31/04
-------------------------- -------------------------
Income (loss) before income taxes........... $(9,031) $7,629
Provision for income taxes.................. (1,033) (1,535)
Effective tax rate.......................... (11.4%) (20.1%)
Restructuring
On March 22, 2005 the Company sold its last remaining manufacturing facility
located in Sherrill, New York 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 third quarter of the current year.
Liquidity & Financial Resources
Cash provided by operating activities was $4,205 for the six months ended July
30, 2005, compared to cash used of $28,704 for the same period in the prior
year. The net cash provided by operating activities for the six months ended
July 30, 2005 was primarily due to a decrease in inventory offset by reductions
in accounts payable, and accrued liabilities. The changes to working capital
were offset by a non-cash positive adjustment to net loss for Payment-In-Kind
interest charges.
Cash generated from investing activities was $619 and $9,854 for the six months
ended July 30, 2005 and July 31, 2004, respectively. The sale of the Company's
Shanghai manufacturing facility generated cash of $852, and the sale of the
Sherrill, New York manufacturing facility generated cash of $550 for the six
month period ending July 30, 2005. Cash generated for the six months ended July
31, 2004 consisted of $5,517 from the sale of Buffalo China and $7,315 from the
sale of facilities located in Mexico, Canada and Italy. Cash used for capital
expenditures was $783 and $2,906 for the six months ended July 30, 2005 and July
31, 2004, respectively.
26
Net cash used by financing activities was $3,710 for the six months ended July
30, 2005 versus cash generated of $10,725 for the six months ended July 31,
2004. During the six months ended July 30, 2005, the Company decreased its
outstanding balance on the revolving credit facility.
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 on August 9, 2007 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 and second 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 six months ended July 30, 2005, the Tranche B
loan outstanding increased by $8,078 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 for each of the first two
quarters of the fiscal year ending January 2006.
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 its operating requirements and capital
expenditures over the next twelve months.
Accounting Pronouncements
See Note 1 of the unaudited consolidated financial statements.
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 July 30, 2005 was $2,719.
27
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 July 30,
2005, a 1% change in the rate would result in a corresponding change in interest
expense of $2.2 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
Furthermore, there was no change in the Company's internal control over
financial reporting during the quarterly period covered by this report that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
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 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.
28
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 25, 2005, the 2005 Annual Meeting of Shareholders of the Company
was held. The following is a brief description of the matters voted upon at the
meeting and tabulation of the voting therefore:
Proposal One: Election of Directors.
Number of Votes
---------------
Nominee For Abstain
- ------- --- -------
William C. Langley 38,936,056 238,986
Hugh R. Rovit 38,922,548 252,494
Christopher H. Smith 38,930,086 244,956
Fred Spivak 38,937,651 237,391
Terry G. Westbrook 38,943,718 231,324
Nick White 38,940,671 234,371
Proposal Two: Amendment to the Oneida Ltd. Certificate of Incorporation to
reduce the minimum required size of the Board of Directors from nine to five
Directors was approved, with 38,812,998 votes cast for, 333,190 votes cast
against and 28,854 votes abstained.
Proposal Three: Amendment to the Oneida Ltd. Certificate of Incorporation to
increase to 100,000,000 the number of authorized shares of Common Stock was
approved, with 34,705,922 votes cast for, 4,420,948 votes cast against and
48,172 votes abstained.
Proposal Four: Amendment to the Oneida Ltd. Certificate of Incorporation to
increase to 10,000,000 the number of authorized shares of Series Preferred Stock
was approved, with 26,051,117 votes cast for, 5,947,837 votes cast against and
1,604,704 votes abstained.
29
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: September 8, 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
30