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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended January 31, 2004
Commission File Number 1-5452
ONEIDA LTD.
163-181 KENWOOD AVENUE
ONEIDA, NEW YORK 13421-2899
(315) 361-3000
NEW YORK 15-0405700
(State of Incorporation) (I.R.S. Employer Identification No.)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of exchange on which registered
-------------- ------------------------------------
Common Stock, par value $1.00 New York Stock Exchange
per share with attached Preferred
Stock purchase rights
Securities registered pursuant to Section 12(g) of the Act:
6% Cumulative Preferred Stock, par value $25 per share
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [X] NO [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on a closing price of $6.18 per share reported on the New York
Stock Exchange Composite Index on July 30, 2003 was approximately $97,711,745.
For this calculation, registrant assumed its directors and executive officers
are affiliates.
The number of shares of Common Stock ($1.00 par value) outstanding as of
April 29, 2004, was 16,816,416.
Documents Incorporated by Reference
Portions of Oneida Ltd.'s Definitive Proxy Statement for its Annual Meeting to
be held on May 26, 2004, or such later date as the Board of Directors may
determine, have been incorporated by reference into Part III of this Form 10-K.
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Page 0 of 65
INDEX
Page
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PART I
Item 1. Business 2
(a) General 2
(b) Segments 2
(c) Narrative Description of Business 3
Principal Products 3
Manufacturing and Sourcing 3
Principal Markets 4
Distribution 4
Raw Materials 5
Intellectual Property 5
Licenses 5
Seasonality of Business 5
Working Capital 5
Customer Dependence 6
Backlog Orders 6
Market Conditions and Competition 6
Research and Development 7
Environmental Matters 7
Employment 7
Risk Factors Which May Affect Future Results 7
Company Information 8
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Stockholders 10
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters 10
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21
Item 8. Financial Statements and Supplementary Data 21
Index to Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 52
Item 9A. Controls and Procedures 52
PART III.
Item 10. Directors and Executive Officers of the Registrant 52
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial Owners and
Management 54
Item 13. Certain Relationships and Related Transactions 54
Item 14. Principal Accountant Fees and Services 54
PART IV.
Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K 54
Signatures 56
Consent of Independent Accountants 58
Schedule II, Valuation and Qualifying Accounts 59
Exhibit Index 60
1
PART I
ITEM 1. BUSINESS.
a. General.
The Company (unless otherwise indicated by the context, the term "Company" means
Oneida Ltd. and its consolidated subsidiaries) was incorporated in New York in
1880 under the name Oneida Community, Limited. In 1935, the Company's name was
changed to Oneida Ltd. It maintains its executive offices in Oneida, New York.
Since its inception, the Company has manufactured and marketed tableware -
initially silverplated and, later, sterling and stainless steel flatware. By
acquiring subsidiaries, entering into strategic distributorship and licensing
arrangements and expanding its own tableware lines, the Company has diversified
into the design and distribution of other tableware, kitchenware and gift items,
most notably china dinnerware, silverplated and stainless steel holloware,
crystal and glass stemware, barware and giftware, cookware, cutlery and kitchen
utensils and gadgets. This diversification has permitted the Company to progress
toward its goal of becoming a "total tabletop" supplier.
Since fiscal 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 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 sale of the 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, and the closure of the Italian and Chinese holloware manufacturing
facilities operated by the Company's Oneida Italy, srl and Oneida International,
Inc. subsidiaries, respectively, in 2004. During the first quarter of the
fiscal year ended January 2005 the Company completed the sale of its Buffalo
China, Inc. dinnerware manufacturing assets to a third party, Niagara
Ceramics Corporation. By the end of the second quarter of the fiscal year
ended January 2005 the Company expects to have sold or otherwise disposed
of all of the remaining equipment, real estate and other assets formerly
used by its Canadian, Mexican, Italian and Chinese manufacturing operations.
Coupled with these plant closures, several strategic acquisitions have advanced
the Company's presence and abilities in the tableware sourcing arena. In 1996,
the Company acquired the assets of THC Systems, Inc., a leading importer and
marketer of vitreous china and porcelain dinnerware for the Foodservice industry
under the Rego tradename. In 1998 the Company acquired the assets of Stanley
Rogers & Son, a leading importer and marketer of stainless steel and
silverplated flatware to retail customers in Australia and New Zealand, and
Westminster China, a leading importer and marketer of porcelain dinnerware to
the foodservice, domestic tourism and promotion industries in Australia and New
Zealand. In the summer of 2000 the Company acquired the assets of Sakura, Inc.,
a leading marketer of consumer ceramic, porcelain and melamine dinnerware and
accessories; all outstanding shares of London-based Viners of Sheffield Limited,
the leading marketer of consumer flatware and cookware in the U.K.; and all
outstanding shares of Delco International, Ltd., a leading marketer of
foodservice tableware to foodservice distributors, chains and airlines.
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.
b. Segments.
During fiscal 2004, the Company determined that it should have historically been
reporting three reportable segments, as defined in SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information": Foodservice, Consumer
and International. Foodservice and Consumer segments operate in the US. The
Company previously reported that its Tableware segment was grouped around three
major product categories. The prior year disclosures have been restated to
report these three segments. This change in segment reporting has no effect on
reported earnings.
2
The Company's operations and assets are in three principal segments:
Foodservice, Consumer, and International. The Company's Consumer segment
sells directly to a broad base of retail outlets including department stores,
mass merchandisers, Oneida Home stores and chain stores. The Company's
Foodservice segment sells directly or through distributors to foodservice
operations worldwide, including hotels, restaurants, airlines, cruise lines,
schools and healthcare facilities. The Company's International segment sells
to a variety of distributors, foodservice operations and retail outlets.
Information regarding The Company's operations by industry segments for
the years ended January 31, 2004, January 25, 2003 and January 26, 2002 is
contained in Part II, Item 8 of this Report.
c. Narrative Description of Business.
Principal Products.
The Company divides its tableware products into four principal product
categories: metalware, dinnerware, glassware and other tabletop accessories.
Metalware is comprised of stainless steel, silverplated and sterling silver
flatware (forks, knives, spoons and related serving pieces), stainless steel and
silverplated holloware (bowls, trays, tea and coffee sets and related items),
cutlery and cookware. Dinnerware includes ceramic, porcelain and stoneware
plates, bowls, cups, mugs, and a variety of related serving pieces. Glassware
includes glass, non-leaded crystal and leaded crystal stemware, barware,
serveware, giftware and decorative pieces. The Company, in recent years,
expanded its product offerings beyond its main metalware, dinnerware and
glassware segments. These other tabletop accessories include ceramic and plastic
serveware, kitchen and table linens, picture frames and decorative pieces
distributed primarily by the Company's Encore Promotions and Kenwood Silver
subsidiaries.
The percentages of metalware, dinnerware, glassware and other tabletop
accessories sales to total consolidated sales for the fiscal years, which end in
January, are as follows:
2004 2003 2002
---- ---- ----
Metalware: 60% 60% 65%
Dinnerware: 31% 31% 27%
Glassware: 7% 7% 7%
Other Tabletop Accessories: 2% 2% 1%
Manufacturing and Sourcing.
The principal source of the Company's highest end flatware is the Company's
Sherrill, New York manufacturing facility. Moderate price-point flatware is also
produced in this facility, as well as sourced from several international
suppliers. The Company's lower price-point flatware is sourced from several
international suppliers. The Company sources its stainless steel and
silverplated holloware products and its cutlery and aluminum and stainless steel
cookware from several international suppliers.
The Company's own branded dinnerware is sourced from several suppliers, both
domestic and international. In addition, the Company is the exclusive
distributor of dinnerware products manufactured by Schonwald and Noritake Co.,
Inc. to the U.S. Foodservice market.
As with dinnerware, the Company sources its glassware from several international
suppliers and markets the glassware under its own name, and in certain cases,
under the names of its suppliers, such as Schott Zwiesel.
The Company's other tabletop accessories are sourced from various domestic and
international suppliers.
3
Principal Markets.
The Company's tableware operations serve three principal markets: Consumer,
Foodservice and International.
Consumer marketing focuses on individual consumers, and the Company's
wide-ranging Consumer marketing activities include both retail and direct
operations. The Company's retail accounts include national and regional
department store chains, mass merchandise and discount chains, specialty shops
and local establishments. The Company's direct accounts serve business customers
in the premium, incentive, mail order and direct selling markets. The Company
also reaches consumers through its Kenwood Silver Company, Inc. and Encore
Promotions, Inc. subsidiaries, both of which play a significant role in the
marketing of the Company's products. Kenwood Silver Company, Inc. operates a
chain of 58 Oneida Home outlet stores in resort and destination shopping areas
across the United States, while Encore Promotions, Inc. runs supermarket
redemption programs featuring a variety of tableware and household items. The
Company also markets its products via its web site, www.oneida.com, and
1-800-TSPOONS call center number.
The Company serves Foodservice and institutional accounts of all kinds,
including restaurants, hotels, resorts, convention centers, food distributors,
airlines, cruise lines, hospitals and educational institutions.
International activities span both the Consumer and Foodservice markets
described above, and include the marketing and sale of the Company's products
throughout the world.
Distribution.
The Company's Consumer and Foodservice sales and marketing functions are managed
from the executive offices in Oneida, New York. The Company utilizes an in-house
staff of Consumer and Foodservice marketing professionals, each focused by
product category. This staff plays a key role in the planning and development of
the Company's product offerings, pricing and promotions. The Company's Consumer
and Foodservice sales functions are managed and directed by the Company's own
sales force. This sales force works closely with a sizeable network of
independent sales representatives in both the Consumer and Foodservice markets.
Most Consumer orders are filled directly by the Company from its primary
distribution center located in Sherrill, New York. For some accounts, however,
orders are filled by one of the Company's two other distribution centers which
are presently located in Ontario, California and Nashville, Tennessee or
by a third party warehouse located in Charlotte, North Carolina. In late spring
or early summer 2004, the Company plans to transition its west coast operations
from its leased Ontario, California warehouse to one or more third party
warehouses in the same general geographic area.
While most Foodservice orders are filled directly by the Company from its
primary distribution centers in Sherrill and Buffalo, New York, some orders are
filled by the Company's other distribution center located in Ontario,
California. The Company also utilizes third party warehouses located in Miami,
Florida, Hawthorne, California, Wood Dale, Illinois and Atlanta, Georgia to
service certain foodservice customers.
The Company's International sales and marketing functions are overseen by the
Company's various offshore offices. In the Americas, the Canadian market is
served by the Company's Oneida Canada, Limited subsidiary located in Niagara
Falls, Canada, while the Mexican, Central and South American and Caribbean
markets are served by the Company's Oneida, S.A. de C.V. subsidiary located in
Mexico City. The Company's Oneida U.K. Limited subsidiary located in London
serves the Company's European, African, Middle and Far Eastern and Asian and
Pacific markets, and the Australian and New Zealand markets are served by the
Company's Oneida Australia, Pty Ltd. subsidiary located in Melbourne, Australia.
In addition to these international Company operations, the Company also utilizes
a network of independent representatives and distributors to market and sell the
Company's products in countries and localities where the Company does not
maintain its own offices or employees.
International orders for both Foodservice and Consumer products are filled by
the Company from a variety of locations, including the Company's United States
distribution centers in Sherrill, New York and Nashville, Tennessee, as well as
the Company's international facilities in Niagara Falls, Canada, Roermond,
Holland and Melbourne, Australia. In addition, many orders are shipped directly
from the suppliers to the Company's international customers.
4
Raw Materials.
The principal raw materials used by the Company in its manufacture of metalware
are stainless steel, brass, silver and gold. These materials are purchased in
the open market to meet current requirements and have historically been
available in adequate supply from multiple sources. The Company experienced no
significant or unusual problems in the purchase of raw materials during the
fiscal year ended January 2004. Although the Company has successfully met its
raw materials requirements in the past, there may in the future be temporary
shortages or sharp increases in the prices of raw materials due to a number of
factors such as transportation disruptions, or production or processing delays.
For example, the price of nickel, one of the components of stainless steel, a
principal ingredient of the Company's metalware products, has been volatile
since late 1999. In particular, nickel costs have increased sharply since late
2003. In addition, each of the past several years has seen a significant
increase in the cost of natural gas, a significant fuel used in the Company's
flatware manufacturing operation. While it is impossible to predict the timing
or impact of future shortages and price increases, such shortages and increases
have not in the past had any material adverse effects on the Company's
operations.
Intellectual Property.
The Company owns and maintains many design patents in the United States and
Canada. These patents, along with numerous copyrights, protect the Company's
product designs and decorations. In addition, the Company has registered its
most significant trademarks in the United States and many foreign countries. The
Consumer, Foodservice and International operations use a number of trademarks
and trade names which are extensively advertised and promoted, including ONEIDA,
ABCO, BUFFALO CHINA, COMMUNITY, DELCO, HEIRLOOM, LTD, REGO, ROGERS, SAKURA,
SANT'ANDREA and VINERS OF SHEFFIELD. Taken as a whole, the Company's
intellectual property, especially the market recognition associated with the
ONEIDA name, is a material, although intangible, corporate asset.
Licenses.
The Company continues to explore opportunities to capitalize on the ONEIDA name
in new product categories. One vehicle for this expansion has been licensing the
ONEIDA name for use by third parties on products complementary to the Company's
own core tableware lines. Such licenses include agreements with Bradshaw
International, Inc., Connoisseurs Products Corporation, Robinson Knife
Manufacturing Co., Inc. and Trendex Home Designs, Inc. for the manufacture and
marketing of ONEIDA cookware and bakeware, ONEIDA silver and metal polishes,
ONEIDA kitchen tools and accessories and ONEIDA kitchen and table linens,
respectively. In addition, the Company also maintains license agreements that
allow it to market lines of flatware under the WEDGWOOD name, and lines of
dinnerware, flatware, glassware and related accessories under the COCA-COLA
names. Neither the terms nor the effects of any of the Company's license
agreements are material.
Seasonality of Business.
Although Consumer operations normally do a greater volume of business during
October, November and December primarily because of holiday-related orders for
metalware, dinnerware and glassware products, the Company's businesses are not
considered seasonal.
Working Capital.
The Company's working capital needs are primarily dictated by inventory levels,
trade payables, outstanding receivables and the levels of other current
liabilities. Other than income from sales, the Company's primary source of
working capital is its secured revolving credit facility. This facility provides
cash for general corporate purposes. The current status of the Company's working
capital is covered in more detail in Note 9 to the Company's Financial
Statements included in Item 8 of Part II of this Report.
The Company generally maintains sufficient inventories of metalware, dinnerware,
glassware and other products to respond promptly to orders. The levels of those
inventories are dictated by anticipated sales and order backlog.
The Company's standard payment terms are net 30 days from date of invoice. Such
terms are common in the tableware industry.
5
The Company's divisions and subsidiaries each have written return policies, most
of which require the Company's prior written authorization for all returns. The
exception is the Company's Encore Promotions, Inc. subsidiary which runs its
supermarket redemption programs on a guaranteed sale basis. Such return policies
are common in the tableware industry. The Company has established an allowance
for merchandise returns based on historical experience, product sell-through
performance by product and by customer, current and historical trends in the
tableware industry and changes in demand for its products. The accounting of
such returns is discussed in greater detail in the "Revenue Recognition" section
of Note 1 to the Company's Financial Statements included in Item 8 of Part II of
this Report.
Customer Dependence.
The Company's customers are numerous and varied. They include, but are not
limited to, domestic and international department stores, mass merchandise and
discount chains, specialty shops, premium, incentive, mail order and internet
customers, hotel and restaurant chains, airlines, cruise lines and foodservice
distributors. No material part of the Company's business is dependent upon a
single customer, the loss of which would have a materially adverse effect. In
particular, no single Company customer accounts for 10% or more of the Company's
sales. While the loss of any one of the Company's key customers could have a
negative effect on the Company, the simultaneous loss of several of the
Company's key customers would most certainly have a materially adverse effect on
the Company's business.
Backlog Orders.
The Company had outstanding orders of $33,426,203 as of March 29, 2004 and
$32,674,127 as of March 16, 2003. This backlog is expected to be filled during
the current fiscal year. The Company does not believe that backlog is indicative
of its future results of operations or prospects. Although the Company seeks
commitments from customers well in advance of shipment dates, actual confirmed
orders are typically not received until close to the required shipment dates.
Market Conditions and Competition.
The Company is the only domestic manufacturer of a complete line of stainless
steel, silverplated and sterling flatware. The Company believes that it is one
of the largest producers of stainless steel and silverplated flatware in the
world. The Company's dinnerware, holloware and crystal and glass lines, along
with its flatware lines, make the Company a truly complete tableware supplier.
Notwithstanding the Company's prominence in the markets it serves, the tableware
business is highly competitive. The Company faces competition from a number of
domestic companies, such as Libbey, Anchor Hocking, Lenox and Pfaltzgraff, that
market both imported and domestically manufactured lines and from hundreds of
importers engaged exclusively in marketing foreign-made tableware products. In
recent years, there is also competition from department and specialty stores and
foodservice distributors and establishments that import foreign-made tableware
products under their own private labels for their sale or use. The Company
strives to maintain its market position through product diversity, design
innovation, and brand strength, the latter especially among consumers.
The principal factors affecting domestic Consumer competition are design, price,
quality and packaging. Other factors that have an effect on Consumer competition
are availability of replacement pieces and product warranties. In the opinion of
the Company, no one factor is dominant and the significance of the different
competitive factors varies from customer to customer.
The principal factors affecting domestic Foodservice competition are design,
service, price and quality. The Company is one of the largest sources of
commercial china dinnerware and stainless steel and silverplated tableware in
the United States.
The principal factors affecting International competition are brand recognition,
design and quality. Other factors affecting the Company's participation in the
International market include competition with local suppliers and high import
duties, both of which increase the Company's costs relative to local producers.
6
Research and Development.
The Company places a considerable emphasis on excellence in development and
design. To achieve this end, the Company maintains full time in-house design and
engineering departments that continuously develop, test and improve products and
manufacturing methods. Independent designers and collaborative efforts with
other companies contribute to the Company's emphasis on development and design.
The Company's actual expenditures on research and development activities during
the past three fiscal years, however, have not been material.
Environmental Matters.
The Company does not anticipate that compliance with federal, state and local
environmental laws and regulations will have any material effect upon the
capital expenditures, earnings or competitive position of the Company. The
Company does not anticipate any material capital expenditures for environmental
control facilities for the remainder of the current fiscal year ending January
2005 or the succeeding fiscal year ending January 2006.
Employment.
The Company and its subsidiaries employed approximately 1,750 employees in
domestic operations and 285 employees in foreign operations as of April 1, 2004.
The Company maintains positive relations with its domestic and foreign
employees. With the exception of its Buffalo China, Inc. subsidiary, the
Company's facilities are not unionized. The employees of Buffalo China, Inc.'s
distribution facility in Buffalo, New York are represented by the Glass,
Molders, Pottery, Plastics & Allied Workers International Union AFL-CIO, CLC and
its local union No. 76A. The current collective bargaining agreement between
Buffalo China, Inc. and the Glass, Molders, Pottery, Plastics & Allied Workers
International Union AFL-CIO, CLC and its local union No. 76A expires on July 31,
2005. The Company has experienced no work stoppages or strikes in the past five
years.
Risk Factors Which May Affect Future Results
With the exception of historical data, the information contained in this Report,
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. When used, words such as "anticipate", "believe", "expect",
"intend", "may", "might", "plan", "estimate", "project", "should", "will be",
"will result" and similar words or phrases which do not relate solely to
historical matters or data are intended to identify forward-looking statements.
The Company cautions investors that forward-looking statements are based upon
management beliefs and assumptions and information currently available to
management. As such, forward-looking statements are subject to numerous
uncertainties and may be affected by known and unknown risks, trends and factors
that are beyond the Company's control. In the event that such risks materialize,
trends or factors change, or beliefs or assumptions prove incorrect, the
Company's actual results may differ materially from those expressed or implied
herein. The risk factors which may affect the Company's future results include,
but are not limited to, the following:
Production and Procurement Risks
With the exception of the flatware manufactured at its Sherrill, New York
facility, the Company sources substantially all of its products overseas,
primarily from third party manufacturers in the Far East. This overseas sourcing
subjects the Company to the numerous risks of doing business abroad, including
but not limited to, rapid changes in economic or political conditions, civil
unrest, political instability, war, terrorist attacks, international health
epidemics such as the SARS outbreak, strikes or labor disputes, currency
fluctuations, increasing export duties, trade sanctions and tariffs,
difficulties or delays in production or shipment of products, variations in
product quality and souring of supplier relationships.
A variety of risks are also associated with the Company's flatware facility in
Sherrill, New York, its sole remaining manufacturing operation, including but
not limited to, difficulties or delays in production of products; variations in
product quality, excess or shortage of manufacturing capacity, negative cost
variances, price fluctuations of raw materials, increased labor costs, decreased
productivity; adverse effects of government regulations, and failure to achieve
the savings and efficiency goals of planned restructuring programs.
7
Marketing and Sales Risks
In each of the Company's three markets, Consumer, Foodservice and International,
risks impact the effectiveness of marketing plans and the level of sales. These
risks include, but are not limited to, general economic conditions in the
Company's own markets and related markets, industry production and sales
capacity, impact of competitive products and pricing, difficulties or delays in
the development of new products, difficulties or delays in the delivery of
products to customers, ability to forecast design trends, validity of
assumptions related to customer purchasing patterns, market acceptance of new
products, product quality and performance issues, ability to maintain high
customer service levels, and volume of inventory obsolescence.
In addition to the more general risks associated with all three of the Company's
markets, the Company's International Division is also subject to the numerous
risks of doing business abroad, including but not limited to, rapid changes in
economic or political conditions, civil unrest, political instability, war,
terrorist attacks, international health epidemics such as the SARS outbreak,
strikes or labor disputes, currency fluctuations, increasing export duties and
trade sanctions and tariffs.
Financial and Administrative Risks
The costs, both tangible and intangible, of the Company's day-to-day operations
are subject to numerous and varied risks, including but not limited to,
increases or fluctuations in interest rates, level of Company indebtedness,
ability of the Company to maintain sufficient levels of liquidity, failure of
the Company to obtain needed waivers and amendments to its financing agreements,
failure of the Company to obtain equity capital, deterioration of the
creditworthiness of significant customers; impact of changes in accounting
standards; increases in pension and medical benefit costs; decreases in the
Company's stock price, amount and rate of growth of the Company's selling,
general and administrative expenses; potential legal proceedings; adverse
regulatory developments and the loss of one of more key employees.
Of the forgoing risk factors, the possible failure of the Company to obtain
needed waivers and amendments to its financing agreements is particularly
tangible. The Company's primary financing agreements contain various financial
covenants, including a restriction limiting the Company's total debt outstanding
to a pre-determined multiple of the prior rolling twelve months earnings before
interest, taxes, depreciation and amortization. During the past fiscal year and
the first portion of the current fiscal year, the Company experienced several
financial covenant violations, each of which was waived by the Company's
lenders. These waivers also postponed certain reductions in the Company's
revolving credit agreement and postponed payments due under the Company's note
agreements. As a result of the covenant violations the Company has classified
all of its long term obligations as current. The Company's waivers currently
extend through June 15, 2004. On or about the end of the second quarter of the
current fiscal year the Company plans to request amendments to the existing
revolving credit agreement and note agreements to incorporate a number of
changes. These changes will include the amendment of the financial covenants and
will permit certain transactions. In the event the Company's lenders are
unwilling to agree to such changes, the Company will continue to default in
compliance with various of the covenants and provisions of its revolving credit
agreement and note agreements. The defaults, if unremedied, could cause the
lenders to declare the principal outstanding to be payable immediately. Such an
event would create an immediate and material liquidity crisis for the Company.
Company Information.
The Company maintains a website at www.oneida.com. On the "Investor Information"
section of this website the Company makes available without cost its Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, proxy statements and other public filings with the Securities and Exchange
Commission, as soon as reasonably practicable after the Company has filed these
materials. The Company is not including the information contained on the
Company's website as a part of, or incorporating it by reference into, this
Annual Report on Form 10-K or any other report that the Company files with or
furnishes to the Securities and Exchange Commission. Copies of any of these
materials are also available in print. For print copies, stockholders should
submit written requests to Oneida Ltd., Investor Relations Department, 163-181
Kenwood Avenue, Oneida, New York 13421.
8
ITEM 2. PROPERTIES.
As of April 1, 2004, the principal properties of the Company and its
subsidiaries are situated at the following locations and have the following
characteristics:
Approximate Square Footage
--------------------------
Owned Leased
--------- -------
Ontario, California Warehouse 206,000
Buffalo, New York Offices and Warehouse 203,000(1)
Buffalo, New York Warehouse 88,000
Buffalo, New York Warehouse 262,000
Oneida, New York Executive Administrative Offices 95,000
Sherrill, New York Manufacturing Flatware 1,082,000
Sherrill, New York Offices and Warehouse 206,000(2)
Sherrill, New York Manufacturing Knives 135,000
Nashville, Tennessee Warehouse 123,000
Melbourne, Australia Offices and Warehouse 60,000
Niagara Falls, Canada, Offices and Warehouse 120,000
London, England Offices 30,000
Mexico City, Mexico Offices and Warehouse 32,000
(1): Ownership of the 203,000 square foot Buffalo, New York office and
warehouse property was transferred to the Erie County Industrial Development
Agency on February 29, 2000 in exchange for various tax concessions from the
county. The property will remain in the ownership of the Erie County Industrial
Development Agency for a term of fifteen years, upon the expiration of which the
property will be conveyed back to Buffalo China.
(2): Ownership of the 206,000 square foot Sherrill, New York warehouse
and office property was transferred to the Oneida County Industrial Development
Agency on February 25, 2000 in exchange for various tax concessions from the
county. The property will remain in the ownership of the Oneida County
Industrial Development Agency for a term of fifteen years, upon the expiration
of which the property will be conveyed back to the Company.
In addition to the above properties owned by the Company, the Company also owns
approximately 400 additional acres in the cities of Sherrill and Oneida and the
town of Vernon, New York.
In addition to the leased properties described above, the Company also leases
offices and/or showrooms in New York City, Malta and Melville, New York,
Toronto, Canada and Gvanhzhou, China. The Company leases retail outlet space in
numerous locations throughout the United States through its subsidiary, Kenwood
Silver Company, Inc., in several locations in Europe through its subsidiary,
Oneida U.K. Limited and in several locations in Australia through its Oneida
Australia PTY Ltd. subsidiary.
9
During the first quarter of the fiscal year ended January 2005, the Company
completed the sale of the real estate associated with its Buffalo China, Inc.
dinnerware manufacturing operation and, by the end of the second quarter of
the fiscal year ended January 2005, expects to complete the sales of the real
estate formerly used by its Canadian, Mexican, Italian and Chinese manufacturing
operations. As such, these facilities are not listed in schedule above.
All of the Company's buildings are located on sufficient property to accommodate
any further expansion or development planned over the next five years. The
properties are served adequately by transportation facilities, are well
maintained and are adequate for the purposes for which they are intended and
used.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various routine legal proceedings incidental to the
operation of its business. The Company does not believe that it is reasonably
possible that any ongoing or pending litigation will have a material effect on
the financial position, income or cash flows of the Company. Notwithstanding the
foregoing, legal proceedings involve an element of uncertainty. Future
developments could cause these legal proceedings to have a material adverse
effect on the Company's financial statements.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF STOCKHOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S EQUITY AND RELATED STOCKHOLDER MATTERS.
Stock Exchange Listing
The Company's Common Stock is listed on the New York Stock Exchange and trades
under the symbol OCQ.
Dividends and Price Range of Common Stock
The total number of stockholders of record at January 31, 2004 was 3,091. The
following table sets forth the high and low sale prices per share of the
Company's Common Stock and cash dividends declared for the quarters in the
Company's 2004 and 2003 fiscal years.
JANUARY 2004
- -----------------------------------------
Fiscal Dividends
Quarter High Low Per Share
- -----------------------------------------
First $11.37 $10.14 $ .02
Second 11.1 5.85
Third 6.53 2.86
Fourth 6.11 4.05
JANUARY 2003
- -----------------------------------------
Fiscal Dividends
Quarter High Low Per Share
- -----------------------------------------
First...... $17.09 $11.62 $.02
Second..... 19.74 14.65 .02
Third...... 17.25 11.65 .02
Fourth..... 12.00 10.75 .02
10
Equity Compensation Plans
The following table Summarizes information about the Corporation's equity
compensation plans as of January 31, 2004. All Outstanding awards relate to the
Corporation's common stock.
Equity Compensation Plan Information
(a) (b) (c)
----------------------- -------------------- --------------------------
Number of Securities
Remaining Available for
Number of Securities to Weighted-Average Issuance Under Equity
be issued Upon Exercise Exercise Price of Compensation Plans
Plan of Outstanding Options, Outstanding Options, (Excluding Securities Plan
Category Warrants and Rights Warrants and Rights Reflected in Column (a))
- ------------------------- ----------------------- -------------------- --------------------------
Equity Compensation
Plans Approved by
Stockholders (1)...... 1,684,200 $14.77 1,765,944(2)
Equity Compensation
Plans Not Approved
by Stockholders (3)... 0 0 0
Total.................... 1,684,200 $14.77 1,765,944(2)
(1) Includes the Employee Stock Purchase Plan, as amended, 1998 Stock Option
Plan, 2002 Stock Option Plan, 1998 Non-Employee Directors Stock Option
Plan, as amended, 2000 Non-Employee Directors Equity Plan, 2003
Non-Employee Directors Stock Option Plan, as amended, and Amended and
Restated Restricted Stock Award Plan.
(2) Includes shares remaining for issuance in the following amounts: Employee
Stock Purchase Plan - 612,884; 1998 Stock Option Plan - 0; 2002 Stock
Option Plan - 921,590; 1998 Non-Employee Directors Stock Option Plan - 0;
2000 Non-Employee Directors Equity Plan - 23,333; 2003 Non-Employee
Directors Stock Option Plan - 163,000;and Amended and Restated Restricted
Stock Award Plan -45,137.
(3) There are no equity compensation plans that have not been approved by the
Corporation's Stockholders.
11
ITEM 6. SELECTED FINANCIAL DATA.
FIVE YEAR SUMMARY
ONEIDA LTD.
(Millions except per share and share amounts)
Year ended January 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------
OPERATIONS
Net sales............................. $ 453.0 $ 491.9 $ 509.1 $ 524.3 $ 504.6
License revenues...................... 1.5 1.4 1.5 1.2 .9
Gross margins......................... 103.6 155.2 161.8 160.7 191.1
Depreciation and amortization
expense............................ 11.8 13.7 13.8 14.8 13.8
Operating (loss) income............... (56.9) 25.4 27.7 20.4 24.5
Net income (loss)..................... (99.2) 9.2 7.0 (3.1) 5.5
Cash dividends declared
Preferred stock................... 0.0 .1 .1 .1 .1
Common stock...................... 0.4 1.3 2.0 5.7 6.6
PER SHARE OF COMMON STOCK
Net (loss) income - diluted........... (5.98) .55 .42 (.20) .32
Dividends declared.................... 0.02 .08 .17 .35 .40
Net income (loss) - basic............. (5.98) .55 .42 (.20) .33
FINANCIAL DATA
Total assets.......................... 441.5 525.1 543.9 619.3 449.2
Working capital....................... (89.8) 179.1 199.6 214.9 145.1
Total debt............................ 230.9 234.0 271.6 300.1 146.2
Stockholders' equity.................. 22.6 129.4 124.1 122.5 133.3
SHARES OF CAPITAL STOCK IN THOUSANDS
Outstanding at end of year
Preferred.......................... 86 86 86 87 87
Common............................. 16,782 16,598 16,523 16,388 16,465
Weighted average number of
common shares outstanding
during the year - diluted.......... 16,606 16,581 16,519 16,387 16,672
Weighted average number of
common shares outstanding
during the year - basic............ 16,606 16,540 16,468 16,300 16,524
SALES OF MAJOR PRODUCTS BY
PERCENT OF TOTAL SALES
Metal products........................ 60% 60% 65% 66% 68%
Dinnerware products................... 31% 31% 27% 25% 21%
Glass products........................ 7% 7% 7% 8% 8%
Other products........................ 2% 2% 1% 1% 3%
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
Executive Summary
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business.
The Company experienced a net loss of approximately $99 million for the year
ended January 31, 2004 and has provided a full valuation allowance for its
deferred tax assets in 2004. This has resulted in a deficit in retained
earnings. In addition, the Company has violated its interest coverage ratio,
leverage ratio, and net worth covenants for the second and third quarters in
fiscal 2004 and at year end. The lenders have waived the covenant violations
through June 15, 2004 and deferred the required pay down of total indebtedness
which amounts to $35 million at year end. In addition, $3.9 million due to
senior note holders has been deferred. Under the amended and restated agreement,
covenant violations, if not corrected, could cause the lenders to disclose the
principal outstanding to be payable immediately. Accordingly, the entire bank
debt has been reported as current in the accompanying balance sheet. On March
31, 2004, the Company announced that negotiations with a potential investor had
been terminated. These factors raise substantial doubt as to the Company's
ability to continue as a going concern.
The Company has undertaken several initiatives to return to profitability,
increase liquidity and compete in a changing marketplace. These include:
o The closure and sale of the Buffalo, NY facility and the closure and
pending sale of facilities in Canada, China, Italy and Mexico;
o The outsourcing of production from these facilities to lower cost
producers or entering into a favorable supply agreement as is the case
with the new owners of Buffalo China;
o The implementation of lean manufacturing and related work force
reduction;
o Plan changes in post-retirement benefits;
o On-going discussions with the banking group to extend their commitment
with covenants the Company can meet.
The Company's viability is dependent upon the execution of these plans and the
forbearance of its banks. The Company's revenues and costs are also dependent
upon some factors that are not entirely within its control such as changes in
the economy and increased competition. Due to the uncertainties of these
factors, actual revenue and costs may vary from expected amounts, possibly to
a material degree, and such variations could affect future funding
requirements.
If the Company is unable to achieve its operating and strategic plans and
objectives, the Company may need to raise additional capital, obtain further
covenant waivers from its lenders or seek additional investors. There can be
no assurance that the Company will be successful in any or all of these
endeavors, and failure may affect the Company's ability to continue to operate
its business.
During fiscal 2004, the Company determined that it should have historically been
reporting three reporting segments, as defined in SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information": Foodservice,
Consumer and International. Foodservice and Consumer segments operated in the
US. The Company previously reported that its Tableware segment was grouped
around three major product categories. The prior year disclosures have been
restated to report these three segments. This change in segment reporting has
no effect on reported earnings. No balance sheet data is allocated to either
Foodservice or Consumer segments.
13
2004 2003 2002
---- ---- ----
Net Sales:
Foodservice............. $193,326 $201,393 $221,338
Consumer................ 175,250 202,638 201,672
International........... 84,399 87,844 86,061
--------- --------- ---------
Total................ 452,975 491,875 509,071
Gross Margin................. 103,594 155,217 161,827
% Net Sales............. 22.9% 31.6% 31.8%
Operating Expenses........... 160,472 129,864 134,149
% Net Sales............. 35.4% 26.4% 26.4%
Fiscal year ended January 2004 compared
with fiscal year ended January 2003
Operations
Consolidated net sales for the twelve months ended January 31, 2004 decreased
$38,900 from the same period last year, reflecting continuing softness in the
overall economy. The decrease in net sales was volume driven while pricing
remained relatively flat. Sales of Consumer products decreased by $27,388 or
13.5% over the same period last year and Foodservice sales decreased by $8,067
or 4.0%. Additionally, International net sales decreased $3,445 or 3.9% over the
same period last year, primarily as a result in decreased volume. This was
mainly attributable to the economic climate as consumer confidence remained
uncertain all year. During the fourth quarter, order volumes increased. The
increase in order levels resulted in short term product shortages, reduced
shipments and sales volumes. The transition to lean manufacturing at our
Sherrill, NY plant contributed to the product shortages.
Gross margin was 22.9% in 2004, as compared to 31.6% in the prior year. Current
years' lower net sales resulted in the manufacturing plants operating at lower
volumes generating inefficiencies and increased costs. Additional unfavorable
manufacturing variances were caused by labor inefficiencies at the facilities
that were identified for closure. Also contributing to the decrease in gross
margin was a trend towards less expensive, lower margin sourced product. In
conjunction with the Company's focus on reducing warehousing costs and inventory
levels, an inventory charge of $13,904 was recorded to adjust certain inventory
to its expected realizable value. Additionally, LIFO liquidations reduced cost
of sales by $2,804 and $225 in fiscal 2004 and 2003, respectively. The
identified inventory will be aggressively marketed through non traditional
channels and liquidators. The sale of the Buffalo China factory resulted in a
$2,651 inventory write down.
Operating expenses increased by $30,608 or 23.6%, for the twelve-month period
ended January 31, 2004. The increase is attributable to restructuring charges of
$9,001 and impairment charges of $19,904 which are discussed below. The Company
incurred $3,100 in costs during the fourth quarter investigating the various
debt and equity alternatives available to the Company.
Other income decreased by $5,666 from the same period last year. In 2003, the
Company had other income of $3,000 generated from insurance proceeds for
recovery of legal costs incurred in connection with a fiscal 2000 unsolicited
takeover attempt along with $1,300 gain on the sale of marketable securities.
In 2004 interest and deferred financing costs decreased to $16,673 from $17,061
in the prior year. This decrease is due to significantly lower average
borrowings throughout the year and lower prevailing interest rates, the most
significant of which was the decrease in the weighted average rate of short-term
debt from 4.6% in 2003 to 4.2% in 2004.
14
Primarily as a result of restructuring costs, and recognition of additional
minimum pension liabilities, the Company recorded non-cash charges to continuing
operations and other comprehensive loss of $49,033 and $5,067, respectively, to
establish a valuation allowance against net deferred tax assets of $44,277 (the
Company is required to exclude deferred tax liabilities relative to indefinite
long-lived intangibles from the calculation). The charges were calculated in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS 109) which requires an assessment
of both positive and negative evidence when measuring the need for a valuation
allowance. Evidence, such as operating results during the most recent three-year
period, is given more weight when due to our current lack of visibility, there
is a greater degree of uncertainty that the level of future profitability needed
to record the deferred tax assets will be achieved. The Company's results over
the most recent three-year period were heavily affected by our recent business
restructuring activities. The Company's cumulative loss in the most recent
three-year period, represented sufficient negative evidence to require a
valuation allowance under the provisions of SFAS 109. The Company intends to
maintain a valuation allowance until sufficient positive evidence exists to
support its reversal.
During the year ended January 31, 2004, the Company provided $5,123 of deferred
tax expense on $13,845 of retained earnings of certain international
subsidiaries. The charge was recorded in accordance with the provisions of APB
23, "Accounting for Income Taxes - Special Areas". An income tax provision had
not been recorded previously as it was determined that these earnings would be
reinvested in properties and plants and working capital. Restructuring
activities taking place in the year ended January 31, 2004 have changed that
determination. Deferred taxes on retained earnings of the remaining
international subsidiaries have not been recognized as the income is determined
to be permanently reinvested. During 2004, $4,667 of tax accruals were reversed
due to the resolution of prior year income tax audits.
The following table summarizes our provision for income taxes and the related
effective tax rates for the year ended.
January 31, 2004 January 25, 2003
Income (Loss) before income taxes $(73,948) $11,541
Provision for income taxes 25,263 2,319
Effective tax rate 134.2% 20.1%
The effective tax rate for the year was significantly more than the U.S.
statutory rate primarily due to the recognition of a deferred tax liability for
certain unrepatriated foreign earnings of $5,123 under APB 23, "Accounting for
Income Taxes - Special Areas," and the non-cash charge to continuing operations
of $49,033 to provide a full valuation allowance on our remaining net deferred
tax assets, exclusive of the current year deferred tax asset recorded as a
result of recognition of additional minimum pension liability. A valuation
allowance of $5,067 was recorded as a non-cash charge to other comprehensive
loss in the separate equity accounts and has no effect on the effective tax
rate. The effective tax rate for the year ended January 25, 2003 was lower than
the U.S. statutory rate primarily due to the resolution of prior year foreign
tax audits and the recognition of state tax loss carry forwards.
Fiscal year ended January 2003 compared
with fiscal year ended January 2002
Operations
Consolidated net sales for the twelve months ended January 25, 2003 decreased
$17,196 from the same period in the prior year, reflecting softness in the
overall economy. Sales of Foodservice products decreased $19,945 or 9.0% over
the same period in the prior year. This was mainly the result of significant
cutbacks by airlines and other foodservice establishments as the travel and
entertainment industries remain sluggish. In addition, Consumer sales in
domestic markets increased $966 or .4%. This was mainly attributable to
increased net sales at the supermarket divisions, which were offset by a
decrease in other consumer markets. Additionally, International sales
increased $1,783 or 2.1% over the same period in the prior year.
15
Gross margin was 31.6% in 2003, as compared to 31.8% in the prior year. The low
gross margin for both years is primarily the result of unfavorable factory
variances as the Company's manufacturing facilities operated at a lower capacity
due to reduced demand.
Operating expenses decreased by $4,285, or 3.2%, for the twelve-month period
ended January 25, 2003. This decrease is attributable to the reduction of
goodwill amortization of $3,924 and continued efforts to reduce operating costs.
As a percentage of sales, operating expenses were 26.4% in the current year
compared to 26.4% in 2002.
Other income decreased by $2,943 from the same period last year. In 2002, the
Company had miscellaneous income of $8,646 related to the receipt of Prudential
Financial common shares, which were included in other current assets. These
shares were received by the Company, a Prudential policyholder, as part of
Prudential's conversion from a mutual insurance company to a stock enterprise.
One sixth of these shares were sold in 2002. The remaining shares were sold in
2003, which resulted in an additional gain of $1,300. Also in 2003, the Company
had other income of $3,000 generated from insurance proceeds for recovery of
legal costs incurred in connection with a fiscal 2000 unsolicited takeover
attempt. Interest expense and amortization of deferred financing costs in 2003
decreased $6,873 from $23,934 in the prior year. This decrease is due to
significantly lower average borrowings throughout the year and lower prevailing
interest rates, the most significant of which was the decrease in the weighted
average rate of short-term debt from 6.0% in 2002 to 4.6% in 2003.
The effective tax rate was 20.1% in 2003 as compared to 39.9% in 2002. This is
principally the result of the reversal of prior foreign taxes recognized, due to
the resolution of prior year foreign tax audits and the recognition of state tax
loss carry forwards.
Restructuring & Lean Manufacturing
As a result of the substantial manufacturing inefficiencies and negative
manufacturing variances, it was determined at the end of the third quarter to
close 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 will continue to market the products from these
sites, using independent suppliers. The Toluca, Mexico; Shanghai, China; and
Vercelli, Italy facilities closings were completed during the fourth quarter of
the year ended January 31, 2004. The Buffalo, NY factory buildings and
associated materials and supplies were sold to Niagara Ceramics Corporation on
March 12, 2004. The Buffalo China name and all other active Buffalo China
trademarks and logos will remain the property of the Company. Niagara Ceramics
will be an independent supplier to the Company. The Juarez, Mexico factory
closing is expected to be completed by the end of the first quarter of the
fiscal year ending January 29, 2005. Additionally, the warehouse located in
Niagara Falls, Canada will be closed during the first quarter of the upcoming
year. The Toluca, Mexico; Juarez, Mexico; Niagara Falls, Canada; and a portion
of the Vercelli, Italy properties have been sold and the Company anticipates
closing the sales by May 31, 2004. The Company believes that the remaining
properties will be sold by July 30, 2004. The restructuring plans are intended
to reduce costs, increase the Company's liquidity and better position the
Company to compete under the current economic conditions.
Under the restructuring plan, approximately 1,150 employees will be terminated.
As of January 31, 2004, 297 of those terminations have occurred while 65
employees have accepted employment with Niagara Ceramics who are now the new
owners of Buffalo China. As of the end of the year there remains 772 employees
who are scheduled to be terminated. Termination benefits have been recorded in
accordance with contractual agreements or statutory regulations. The Company
recognized a charge of $9,001 in year ended January 31, 2004. Cash payments
under the restructuring was $1,601 and the liability at year end is $7,400
These cost saving activities are expected to reduce operating expenses by
approximately $12 million annually.
16
The Company is implementing a lean manufacturing approach at its Sherrill, NY
manufacturing facility in an effort to reduce manufacturing and overhead costs.
During 2004, approximately 275 positions were eliminated at the Sherrill, N.Y.
flatware manufacturing operation. The affected employment primarily involved
supporting positions that are no longer needed under the Company's continued
conversion to a lean manufacturing system and as a result of lower demand. The
lean manufacturing conversion is projected to be complete by July 30, 2004 and
expected annual savings are $18 million. Lean manufacturing is a process that
eliminates all costs that do not add value to the finished product. The savings
will be achieved through the continual elimination of overhead positions and
increased manufacturing efficiencies associated with lean manufacturing. The
forks and spoons that are manufactured by the lean manufacturing lines are on
plan and have resulted in cost reductions. The remaining metal products to be
converted need to result in similar cost savings as the forks and spoons in
order for the Sherrill, NY facility to remain operational.
Fixed Asset Impairments
In conjunction with the closures associated with the restructuring, the Company
performed an evaluation in accordance with the held for sale model for Buffalo
China and the held and used model for all other facilities of Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment of Long
Lived Assets" (FASB 144), to determine if the manufacturing fixed assets were
subject to a possible impairment loss. Due to the cash flow being less than the
book value, it was determined that an impairment existed and as a result, the
Company valued the assets at fair market value. An impairment charge of $12,730
was identified and recorded as a charge in the consolidated statements of
operations under the caption "Impairment loss on depreciable assets" for the
year ended January 31, 2004.
In conjunction with the Company's effort to reduce SKUs and operate in a
profitable and cost efficient fashion, several glass and crystal product lines
have been discontinued. Additionally, domestic metalware production has been
reengineered under the lean manufacturing effort and certain patterns have been
outsourced to low cost producers. The Company performed a FASB 144 evaluation to
determine if the fixed assets associated with these product lines were subject
to a possible impairment loss. Due to the cash flows being less than the book
value of fixed assets, it was determined that an impairment existed. The fixed
assets are specific to these product lines and do not have a market and
therefore no market value, and as a result, an impairment charge of $4,300 was
identified. The charge is recorded in the consolidated statements of
operations under the caption "Impairment loss on depreciable assets" for year
ended January 31, 2004.
As a result of the reduced operating results and negative cash flow associated
with the Oneida Home outlet stores (the "Stores"), the Company performed a FASB
144 evaluation to determine if the fixed assets were subject to a possible
impairment loss. Due to the negative cash flow it was determined that an
impairment existed. The impaired fixed assets are designed and manufactured
specifically for the Stores or are improvements made to leased facilities and as
a result, they do not have a market or market value. An impairment charge of
$1,044 was identified, which was recorded as a charge in the consolidated
statements of operations under the caption "Impairment loss on depreciable
assets" for the year ended January 31, 2004.
The Company has land use rights in connection with its Shanghai operation. As a
result of the restructuring, the Company will shut down the Shanghai operation
and the land use rights are impaired. An impairment charge of $530 was
recognized and recorded as a charge in the consolidated statements of operations
under the caption "Impairment loss on depreciable assets" for the year ended
January 31, 2004.
Impairment of Intangible Assets
During 2004, the Company determined that a goodwill impairment existed at its UK
operation. Reduced personal and business travel and restaurant activity combined
with weak consumer confidence has led to lower revenue, operating profits and
cash flow. Based on an independently performed valuation, the Company recognized
an impairment charge of $1,300 for the year ended January 31, 2004. The fair
value of the Company was determined through a combination of three valuation
analyses: business enterprise, debt and equity. The charge is recorded as a
charge in the Consolidated Statements of Operations under the caption
"Impairment charges" for year ended January 31, 2004.
17
Liquidity & Financial Resources
Cash flow from operating activities generated cash of $13,104 and $26,895 for
the years ended January 2004 and 2003, respectively. The net cash provided in
operating activities for the year ended January 31, 2004 was primarily due to
positive changes in working capital of $51,127 of which the largest components
contributing to the cash generated were inventory and accounts receivable. This
increase in working capital was partially offset by the net loss of $(99,211)
and non-cash adjustments for depreciation expense impairment charges and
deferred taxes. The cash generated for the year ended January 25, 2003 was
primarily from earnings and very little changes in working capital needs.
Cash used in investing activities was $1,667 for the year ended January 31,
2004 as compared to cash generated of $4,398 for the prior year ended January
25, 2003. Net cash used for the year ended January 31, 2004 was attributable to
capital expenditures in the amount of $5,123 which were partially offset by cash
received of $3,456 from the sale of properties and equipment. Cash generated in
the prior year was a result of proceeds received from the sale of marketable
securities of $8,399 along with the proceeds from the sale of assets of $3,197.
Cash generated was partially offset by cash used of $7,334 for capital
expenditures.
Cash used in financing activities was $4,219 and $39,741 for the years ended
January 2004 and 2003, respectively. Net cash used for both January 2004 and
2003 was primarily a result of the reduction of debt along with the payment of
dividends on the Company's stock. In April 2003, the Company and its required
lenders entered into amendments to the revolving credit and note agreements. The
amendments extend the maturity to May 31, 2005 from February 1, 2004, adjust
certain financial covenants and prohibit payment of dividends on common stock.
In addition, the commitment under the revolving credit facility reduced to
$225,000 upon signing of the amendment with further reductions to $220,000 on
July 25, 2003, $215,000 on November 3, 2003, $205,000 on January 30, 2004,
$185,000 on February 7, 2004, $175,000 on May 3, 2004 and $165,000 on November
1, 2004.
These facilities contain certain financial covenants, including a restriction
limiting the Company's total debt outstanding to a pre-determined multiple of
the prior rolling twelve months earnings before interest, taxes, deprecation and
amortization. A default in compliance with these covenants, if unremedied, could
cause the lenders to declare the principal outstanding to be payable
immediately. Since October 25, 2003, the Company has been in violation of the
interest coverage ratio, leverage ratio and net worth covenants and received a
series of waivers from its required lenders that expired April 30, 2004. The
waivers also postponed the $35 million reductions in the revolving credit
facility until April 30, 2004. The Company did not pay any compensation for
these waivers. The Company's senior note holders agreed to defer until April 30,
2004 a $3.9 million payment that was due October 31, 2003. On April 30, 2004 the
Company received waivers through June 15, 2004. At that time, the Company
expects to have provided lenders with updated financial information regarding
operations and restructuring plans and request waivers to incorporate a number
of changes. These changes include the amendment of the financial covenants and
permit certain transactions. The Company expects there will be a further
deferral of the reductions and payments until such amendments are agreed upon.
The Company's outstanding borrowings are classified as current as the waiver has
not been agreed upon and more restrictive covenants must be met as of May 1,
2004 under the existing agreement and it is probable that the Company will fail
to meet those covenants.
Working capital was $(89,751) as of January 31, 2004 as compared to $179,144 at
January 25, 2003. The decrease in working capital as of January 31, 2004 was
caused by the current classification of the revolving credit and note
agreements. As of January 31, 2004, the Company had unused bank lines of credit
of $13,129. Under the provisions of the amended revolving credit and note
agreements, at January 31, 2004 the Company was able to declare dividends on its
6% Cumulative Preferred Stock up to $32 per quarter. However, no dividend was
declared on the preferred stock for the year ended January 31, 2004. Dividends
in arrears amounted to $129 for the year ended January 31, 2004.
In addition to the restructuring, the Company is continuing its implementation
of lean manufacturing and improving efficiencies as well as reducing headcount
in the Sherrill, NY manufacturing facility. The results of the Company's actions
are intended to reduce costs, increase the Company's liquidity and better
position the Company to compete under the current economic conditions.
18
The following table represents the Company's existing debt and lease
obligations:
Lease Debt
Commitment Obligations
---------- -----------
2005............................... $ 8,131 $223,214
2006............................... 5,021
2007............................... 3,496
2008............................... 2,837
2009............................... 2,091
Remainder.......................... 8,248
-------- --------
Total....................... $ 29,824 $223,214
======== ========
The Company needs to raise additional capital to reduce its outstanding debt
obligations as required by the amended agreements. Our revenue and costs may be
dependent upon factors that are not within our control. Due to the uncertainty
of these factors, actual revenue and costs may vary from expected amounts,
possibly to a material degree, and such variations could affect our future
liquidity. Should factors differ materially, management may delay capital
expenditures, reduce overhead, selling, distribution and administrative
expenses, sell assets or seek alternative financing. Provided the above
amendments or waivers are obtained, operating results improve as a result of the
restructuring activities and implementation of lean manufacturing, and the
additional capital raised, management believes there is sufficient liquidity to
support the Company's funding requirements over the next year from future
operations as well as from available bank lines of credit. If the amendments or
waivers are not received, potential additional capital not raised, or operating
results do not improve, the Company may not continue as a going concern.
Critical Accounting Policies
The Company's accounting policies are more fully described in Note 1 of the
Notes to Consolidated Financial Statements in its Annual Report for the years
ended January 2004 and 2003. As disclosed in Note 1, the preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions about future events that affect the amounts reported in the
financial statements and accompanying footnotes. Future events and their effects
cannot be determined with absolute certainty. Therefore, the determination of
estimates requires the exercise of judgment. Actual results may differ from
those estimates, and such differences may be material to the Consolidated
Financial Statements.
The most significant accounting estimates inherent in the preparation of the
Company's financial statements includes estimates as to the recovery of accounts
receivable, inventory, goodwill, other long-lived assets and income taxes and
the Company's pension and post retirement assumptions. Various assumptions and
other factors underlie the determination of these significant estimates. The
process of determining significant estimates is fact specific and takes into
account factors such as historical experience, current and expected economic
conditions, product mix and actuarial determinations. The Company re-evaluates
these significant factors as facts and circumstances dictate. Historically,
actual results have not differed significantly from those determined using
the estimates described above.
The valuation of the Company's pension, other post-retirement plans and self
insured medical and workers compensation plans require the use of assumptions
and estimates that are used to develop actuarial valuations of expenses and
assets/liabilities. These assumptions include discount rates, investment
returns, projected salary increases, benefits, mortality rates and claims lag.
The actuarial assumptions used in the Company's pension reporting are reviewed
annually and compared with external benchmarks to help assure that they account
for the Company's future pension and other post-retirement obligations. Changes
in assumptions and future investment returns could potentially have a material
impact on pension expense and related funding requirements.
19
The Company estimates its tax expense based on the amount it expects to owe the
respective taxing authorities. Taxes are discussed in more detail in Note 4 of
Notes to Consolidated Financial Statements. Accrued taxes represents the net
estimated amount due or to be received from taxing authorities. In estimating
accrued taxes, management assesses the relative merits and risks of the
appropriate tax treatment of transactions taking into account statutory,
judicial and regulatory guidance in the context of the Company's tax position.
If the final resolution of taxes payable differs from our estimates due to
regulatory determination or legislative or judicial actions, adjustments to tax
expense may be required.
Goodwill represents costs in excess of fair values assigned to the underlying
net assets of acquired businesses. The assets and liabilities of acquired
businesses are recorded under the purchase method at their estimated fair values
at the dates of acquisition. The Company has recorded goodwill of $136,118 at
January 31, 2004 and $133,944 at January 25, 2003. In accordance with Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
intangible Assets", goodwill and intangible assets deemed to have indefinite
lives are not amortized, but are subject to annual impairment testing. The
identification and measurement of goodwill impairment involves the estimation of
the fair value of reporting units. The estimates of fair value of reporting
units are based on the best information available as of the date of the
assessment, which primarily incorporate management assumptions about expected
future cash flows and market comparable analyses. Future cash flows can be
affected by changes in industry or market conditions or the rate and extent to
which anticipated synergies or cost savings are realized with newly acquired
entities. See Note 1 of Notes to Consolidated Financial Statements for further
discussion and resulting goodwill charges on the U.K. operations.
The Company offers various sales discounts and co-op advertising incentives to a
broad base of customers. These discounts and incentives are recorded as a
reduction of sales. The company records accruals for these discounts and
incentives as sales occur. Management regularly reviews the adequacy of the
accruals based on current customer purchases. The amounts due to customers are
paid or deducted from accounts receivable balances throughout the year.
The Company accounts for its long-lived assets in accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." In accordance
with SFAS No. 144, long-lived assets to be held and used by an entity are to be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the sum of the
expected future undiscounted cash flows is less than the carrying amount of the
asset, an impairment loss is recognized by reducing the recorded value to fair
value.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies an obligation of the
issuer. This statement is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The Company currently does
not hold any financial instruments that should be considered for transition from
equity to liabilities.
In January 2003, the FASB issued Financial Interpretation ("FIN") No. 46,
Consolidation of Variable Interest Entities. In December 2003 the FASB issued
FIN 46R. The objective of FIN No. 46 is to improve financial reporting by
companies involved with variable interest entities. FIN No. 46 changes certain
consolidation requirements by requiring a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive
a majority of the entity's residual returns or both. The Interpretation
outlines disclosure requirements for variable interest entities in existence
prior to January 31, 2003, and requires consolidation of variable interest
entities created after January 31, 2003. In addition, FIN 46R requires
consolidation of variable interest entities created prior to January 31, 2003
for fiscal periods ending after March 15, 2004. The adoption of this standard
is not expected to have a material impact on the Company's financial condition
or results of operations.
20
ITEM 7A QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk is impacted by changes in interest rates and foreign
currency exchange rates. Pursuant to the Company's policies, the Company does
not hold or issue any significant derivative financial instruments.
The Company's primary market risk is interest rate exposure in the United
States. Historically, the Company manages interest rate exposure through a mix
of fixed and floating rate debt. The majority of the Company's debt is currently
at floating rates. Based on floating rate borrowings outstanding at January
2004, a 1% change in the rate would result in a corresponding change in interest
expense of $2.3 million.
The Company has foreign exchange exposure related to its foreign operations in
Mexico, Canada, Italy, Australia, the United Kingdom and China. See Note 16 of
Notes to Consolidated Financial Statements for details on the Company's foreign
operations. Translation adjustments recorded in the income statement were not of
a material nature. See Foreign Currency Translation in Note 1 of Notes to
Consolidated Financial Statements for further discussion.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements and Supplementary Data
Page
----
Report of Independent Auditors........................................................................ 22
Consolidated Statements of Operations: years ended January 2004, 2003 and 2002........................ 23
Consolidated Balance Sheets: January 31, 2004 and January 25, 2003.................................... 24
Consolidated Statements of Changes in Stockholders' Equity: years ended January 2004, 2003 and 2002... 25
Consolidated Statements of Comprehensive (Loss) Income: years ended January 2004, 2003 and 2002....... 26
Consolidated Statements of Cash Flows: years ended January 2004, 2003 and 2002........................ 27
Notes to Consolidated Financial Statements............................................................ 28
Schedule of Valuation and Qualifying Accounts for the years ended January 2004, 2003 and 2002,
respectively.......................................................................................... 59
21
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Oneida Ltd.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Oneida, Ltd. and its subsidiaries at January 31, 2004 and January 25, 2003, and
the results of their operations and their cash flows for each of the three years
in the period ended January 31, 2004 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As described in Note 2, the
Company has suffered significant losses and is in violation of its debt
covenants. These matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to this uncertainty
are described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 1, effective January 27, 2002, the Company adopted
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangibles."
As discussed in Note 16, the Company has restated its 2003 and 2002 reporting
segments.
/s/ PRICEWATERHOUSECOOPERS LLP
Syracuse, New York
April 30, 2004
22
ONEIDA LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars, except per share data)
Year ended in January
January 31, January 25, January 26,
2004 2003 2002
----------- ----------- -----------
Revenues:
Net sales ............................................ $452,975 $491,875 $509,071
License fees ......................................... 1,466 1,378 1,513
-------- -------- --------
Total Revenues ......................................... 454,441 493,253 510,584
-------- -------- --------
Cost of sales ........................................... 350,847 338,036 348,757
-------- -------- --------
Gross Margin ............................................ 103,594 155,217 161,827
Operating expenses:
Selling, distribution and administrative expense .... 134,304 129,809 134,110
Restructuring expense ................................ 9,001
Impairment loss on depreciable assets ................ 18,604
Impairment loss on goodwill .......................... 1,300
(Gain) loss on the sale of fixed assets .............. (2,737) 55 39
-------- -------- --------
Total .......................................... 160,472 129,864 134,149
-------- -------- --------
Other income ............................................ 2,654 8,320 11,263
Other expense ........................................... (3,051) (5,071) (3,327)
Interest expense and amortization of
deferred financing costs ............................. (16,673) (17,061) (23,934)
-------- -------- --------
(Loss) income before income taxes ....................... (73,948) 11,541 11,680
Provision for income taxes .............................. (25,263) (2,319) (4,657)
-------- -------- --------
Net (loss) income ....................................... $(99,211) $ 9,222 $ 7,023
======== ======== ========
Preferred Stock Dividends................................ (129) (129) (130)
-------- -------- --------
Net (loss) income available to common shareholders....... $(99,340) $ 9,093 $ 6,893
-------- -------- --------
(Loss) earnings per share of common stock Net income:
Basic ....................................... $ (5.98) $ .55 $ .42
Diluted ..................................... (5.98) .55 .42
See notes to consolidated financial statements.
23
ONEIDA LTD.
CONSOLIDATED BALANCE SHEETS
(Thousand of Dollars)
January 31, January 25,
2004 2003
- -----------------------------------------------------------------------------------
ASSETS
Current assets:
Cash ............................................... $ 9,886 $ 2,653
Trade accounts receivables, less allowance
for doubtful accounts of $2,961 and
$2,963, respectively ............................ 58,456 75,810
Other accounts and notes receivable ................ 1,890 2,196
Inventories ........................................ 139,448 167,573
Other current assets ............................... 5,361 8,515
-------- --------
Total current assets ......................... 215,041 256,747
Property, plant and equipment, net .................... 73,675 102,366
Assets held for sale .................................. 3,199
Goodwill .............................................. 136,118 133,944
Deferred income taxes ................................. 18,575
Other assets .......................................... 13,468 13,488
-------- --------
Total assets ................................. $441,501 $525,120
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt .................................... $ 7,654 $ 8,510
Accounts payable ................................... 21,231 25,711
Accrued liabilities (Note 10)....................... 45,293 36,976
Accrued restructuring .............................. 7,400
Long term debt classified as current................ 223,214 6,406
-------- --------
Total current liabilities .................... 304,792 77,603
Long-term debt ........................................ 0 219,037
Accrued postretirement liability (Note 11)............. 62,930 59,708
Accrued pension liability (Note 11).................... 24,259 18,892
Deferred income taxes (Note 4)......................... 9,823
Other liabilities ..................................... 17,097 20,491
-------- --------
Total liabilities ............................ 418,901 395,731
Commitments and contingencies (Note 8)
Stockholders' equity:
Cumulative 6% preferred stock--$25 par value;
authorized 95,660 shares, issued 86,036 shares,
callable at $30 per share respectively ............. 2,151 2,151
Common stock--$l.00 par value; authorized
48,000,000 shares, issued 17,883,460 and
17,836,571 shares respectively .................. 17,883 17,837
Additional paid-in capital ............................ 84,561 84,318
Retained earnings (deficit) ........................... (32,933) 68,407
Accumulated other comprehensive loss .................. (27,493) (19,190)
Less cost of common stock held in treasury;
1,149,364 and 1,285,679 shares, respectively ....... (21,569) (24,134)
-------- --------
Stockholders' equity: ........................... 22,600 129,389
-------- --------
Total liabilities and stockholders' equity ... $441,501 $525,120
======== ========
See notes to consolidated financial statements.
24
ONEIDA LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Thousands of Dollars)
Accum.
Add'l Other
Common Common Preferred Paid-in Retained Comp. Treasury
Shares Stock Stock Capital Earnings Inc(Loss) Stock Total
------ ------- --------- ------- -------- --------- -------- -----
Balance January 27, 2001.................... 17,703 $17,703 $2,167 $82,956 $55,693 $(11,423) $(24,590) $122,506
Stock plan activity, net of tax............. 106 106 1,009 1,115
Purchase/retirement of treasury stock--net.. (16) 456 440
Cash dividend declared ($.17 per common
share and $1.50 per preferred share)..... (2,078) (2,078)
Net income.................................. 7,023 7,023
Foreign currency translation adjustment..... (5,482) (5,482)
Unrealized holding gain on marketable
equity securities, net of income
taxes of $(339).......................... 577 577
-------------------------------------------------------------------------------
Balance January 26, 2002.................... 17,809 17,809 2,151 83,965 60,638 (16,328) (24,134) 124,101
Stock plan activity, net of tax............. 28 28 353 381
Cash dividend declared ($.08 per common
share and $1.50 per preferred share)..... (1,453) (1,453)
Net income.................................. 9,222 9,222
Foreign currency translation adjustments.... 1,715 1,715
Realized gain on marketable equity
securities, net of income taxes of $339.. (577) 577
Minimum pension liability adjustments, net
of tax benefit of $2,349................. (4,000) (4,000)
-------------------------------------------------------------------------------
Balance January 25, 2003.................... 17,837 17,837 2,151 84,318 68,407 (19,190) (24,134) 129,389
Stock plan activity, net of tax............. 46 46 243 289
Cash dividend declared ($.02 per common
share and $.375 per preferred share)..... (363) (363)
Net loss.................................... (99,211) (99,211)
Foreign currency translation adjustments.... 5,392 5,392
Contribution of treasury Shares to ESOP..... (1,766) 2,565 799
Minimum pension liability adjustments,
net of tax benefit of $0................. (13,695) (13,695)
-------------------------------------------------------------------------------
Balance January 31, 2004.................... 17,883 $17,883 $2,151 $84,561 $(32,933) $(27,493) $(21,569) $22,600
===============================================================================
See notes to consolidated financial statements.
25
ONEIDA LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Thousands of Dollars)
January 31, January 25, January 26,
2004 2003 2002
----------- ----------- -----------
Net (loss) income........................................................... $ (99,211) $ 9,222 $ 7,023
Other comprehensive income, net of tax:
Unrealized holding gain on marketable securities, net of income tax
expense of $146 and $339................................................. 248 577
Realized gain on marketable securities, net of income tax benefit of $484... 825
Foreign currency translation adjustments, net of income tax benefit......... 5,392 1,715 (5,482)
Minimum pension liability adjustments, net of income tax benefit
of $0 and $2,349 in January 31, 2004 and January 25, 2003, respectively.. (13,695) (4,000) --
--------- -------- -------
Other comprehensive loss.................................................... (8,303) (2,862) (4,905)
--------- -------- -------
Comprehensive (loss) income................................................. $(107,514) $ 6,360 $ 2,118
========= ======== =======
Balance at end of year...................................................... $(27,493) $(19,190) $(16,328)
========= ======== =======
See notes to consolidated financial statements.
26
ONEIDA LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Year ended in January 2004 2003 2002
- ---------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss).............................................. $(99,211) $ 9,222 $ 7,023
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................... 11,771 13,746 13,761
Impairment of goodwill long-term assets..................... 19,904 -- --
(Gain) loss on disposition of properties and equipment...... (2,737) 55 39
Gain on marketable securities............................... -- (1,300) (8,646)
Deferred taxes.............................................. 30,642 3,532 9,890
Receivables provisions...................................... (1) (512) 403
Decrease (increase) in operating assets:
Receivables.............................................. 17,979 3,682 6,991
Inventories.............................................. 31,910 3,646 39,921
Other current assets..................................... 2,380 (2,833) 3,336
Other assets............................................. (482) (1,140) (3,288)
Increase (decrease) in accounts payable..................... (3,173) 683 (7,817)
Increase (decrease) in accrued liabilities.................. 2,513 (2,656) (22,073)
Effect of foreign currency on intercompany
balances................................................. 1,609 770 (232)
Net cash provided by operating activities................ 13,104 26,895 39,308
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from the sale of subsidiaries and minority interest... -- 23 6,604
Purchases of properties and equipment.......................... (5,123) (7,334) (13,750)
Proceeds from dispositions of properties and equipment......... 3,456 113 2,798
Proceeds from sale of marketable securities.................... -- 8,399 1,547
Proceeds from disposal of assets held for sale................. -- 3,197 3,823
-------- -------- --------
Net cash provided by (used in) investing activities...... (1,667) 4,398 1,022
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock......................... 289 381 1,115
Issuance of treasury stock..................................... 440
(Payments)/borrowings of short-term debt net. (1,480) (1,509) 3,582
Proceeds from issuance of long-term debt....................... 1,025
Payments of long-term debt..................................... (2,602) (37,160) (32,953)
Dividends paid................................................. (426) (1,453) (4,238)
-------- -------- --------
Net cash used in financing activities.................... (4,219) (39,741) (31,029)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 15 (11) (352)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH................................... 7,233 (8,459) 8,949
CASH AT BEGINNING OF YEAR......................................... 2,653 11,112 2,163
-------- -------- --------
CASH AT END OF YEAR............................................... $ 9,886 $ 2,653 $ 11,112
======== ======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for:
Interest.................................................... $ 15,140 $ 15,719 $ 25,309
Income taxes................................................ 114 2,559 1,056
Non-cash investing activity:
Unrealized gain on marketable securities.................... -- -- 916
Non-cash contribution of treasury shares to ESOP............ 799 -- --
See notes to consolidated financial statements.
27
ONEIDA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars Except Share and Per Share)
1. ACCOUNTING POLICIES
Restatement
During fiscal 2004, the Company determined that it should have historically been
reporting three reportable segments, as defined in SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information": Foodservice, Consumer
and International. Foodservice and Consumer segments operate in the US. The
Company previously reported that its Tableware segment was grouped around three
major product categories. The prior year disclosures have been restated to
report these three segments. This change in segment reporting has no effect on
reported earnings. (See Note 16).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The Company uses a 52-53 week fiscal year ending on the last
Saturday in January. The year ended January 31, 2004 included 53 weeks of
activity. The financial statements of certain non U.S. subsidiaries are
consolidated with those of the parent on the basis of years ending in December.
All significant intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. The most significant
estimates and assumptions inherent in the Company's financial statements include
those made regarding valuation of accounts receivable, inventory, goodwill,
deferred tax assets and the Company's pension, postretirement, self insured
workers compensation and self insured medical plans. Actual results could differ
from those estimates.
Reclassifications
Certain reclassifications have been made to the prior year's information to
conform to the current year presentation. In 2002, shipping and handling costs
have been reclassified from net sales to cost of sales. Selling expense for the
Company owned European retail shops has been reclassified from cost of sales to
selling, distribution and administrative expenses. Amortization of deferred
financing costs has been reclassified from other expense to interest and
amortization of deferred financing costs. Additionally prior years' cash flows
have been reclassified to accurately report the effect of foreign currency
translation on cash.
Comprehensive Income (Loss)
SFAS No. 130, "Reporting Comprehensive Income", requires companies to report a
measure of operations called comprehensive income. This measure, in addition to
net income, includes as income or loss, the following items, which if present
are included in the equity section of the balance sheet: unrealized gains and
losses on certain investments in debt and equity securities; foreign currency
translation; gains and losses on derivative instruments designated as cashflow
hedges; and minimum pension liability adjustments. The Company has reported
comprehensive income in the Consolidated Statements of Comprehensive (Loss)
Income.
Stock Option Plans
The Company has elected to continue following APB No. 25 "Accounting for Stock
Issued to Employees" 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 may be recognized for the fair value of the
options on the date of grant over the vesting period of the options.
28
Application of the fair-value based accounting provision of SFAS 123 results in
the following pro forma amounts of net (loss) income and earnings (loss) per
share:
2004 2003 2002
--------- -------- --------
Net (loss) income, as reported........ $(99,211) $ 9,222 $ 7,023
Less: Total stock-based employee
compensation expense determined
under Black-Scholes option pricing
model, net of related tax effect
of $0, $1,529, and $1,484,
respectively.......................... (2,386) (2,293) (2,233)
--------- ------- -------
Pro forma net income.................. $(101,597) $ 6,929 $ 4,790
========= ======= =======
Earnings (loss) per share:
As reported: Basic................. $ (5.98) $ .55 $ .42
Diluted............... (5.98) .55 .42
Pro forma: Basic................. (6.12) .41 .28
Diluted............... (6.12) .41 .28
Accounting for Stock Plans
The fair value for both the Stock Purchase Plan and Stock Option Plan was
estimated at the date of grant using a Black-Scholes options pricing model.
The valuation of the Stock Purchase Plan used the following weighted average
assumptions for 2004, 2003 and 2002, respectively: risk-free interest rates of
1.01%, 2.20% and 3.37%; dividend yields of 0.00%, 0.42% and 0.98%; volatility
factors of the expected market price of the Company's common stock of 32.0%,
42.8% and 39.1%; and a weighted average expected life of the option of 9 months.
The fair value per share for the options granted during 2004, 2003 and 2002 was
$1.68, $5.37 and $5.51, respectively. The estimated fair value of the options is
expensed in the year of issue in calculating pro forma amounts.
The valuation of the Stock Option Plan used the following weighted average
assumptions for 2004, 2003 and 2002, respectively: risk free interest rate of
3.07%, 4.41% and 4.99%; dividend yield of 0.00%, 0.44% and 1.05%; volatility
factor of the expected price of the Company's common stock of 45.72%, 39.25% and
37.7%; and an expected life of 5.53, 5.54 and 5.56 years. The fair value per
share for the options granted during 2004, 2003 and 2002 was $5.05, $7.56 and
$6.50. The estimated fair value of the options is expensed over the five-year
vesting period in calculating pro forma amounts.
Earnings per Share
Basic and diluted earnings per share are presented for each period in which a
statement of operations is presented. Basic earnings per share is computed by
dividing net income less preferred stock dividends 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 Company
had anti-dilutive shares outstanding of 960,000, 1,651,000, and 1,348,000 for
2004, 2003, and 2002, respectively. These shares are not part of the calculation
in determining earnings per share.
Cash and Cash Equivalents
Cash and cash equivalents have original maturities of three months or less.
29
Allowance for Doubtful Accounts
The Company evaluates the adequacy of the allowance for the doubtful accounts on
a periodic basis. The evaluation includes historical trends in collections and
write-offs, management's judgment of the probability of collecting accounts and
management's evaluation of business risk. The evaluation is inherently
subjective, as it requires estimates that are susceptible to revision as more
information becomes available. Accounts are determined to be uncollectible when
the balance is deemed to be worthless or only recoverable in part and are
written off at that time through a charge against the allowance.
Inventories
Inventories are valued at the lower of cost or market. Approximately 15% of
inventories are valued under the last-in, first-out (LIFO) method in 2004 and
2003, with the remainder valued under the first-in, first-out (FIFO) method.
The dollar value of the Company's inventories valued under the last-in,
first-out (LIFO) method was $6,482 and $8,935, respectively for the years
ended January 31, 2004 and