UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 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 X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of December 7, 2005: 46,631,924
1
ONEIDA LTD.
FORM 10-Q
FOR THE NINE MONTHS ENDED OCTOBER 29, 2005
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS 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
SIGNATURES
CERTIFICATIONS
3
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars, except per share data)
(Unaudited)
For the Three Months Ended For the Nine Months Ended
Oct. 29, Oct. 30, Oct. 29, Oct. 30,
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues:
Net sales ............................................ $ 88,577 $ 101,273 $ 257,006 $ 312,938
License fees ......................................... 732 951 1,821 1,838
--------- --------- --------- ---------
Total Revenues ......................................... 89,309 102,224 258,827 314,776
--------- --------- --------- ---------
Cost of sales .......................................... 56,972 75,742 166,901 236,201
--------- --------- --------- ---------
Gross margin ........................................... 32,337 26,482 91,926 78,575
--------- --------- --------- ---------
Operating expenses:
Selling, distribution and administrative
expense ........................................ 23,957 27,591 75,921 94,051
Restructuring expense (Note 2) .................... 1,194 27 2,370 (110)
Impairment loss on depreciable assets ............. -- -- -- 34,016
Impairment loss on other assets ................... 4,233 15,473 4,475 18,173
(Gain) loss on the sale of fixed assets ........... (4) 157 (449) (4,680)
--------- --------- --------- ---------
Total ........................................ 29,380 43,248 82,317 141,450
--------- --------- --------- ---------
Operating income (loss) ................................ 2,957 (16,766) 9,609 (62,875)
Other income ........................................... (467) -- (2,068) (66,123)
Other expense .......................................... 712 612 2,014 5,265
Interest expense including amortization of
deferred financing costs ............................. 8,206 7,190 24,188 14,923
--------- --------- --------- ---------
(Loss) before income taxes ............................. (5,494) (24,568) (14,525) (16,940)
Income tax expense (benefit) (Note 3) .................. 525 (719) 1,557 815
--------- --------- --------- ---------
Net (loss) ............................................. $ (6,019) $ (23,849) $ (16,082) $ (17,755)
========= ========= ========= =========
Preferred stock dividends .............................. (32) (32) (97) (97)
Net (loss) available to common shareholders............. $ (6,051) $ (23,881) $ (16,179) $ (17,852)
========= ========= ========= =========
(Loss) per share of common stock........................
Net loss:
Basic ........................................ $ (0.13) $ (.57) $ (0.35) $ (.71)
Diluted ...................................... $ (0.13) $ (.57) $ (0.35) $ (.71)
See notes to consolidated financial statements.
4
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED BALANCE SHEETS
(Thousand of Dollars)
Unaudited Audited
Oct. 29, Jan. 29,
2005 2005
--------- --------
ASSETS
Current assets:
Cash ............................................................... $ 814 $ 2,064
Trade accounts receivables, less allowance for doubtful
accounts of $2,069 and $3,483, respectively .................... 55,428 53,226
Other accounts and notes receivable ................................ 2,665 1,398
Inventories, net of reserves of $8,307 and $22,405,
respectively (Note 4) ............................................. 102,127 106,951
Other current assets ............................................... 5,391 3,789
--------- ---------
Total current assets ........................................ 166,425 167,428
Property, plant and equipment, net ........................................ 18,292 23,149
Assets held for sale ...................................................... 5,605 1,263
Goodwill .................................................................. 116,228 121,103
Other assets .............................................................. 8,045 15,869
--------- ---------
Total assets ................................................ $ 314,595 $ 328,812
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term debt .................................................... $ 7,758 $ 9,577
Accounts payable ................................................... 13,049 14,735
Accrued liabilities ................................................ 27,066 33,651
Accrued restructuring .............................................. 1,311 524
Accrued pension liabilities ........................................ 18,076 17,667
Deferred income taxes .............................................. 1,214 1,214
Long term debt classified as current ............................... 5,220 2,572
--------- ---------
Total current liabilities ................................... 73,634 79,940
Long term debt (Note 6) ................................................... 212,992 204,344
Accrued postretirement liability .......................................... 2,654 2,633
Accrued pension liability ................................................. 23,778 24,254
Deferred income taxes ..................................................... 10,298 9,087
Other liabilities ......................................................... 11,971 12,173
--------- ---------
Total liabilities ........................................... 335,327 332,431
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 .......................................................... (100,144) (84,062)
Accumulated other comprehensive loss ...................................... (33,670) (32,639)
Less cost of common stock held in treasury; 1,149,364 shares
for both periods ................................................. (21,569) (21,569)
--------- ---------
Total stockholders' (deficit): .............................. (20,732) (3,619)
--------- ---------
Total liabilities and stockholders' (deficit) .......... $ 314,595 $ 328,812
========= =========
See notes to consolidated financial statements.
5
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 29, 2005 AND OCTOBER 30, 2004
(Thousands of Dollars)
(Unaudited)
Accum.
Add'l Other
Common Common Preferred Paid-in Retained Comp. Treasury
Shares Stock Stock Capital Deficit 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.................. -- -- -- -- -- (1,031) -- (1,031)
Net loss....................... -- -- -- -- (16,082) -- -- (16,082)
------ ------- ------ ------- --------- -------- -------- --------
Balance October 29, 2005....... 47,781 $47,781 $2,151 $84,719 $(100,144) $(33,670) $(21,569) $(20,732)
====== ======= ====== ======= ========= ======== ======== ========
Accum.
Add'l Other
Common Common Preferred Paid-in Retained Comp. Treasury
Shares Stock Stock Capital Deficit Inc(Loss) Stock Total
------ ----- ----- ------- ------- --------- ----- -----
Balance January 31, 2004....... 17,883 $17,883 $2,151 $84,561 $(32,933) $(27,493) $(21,569) $22,600
Common Stock issuance
related to restructured
debt........................... 29,853 29,853 -- 147 -- -- -- 30,000
Stock plan activity............ 45 45 -- 11 -- -- -- 56
-
Minimum pension liability
adjustment, net of tax benefit
of $0.......................... -- -- -- -- -- (7,825) -- (7,825)
Foreign currency translation
adjustment..................... -- -- -- -- -- 86 -- 86
Net (loss)..................... -- -- -- -- (17,755) -- (17,755)
------ ------- ------ ------- ------- --------- -------- -------
Balance October 30, 2004....... 47,781 $47,781 $2,151 $84,719 $(50,688) $(35,232) $(21,569) $27,162
====== ======= ====== ======= ========= ========= ========= =======
See notes to consolidated financial statements.
6
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Thousands of Dollars)
Three Months Ended Nine Months Ended
Oct. 29, 2005 Oct. 30, 2004 Oct. 29, 2005 Oct. 30, 2004
------------- ------------- ------------- -------------
Net (loss) ....................................... $(6,019) $(23,849) $(16,082) $(17,755)
Foreign currency translation
adjustments....................................... (118) 963 (1,031) 86
Other comprehensive (loss), net of tax:
Minimum pension liability adjustments............. - - - (7,825)
------- -------- -------- --------
Other comprehensive income (loss)................. (118) 963 (1,031) (7,739)
------- -------- -------- --------
Comprehensive (loss).............................. $(6,137) $(22,886) $(17,113) $(25,494)
======= ======== ======== ========
See notes to consolidated financial statements.
7
PART I. FINANCIAL INFORMATION
ONEIDA LTD.
ITEM 1. CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 29, 2005 AND OCTOBER 30, 2004
(Unaudited)
(In Thousands)
Nine months ended
Oct. 29, 2005 Oct. 30, 2004
------------- -------------
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net (loss) ................................................................ $(16,082) $(17,755)
Adjustments to reconcile net (loss) income to net cash provided by (used in)
operating activities:
Non-cash interest (Payment in Kind) ..................................... 10,872 2,651
(Gain) on disposal of fixed assets ...................................... (449) (4,680)
Depreciation and amortization ........................................... 1,779 6,994
Deferred income taxes ................................................... (35) 143
Impairment of long lived assets ......................................... 242 34,016
Impairment of other assets .............................................. 4,233 18,173
Accrued restructuring ................................................... - (6,477)
Inventory write-downs ................................................... - 9,607
Pension plan amendment (Note 7) ......................................... - 2,577
Post retirement health care plan amendment (Note 7) ..................... - (61,973)
(Increase) decrease in working capital:
Receivables ............................................................. (3,792) (2,708)
Inventories ............................................................. 3,676 5,566
Other current assets .................................................... (1,664) 1,382
Other assets ............................................................ 7,903 (10,229)
Decrease in accounts payable ............................................ (1,252) (3,181)
Decrease in accrued liabilities ......................................... (1,560) (4,165)
Pension plan contributions .............................................. (2,918) (4,324)
Increase (decrease) in other liabilities ................................ 23 (5,638)
-------- --------
Net cash provided by (used in) operating activities ................... 976 (40,021)
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of properties and equipment ................................... (2,036) (3,381)
Proceeds from dispositions of properties and equipment .................. 1,408 13,565
-------- --------
Net cash (used in) provided by investing activities ................... (628) 10,184
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock .................................. - 56
Proceeds from short-term debt ........................................... - 1,850
Proceeds from long-term debt ............................................ 424 20,872
Payment of short-term debt .............................................. (1,819) -
-------- --------
Net cash (used in) provided by financing activities ................... (1,395) 22,778
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ..................................... (203) (47)
-------- --------
NET (DECREASE) IN CASH ...................................................... (1,250) (7,106)
CASH AT BEGINNING OF YEAR ................................................... 2,064 9,886
-------- --------
CASH AT END OF PERIOD ....................................................... $ 814 $ 2,780
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Non-cash issuance of common stock ....................................... - $ 30,000
======== ========
Cash paid during the nine months for:
Interest ................................................................ $ 11,194 $ 9,933
======== ========
See notes to consolidated financial statements.
8
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 nine-month
period ended October 29, 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 Nine Months Ended
Oct. 29, 2005 Oct. 30, 2004 Oct. 29, 2005 Oct. 30, 2004
------------- ------------- ------------- -------------
Net income (loss), as reported..... $(6,019) $(23,849) $(16,082) $(17,755)
Deduct: Total stock-based employee
compensation expense determined
under Black-Scholes option pricing
model ............................. (5) (2,115) (15) (3,063)
------- -------- -------- --------
Pro forma net (loss) income........ $(6,024) $(25,964) $(16,097) $(20,818)
======= ======== ======== ========
Earnings (loss) per share:
As reported: Basic.............. $(.13) $(.57) $(.35) $(.71)
Diluted............ $(.13) $(.57) $(.35) $(.71)
Pro forma: Basic.............. $(.13) $(.62) $(.35) $(.83)
Diluted............ $(.13) $(.62) $(.35) $(.83)
9
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 in connection with its financial restructuring that triggered
accelerated vesting of certain unvested employee stock options. During the
quarter ended July 30, 2005 the Company reviewed the accounting for its stock
option plans and determined 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 restated the prior years pro-forma calculation to
include those remaining vesting costs that would have been reported at the
October 30, 2004 balance sheet date. The effect on the prior year pro-forma
calculation was a deduction of $1,641 and $1,641, respectively, for the three
and nine months ended October 30, 2004. The related per share amounts was $.04
and $.06 for the three and nine months ended October 30, 2004.
Goodwill Impairment
During the quarter ended October 29, 2005, the Company performed its annual
testing for the impairment of goodwill and intangible assets under the
provisions of FAS 142. Under FAS 142, goodwill is tested under a two step
approach. The first step requires the determination of the fair value of the
reporting unit compared to the book value of that reporting unit. If the book
value exceeds the fair value, a second step impairment test is required to
measure the amount of impairment. The fair value of the Operations was
determined through a combination of discounted cash flows and market
comparables. Due to a decline in the United Kingdom operation's operating
profits and cash flows greater than expected during the first and second
quarters of 2005, the earnings forecast for the next five years was revised and,
as such, in October 2005 a goodwill impairment loss of $4,233 was recognized.
During the third quarter of the prior year a comparable charge of $15,473 based
on similar circumstances surrounding the United Kingdom operations was recorded,
these charges are reflected in the statement of operations under the caption
"Impairment loss on other assets".
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 in either of the VIE's. 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 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
10
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 years beginning after June 15, 2005. The Company will adopt this standard
in 2006. The adoption of SFAS 153 will not have a material effect on the
Company's financial statements.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This
statement is a revision of SFAS No. 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 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 October 29, 2005. This restructuring is 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 October 29, 2005, all these
employee positions have 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 October 29, 2005
were $1,245.
Under the restructuring plans described above, approximately 1,600 employees
were terminated. As of October 29, 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 $2,581 through the
first nine months ending October 29, 2005 in the consolidated Statement of
Operations under the caption "Restructuring Expense". Cash payments and
adjustments through the first nine months ending October 29, 2005 under the
restructuring were $1,583 and $211, respectively. The remaining liability at
October 29, 2005 was $1,311.
As a result of the restructuring, the number of employees accumulating benefits
under the Company's defined benefit plans has been reduced significantly.
11
Below is a summary reconciliation of accrued restructuring related charges for
the nine months ended October 29, 2005:
Balance Balance
January 29, 2005 Additions Adjustments Payments Oct. 29, 2005
---------------- --------- ----------- -------- -------------
Termination benefits and other costs $524 $2,581 $(211) $(1,583) $1,311
During the first three months of the current fiscal 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. During the third quarter ending October 29, 2005,
the Company recorded additional restructuring expenses of $1,194. The additional
expense consists of $607 loss on a non-cancelable operating lease. The Company
ceased using the property in the third quarter and accelerated the fair value of
the remaining lease payments in accordance with Statement of Financial
Accounting Standards No. 146 "Accounting for Costs Associated with Exit or
Disposal Activities." During the current quarter the Company incurred
restructuring fees of $502 for professional services. The remaining
restructuring expense of $85 is related to additional termination benefits
attributed to the downsizing of several International subsidiaries. The Company
expects to pay these liabilities by the end of the current fiscal year.
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 the Company was
closing its Sherrill flatware factory, the Company performed an evaluation in
accordance with Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment of Long Lived Assets", to determine if the manufacturing
facilities assets were subject to a possible impairment loss. Due to the
projected cash flow being less than the book value, it was determined that an
impairment existed and as a result, an impairment charge of $34,016 was recorded
as a charge in the consolidated statements of operations under the caption
"Impairment loss on depreciable assets" for the fiscal year ended January 29,
2005.
On March 12, 2005, the Company announced the 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
fourth quarter consolidated statements of operations under the caption
"Impairment loss on depreciable assets" for the fiscal year ended January 29,
2005. The Company ceased use of the warehouse property during the third quarter
of the current fiscal year, and therefore recorded an adjustment to accelerate
recording of the fair value of the remaining lease payments in accordance with
Statement of Financial Accounting Standards No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." This adjustment amounted to an
additional expense of $607 relating to the non-cancelable operating lease.
3. INCOME TAXES
The provision for income taxes for the three months ended October 29, 2005, is
comprised of $113 of foreign tax expense 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 October 29, 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
12
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 nine months ended October 29, 2005 is
comprised of $321 of foreign tax expense related to foreign operations and
$1,236 of domestic deferred tax expense recognized on indefinite long lived
intangibles (these liabilities cannot be used to offset deferred tax assets in
determining the amount of valuation allowance needed for the quarter). The
Company has not recorded any tax benefits relative to Domestic and United
Kingdom book losses incurred during the nine months ended October 29, 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 $61,973. The inclusion of this income in the first quarter of
fiscal year 2005 domestic tax calculation produced no tax expense since the
deferred tax asset is realized and the valuation allowance previously recognized
against that asset is reversed. Also, the Company amended two of its pension
plans to freeze benefit accruals, and as a result recognized a charge of $2,577.
The inclusion of this charge in the first quarter domestic tax calculation
produced no tax benefit because a full valuation allowance is recorded against
the deferred tax asset resulting from this item.
The following table summarizes the Company's provision for income taxes and the
related effective tax rates:
For the Three Months Ended For the Nine Months Ended
Oct. 29, 2005 Oct. 30, 2004 Oct. 29, 2005 Oct. 30, 2004
------------- ------------- ------------- -------------
(Loss) income before income taxes......... $(5,494) $(24,568) $(14,525) $(16,940)
Expense (benefit) for income taxes........ 525 (719) 1,557 815
Effective tax rate........................ (9.6%) 2.9% (10.7%) (4.8%)
4. INVENTORIES
Inventories by major classification are as follows:
Oct. 29, 2005 Jan. 29, 2005
------------- -------------
Finished goods............................................ $ 98,372 $101,982
Goods in process.......................................... 730 1,854
Raw materials and supplies................................ 3,025 3,115
-------- --------
Total..................................................... $102,127 $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
nine month periods ending October 29, 2005 and 745 for both the three and nine
months ended October 30, 2004, respectively.
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the three months ended October 29, 2005 and October 30,
2004:
13
Net Preferred Adjusted Earnings
Income Stock Net Income Average (Loss)
(Loss) Dividends (Loss) Shares Per Share
------------ ------------ ------------ ----------- ------------
2005:
Basic earnings (loss) per share .................. $ (6,019) $(32) $ (6,051) 46,632 $(.13)
Effect of stock options .......................... --
Diluted earnings (loss) per share ................ $ (6,019) $(32) $ (6,051) 46,632 $(.13)
2004:
Basic earnings (loss) per share .................. $(23,849) $(32) $(23,881) 41,656 $(.57)
Effect of stock options .......................... --
Diluted earnings (loss) per share ................ $(23,849) $(32) $(23,881) 41,656 $(.57)
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the nine months ended October 29, 2005 and October 30,
2004:
Net Preferred Adjusted Earnings
Income Stock Net Income Average (Loss)
(Loss) Dividends (Loss) Shares Per Share
------------ ------------ ------------ ----------- ------------
2005:
Basic earnings (loss) per share .................. $(16,082) $(97) $(16,179) 46,632 $(.35)
Effect of stock options .......................... --
Diluted earnings (loss) per share ................ $(16,082) $(97) $(16,179) 46,632 $(.35)
2004:
Basic earnings (loss) per share .................. $(17,755) $(97) $(17,852) 25,056 $(.71)
Effect of stock options .......................... --
Diluted earnings (loss) per share ................ $(17,755) $(97) $(17,852) 25,056 $(.71)
6. DEBT
On August 9, 2004, the Company completed a comprehensive restructuring of its
existing indebtedness with its lenders, including new covenants based upon the
then 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 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 first quarter of the fiscal
year ended January 2007. As of October 29, 2005, $4,500 of long-term debt has
been reclassified to current, based on the quarterly principal payment becoming
due over the next twelve months. Interest on the Tranche A loan will accrue at
LIBOR (London Inter Bank Offered Rate) plus 6% to 8.25% depending on the
leverage ratio. The Tranche B loan will mature in February 2008 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 three 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 nine months ended October 29,
2005, the Tranche B loan outstanding increased by
14
$10,744 as a result of the Company exercising the PIK option. Beginning in the
first quarter of the fiscal year ended January 2007, the Company will be
required to begin paying 30% of the Tranche B interest obligation in cash.
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 three
quarters of the fiscal year ending January 2006.
Short-term debt consists of the following at October 29, 2005 and January 29,
2005:
Oct. 29, 2005 January 29, 2005
------------- ----------------
Barclay's Bank (United Kingdom) ...................................... $5,091 $8,623
Italian IRB .......................................................... 1,294 --
HSBC (Shanghai) ...................................................... -- 954
NAB (Australia) ...................................................... 1,373
------ ------
Total Short-term debt: ................................. $7,758 $9,577
====== ======
The following table is a summary of the long-term debt at October 29, 2005 and
January 29, 2005 respectively:
Outstanding at Outstanding at
Oct. 29, 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 - LIBOR, due February 9, 2008 .............................. 93,790 82,914
Revolver - LIBOR, due February 9, 2007 ............................... -- 5,000
Revolver - Base Rate, due February 9, 2007 ........................... 5,000
Swingline - Base Rate, due February 9, 2007 .......................... 3,000 700
Other debt at various interest rates (3.78%-8.50%), due through 2010 . 1,155 2,670
-------- --------
Total Debt: ................................... 218,212 206,916
Less Current Portion: ......................... (5,220) (2,572)
-------- --------
Long Term Debt: ............................... $212,992 $204,344
======== ========
For the quarter ended October 29, 2005, the Company had outstanding trade and
stand-by letters of credit in the amounts of $6,871 and $11,195, respectively.
Domestic trade letters of credit outstanding of $2,982 are to be reimbursed by
the revolving credit facility while foreign trade letters of credit outstanding
of $3,889 are to be reimbursed by existing working capital facilities. Of the
$11,195 stand-by letters of credit, $10,951 were issued under a separate
arrangement with Bank of America in favor of the Worker's Compensation Board,
State of New York. The Company's reimbursement obligation under stand-by letters
of credit provided by Bank of America are secured by the same collateral granted
in favor of the Tranche A Debt on a pari passu basis. For the year ended January
29, 2005, the Company had outstanding trade and stand-by letters of credit in
the amounts of $5,480 and $13,251, respectively.
15
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 nine months ended October 29, 2005 and
October 30, 2004 includes the following components:
For the Three Months Ended For the Nine Months Ended
Oct. 29, 2005 Oct. 30, 2004 Oct. 29, 2005 Oct. 30, 2004
------------- ------------- ------------- -------------
Service cost ..................................... $ 35 $ 59 $ 105 $ 118
Interest cost .................................... 1,173 1,235 3,409 3,245
Expected return on assets ........................ (632) (705) (1,851) (1,853)
Net amortization ................................. 413 381 1,193 1,013
Curtailment loss ................................. -- -- 222 320
------ ------ ------ ------
Net periodic pension cost ................... 989 970 3,078 2,843
One-time recognition of remaining
prior service cost ............................... -- -- -- 2,037
One-time charge for QSERP
amendment ........................................ -- -- -- 540
------ ------ ------ ------
Total net periodic pension cost .................. $ 989 $ 970 $3,078 $5,420
====== ====== ====== ======
During the first quarter ended April 30, 2005, the Company recognized a
curtailment charge of $222 related to the closure of the Buffalo, NY
distribution facilities.
On September 30, 2005 the IRS approved the Company's request for a waiver of the
2004 minimum pension contributions for the Retirement Plan for the Employees of
Oneida Ltd (the Plan). The amount waived was $7,811 plus interest and is to be
paid by the Company into the Plan over the next four years, beginning with the
fiscal year ending January 2007. The waiver was granted by the IRS with the
following conditions; (i) the Company is required to remit the Plan year 2005
quarterly contributions that are due October 15, 2005 and January 15, 2006, (ii)
the Company is required to make the contributions to the Plan that were deferred
during the first quarter ended April 30, 2005 of $2,053 and the second quarter
ended July 30, 2005 of $2,053 by September 15, 2006 and (iii) the Company must
provide collateral acceptable for the full amount of the waiver to the Pension
Benefit Guarantee Corporation (PBGC) within 120 days of approval of the waiver.
The Company is currently in discussions with the PBGC on the collateral matter
and therefore a resolution has not yet been reached. The Company made its
scheduled contributions to the plans of $2,819 (including $2,053, $217,and $549
for the Oneida Ltd, Buffalo China Salary and the Buffalo China Hourly plans,
respectively) on October 15, 2005.
Based on the waivers and deferrals received and current actuarial assumptions
related to its three domestic defined benefit pension plans, the Company is
scheduled to make total contributions of $4,972 for the fiscal year ended
January 28, 2006 (including $2,053 due January 15, 2006); $17,894 for the fiscal
year ended January 27, 2007 and $20,760 thereafter. These funding estimates are
based on the actuarial results of the January 1, 2004 census data for each plan
and the provisions of the plan and assumptions at that time. The Company expects
funding estimates may change as more recent funding valuations are completed.
During the third fiscal quarter ended October 29, 2005, the Company terminated
the retiree medical benefits from the Buffalo China Health Plan, resulting in
settlement income recognition of $116.
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 Nine Months Ended
Oct. 29, 2005 Oct. 30, 2004 Oct. 29, 2005 Oct. 30, 2004
------------- ------------- ------------- -------------
Service cost ..................................... $ 6 $ 22 $ 20 $ 99
Interest cost .................................... 106 283 339 1,292
16
Expected return on plan assets ................... (71) (192) (229) (876)
Net amortization ................................. 22 170 70 777
---------------- ---------------- ---------------- ----------------
Net periodic pension cost .............. $ 63 $ 283 $ 200 $ 1,292
================ ================ ================ ================
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 third
fiscal quarter ended October 29, 2005, $209 has been contributed.
8. OPERATIONS BY SEGMENT
Beginning in fiscal 2006, the Company began evaluating its domestic Foodservice
and Consumer segments, including the financial results of its Canadian
subsidiary. The Company decided to view its domestic operations on a North
American basis, due to similar sales and distribution channels in the region,
thereby including the financial results of the Canadian operation in both the
Foodservice and Consumer segments. The prior year segment disclosures have been
restated to reflect this change. The change in segment reporting has no effect
on reported earnings.
The Company's Consumer segment sells directly to a broad base of retail outlets,
including department stores, mass merchandisers, specialty stores and direct to
consumers through the Oneida Outlet 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 operators 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.
Segment information for the three and nine months of 2005 and 2004 were as
follows:
For the Three Months Ended For the Nine Months Ended
Oct. 29, 2005 Oct. 30, 2004 Oct. 29, 2005 Oct. 30, 2004
------------- ------------- ------------- -------------
Revenues
Sales to external customers:
Foodservice ............................... $ 38,838 $ 46,718 $ 122,964 $ 148,320
Consumer .................................. 35,767 38,934 92,157 118,613
International ............................. 13,972 15,621 41,885 46,005
---------------- ---------------- ---------------- ----------------
Total segment revenues .................... 88,577 101,273 257,006 312,938
Reconciling items:
License revenues .......................... 732 951 1,821 1,838
---------------- ---------------- ---------------- ----------------
Total revenues ................................... 89,309 102,224 258,827 314,776
Income (loss) before income taxes
Segment contributions before unallocated costs
Foodservice ............................... 9,485 8,956 30,502 29,337
Consumer .................................. 6,828 4,508 13,476 11,035
International ............................. 374 (1,362) (1,729) (5,027)
---------------- ---------------- ---------------- ----------------
17
Total segment contributions ............... 16,687 12,102 42,249 35,345
Unallocated manufacturing costs .................. (87) (5,873) (1,693) (22,624)
Unallocated selling, distribution and
administrative costs ............................. (8,220) (7,338) (24,551) (28,197)
Restructuring (expense) income ................... (1,194) (27) (2,370) 110
Impairment loss on depreciable assets ............ -- -- -- (34,016)
Impairment loss on other assets .................. (4,233) (15,473) (4,475) (18,173)
Gain (loss) on the sale of fixed assets .......... 4 (157) 449 4,680
Other income ..................................... 467 -- 2,068 66,123
Other (expense) .................................. (712) (612) (2,014) (5,265)
Interest expense and deferred financing costs .... (8,206) (7,190) (24,188) (14,923)
---------------- ---------------- ---------------- ----------------
(Loss) before income taxes ...................... $ (5,494) $ (24,568) $ (14,525) $ (16,940)
================ ================ ================ ================
9. OTHER MATTERS
For the quarter ended October 29, 2005 the Company reduced the allowance for
doubtful accounts by $661 reflecting the overall improvement in account
collectability and refined its calculation of the allowance. Also the Company
recorded a reduction in its accrual for incentive compensation of $585 based on
current projections for the year.
18
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS Three and Nine Month periods ended October
29, 2005 compared with
the Corresponding periods ended October 30, 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 distribution agreements, granting
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 capabilities 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.
19
Three Month Period Ending October 29, 2005 versus October 30, 2004
-----------------------------------------------------------------------------------
For the Three Months Ended
-----------------------------------------------------------------------------------
Total Revenues: October 29, 2005 October 30, 2004
---------------- ----------------
-----------------------------------------------------------------------------------
Foodservice $38,838 $46,718
-----------------------------------------------------------------------------------
Consumer 35,767 38,934
-----------------------------------------------------------------------------------
International 13,972 15,621
Net Sales ------ ------
License Fees
-----------------------------------------------------------------------------------
88,577 101,273
-----------------------------------------------------------------------------------
732 951
------ -------
-----------------------------------------------------------------------------------
Total $89,309 $102,224
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Gross Margin $32,337 $26,482
-----------------------------------------------------------------------------------
% Total Revenue 36.2% 25.9%
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Operating Expenses $29,380 $43,248
-----------------------------------------------------------------------------------
% Total Revenue 33.9% 42.3%
-----------------------------------------------------------------------------------
Results of Operations
Consolidated net sales for the three months ended October 29, 2005 decreased by
$12,696 (12.5%) as compared to the same period in the prior year.
Foodservice
Net sales of Foodservice products during the three months ended October 29, 2005
decreased by $7,880 (16.9%), compared to the corresponding period in the prior
year. The decline in sales is attributed to reduced demand from equipment &
supply distributors, chain restaurants, and the airline industry of
approximately $3,100, $2,100 and $1,500, respectively, including the impact of
the Company's decision to discontinue distribution of common glassware products.
The financial uncertainty surrounding the Company during the fiscal year ended
January 2005 resulted in certain customers opting to dual source their tabletop
product requirements which has resulted in lower sales in the third quarter of
the current year. Finally, foodservice sales volume was also adversely impacted
by the direct import strategy of certain large volume customers in the Company's
commodity flatware and dinnerware segments.
Consumer
Net sales of Consumer products decreased by $3,167 (8.1%), 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. and as a
result, approximately $2,083 of the year-over-year quarterly net sales decline
is attributed to the sale of Encore Promotions. Furthermore, 23 unprofitable
Oneida Home Stores were closed since the third quarter of the prior fiscal year,
accounting for approximately $2,408 of the net sales reduction. Partially
offsetting some of the sales decline in the three months ended October 29, 2005
was an increase in sales of dinnerware products to mid-tier retailers. Finally,
contributing to the reduced sales were temporary shortages in certain product
lines, precipitated by delivery issues and late shipments from foreign vendors
and the Company's decision to withdraw from certain product categories and
reduce advertising expenditures and promotional activity.
International
Net sales of the International Division declined by $1,649 (10.6%), as compared
to the same period in the prior year, primarily attributed to the United Kingdom
operation as well as the Australian and Mexican operations. The decrease in
sales in Australia and the United Kingdom was impacted by the change in the
Company's crystal product supplier. The decrease in net sales in Mexico was
associated with the damage that the hurricanes caused in the Latin America
resort areas.
Gross Margins
Gross margin for the quarter was $32,337 (or 36.2% as a percentage of total
revenue), as compared to $26,482 (25.9%) 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 100%
outsourcing of manufacturing operations, reduction in LIFO valued inventory
reserves of $200 and a $200 increase in inventory write-downs compared to the
prior year's corresponding three month period.
20
Operating Expenses
Consolidated operating expenses for the quarter were $29,380, compared to
$43,248 for the same period in the prior year, a reduction of $13,868. Selling
distribution and administrative expenses decreased $3,634 reflecting the impact
of the decline in revenues and the implementation of the Company's cost
reduction programs initiated in 2004. During the current quarter, restructuring
expenses of $1,194 were recorded associated with a non-cancelable operating
lease for the Buffalo China warehouse and restructuring related professional
fees. Also, during the third quarter the Company performed its annual testing of
goodwill and intangible assets under the provisions of FAS 142. The results of
the testing performed resulted in a goodwill impairment charge attributed to the
United Kingdom operation of $4,233 as compared to a similar charge of $15,473
for the same period in the prior year. Finally, approximately $219 of the
reduction was due to the sale of the Encore Promotions subsidiary on August 28,
2004.
Other Income and Expense
Other Income was $467 for the current quarter compared to $0 for the same period
in the prior year. Other income in the current year includes $116 of settlement
income recognized as a result of the termination of the Buffalo China Post
Retirement Health Plan and gains on foreign exchange transaction with the
Company's International business units.
Other Expense was $712 for the current quarter compared to $612 for the same
period in the prior year. Other expense primarily consists of losses on foreign
exchange transactions with the Company's International business units.
Interest Expense Including Amortization of Deferred Financing Costs
Interest expense, including amortization of deferred financing costs, was $8,206
in the current quarter compared to $7,190 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 $564 associated with the
restructured debt.
Income Tax Expense
The provision for income taxes, as a percentage of loss before income taxes was
(9.6%), or $525, for the current quarter compared to 2.9% or $719 in the prior
year's third 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 10/29/2005 Quarter Ended 10/30/04
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Income (loss) before income taxes........... $(5,494) $(24,568)
-------------------------------------------------------------------------------------------------------
Provision for income taxes.................. 525 (719)
-------------------------------------------------------------------------------------------------------
Effective tax rate.......................... (9.6%) 2.9%
-------------------------------------------------------------------------------------------------------
Nine Month Period Ending October 29, 2005 versus October 30, 2004
----------------------------------------------------------------------------------------------------------
For the Nine Months Ended
----------------------------------------------------------------------------------------------------------
October 29, 2005 October 30, 2004
---------------- ----------------
---------------------------------------------------------------------------------------------------------
Total Revenues:
---------------------------------------------------------------------------------------------------------
Foodservice................................................... $122,964 $ 148,320
---------------------------------------------------------------------------------------------------------
Consumer...................................................... 92,157 118,613
---------------------------------------------------------------------------------------------------------
International................................................. 41,885 46,005
------ ------
---------------------------------------------------------------------------------------------------------
Net Sales..................................................... 257,006 312,938
---------------------------------------------------------------------------------------------------------
License Fees.................................................. 1,821 1,838
----- -----
---------------------------------------------------------------------------------------------------------
Total....................................................... $258,827 $314,776
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Gross Margin.................................................... $91,926 $78,575
---------------------------------------------------------------------------------------------------------
% Total Revenue............................................... 35.5% 25.0%
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Operating Expenses.............................................. $82,317 $ 141,450
---------------------------------------------------------------------------------------------------------
% Total Revenue............................................... 31.8% 44.9%
---------------------------------------------------------------------------------------------------------
21
Results of Operations
Consolidated net sales for the nine months ended October 29, 2005 decreased by
$55,932 (17.9%) as compared to the same period in the prior year. The decline in
sales has been impacted by the Company's decision to discontinue the sale of
glassware products, the sale of Encore Promotions, the closure of unprofitable
home stores and adverse reaction by certain of the Company's customers to the
financial uncertainties surrounding the Company in the prior year, resulting in
certain customers opting to dual source their tabletop product requirements.
Foodservice
Net sales of Foodservice Division products during the nine months ended October
29, 2005 decreased by $25,356 (17.1%), compared to the corresponding period in
the prior year. The decline in sales is attributed to reduced demand from
equipment & supply distributors, chain restaurants, and the airline industry of
approximately $12,200, $9,300, and $3,200, respectively, including the impact of
the Company's decision to discontinue distribution of common glassware products.
The financial uncertainty surrounding the Company during the fiscal year ended
January 2005 resulted in certain chain restaurants purchasing higher quantities
in the first nine 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 nine months of the
current year. Foodservice sales volume was also adversely impacted by the direct
import strategy of certain large volume customers in the Company's commodity
flatware and dinnerware segments.
Consumer
Net sales of Consumer products decreased by $26,456 (22.3%), 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. and as a
result, approximately $11,690 of the year-over-year net sales decline is
attributed to the sale of Encore Promotions. Furthermore, 23 unprofitable Oneida
Home Stores were closed since the third quarter of the prior fiscal year,
accounting for approximately $6,369 of the net sales reduction. Other factors
contributing to the reduced sales were temporary shortages in certain product
lines, precipitated by delivery issues and late shipments from foreign vendors.
The Company's customer rationalization process conducted at the end of fiscal
year 2005 resulted in a sales decrease of approximately $1,900. Partially
offsetting some of the sales decline in the nine months ended October 29, 2005
was an increase in sales of dinnerware products to mid-tier retailers. Finally,
revenues have also been adversely impacted by the Company's decisions to
withdraw from certain product categories and reduce advertising expenditures and
promotional activity, and pricing adjustments.
International
Net sales of the International Division declined by $4,120 (8.9%), as compared
to the same period in the prior year, primarily attributed to the Mexico and
United Kingdom operations, as well as the Australian operation. The decrease in
sales in Australia and the United Kingdom was impacted by the change in the
Company's crystal product supplier.. Mexico sales volume was adversely impacted
by the direct import strategy of certain large volume customers in the Company's
commodity flatware and dinnerware segments, as well as the damage caused by the
hurricanes in the region.
Gross Margins
Gross margin for the nine month period ended October 29, 2005 was $91,926 (or
35.5% as a percentage of total revenue), as compared to $78,575 (25.0%) for the
same period in the prior year. The majority of the gross margin improvement was
attributed to the March 2005 closure and sale of the Sherrill, NY manufacturing
facility (which had generated significant negative variances during the past
several years), the 100% outsourcing of manufacturing operations, reduction in
LIFO valued inventory reserves of $4,700, and a $9,600 reduction in inventory
write-downs from the prior year.
Operating Expenses
Consolidated operating expenses for the nine month period ended October 29, 2005
were $82,317, compared to $141,450 for the same period in the prior year, a
reduction of $59,133. Selling distribution and administrative expenses decreased
$18,180 reflecting a decline in net sales and the impact of the Company's cost
reduction programs initiated in 2004 which included the sale of Encore
Promotions on August 28, 2004. During the nine months ended October 29, 2005
restructuring expenses of $2,370 were recorded associated with severance
payments, the recording of a non-cancelable operating lease for the Buffalo
China warehouse and restructuring related professional fees. During the third
quarter the Company performed its annual testing of goodwill and intangible
assets under the provisions of FAS 142.
22
The results of the testing performed resulted in a goodwill impairment charge
attributed to the United Kingdom operation of $4,233 for the nine months ended
October 29, 2005 as compared to a similar charge of $15,473 for the same period
in the prior year. In the third quarter of the prior year the Company recorded
an impairment charge of $34,016 in connection with the announcement of the
closing of the Company's flatware factory in Sherrill, New York. Finally, the
Company recorded an impairment charge to the barter credits of $242 for the nine
months ended October 29, 2005, compared to a similar charge of $2,700 for the
same period in the prior year.
Other Income and Expense
Other Income was $2,068 for the nine months ended October 29, 2005, compared to
$66,123 for the same period in the prior year. Other income in the current year
includes $116 of settlement income recognized from the termination of the
Buffalo China Post Retirement Health Plan and gains on foreign exchange
transactions with the Company's International business units. The decrease in
other income from the prior year nine month period resulted from the 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. These plan
terminations resulted in a one-time benefit of $65,684.
Other Expense was $2,014 for the nine months ended October 29, 2005 compared to
$5,265 for the same period in the prior year. Other expense for the current year
primarily consists of loss on foreign exchange transactions with the Company's
International business units. 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, was
$24,188 for the nine month period ended October 29, 2005 compared to $14,923 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
$2,122 associated with the restructured debt.
Income Tax Expense
The provision for income taxes, as a percentage of loss before income taxes was
(10.7%), or $1,557, for the nine months ending October 29, 2005 compared to
(4.8%) or $815 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:
--------------------------------------------- ------------------------------ -----------------------------
Nine Months Ended Nine Months Ended
0/29/2005 10/30/04
--------------------------------------------- ------------------------------ -----------------------------
--------------------------------------------- ------------------------------ -----------------------------
Income (loss) before income taxes........... $(14,525) $(16,940)
--------------------------------------------- ------------------------------ -----------------------------
Provision for income taxes.................. 1,557 815
--------------------------------------------- ------------------------------ -----------------------------
Effective tax rate.......................... (10.7%) (4.8%)
--------------------------------------------- ------------------------------ -----------------------------
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, New York. The distribution center was
closed during the third quarter of the current year.
23
Goodwill Impairment
During the quarter ended October 29, 2005, the Company performed its annual
testing for the impairment of goodwill and intangible assets under the
provisions of FAS 142. Under FAS 142, goodwill is tested under a two step
approach. The first step requires the determination of the fair value of the
reporting unit compared to the book value of that reporting unit. If the book
value exceeds the fair value, a second step impairment test is required to
measure the amount of impairment. The fair value of the Operations was
determined through a combination of discounted cash flows and market
comparables. Due to a decline in the United Kingdom operation's operating
profits and cash flows during the first and second quarters of 2005, that was
greater than expected the earnings forecast for the next five years was revised
and, as such, in October 2005 a goodwill impairment loss of $4,233 was
recognized in the statement of operations under the caption "Impairment loss on
other assets".
Other Matters
For the quarter ended October 29, 2005 the Company reduced the allowance for
doubtful accounts by $661 reflecting the overall improvement in account
collectability and refined its calculation of the allowance. Also the Company
recorded a reduction in its accrual for incentive compensation of $585 based on
current projections for the year.
Liquidity & Financial Resources
Cash provided by operating activities was $976 for the nine months ended October
29, 2005, compared to cash used of $42,672 for the same period in the prior
year. The net cash provided by operating activities for the nine months ended
October 29, 2005 was primarily due to a decrease in inventory and other assets,
which included $4,000 of restricted cash released from escrow by the Company's
lenders related to the August 2004 sale of Encore Promotions. These increases
were offset by reductions in accounts payable and accrued liabilities. During
the nine months ended October 29, 2005, non-cash interest attributed to the
Company's PIK (Payment in Kind) option on its Tranche B debt amounted to
$10,872. The Company made $2,918 of payments to its various pension plans during
the three month period ended October 29, 2005. Based on current actuarial
assumptions related to its three domestic defined benefit pension plans, the
Company is scheduled to make total contributions of $4,972 for the fiscal year
ended January 28, 2006 (including $2,053 due January 15, 2006); $17,894 for the
fiscal year ended January 27, 2007 and $20,760 thereafter. These funding
estimates are based on the actuarial results of the January 1, 2004 census data
for each plan and the provisions of the plan and assumptions at that time. The
Company expects funding estimates to change as more recent funding valuations
are completed.
Cash used from investing activities was $628 for the nine months ended October
29, 2005, compared to cash provided of $10,184 for the same period in the prior
year. 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 during the nine month period ending October 29, 2005. Cash
generated for the nine months ended October 31, 2004 consisted of $5,517 from
the sale of Buffalo China and $8,048 from the sale of facilities located in
Mexico, Canada and Italy. Capital expenditures were $2,036 and $3,381 for the
nine months ended October 29, 2005 and October 30, 2004, respectively.
Net cash used by financing activities was $1,395 for the nine months ended
October 29, 2005 versus cash provided of $25,429 for the nine months ended
October 29, 2004. Cash provided during the prior year was primarily a result of
the Company's restructuring of indebtedness. During the nine months ended
October 29, 2005, the Company used cash to pay down its short term debt.
On August 9, 2004 the Company completed a comprehensive restructuring of the
existing indebtedness with its lenders, along with new covenants based upon the
then 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 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
24
first quarter of the fiscal year ended January 2007. As of the third quarter
balance sheet date of October 29, 2005, $4,500 of long-term debt has been
reclassed to current based on the quarterly principal payments becoming due over
the next twelve months. 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 February 2008 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 three 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 first nine months ended October 29, 2005,
the Tranche B loan outstanding increased by $10,744 as a result of the Company
exercising the PIK option. Beginning in the first quarter of the fiscal year
ended January 2007, the Company will be required to begin paying 30% of the
Tranche B interest obligation in cash.
The August 2004 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 three
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.
The Company is continuing to explore its alternatives in order to strengthen its
balance sheet and enhance its long-term liquidity, including analyzing the
Company's ability to further restructure its long-term debt and liabilities. The
Company has engaged Credit Suisse First Boston to assist with the analysis.
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 October 29, 2005 was $2,725.
The Company's primary market risk is interest rate exposure in the United
States. Historically, the Company manages interest rate exposure through a mix
of fixed and floating rate debt. The majority of the company's debt is currently
at floating rates. Based on floating rate borrowings outstanding at October 29,
2005, a 1% change in the rate would result in a corresponding change in interest
expense of $2,200.
25
The Company has foreign exchange exposure related to its foreign operations in
Mexico, Canada, Italy, Australia, the United Kingdom and China. See Note 8 of
Notes to Consolidated Financial Statements for details on the Company's
international operations. Translation adjustments recorded in the income
statement were not of a material nature.
ITEM 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer have carried out an
evaluation, with the participation of the Company's management, of the design
and operation of the Company's "disclosure controls and procedures" (as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based
upon that evaluation, each has concluded that at the end of the period covered
by this report the Company's "disclosure controls and procedures" are effective
to insure that information required to be disclosed in the reports that we file
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified by the Securities and Exchange Commission's rules and
regulations. Notwithstanding the foregoing, a control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that
it will detect or uncover failure within the Company to disclose material
information otherwise required to be set fourth in the Company's periodic
reports.
Changes in Internal Controls
There was no change in the Company's internal control over financial reporting
during the 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 to obtain needed waivers and/or amendments of
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; 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 and other natural disasters; impact of changes in accounting
standards; potential legal proceedings; changes in pension and medical benefit
costs; and the amount and rate of growth of the Company's selling, general and
administrative expenses.
26
PART II
OTHER INFORMATION
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5.
OTHER DISCLOSURE
On December 7, 2005, the Board of Directors (a) amended and restated the
Oneida Ltd. Management Annual Incentive Plan Fiscal Year January 2006 Cash Bonus
in order to adjust certain formula contained therein, a copy of the amended and
restated plan is attached as EXHIBIT 10.42 hereto and (b) approved a
modification of base salary for James E. Joseph, Executive Vice President
Worldwide Sales and Marketing and Andrew G. Church Senior Vice President and
Chief Financial Officer in addition to certain other officers of the Company.
Below are the new salaries for Mr. Joseph and Mr. Church.
ITEM 6.
James E. Joseph Andrew G. Church
--------------- ----------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ending 1/29/05 Ending 1/28/06 Ending 1/29/05 Ending 1/28/06
--------------- -------------- -------------- --------------
$188,000 $262,500 $225,000 $236,250
Exhibits:
3.1 The Company's Restated Articles of Incorporation, which is
incorporated by reference to the Registrant's Annual Report on
Form 10-Q for the quarter ended July 30, 2005.
3.2 The Company's By-Laws, as amended and restated, which are
incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 29, 2005.
10.1 Second Amended and Restated Credit Agreement dated as of
August 9, 2004 between Oneida Ltd., the financial institutions
named in the Second Amended and Restated Credit Agreement and
JPMorgan Chase Bank as Administrative Agent and Collateral
Agent, which is incorporated by reference to the Registrant's
Current Report on Form 8-K dated as of August 9, 2004.
10.2 Amended and Restated Security Agreement dated as of August 9,
2004, between Oneida Ltd., those domestic subsidiaries of
Oneida Ltd. which are named as Guarantors in the Amended and
Restated Security Agreement and JPMorgan Chase Bank, as
Collateral Agent, which is incorporated by reference to the
Registrant's Current Report on Form 8-K dated as of August 9,
2004.
10.3 Amended and Restated Pledge Security Agreement dated as of
August 9, 2004, between Oneida Ltd., those domestic
subsidiaries of Oneida Ltd. which are named as Guarantors in
the Amended and Restated Pledge Security Agreement and
JPMorgan Chase Bank, as Collateral Agent, which is
incorporated by reference to the Registrant's Current Report
on Form 8-K dated as of August 9, 2004.
10.4 Second Amended and Restated Collateral Agency and
Intercreditor Agreement dated as of August 9, 2004, between
Oneida Ltd., those domestic subsidiaries of Oneida Ltd. which
are named as Guarantors in the Second Amended and Restated
Collateral Agency and Intercreditor Agreement, JPMorgan Chase
Bank as Collateral Agent, Administrative Agent, Swingline
Lender, Issuing Bank, and Existing Trade L/C Issuer, the
Lenders as defined in the Second Amended and Restated
Collateral Agency and Intercreditor Agreement, Bank of
America, N.A., as issuer of the Bank of America L/C, and HSBC
Bank USA, National Association, as issuer of the HSBC China
L/C, which
27
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.
10.9 Amended and Restated Mortgage, Assignment of Leases and Rents
and Security Agreement and Fixture Filing in the amount of
$8,432,000 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 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 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 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 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 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.
28
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 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.
29
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.
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.
30
10.40 First 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 Fourth 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 Amended and Restated Oneida Ltd. Management Annual Incentive
Plan Fiscal Year January 2006 Cash Bonus adopted by the Board
of Directors on April 5, 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.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to hSection 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.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ONEIDA LTD.
(Registrant)
Date: December 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
/s/JOHN J. ROSS
---------------
John J. Ross
Corporate Controller
And Chief Accounting Officer
32