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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 29, 2005 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 per None
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 [_] NO [X]
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 $1.52 per share reported on the Over the
Counter Market on July 30, 2004 was approximately $24,256,046. 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 11, 2005, was 46,631,924.
Documents Incorporated by Reference
None.
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This document (excluding exhibits) contains 90 pages.
The table of contents is set forth on page 1.
The Exhibit Index begins on page 86.
TABLE OF CONTENTS
Page
PART I
Item 1. Business 2
(a) General 2
(b) Segments 3
(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 8
Risk Factors Which May Affect Future Results 8
Company Information 9
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 Equity and Related Stockholder Matters 11
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Conditions and Results of
Operations 14
Item 7A. Qualitative and Quantitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 62
Item 9A. Controls and Procedures 63
Item 9B. Other Information 66
PART III.
Item 10. Directors and Officers of the Registrant 66
Item 11. Executive Compensation 71
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Transactions 76
Item 13. Certain Relationships and Related Transactions 78
Item 14. Principal Accountant Fees and Services 79
PART IV.
Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K 79
Signatures 81
Consent of Independent Accountants 83-84
Schedule II, Valuation and Qualifying Accounts 85
Exhibit Index 86
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 designed and marketed tableware - initially
silverplated and, later, sterling and stainless steel flatware. By acquiring
subsidiaries, entering into strategic distributorship and licensing arrangements
and expanding its own tableware lines, the Company has diversified into the
design and distribution of other tableware, kitchenware and gift items, most
notably china dinnerware, silverplated and stainless steel hollowware, crystal
and glass stemware, barware and giftware, cookware, cutlery and kitchen utensils
and gadgets. This diversification has permitted the Company to progress toward
its goal of becoming a "total tabletop" supplier.
Since 1999, the Company has gone through a number of significant changes that
have redirected its focus from manufacturing to sourcing. These changes include
the closure of the Canadian and Mexican flatware manufacturing facilities
operated by the Company's Oneida Canada, Limited and Oneida Mexicana SA de SV
subsidiaries in 1999 and 2004, respectively; the cessation of hollowware
manufacturing at the Company's Sherrill, New York manufacturing facility in
1999, the sale of the Buffalo, New York dinnerware manufacturing facility
operated by the Company's Buffalo China, Inc. subsidiary in 2004, the closure of
the Mexican dinnerware manufacturing facility operated by Buffalo China, Inc.'s
Ceramica de Juarez SA de CV subsidiary in 2004, the closure of the Italian and
Chinese hollowware manufacturing facilities operated by the Company's Oneida
Italy, srl and Oneida International, Inc. subsidiaries, respectively, in 2004,
and the closure and sale of the Company's Sherrill, New York flatware
manufacturing facility in March 2005. The Chinese hollowware manufacturing
facility was sold in March 2005. With the March 2005 closure and sale of the
Company's Sherrill, New York flatware manufacturing facility the Company will
have completed its transition from a combination manufacturing and sourcing
supplier to a supplier of products wholly sourced from third party
manufacturers.
Coupled with these plant closures, several strategic acquisitions and supply
arrangements have advanced the Company's presence and abilities in the tableware
sourcing arena. In 1996, the Company acquired the assets of THC Systems, Inc., a
leading importer and marketer of vitreous china and porcelain dinnerware for the
Foodservice industry under the Rego tradename. In 1998 the Company acquired the
assets of Stanley Rogers & Son, a leading importer and marketer of stainless
steel and silverplated flatware to retail customers in Australia and New
Zealand, and Westminster China, a leading importer and marketer of porcelain
dinnerware to the foodservice, domestic tourism and promotion industries in
Australia and New Zealand. In the summer of 2000 the Company acquired the assets
of Sakura, Inc., a leading marketer of consumer ceramic, porcelain and melamine
dinnerware and accessories; all outstanding shares of London-based Viners of
Sheffield Limited, the leading marketer of consumer flatware and cookware in the
U.K.; and all outstanding shares of Delco International, Ltd., a leading
marketer of foodservice tableware to foodservice distributors, chains and
airlines. In conjunction with the 2004 sale of the Company's Buffalo, New York
dinnerware manufacturing facility, the Company entered into a supply agreement
with the purchasers, Niagara Ceramics Corporation, whereby Niagara Ceramics will
act as a key supplier of foodservice dinnerware. Similarly, the March 2005 sale
of the Company's Sherrill, New York flatware manufacturing facility included a
supply agreement with the purchaser, Sherrill Manufacturing Inc., whereby
Sherrill Manufacturing will act as a key supplier of flatware and silverplating
services.
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.
2
During 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.
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 29, 2005, January 31, 2004 and January 25, 2003 is contained
in Part II, Item 8 of this Report.
c. Narrative Description of Business.
Principle Products.
The Company divides its tableware products into four principle 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,
silverplated and other metalic hollowware (bowls, trays, tea and coffee sets and
related items), cutlery and metal and aluminum 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 product categories. These other tabletop
accessories include ceramic and plastic serveware and decorative accessories,
kitchen and table linens, picture frames and decorative pieces distributed
primarily by the Company's Sakura 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:
2005 2004 2003
---- ---- ----
Metalware: 59% 60% 60%
Dinnerware: 32% 31% 31%
Glassware: 7% 7% 7%
Other Tabletop Accessories: 2% 2% 2%
Manufacturing and Sourcing.
Prior to the plant closure and sale in March 2005, the principal source of the
Company's highest end flatware was the Company's Sherrill, New York
manufacturing plant. At present the Company is purchasing its highest-end
flatware products from Sherrill Manufacturing Inc., the purchasers of the
Sherrill manufacturing facility, as well as from several international
suppliers. Following the plant closure and sale, all of the Company's moderate
and low price-point flatware will be sourced from several international
suppliers. The Company sources its stainless steel, silverplated and other
metalic hollowware 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.
3
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 Inn Crystal.
The Company's other tabletop accessories are sourced from various domestic and
international suppliers.
Principal Markets.
The Company's tableware operations serve three principal markets: Consumer,
Foodservice and International.
Consumer focuses on individual consumers, and the Company's wide-ranging
Consumer marketing activities include both retail and Consumer 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 Consumer direct accounts serve business
customers in the premium, incentive, mail order, internet and direct selling
markets. The Company also reaches consumers through its Kenwood Silver Company,
Inc. subsidiary which plays a significant role in the marketing of the Company's
products. Kenwood Silver Company, Inc. operates a chain of 36 Oneida Home outlet
stores in resort and destination shopping areas across the United States
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 a third party warehouses located in Santa Fe Springs,
California and Miami, Florida.
While most Foodservice orders are filled directly by the Company from its
primary distribution centers in Sherrill and Buffalo, New York, the Company also
utilizes third party warehouses located in Miami, Florida, Chino, California,
Wood Dale, Illinois and Atlanta, Georgia to service certain foodservice
customers. In February 2005 the Company proposed the closure of its Buffalo, New
York distribution center and the consolidation of those operations among its
Sherrill, New York distribution center and various third party warehouses. On
April 12, 2005 the Company announced its intention to proceed with the proposed
closure and consolidation. The Company anticipates that this closure and
consolidation will be completed by mid-2005.
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's Mississauga,
Ontario, Canada office, 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 markets,
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. Beginning in 2005, the Company's London and Melbourne offices will
share responsibility for the Asian and Pacific markets. 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.
4
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 center in Sherrill, New York, as well as the Company's
international facilities in Niagara Falls, Canada, Roermond, Holland and
Melbourne, Australia and a third party warehouse located in Guangzhou, China. In
addition, many orders are shipped directly from the suppliers to the Company's
international customers.
Raw Materials.
The principal raw materials used by the Company in its manufacture of metalware
(manufacturing ceased in March 2005) were stainless steel, brass, silver and
gold. These same raw materials are used by the Company's suppliers in their
production of metalware. The raw materials used by the Company's dinnerware
suppliers include various clays, flint, aluminum oxide and glass frite and the
raw materials used by the Company's glass and crystal suppliers include sand,
soda lime and magnesium. These materials were purchased by the Company and the
Company's suppliers in the open market to meet current requirements and were
available in adequate supply from multiple sources. Both the Company and its
suppliers did, however, experience shorter supplies than normal of stainless
steel, and as a result, increased stainless steel prices, during the fiscal year
ended January 2005. This trend of shorter-than-normal supplies and increased
prices of stainless steel is expected to continue at least through the end of
the current fiscal year. Depending on the extent and duration of stainless steel
supply shortages, and corresponding price increases, the Company's gross margins
may be adversely affected.
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 which is not
recorded on the books.
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 metal 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 WEDGEWOOD name, and lines of
dinnerware, flatware, glassware and related accessories under the COCA-COLA
names. New license additions during fiscal year ended January 2005 include an
additional license agreement with Bradshaw International, Inc. that was a part
of Bradshaw's purchase of the Company's Encore Promotions, Inc. subsidiary in
August 2004. This additional license permits Bradshaw to market a variety of
products, including flatware, dinnerware and cookware bearing the ONEIDA name
through supermarkets and supermarket redemption programs. In addition, in
November 2004 the Company and Anchor Hocking Company entered into an Agreement
whereby Anchor Hocking will manufacture and market foodservice soda lime
glassware bearing a joint ONEIDA BY ANCHOR name. 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 cash flow provided from operating activities, the
Company's primary source
5
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.
The Company's divisions and subsidiaries each have return policies, most of
which require the Company's prior written authorization for all returns. 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. Notwithstanding, each of the Consumer and Foodservice segments could be
materially affected by the loss of any one of that segment's most significant
customers, the simultaneous loss of several of either the Consumer or
Foodservice segments' most significant customers would most certainly have a
materially adverse effect on not only that segment's business, but also the
business of the Company as a whole.
Backlog Orders.
The Company had outstanding orders of $24,861,615 as of April 4, 2005 and
$33,426,203 as of March 29, 2004. 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 distributes a complete line of stainless steel, silver plated and
sterling flatware. The Company is one of the largest distributors of stainless
steel and silver plated flatware in the world. The Company's dinnerware,
hollowware 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, 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,
sourcing expertise, innovative manufacturing partnerships 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.
6
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,
as well as the Company's inability to distribute certain of its product lines
world-wide due to manufacturer-imposed sales restrictions.
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's operations are subject to environmental laws and regulations
enforceable by national, state and local authorities, including those pertaining
to air emissions, wastewater discharges, toxic substances, and the handling and
disposal of solid and hazardous wastes. These laws and regulations provide,
under certain circumstances, a basis for the remediation of contamination, as
well as personal injury and property damage claims. The Company has incurred
costs and capital expenditures in complying with these laws and regulations.
With the closure of its last owned and operated manufacturing facility in March
2005, the Company anticipates that the environmental compliance costs associated
with its continuing operations will be significantly lower than during the
operation of its manufacturing facilities. 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. Other than as set forth below, the Company does not
anticipate any material capital expenditures for environmental controls or
remediation for the remainder of the current fiscal year ending January 2006 or
the succeeding fiscal year ending January 2007.
In March 2004 a Focused Phase II Environmental Assessment was conducted of the
Company's Buffalo China, Inc. manufacturing facility in Buffalo, New York in
connection with the sale of that facility to Niagara Ceramics Corporation. This
Focused Phase II Environmental Assessment discovered a reportable event relative
to the presence of petroleum on that site. On March 15, 2004 the Company
reported the presence of the petroleum to the New York State Department of
Environmental Conservation (the "NYS DEC") and on June 16, 2004 provided a
Petroleum Release Remediation Work Plan to the NYS DEC relative to this site.
Remediation Work was completed in December 2004.
Based on the data the Company provided to the NYS DEC as part of its March 15,
2004 petroleum release report, the NYS DEC requested a site-wide lead
investigation work plan. In response to this request, in June 2004, the Company
provided the NYS DEC with a complete copy of the March, 2004 Focused Phase II
Environmental Assessment report, which included the results of general
facility-wide lead and other hazardous substance testing. On January 14, 2005 a
meeting was held with the NYS DEC to discuss their concerns regarding possible
lead and other hazardous waste contamination at the former Buffalo China, Inc.
manufacturing site and the adjacent Buffalo China, Inc. distribution center
which remains in operation by Buffalo China, Inc. Following this meeting Buffalo
China, Inc. agreed to perform additional testing in the area of the 2004
petroleum remediation to determine if lead or other hazardous substances were
present, and if so, the extent of the presence. That testing work began in
February 2005. Also in February 2005, the New York State Department of
Environmental Conservation raised the additional concerns of lead and
trichloroethylene contamination at the former Buffalo China, Inc. manufacturing
facility which was sold to Niagara Ceramics in March 2004 and for which Buffalo
China, Inc. retains environmental liability through the Fall of 2005. The
Company's Buffalo China, Inc. subsidiary plans to continue to work with the
New York State Department of Environmental Conservation to reach a
mutually-acceptable resolution of these issues. As of the date of this Report
not all testing necessary to determine the full nature and extent of the
contamination has been
7
completed. Notwithstanding, at this early juncture, the Company has reserved
$1,400,000 related to this matter based on estimates prepared by an external
environmental consultant hired by the Company.
On April 20, 2005 the Company received notice from the US Environmental
Protection Agency of potential liability for clean up of a site owned and used
by its former subsidiary, Leavens Manufacturing Co, Inc. The extent of the
Company's liability, if any, cannot be reasonably estimated as of the date of
this filing.
Employment.
The Company and its subsidiaries employed approximately 916 employees in
domestic operations and 324 employees in foreign operations as of March 28,
2005. 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. As of the date of this Report the Company and the Glass, Molders, Pottery,
Plastics & Allied Workers International Union AFL-CIO, CLC and its local union
No. 76A are in the process of negotiating an agreement that will terminate the
collective bargaining agreement in conjunction with the 2005 closure of the
Buffalo China, Inc. distribution facility. 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:
Financial and Administrative Risks
The costs 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 comply with
the covenants included in the Second Amended and Restated Credit Agreement (or
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. 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,
amortization, and restructuring expense (EBITDAR). The Company was in
compliance with its covenants as of January 29, 2005, but anticipated
violating the covenants at the end of the second quarter of the fiscal year
ending January 28, 2006. As a result, in March 2005 the Company began discussing
amendments to those covenants with its lenders. On April 7, 2005, the Company's
lending syndicate approved an amendment to the Company's credit agreement
providing less restrictive financial covenants (beginning with the first quarter
of the fiscal year ending January 2006), consenting to the sale of certain
non-core assets, and authorizing the release of certain proceeds from the assets
sold. The revised financial covenants extend through the fiscal year ending
January 2007. Therefore, as a result of the amendment to the credit agreement
described above and the additional actions taken by the Company during the
fiscal year ended January 29, 2005 and subsequent to the balance sheet date, the
Company's Independent Registered Public Accounting Firm has excluded the "Going
Concern" explanatory paragraph from their report dated April 14, 2005 that was
previously included in the Independent Registered Public Accounting Firm's
report, dated April 30, 2004, for the prior fiscal year ended January 31, 2004.
Notwithstanding this amendment, and although not anticipated, the Company could
default in compliance with various of the covenants and provisions of its Credit
Agreement. These defaults, if unremediated, 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.
Production and Procurement Risks
Following the closure of its Sherrill, New York flatware manufacturing facility,
the Company will source 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.
Marketing and Sales Risks
8
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.
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.
ITEM 2. PROPERTIES.
As of April 11, 2005, 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
------- ------
Buffalo, New York Offices and Warehouse 203,000(1)
Oneida, New York Executive Administrative Offices 95,000
Sherrill, New York Offices and Warehouse 206,000(2)
Sherrill, New York Former Knife Manufacturing Facility 135,000
Melbourne, Australia Offices and Warehouse 60,000
Niagara Falls, Canada, Offices and Warehouse 26,000
London, England Offices 30,000
Mexico City, Mexico Offices and Warehouse 32,000
9
(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. The property is recorded on the
Company's books for GAAP purposes.
(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. The property is
recorded on the books for GAAP purposes.
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 and Melville, New York, Mississauga,
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.
On March 22, 2005 the Company completed the sale of the real estate associated
with its main flatware manufacturing operation in Sherrill, New York. As such,
this facility is not listed in the 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 future financial position, net 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 future financial statements.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF STOCKHOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended January 29, 2005.
PART II
ITEM 5. MARKET FOR THE COMPANY'S EQUITY AND RELATED STOCKHOLDER MATTERS.
10
Stock Exchange Listing
The Company's Common Stock is traded on the over-the-counter market under the
symbol ONEI. Until May 11, 2004 the Company's Common Stock had traded on the New
York Stock Exchange ("NYSE") under the symbol "OCQ". Effective May 11, 2004 the
NYSE suspended trading of the Company's Common Stock because the Company had
fallen below the NYSE's continued listing standards for global market
capitalization and total stockholders' equity.
Dividends and Price Range of Common Stock
The total number of stockholders of record at January 29, 2005 was 3,213. 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 fiscal years ended January 2005 and 2004.
JANUARY 2005
-------------
Fiscal Dividends
Quarter High Low Per Share
- ------- ----- ----- ---------
First $5.69 $4.88 $0
Second 1.74 .70 0
Third 1.81 1.14 0
Fourth 3.08 1.67 0
JANUARY 2004
---------------
Fiscal Dividends
Quarter High Low Per Share
- ------- ------ ------ ---------
First $11.37 $10.14 $.02
Second 11.10 5.85 0
Third 6.53 2.86 0
Fourth 6.11 4.05 0
Equity Compensation Plans
The following table Summarizes information about the Company's equity
compensation plans as of January 29, 2005. All Outstanding awards relate to the
Company'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) ...... 1,043,770 $17.10 1,524,650(2)
Equity Compensation
Plans Not Approved
by Stockholders (3) ... 0 0 0
Total ................... 1,043,770 $17.10 1,524,650(2)
(1) Includes the 1987 Stock Option Plan, 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 authorized for issuance in the following amounts:
1987 Stock Option Plan - 0; 1998 Stock Option Plan - 0; 2002 Stock Option
Plan - 1,323,180; 1998 Non-Employee Directors Stock Option Plan - 0; 2000
Non-Employee Directors Equity Plan - 23,333; 2003 Non-Employee Directors
Stock Option Plan - 133,000; and Amended and Restated Restricted Stock
Award Plan - 45,137. Despite the fact that these shares remain authorized
for issuance per the terms of the noted Plans as of the date of this
Report, the Company
11
has less than 1,524,650 shares of authorized Common Stock available to
issue upon exercise should these options be granted.
(3) There are no equity compensation plans that have not been approved by the
Company's Stockholders.
12
ITEM 6. SELECTED FINANCIAL DATA.
FIVE YEAR SUMMARY
ONEIDA LTD.
(Millions except per share and share amounts)
Year ended January 2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------
OPERATIONS
Net sales .................................. $ 415.0 $ 453.0 $ 491.9 $ 509.1 $ 524.3
License fees ............................... 2.4 1.5 1.4 1.5 1.2
Gross margins .............................. 91.9 103.6 155.2 161.8 160.7
Depreciation and amortization expense ...... 12.1 11.8 13.9 13.8 14.8
Operating (loss) income .................... (85.0) (56.9) 25.4 27.7 20.4
Net (loss) income .......................... (51.1) (99.2) 9.2 7.0 (3.1)
Cash dividends declared:
Preferred stock ......................... 0.0 0.0 .1 .1 .1
Common stock ............................ 0.0 0.4 1.3 2.0 5.7
PER SHARE OF COMMON STOCK
Net (loss) income - diluted ................ (1.68) (5.98) .55 .42 (.20)
Dividends declared ......................... 0.00 0.02 .08 .17 .35
Net income (loss) - basic .................. (1.68) (5.98) .55 .42 (.20)
FINANCIAL DATA
Total assets ............................... 328.8 441.5 525.1 543.9 619.3
Working capital ............................ 87.5 (89.8) 179.1 199.6 214.9
Total debt ................................. 216.5 230.9 234.0 271.6 300.1
Stockholders' (deficit) equity ............. (3.6) 22.6 129.4 124.1 122.5
SHARES OF CAPITAL STOCK (in thousands)
Outstanding at end of year:
Preferred ............................... 86 86 86 86 87
Common .................................. 47,781 16,734 16,598 16,523 16,388
Weighted average number of common shares
outstanding during the year - diluted ... 30,450 16,606 16,581 16,519 16,387
Weighted average number of common shares
outstanding during the year - basic ..... 30,450 16,606 16,540 16,468 16,300
In 2005 and 2004, the Company has taken actions to redirect its manufacturing
platform from a combination manufacturing and outsourcing model to a supplier
of products wholly sourced from third party manufacturers. The transition was
taken to increase the Company's margins. Therefore, Company margins and
inventory levels for the past five years may not be indicative of future
results.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
Executive Summary
The Company experienced operating losses of $84,997 and $56,878 for the years
ended January 29, 2005 and January 31, 2004 respectively. The following table
summarizes the Company's operating losses which included adjustments related
to the plan of restructuring.
January 29, 2005 January 31, 2004
---------------- ----------------
Operating Loss .......................... $(84,997) $(56,878)
Restructuring (income) expense .......... (323) 9,001
Impairment loss on depreciable assets ... 37,314 18,604
Impairment loss on intangible assets .... 19,836 1,300
Gain on the disposal of fixed assets .... (4,573) (2,737)
-------- --------
Operating loss, net of restructuring
and related charges .................. $(32,743) $(30,710)
======== ========
During the past year, the Company identified and implemented a number of
initiatives to return to profitability, increase liquidity and compete in a
changing marketplace. These include:
o Reducing product costs;
o Reducing operating costs;
o Reducing inventory levels
o Restructuring debt;
o Rationalizing underperforming assets; and
o Reducing employee benefits
o Amendment of the Company's credit agreement providing less restrictive
financial covenants, consenting to the sale of certain non-core
assets, and authorizing the release of certain proceeds from the
assets sold subsequent to year-end (see Note 18).
Additionally, certain members of the executive management team have taken a
reduction in compensation to assist the Company's return to profitability.
Therefore, as a result of the actions taken during the fiscal year ended January
29, 2005 and subsequent to the balance sheet date, the Company's Independent
Registered Public Accounting Firm has excluded the "Going Concern" explanatory
paragraph from their report dated April 14, 2005 that was previously included
in the Independent Registered Public Accounting Firm's report, dated April 30,
2004, for the prior fiscal year ended January 31, 2004.
Reducing product costs
The Company continues to reduce product costs by closing facilities with high
operating costs and outsourcing product lines to low cost producers.
On September 9, 2004, the Company announced the closing of the Sherrill, NY
flatware manufacturing facility. The Company has experienced unfavorable
manufacturing variances (which are a cost accounting measurement that are
reflected as period costs in the cost of goods sold section of the statement
of operations) of $19,926 during the year ended January 29, 2005 from the
facility as a result of unsustainably high operating costs. On March 22, 2005,
the Company sold certain factory buildings located in Sherrill, NY and
associated materials and supplies to Sherrill Manufacturing, Inc. The Oneida
name and all other active Oneida trademarks and logos remain the property of the
Company. Sherrill Manufacturing, Inc. is an independent supplier to the Company
The Buffalo, NY factory buildings and associated materials and supplies were
sold to Niagara Ceramics Corporation on March 12, 2004. The Company experienced
unfavorable manufacturing variances and previously announced the closing of the
Buffalo, NY manufacturing facility in 2003.
14
During 2003, the Company announced the closing of two manufacturing facilities
in Mexico, a facility in Italy and a facility in China. The facilities were
closed during the fourth quarter of the year ending January 31, 2004 or the
first quarter of the ending January 29, 2005.
The proceeds generated from these sales were used to reduce the Company's debt.
The products previously manufactured by these facilities have been outsourced to
lower cost producers.
Reducing operating costs and inventory levels
In an effort to increase liquidity, the Company has reduced gross inventory
levels by $24,094 since January 31, 2004. As a result of the reduced inventory
levels, the Company was able to reduce warehouse requirements and distribution
expense. During 2003, the Company announced the closing of the Niagara Falls,
Canada warehousing facility. The facility was sold during July, 2004.
Furthermore, during the third quarter of fiscal 2005 the Company closed the
Nashville, Tennessee warehouse and is no longer utilizing a warehousing service
provider located in Piedmont, North Carolina.
On November 18, 2004 the Company announced a licensing agreement with the Anchor
Hocking Company, a leading glassware company. Under the agreement, approximately
$2.0 million of existing glassware inventory was sold to Anchor Hocking.
Additionally, the Company licensed the "Oneida" name and receives licensing fees
based on sales levels. The agreement allows the Company to reduce working
capital requirements and provides a business partnership with an industry leader
in glassware.
On April 12, 2005, the Company announced the closure of the warehouse facility
located in Buffalo, NY. The inventory previously warehoused in Buffalo, NY will
be warehoused in the Company's existing facilities.
Restructuring debt
In order to provide additional liquidity necessary to continue the Company's
operating initiatives, a comprehensive restructuring of the existing
indebtedness with its lenders, along with new covenants based upon current
financial projections was completed during the third quarter of fiscal 2005.
The restructuring included the conversion of $30 million of principal amount of
debt into an issuance of a total of 29.85 million shares of the common stock of
the Company to the individual members of the lender group or their respective
nominees. The common shares were issued in blocks proportionate to the amount of
debt held by each lender. As of August 9, 2004 these shares of common stock
represented approximately 62% of the outstanding shares of common stock of the
Company. In addition to the debt to equity conversion, the Company received a
new $30 million revolving credit facility from the lenders and restructured the
balance of the existing indebtedness into a Tranche A loan of $125 Million and a
Tranche B loan of approximately $80 million. All the restructured bank debt is
secured by a first priority lien over substantially all of the Company and its
domestic subsidiaries' assets. The Tranche A loan will mature in three years and
require amortization of principal based on available cash flow and fixed
amortization of $1,500 per quarter beginning in the third year. Interest on the
Tranche A loan will accrue at LIBOR (London Inter Bank Offered Rate) plus
6%-8.25% depending on the leverage ratio. The Tranche B loan will mature in
3 1/2 years with no required amortization. Interest on the Tranche B loan will
accrue at LIBOR plus 13% with a maximum interest rate of 17%. The Tranche B loan
has a Payment in Kind (PIK) option that permits for the compounding of the
interest in lieu of payment. The debt and equity restructuring constituted a
change in control of the Company. There are several employee benefit plans that
have triggers if a change of control occurs. These effected plans were amended
to allow the debt and equity transaction without triggering the change in
control provision. In addition, the Shareholder Rights Plan was terminated.
The restructured debt agreement has several covenants including maximum total
leverage ratio, cash interest coverage ratio, total interest coverage ratio, and
consolidated minimum Earnings Before Interest, Taxes, Depreciation, Amortization
and Restructuring Expenses (EBITDAR). The Company was in compliance with its
covenants as of January 29, 2005, but anticipated violating the covenants at the
end of the second quarter of the fiscal year ending January 28, 2006. As a
result, in March 2005 the Company began discussing amendments to those covenants
with its lenders. On April 7, 2005, the Company's lending syndicate approved an
amendment to the Company's credit agreement providing less restrictive financial
covenants (beginning with the first quarter of the fiscal year ending January
2006), consenting to the sale of certain non-core assets, and authorizing the
release of certain proceeds from the assets sold. The revised financial
covenants extend through the fiscal year ending January 2007. Therefore, as a
result of the amendment to the credit agreement described above and the
additional actions taken by the Company during the fiscal year ended January 29,
2005 and subsequent to the balance sheet date, the Company's Independent
Registered Public Accounting Firm has excluded the "Going Concern" explanatory
paragraph from their report dated April 14, 2005 that was previously included in
the Independent Registered Public Accounting Firm's report, dated April 30,
2004, for the prior fiscal year ended January 31, 2004.
Rationalizing underperforming assets
The Company conducted a rationalization of underperforming assets during the
fiscal year ended January 29, 2005.
On August 28, 2004 the Company completed the sale of substantially all of the
assets of its Encore Promotions Inc. subsidiary and has entered into a licensing
agreement with the buyer. The sale reduced inventory by approximately
15
$12,300. The proceeds from the sale reduced debt and the licensing agreement
provides an avenue to offer Oneida-branded products under the licensing
agreement to the supermarket industry.
During fiscal 2005, the Company closed 17 unprofitable Oneida Home stores. An
additional five unprofitable Oneida Home Stores are currently scheduled to be
closed during the quarter ending April 30, 2005.
Reducing employee benefits
In order to improve liquidity and increase operating profits, the Company
significantly reduced employee benefits. During the quarter ended May 1, 2004,
the Company froze the Retirement Plan for the Employees of Oneida Ltd., and the
Retirement Income Plan for Employees of Buffalo China, Inc. and terminated
medical and drug benefits under the Oneida Ltd Retiree Group Medical Plan.
During the second quarter ended July 31, 2004, the Company terminated the Long
Term Disability Plan, the Oneida Limited Security Plan, and froze the
Supplemental Executive Retirement Plan. The Company did not issue purchase
options under the Employee Stock Purchase Plan and the 2002 Executive Stock
Option Plan. Additionally the Company increased the co-pays and deductibles
associated with the Oneida Sterling Health Plan.
In order to conserve cash flow, the Company is attempting to defer approximately
$7,811 of required contributions to the Retirement Plan for the Employees of
Oneida, Ltd. during 2005 by obtaining a waiver from the Internal Revenue
Service.
In summary, the Company believes these initiatives will enhance profitability
and increase liquidity. If the Company is unable to achieve its operating and
strategic objectives, the Company may need to raise additional capital, obtain
further covenant waivers or credit agreement amendments 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.
For the twelve Months Ended
------------------------------------------------------
January 29, 2005 January 31, 2004 January 25, 2003
---------------- ---------------- ----------------
Net Sales:
Foodservice.......... $183,056 $193,326 $201,393
Consumer............. 147,435 175,250 202,638
International........ 84,545 84,399 87,844
Total............. 415,036 452,975 491,875
Gross Margin............ 91,881 103,594 155,217
% Net Sales.......... 22.1% 22.9% 31.6%
Operating Expenses...... 176,878 160,472 129,864
% Net Sales.......... 42.6% 35.4% 26.4%
Fiscal year ended January 2005 compared with fiscal year ended January 2004
(Thousands of dollars, except per share data)
Results of Operations
Consolidated net sales for the twelve months ended January 29, 2005 decreased
$37,939 (8.4%) as compared to the same period in the prior year.
Foodservice
Net sales of Foodservice products decreased by $10,270 (5.3%) over the same
period in the prior year. The financial uncertainty surrounding the Company
during the first six months of the current operating year resulted in certain
chain restaurants purchasing higher quantities in the first quarter as a hedge
against potential product flow disruptions. In addition, this also resulted in
certain customers opting to dual source. The dual sourcing contributed
16
to reduced sales in the third and fourth quarters. Temporary product shortages
incurred during the first three quarters of the year added to the decline in
sales as compared to the prior year.
Consumer
Net sales of Consumer products decreased by $27,815 (15.9%) over the same period
in the prior year. On August 28, 2004, substantially all of the assets of the
Encore Promotions subsidiary were sold and the Company entered into a licensing
agreement with the buyer. Encore accounted for $12,318 of sales in the current
year compared with $26,305 in the prior year, resulting in a year-over-year
reduction of $13,987. In addition, during the current operating year, 17
unprofitable Oneida Home Stores were closed. The closed Oneida Home Stores
contributed sales of $6,305 in the year ended January 29, 2005 compared to
$7,752 for the year ended January 31, 2004. Overall, the table-top retail
industry demand has decreased in the year resulting in reduced sales. Also
contributing to the reduced sales were temporary shortages in certain product
lines, precipitated by delivery issues and late shipments from certain foreign
vendors.
International
Net sales from the International division were comparable to the same period in
the prior year. A decrease attributed to reduced volume in the European and
Latin American markets was offset by increased volume in the Australian market.
The positive impact of foreign exchange translation was $745.
Gross Margins
Gross margin for the year ended January 29, 2005 was $91,881 (or 22.1% as a
percentage of net sales), as compared to $103,594 (22.9%) for the same period in
the prior year. The majority of the gross margin decline was attributed to the
$36,976 reduction in revenues from the prior year and unfavorable product mix
experienced by the Foodservice and Consumer segments. Offsetting this adverse
margin effect was the favorable impact resulting from the closure of the
aforementioned manufacturing facilities and outsourcing of production, which
partially eliminated unfavorable variances and increased margins by
approximately $15,851. Finally, gross margins were also unfavorably impacted
by a $7,105 increase in inventory write-downs during the fiscal year ended
January 29, 2005. In 2005 and 2004 (and first quarter of the 2006 fiscal year),
the Company has taken actions to redirect its manufacturing platform from a
combination manufacturing and outsourcing model to a supplier of products
wholly sourced from third party manufacturers. This transition was taken to help
increase the Company's gross margins. The future gross margins will not be
materially affected by negative variances through the manufacturing process.
Operating Expenses
Consolidated operating expenses for the year ended January 29, 2005 were
$176,878, compared to $160,472 for the same period in the prior year. The
majority of the net $16,406 increase in expense is attributed to a $37,246
increase in impairment losses, partially mitigated by reductions in distribution
costs of $4,505, reduction in selling expenses related to closures of $6,024,
increases in gain on disposal of fixed assets of $1,836, and reductions in
distribution costs and employee benefit related expenses of $1,803. The $37,246
increase in impairment loss during the fiscal year ended January 29, 2005 is
attributed to the following:
o Impairment loss on depreciable assets for the Sherrill, NY
manufacturing facility and Buffalo, NY distribution facility, were
recorded in the amount of $37,314 for the year ended January 29, 2005.
The prior year's impairment charges of $18,604 related to the Buffalo,
NY manufacturing facility, discontinuance of certain glass and crystal
lines, and Oneida Home Store closures. See Note 3 for further details
regarding impairment charges.
o Impairment loss on intangible assets of $19,836 during the current
year is attributed to the combination of the current year goodwill
impairment at the United Kingdom operation of $15,509 and the
write-down of barter credits of $4,327.
Other Income and Expense
Other Income was $66,550 for the year ended January 29, 2005, compared to $2,654
for the year ended January 31, 2004. This increase is primarily the result of a
decision by the Company to terminate the Oneida Ltd. Retiree Group
17
Medical Plan, the Long Term Disability and the Oneida Limited Security Plans.
The plan terminations resulted in a one-time benefit of $65,684.
Other Expense was $7,190 for the year ended January 29, 2005 compared to $3,051
for the year ended January 31, 2004. This increase is primarily the result of a
decision by the Company to freeze benefit accruals for two of its retirement
plans and the Restoration Plan. The plan amendments resulted in plan curtailment
charges of $3,565. Additionally, the Company recorded a reserve for $1,400
associated with estimated environmental remediation costs for the year ended
January 29, 2005.
Interest Expense Including Amortization of Deferred Financing Costs
Interest expense, including amortization of deferred financing costs, increased
by $5,964 (35.8%) for the year ended January 29, 2005, versus the prior year,
primarily as a result of higher effective interest rates on the Company's
restructured debt. Also contributing to the increased expense is the
amortization of deferred financing costs associated with the restructured debt.
Income Tax Expense (Benefit)
The Company continues to provide a full valuation allowance against its net
deferred tax assets. The provision for income taxes as a percentage of loss
before income taxes was (5.91%) or $2,855, for the year ended January 29, 2005,
as compared to (34.16%), or $25,263, in the prior year. The provision for income
taxes for the current year is primarily comprised of foreign tax expense related
to foreign operations and domestic deferred tax liabilities recognized on
indefinite long-lived intangibles. The Company continues to provide a full
valuation allowance against its domestic net deferred tax assets and the net
deferred tax assets of the United Kingdom operation. The Company has not
recorded any tax benefits relative to losses incurred in the current year, since
it is more likely than not that the resulting asset would not be realized. The
Company will continue to maintain a valuation allowance until sufficient
evidence exists to support its reversal.
During the first quarter ended May 1, 2004, the Company recognized two
significant events that impact the current year taxes. The Company announced the
termination of the Oneida Ltd. Retiree Group Medical Plan, resulting in income
recognition of $61,973. The inclusion of this income in the current year
domestic tax calculation produced no tax expense since the deferred tax asset is
realized and the valuation allowance previously recognized against that asset
was reversed. Also, the Company amended two of its pension plans to freeze
benefit accruals and, as a result, recognized a charge of $2,577. The inclusion
of this charge in the current year domestic tax calculation produced no tax
benefit because a full valuation allowance is recorded against the deferred tax
asset resulting from this item.
The following table summarizes the Company's provision for income taxes and the
related effective tax rates:
For the Year Ended
-----------------------------------
January 29, 2005 January 31, 2004
---------------- ----------------
Income (loss) before income taxes... $(48,274) $(73,948)
Provision for income taxes.......... 2,855 25,263
Effective tax rate.................. (5.91%) (34.16%)
Fiscal year ended January 2004 compared with fiscal year ended January 2003
(Thousands of dollars, except per share data)
For the fiscal year ended January 31, 2004, 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.
Results of Operations
Net Sales
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
18
increased. The increase in order levels resulted in short term product
shortages, reduced shipments and sales volumes.
Gross Margins
Consolidated gross margin was $103,594 or 22.9% in 2004, as compared to $155,217
or 31.6% in the prior year. Current year's 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. 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. Additionally, LIFO liquidations reduced cost of
sales by $2,804 and $225 in fiscal 2004 and 2003, respectively.
Operating Expenses
Consolidated operating expenses increased by $30,608 or 23.6%, for the
twelve-month period ended January 31, 2004. The increase is primarily
attributable to restructuring charges of $9,001 and impairment charges of
$19,904. The Company incurred $3,100 in costs during the fourth quarter
investigating the various debt and equity alternatives available to the Company.
Other Income and Expense
Other income decreased by $5,666 from the same period last year. In fiscal year
ended January 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.
Interest Expense Including Amortization of Deferred Financing Costs
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
significantly of which was the decrease in the weighted average rate of
short-term debt from 4.6% in 2003 to 4.2% in 2004.
Income Tax Expense (Benefit)
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 profit 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.
19
The following table summarizes the 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 (34.16%) 20.09%
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.
Restructuring
During the years ended January 29, 2005 and January 31, 2004, the Company
recorded restructuring income of $323 and restructuring expenses of $9,001,
respectively. Fiscal year ended January 2005's restructuring income is comprised
of $71 expense attributed to the Sherrill, NY factory closure (discussed below),
offset by the reversal of $394 of restructuring accruals established at January
31, 2004 for severance attributed to the closure and/or sale of the Buffalo, NY
and Shanghai, China manufacturing facilities.
On September 9, 2004 the Company announced that it was closing its Sherrill, NY
flatware factory because of unsustainably high operating costs that heavily
contributed to substantial losses within the company. The Company is continuing
to market the products primarily manufactured from this site using independent
suppliers. Under the restructuring, approximately 450 employees will be
terminated and termination benefits have been recognized in accordance with
Oneida Severance Pay Program. As of January 29, 2005, 61 of the approximately
450 employees were terminated. The Company recognized a charge of $71 in the
statement of Operations under the caption "Restructuring Expense" during the
year ended January 29, 2005. The Company has implemented a performance retention
plan where by employees earn incremental wages if certain weekly manufacturing
metrics are achieved. A portion of the incremental wages is paid weekly and the
remainder is paid upon employee termination. The employee must be terminated in
connection with the facility closure in order to receive the deferred portion of
the performance retention plan. The Company determined it will incur cash costs
of approximately $1,250 related to severance, incentive and retention payments
to affected factory employees Cash payments to date through January 29, 2005
were $848, and the remaining severance cost and incentive and retention
liability at year end were $331 and $71, respectively. On March 22, 2005, the
Company sold the Sherrill facility to Sherrill Manufacturing Inc.
As a result of the substantial manufacturing inefficiencies and negative
manufacturing variances, it was determined at the end of the third quarter of
fiscal year ending January 31, 2004 to close and sell the following factories:
Buffalo China dinnerware factory and decorating facility in Buffalo NY;
dinnerware factory in Juarez, Mexico; flatware factory in Toluca, Mexico;
hollowware factory in Shanghai China; and hollowware factory in Vercelli, Italy.
The Company continues to market the products primarily manufactured from these
sites, using independent suppliers. The Toluca, Mexico; Shanghai, China; and
Vercelli, Italy facilities closings were completed during the fourth quarter of
the 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 remain the property of the Company. Niagara Ceramics is an
independent supplier to the Company. The Juarez Mexico factory sale was
completed on April 22, 2004, and the Toluca Mexico factory sale was completed on
June 2, 2004. The Niagara Falls, Canada warehouse sale was completed on July 12,
2004 and part of the Vercelli, Italy properties have been sold. The
restructuring plans are intended to reduce costs, increase the Company's
liquidity and better position the Company to compete under the current economic
conditions. In
20
connection with these facility closures and/or sales, the Company recognized a
charge of $9,001 in the Statement of Operations under the caption "Restructuring
(income) expense" in the year ended January 31, 2004.
Under the restructuring plan implemented at the end of the third quarter ended
October 25, 2003, approximately 1,150 employees had been identified for
termination. As of January 29, 2005, 1,085 of those terminations have occurred
and 65 employees have accepted employment with Niagara Ceramics who purchased
the manufacturing assets of Buffalo China. Termination benefits have been
recorded in accordance with contractual agreements or statutory regulations. At
January 31, 2004, the restructuring reserve accrual (for termination benefits
and other costs) was $7,400. Cash payments and adjustments to date through
January 29, 2005 under the restructuring were $6,502 and $445 respectively, and
the liability at the January 29, 2005 is $453.
Fixed Asset Impairments
In conjunction with the closures associated with the restructuring, the Company
performed an evaluation in accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment of Long Lived Assets" (FASB
144), to determine if the affected 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, impairment charges of
$37,314 and $18,604 were recorded in the consolidated statements of operations
under the caption "Impairment loss on depreciable assets" for the years ended
January 29, 2005 and January 31, 2004, respectively. The $37,314 impairment loss
on depreciable assets for the current year is comprised of charges attributed to
the Sherrill, NY manufacturing facility and Buffalo, NY distribution facility of
$34,016 and $3,298, respectively.
The $18,604 impairment loss on depreciable assets recorded during the previous
year is comprised of charges attributed to the Buffalo, NY (Buffalo China)
manufacturing facility ($12,730), glass and crystal product lines ($4,300),
Oneida Home Stores ($1,044) and Shanghai, China facility ($530). The latter
three charges are described in more detail below.
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 loss 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 loss 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 loss 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.
21
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 Other Assets
As a result of the reduced use of barter credits, it became apparent that it is
probable that the Company will not use all of its remaining barter credits. The
Company performed an evaluation in accordance with Statement of Financial
Accounting Standards No. 144, to determine if the barter credits were subject to
a possible impairment loss. Due to the cash flow being less than the book value,
it was determined that an impairment loss existed and as a result, a impairment
charge of $3,990 was recorded as a charge in the consolidated statements of
operations under the caption "Impairment loss on intangible assets" for the year
ended January 29, 2005.
Goodwill Impairment
During fiscal years 2005 and 2004, the Company determined that goodwill
impairments existed at its UK operation as determined under the provisions of
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (FASB 142). Under FASB 142 goodwill is tested under a two
step approach. The first step requires the determination of the fair value of
the reporting unit compared to the book value of that reporting unit. If the
book value exceeds the fair value, a second step impairment test is required to
measure the amount of impairment. The results of the impairment test performed
as part of the Company's annual impairment analysis resulted in an impairment
charge of goodwill in the United Kingdom operations (International operating
segment) and domestic operations of $15,509 and $337, respectively, for the year
ended January 29, 2005. The impairment charge was $1,300 for the year ended
January 31, 2004. The methodologies used to estimate fair value includes the use
of estimates and assumptions, including projected revenues, earnings and cash
flows. The charge is recorded in the statement of operations under the caption
"Impairment loss on intangible assets".
Liquidity & Financial resources
Cash used in operating activities was $32,964 for the year ended January 29,
2005, compared to cash provided of $13,104 from the same period in the prior
year. Increased operating losses and negative working capital changes primarily
occurring during the first three quarters of the year resulted in the
unfavorable cash flow in the current year. Excluding the impact of the employee
benefit modifications of $1,803, accounts payable and accrued expenses have
decreased by $13,465 since January 31, 2004. The financial uncertainty
surrounding the Company resulted in certain vendors requiring shorter payment
cycles. The Company anticipates returning to traditional payment terms as its
financial strength improves. Also contributing to the unfavorable cash flow in
fiscal 2005 were professional fees paid for the restructuring of the Company's
debt and operational restructuring activities ($7,083), offset by inventory
reductions ($14,311), reduced trade accounts receivable balances ($7,500) and
reduced other current assets ($2,386). The net cash provided by operating
activities for the year ended January 31, 2004 ($13,104) was primarily due to
positive changes in working capital of $46,259, of which the largest components
were inventory and accounts receivable. This increase in working capital was
partially offset by the negative results of operations and non-cash adjustments
for depreciation expense, impairment charges and deferred taxes.
Cash flow generated from investing activities was $10,155 for the year ending
January 29, 2005, compared to cash used of $1,667 for the prior year. During the
fiscal 2005, the Company sold the Buffalo, New York, manufacturing facility, the
facilities in Mexico, the Canadian facility and part of the Italian facility.
These sales generated cash of $13,778, which was used to reduce debt. During
fiscal 2004, the Company received cash of $3,456 from the sales of properties
and equipment. Capital expenditures were $3,623 and $5,123 for the years ending
January 29, 2005 and January 31, 2004, respectively. The reduction in capital
spending is the result of the Company efforts to improve earnings by closing
unproductive manufacturing facilities and outsourcing production to less
expensive producers.
Net cash generated by financing activities was $15,012 for the year ending
January 29, 2005 versus net cash used of $4,219 for the year ending January 31,
2004. During fiscal 2005, the Company increased its outstanding balance on the
revolving credit facility to fund operations and working capital needs.
22
On August 9, 2004 the Company completed the comprehensive restructuring of the
existing indebtedness with its lenders, along with new covenants based upon
current projections. The restructuring included the conversion of $30 million of
principal amount of debt into an issuance of a total of 29.85 million shares of
the common stock of the Company to the individual members of the lender group or
their respective nominees. The common shares were issued in blocks proportionate
to the amount of debt held by each lender. As of August 9, 2004 these shares of
common stock represented approximately 62% of the outstanding shares of common
stock of the Company. In addition to the debt to equity conversion, the Company
received a new $30 million revolving credit facility from the lenders and
restructured the balance of the existing indebtedness into a Tranche A loan of
$125 Million and a Tranche B loan of approximately $80 million. All the
restructured bank debt is secured by a first priority lien over substantially
all of the Company's and its domestic subsidiaries' assets. The Tranche A loan
will mature in three years and require amortization of principal based on
available cash flow and fixed amortization of $1,500 per quarter beginning in
the third year. Interest on the Tranche A loan will accrue at LIBOR (London
Inter Bank Offered Rate) plus 6%-8.25% depending on the leverage ratio. The
Tranche B loan will mature in 3 1/2 years with no required amortization.
Interest on the Tranche B loan will accrue at LIBOR plus 13% with a maximum
interest rate of 17%. The Tranche B loan has a Payment in Kind (PIK) option that
permits for the compounding of the interest in lieu of payment. The debt and
equity restructuring constituted a change in control of the Company. There are
several employee benefit plans that have triggers if a change of control occurs.
The appropriate plans were amended to allow the debt and equity transaction
without triggering the change in control provision. In addition, the Shareholder
Rights Plan was terminated.
The restructured debt agreement has several covenants including maximum total
leverage ratio, cash interest coverage ratio, total interest coverage ratio, and
consolidated minimum Earnings Before Interest, Taxes, Depreciation, Amortization
and Restructuring Expenses (EBITDAR). The Company was in compliance with its
covenants as of January 29, 2005, but anticipated violating the covenants at
the end of the second quarter of the fiscal year ending January 28, 2006. As
a result, in March 2005 the Company began discussing amendments to those
covenants with its lenders. On April 7, 2005, the Company's lending syndicate
approved an amendment to the Company's credit agreement providing less
restrictive financial covenants (beginning with the first quarter of the
fiscal year ending January 2006), consenting to the sale of certain non-core
assets, and authorizing the release of certain proceeds from the assets sold.
The revised financial covenants extend through the fiscal year ending January
2007. Therefore, as a result of the amendment to the credit agreement described
above and the additional actions taken by the Company during the fiscal year
ended January 29, 2005 and subsequent to the balance sheet date, the Company's
Independent Registered Public Accounting Firm has excluded the "Going Concern"
explanatory paragraph from their report dated April 14, 2005 that was previously
included in the Independent Registered Public Accounting Firm's report, dated
April 30, 2004, for the prior fiscal year ended January 31, 2004.
Working capital was $87,488 as of January 29, 2005 as compared to ($89,751) at
January 31, 2004. The negative working capital at January 31, 2004 was primarily
caused by the classification of the revolving credit and note agreements as
current liabilities. Upon restructuring of the Company's indebtedness on
August 9, 2004, the non-current portion of the Company's debt was reclassified
as a long-term liability. The non-current portion of the Company's debt remains
classified as a long-term liability on the January 29, 2005 consolidated balance
sheet.
Subsequent to year end, the Company filed a request with the Internal Revenue
Service seeking permission to waive the remaining minimum funding requirement
for 2005 of $7,811. Assuming the waiver is granted, the Company expects to
contribute cash contributions of $9,856 to its U.S. pension plans through 2006.
If the waiver is not approved, the Company would contribute the $7,811 related
to the prior year in addition to the $9,856 for 2006.
During 2005, the Pension Benefit Guarantee Corporation perfected their lien on
Company assets as a result of non payment of scheduled contributions. The
Company received a covenant waiver from the lenders. There was no compensation
paid for the waiver.
Payments Due by Period
------------------------------------------------------------
Less than
Contractual Cash Obligations Total 1 year 1-3 years 4-5 years After 5 years
- ---------------------------- -------- --------- --------- --------- -------------
Short Term Debt $ 9,577 $ 9,577 $ -- $ -- $ --
Current Portion Long-Term Debt 2,572 2,572
Long-Term Debt 204,344 204,310 34
Lease Commitments 17,928 5,419 8,887 1,173 2,449
Purchase Commitments 56,600 17,898 36,593 2,109
Interest(1) 62,174 27,691 34,482 1
Pension Funding 41,922 17,667 21,032 2,974 249
Total Cash Obligations $395,117 $80,824 $305,304 $6,291 $2,698
(1) Assumes the Company pays all Tranche B interest in cash, and does not
exercise its Payments In Kind (PIK) option that permits the compounding
of interest in lieu of payment.
23
Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51. The objective of this interpretation is to provide guidance on how to
identify a variable interest entity ("VIE") and requires the VIE to be
consolidated by its primary beneficiary. The primary beneficiary is the party
that absorbs a majority of the VIE's expected losses and/or receives a majority
of the entity's expected residual returns, if they occur. In December 2003, the
FASB issued FIN 46(R) ("Revised Interpretations") delaying the effective date
for certain entities created before February 1, 2003 and making other amendments
to clarify the application of the guidance. In adopting FIN 46(R) the Company
has evaluated its variable interests to determine whether they are in fact VIE's
and secondarily whether the Company was the primary beneficiary of the VIE. This
evaluation resulted a determination that the Company has a VIE, whereby the
Company guarantees minimum purchases. The Company has determined that it is not
the primary beneficiary of the VIE. See Note 8 for additional information. The
adoption of this interpretation did not have a material effect on the Company's
financial statements.
In December of 2003, the FASB issued a revised SFAS No. 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits". The statement
revises employers' disclosures about pension plans and other postretirement
benefit plans, but it does not change the measurement or recognition of those
plans. The revised SFAS No. 132 requires additional disclosures to those in the
original SFAS 132 about the assets, obligations, cash flows, and net periodic
benefit cost of defined pension plans and other defined benefit postretirement
plans. The statement also increases quarterly pension plan and postretirement
benefit plan disclosure requirements. Revised SFAS No. 132 domestic plan
disclosure requirements are effective for financial statements with fiscal years
ending after December 15, 2003. However, disclosure of information about foreign
plans required by the Statement is effective for fiscal years ending after June
15, 2004. The Company adopted this statement in December of 2003 and there was
no impact to the financial position and results of operations of the Company as
a result of the adoption. See Note 11 for the disclosures required by this
pronouncement.
In October 2004, the FASB issued EITF 04-10, "Determining Whether to Aggregate
Operating Segments That Do Not Meet the Quantitative Thresholds." The consensus
addresses the issue of how an enterprise should evaluate the aggregation
criteria in paragraph 17 of SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," when determining whether operating segments
that do not meet the quantitative thresholds may be aggregated. The effective
date of this issue has been delayed and is anticipated to occur in 2005 to
coincide with the final issuance of the FSP (FASB Staff Position), which will
provide guidance in determining whether two or more operating segments have
similar economic characteristics. However, earlier adoption is permitted. The
application of this guidance is not expected to have a material effect on our
financial position or results of operations.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4," which clarifies the types of costs that should be
expensed rather than capitalized as inventory. This statement also clarifies the
circumstances under which fixed overhead costs associated with operating
facilities involved in inventory processing should be capitalized. The
provisions of SFAS No. 151 are effective for fiscal years beginning after June
15, 2005 and the Company will adopt this standard in fiscal 2006. The Company
has not determined the impact, if any, that this statement will have on its
consolidated financial position or results of operations.
In November 2004, the FASB issued Emerging Issues Task Force ("EITF") 03-13,
"Applying the Conditions in Paragraph 42 of SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report
Discontinued Operations." This guidance is applied to a component of an
enterprise that is either disposed of or classified as "held for sale" in fiscal
periods after December 15, 2004. The application of this guidance is not
expected to have a material effect on our financial position or results of
operations.
In November 2004, the FASB issued EITF 04-8, "The Effect of Contingently
Convertible Instruments on Diluted Earnings per Share," which is effective for
reporting periods ending after December 15, 2004. This consensus addresses when
contingently convertible instruments should be included in diluted earnings per
share. The application of this guidance is not expected to have a material
effect on our financial position or results of operations.
24
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary
Assets--An Amendment of APB Opinion No. 29, Accounting for Non-monetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair value
measurement for non-monetary exchanges of similar productive assets in paragraph
21(b) of APB Opinion No. 29, "Accounting for Non-monetary Transactions," and
replaces it with an exception for exchanges that do not have commercial
substance. SFAS 153 specifies that a non-monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is effective for the fiscal
periods beginning after June 15, 2005 and is required to be adopted by the
Company in the first quarter of fiscal 2006, beginning on January 30, 2005. The
Company is currently evaluating the effect that the adoption of SFAS 153 will
have on its consolidated results of operations and financial condition but does
not expect it to have a material impact.
In December 2004, the FASB issued SFAS 123R, "Share-Based Payment." This
statement is a revision of SFAS 123, "Accounting for Stock-Based Compensation"
and supersedes APB 25, "Accounting for Stock Issued to Employees," and is
effective as of the beginning of the first interim or annual reporting period
that begins after December 15, 2005. SFAS 123R establishes standards on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. This statement requires measurement of the
cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. That cost will be
recognized over the period during which an employee is required to provide
service in exchange for the award, which is usually the vesting period. SFAS
123R also addresses transactions in which an entity incurs liabilities in
exchange for goods or services that are based on the fair value of the entity's
equity instruments or that may be settled by the issuance of those equity
instruments. The adoption of this statement is not expected to have a material
effect on our financial position or results of operations.
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. The Company's United Kingdom subsidiary periodically
enters into forward exchange contracts in order to hedge its exposure to foreign
exchange risk.
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 29,
2005, a 1% change in the rate would result in a corresponding change in interest
expense of $2.2 million.
The Company has foreign exchange exposure related to its foreign operations in
Mexico, Canada, Italy, Australia, the United Kingdom and China. See Note 16 of
Notes to Consolidated Financial Statements for details on the Company's foreign
operations. Translation adjustments recorded in the statement of operations were
not of a material nature. See Foreign Currency Translation in Note 1 of Notes to
Consolidated Financial Statements for further discussion.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements and Supplementary Data
Page
-----
Report of Independent Registered Public Accounting Firms................ 27-28
Consolidated Statements of Operations: years ended January 2005, 2004
and 2003............................................................. 29
Consolidated Balance Sheets: January 29, 2005 and January 31, 2004...... 30
Consolidated Statements of Changes in Stockholders' Equity (deficit):
years ended January 2005, 2004 and 2003.............................. 31
Consolidated Statements of Comprehensive (Loss) Income: years ended
January 2005, 2004 and 2003.......................................... 32
Consolidated Statements of Cash Flows: years ended January 2005, 2004
and 2003............................................................. 33
Notes to Consolidated Financial Statements.............................. 34-62
Schedule of Valuation and Qualifying Accounts for the years ended
January 2005, 2004 and 2003, respectively............................ 85
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Oneida Ltd.
Oneida, New York
We have audited the accompanying consolidated balance sheet of Oneida Ltd. and
subsidiaries as of January 29, 2005 and the related consolidated statements of
operations, comprehensive (loss) income, stockholders' equity (deficit), and
cash flows for the year then ended. We have also audited the schedule listed in
the accompanying index for the year ended January 29, 2005. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Oneida Ltd. and
subsidiaries at January 29, 2005, and the results of their operations and their
cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Also, in our opinion, the schedule II presents fairly, in all material respects
the information set forth therein.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Oneida Ltd.'s
internal control over financial reporting as of January 29, 2005 based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our
report dated April 14, 2005 expressed an unqualified opinion thereon.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
New York, New York
April 14, 2005
27
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Oneida Ltd.
In our opinion, the consolidated balance sheet as of January 31, 2004 and the
related consolidated statements of operations, of changes in stockholders'
equity (deficit), of comprehensive (loss) income and of cash flows for the
years ended January 31, 2004 and January 25, 2003 present fairly, in all
material respects, the financial position of Oneida Ltd. and its subsidiaries
at January 31, 2004, and the results of their operations and their cash flows
for the years ended January 31, 2004 and January 25, 2003 in conformity with
accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule II, valuation
and qualifying accounts, for the years ended January 31, 2004 and January 25,
2003, 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards 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(b), the
Company has suffered significant losses and is in violation of its debt
covenants. These matters raise substantial doubt about the C