UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 28, 2001 Commission file number 1-5452 ONEIDA LTD. (Exact name of Registrant as specified in its charter) NEW YORK 15-0405700 (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification Number ONEIDA, NEW YORK 13421 (Address of principal executive offices) (Zip code) (315) 361-3636 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock as of September 7, 2001: 16,488,687. ONEIDA LTD. FORM 10-Q FOR THE THREE AND SIX MONTHS ENDED JULY 28, 2001 INDEX PART I FINANCIAL INFORMATION Consolidated Statement of Operations Consolidated Balance Sheets Consolidated Statements of Changes in Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: None (b) During the quarter ended July 28, 2001 no Reports on Form 8-K were filed by the registrant. SIGNATURES 2 ONEIDA LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) FOR THE FOR THE THREE MONTHS ENDED SIX MONTHS ENDED (Thousands except per JUL 28, JUL 29, JUL 28, JUL 29, share amounts) 2001 2000 2001 2000 -------- -------- -------- -------- NET SALES....................... $119,428 $104,010 $246,234 $222,211 COST OF SALES................... 77,652 66,090 162,932 138,536 INVENTORY WRITEDOWN (NOTE 4) ... 24,000 24,000 -------- -------- -------- -------- GROSS MARGIN.................... 41,776 13,920 83,302 59,675 OPERATING REVENUES.............. 333 1,270 740 1,532 -------- -------- -------- -------- 42,109 15,190 84,042 61,207 -------- -------- -------- -------- OPERATING EXPENSES: Selling, distribution and administrative expenses...... 34,134 29,777 68,100 61,026 Restructuring and unusual Charges (NOTE 4) .......... 8,000 8,000 -------- -------- -------- -------- INCOME (LOSS) FROM OPERATIONS... 7,975 (22,587) 15,942 (7,819) OTHER INCOME (EXPENSE).......... 672 (114) 534 (133) INTEREST EXPENSE................ 5,939 4,089 13,060 6,948 -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES 2,708 (26,790) 3,416 (14,900) PROVISION (CREDIT)FOR INCOME TAXES 1,005 (9,973) 1,273 (5,551) -------- -------- -------- -------- NET INCOME (LOSS)......... ...... $ 1,703 $(16,817) $ 2,143 $(9,349) ======== ======== ======== ======== EARNINGS PER SHARE OF COMMON STOCK: Net income (loss): Basic....................... $.10 $(1.04) $ .13 $(.58) Diluted (NOTE 5)............ .10 (1.04) .13 (.58) SHARES USED IN PER SHARE DATA: Basic....................... 16,459 16,209 16,433 16,286 Diluted (NOTE 5)............ 16,553 16,209 16,519 16,286 CASH DIVIDENDS DECLARED......... $.05 $.10 $.10 $.20 See notes to consolidated financial statements. 3 ONEIDA LTD. CONSOLIDATED BALANCE SHEETS JULY 28, 2001 AND JANUARY 27, 2001 (Unaudited) (Dollars in Thousands) JULY 28, JAN 27, 2001 2001 ------- ------- ASSETS CURRENT ASSETS: Cash............................................... $ 2,671 $ 2,163 Accounts receivable, net of allowance for doubtful. accounts of $2,536 and $3,072..................... 84,675 87,721 Other accounts and notes receivable................ 3,145 2,272 Inventories: Finished goods.................................... 175,831 194,806 Goods in process.................................. 11,767 11,018 Raw materials and supplies........................ 9,206 10,064 Other current assets............................... 14,636 19,141 -------- -------- Total current assets............................ 301,931 327,185 -------- -------- PROPERTY, PLANT AND EQUIPMENT-At cost: Property, plant and equipment...................... 250,242 245,558 Less accumulated depreciation...................... 140,184 135,508 -------- -------- Property, plant and equipment-net............... 110,058 110,050 -------- -------- OTHER ASSETS: Intangible assets - net............................ 136,287 139,695 Deferred income taxes.............................. 23,217 22,833 Other assets....................................... 11,518 10,810 -------- -------- TOTAL.......................................... $583,011 $610,573 ======== ======== See notes to consolidated financial statements. 4 ONEIDA LTD. CONSOLIDATED BALANCE SHEETS JULY 28, 2001 AND JANUARY 27, 2001 (Unaudited) (Dollars in Thousands) JULY 28, JAN 27, 2001 2001 -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term debt............................... $ 9,706 $ 8,046 Accounts payable.............................. 32,832 33,097 Accrued liabilities........................... 37,431 55,582 Accrued income taxes.......................... 3,362 4,153 Dividends payable............................. 1,748 2,522 Current installments of long-term debt........ 8,614 9,239 -------- -------- Total current liabilities.................. 93,693 112,639 -------- -------- LONG-TERM DEBT................................. 280,144 282,815 -------- -------- OTHER LIABILITIES: Accrued postretirement liability.............. 56,996 56,108 Accrued pension liability..................... 16,233 15,557 Other liabilities............................. 13,068 19,146 -------- -------- Total other liabilities.................... 86,297 90,811 -------- -------- STOCKHOLDERS' EQUITY: Cumulative 6% preferred stock; $25 par value; authorized 95,660 shares, issued 86,037 and 86,698 shares, callable at $30 per share.................... 2,151 2,167 Common stock $1 par value; authorized 48,000,000 shares, issued 17,787,419 and 17,702,666 shares........................ 17,787 17,703 Additional paid-in capital.................... 83,741 82,956 Retained earnings............................. 57,888 57,495 Accumulated other comprehensive loss.......... (14,335) (11,423) Less cost of common stock held in treasury; 1,300,666 and 1,314,508 shares..... (24,355) (24,590) -------- -------- Stockholders' Equity........................ 122,877 124,308 -------- -------- TOTAL..................................... $583,011 $610,573 ======== ======== See notes to consolidated financial statements. 5 ONEIDA LTD. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED JULY 28, 2001 (Unaudited) Add'l Comp. Common Common Pref'd Paid-in Retained Income Shares Stock Stock Capital Earnings ------------------------------------------------------- Balance at April 28, 2001 17,722 $17,722 $2,167 $83,103 $57,081 Stock plan activity, net. 65 65 638 Purchase/retirement of Treasury stock, net...... (16) Cash dividends declared ($.05 per share)...... (896) Net income...............$ 1,703 1,703 Other comprehensive loss.................. (227) ------- Comprehensive income.... $ 1,476 ======= ------------------------------------------- Balance at July 28, 2001. 17,787 $17,787 $2,151 $83,741 $57,888 =========================================== Accum. Other Comp Treasury Unallocated Income (Loss) Stock ESOP ------------------------------------------------------- Balance at April 28, 2001 $(14,108) $(24,355) Stock plan activity, net. Purchase/retirement of Treasury stock, net...... Cash dividends declared ($.05 per share)...... Net loss................. Other comprehensive loss.................. (227) ------------------------------------------------------- Balance at July 28, 2001. $(14,335) $(24,355) ======================================================= See notes to consolidated financial statements 6 ONEIDA LTD. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED JULY 29, 2000 (Unaudited) Add'l Comp. Common Common Pref'd Paid-in Retained Income Shares Stock Stock Capital Earnings ------------------------------------------------------ Balance at April 29, 2000 17,630 $17,630 $2,171 $82,315 $70,446 Stock plan activity, net. 34 34 324 Purchase/retirement of Treasury stock, net...... Cash dividends declared ($.10 per share)...... (1,659) Net loss................$(16,817) (16,817) Other comprehensive income............... (1,031) -------- Comprehensive loss......$(17,848) ======== -------------------------------------------- Balance at July 29, 2000 17,664 $17,664 $2,171 $82,639 $51,970 ============================================ Accum. Other Comp Treasury Unallocated Income (Loss) Stock ESOP ----------------------------------------------------- Balance at April 29, 2000 $(11,705) $(24,825) ($1,486) Stock plan activity, net. Purchase/retirement of Treasury stock, net...... (622) Cash dividends declared ($.10 per share)...... Net loss................. Other comprehensive loss.................. (1,031) Allocation of ESOP shares 769 ----------------------------------------------------- Balance at July 29, 2000 $(12,736) $(25,447) ($717) ===================================================== See notes to consolidated financial statements. 7 ONEIDA LTD. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JULY 28, 2001 (Unaudited) Add'l Comp. Common Common Pref'd Paid-in Retained Income Shares Stock Stock Capital Earnings ------------------------------------------------------- Balance at Jan 27, 2001.. 17,703 $17,703 $2,167 $82,956 $57,495 Stock plan activity, net. 84 84 785 Purchase/retirement of Treasury stock, net...... (16) Cash dividends declared ($.10 per share)...... (1,750) Net income...............$ 2,143 2,143 Other comprehensive loss.................. (2,912) ------- Comprehensive loss...... $ (769) ======= --------------------------------------------- Balance at July 28, 2001. 17,787 $17,787 $2,151 $83,741 $57,888 ============================================= Accum. Other Comp Treasury Unallocated Income (Loss) Stock ESOP ------------------------------------------------------ Balance at Jan 27, 2001.. $(11,423) $(24,590) Stock plan activity, net. Purchase/retirement of Treasury stock, net...... 235 Cash dividends declared ($.05 per share)...... Net Income............... Other comprehensive loss.................. (2,912) ------------------------------------------------------- Balance at July 28, 2001. $(14,335) $(24,355) ======================================================= See notes to consolidated financial statements. 8 ONEIDA LTD. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JULY 29, 2000 Unaudited) Add'l Comp. Common Common Pref'd Paid-in Retained Income Shares Stock Stock Capital Earnings ------------------------------------------------------- Balance at Jan 29, 2000.. 17,603 $17,603 $2,175 $81,887 $64,630 Stock plan activity, net. 61 61 752 Purchase/retirement of Treasury stock, net...... (4) Cash dividends declared ($.20 per share)...... (3,311) Net loss.................$ (9,349) (9,349) Other comprehensive loss................ (946) -------- Comprehensive loss .... $(10,295) ======== --------------------------------------------- Balance at July 29, 2000. 17,664 $17,664 $2,171 $82,639 $51,970 ============================================= Accum. Other Comp Treasury Unallocated Income (Loss) Stock ESOP ------------------------------------------------------- Balance at Jan 29, 2000.. $(11,790) $(19,712) ($1,486) Stock plan activity, net. Purchase/retirement of Treasury stock, net...... (5,735) Cash dividends declared ($.20 per share)...... Net loss................. Other comprehensive loss.................. (946) Allocation of ESOP shares 769 ------------------------------------------------------- Balance at July 29, 2000 $(12,736) $(25,447) ($717) ======================================================= See notes to consolidated financial statements. 9 ONEIDA LTD. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JULY 28, 2001 AND JULY 29, 2000 (Unaudited) (In Thousands) FOR THE SIX MONTHS ENDED JULY 28, JULY 29, 2001 2000 ------- ------- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss)................................... $ 2,143 $ (9,349) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...................... 9,366 7,574 Provision for impairment of inventory and long-term assets............................ 29,000 Deferred taxes and other non-cash charges and credits............................. (2,264) 1,476 Decrease (increase) in operating assets: Receivables....................................... 2,173 6,150 Inventories....................................... 18,705 (37,262) Other current assets.............................. 4,785 (1,983) Other assets...................................... (3,470) (1,517) Increase (decrease) in accounts payable............ (265) 747 Decrease in accrued liabilities.................... (19,034) (18,379) ------- -------- Net cash provided (used) by operating activities 12,139 (23,543) ------- -------- CASH FLOW FROM INVESTING ACTIVITIES: Property, plant and equipment expenditures-net...... . (5,726) (6,215) Purchase of subsidiaries, net of cash acquired..... (60,496) Other, net.......................................... (12) (191) ------- --------- Net cash used in investing activities........... (5,738) (66,902) ------- --------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock.............. 868 813 Issuance (purchase) of treasury stock............... 219 (5,739) (Decrease) increase in short-term debt-net.......... 1,660 (28,201) Payment of long-term debt........................... (3,296) (64,802) Proceeds from issuance of long-term debt............ 193,720 Dividends paid...................................... (2,432) (3,311) Allocation of ESOP shares--net...................... 769 ------- -------- Net cash (used) provided by financing activities (2,981) 93,249 ------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH............... (2,912) (946) ------- -------- NET INCREASE IN CASH.................................. 508 1,858 CASH AT BEGINNING OF YEAR............................. 2,163 3,899 ------- -------- CASH AT END OF PERIOD................................. $ 2,671 $ 5,757 ======= ======== See notes to consolidated financial statements. 10 ONEIDA LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Thousands) 1. The consolidated financial statements for the three and six months ended July 28, 2001 and July 29, 2000 are unaudited; in the opinion of the Company such unaudited consolidated financial statements include all adjustments (which comprise only normal recurring accruals) necessary for a fair presentation of the results of such periods. The results of operations for the three and six months ended July 28, 2001 are not necessarily indicative of the results of operations to be expected for the year ending January 26, 2002. The consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes for the years ended in January 2001 and 2000 included in the Company's January 27, 2001 Annual Report to the Securities and Exchange Commission on Form 10-K and the Company's Form 8-K that was filed with the Securities and Exchange Commission on August 9, 2000. 2. The provision for income taxes is based on pre-tax income for financial statement purposes with an appropriate deferred tax provision to give effect to changes in temporary differences between the financial statements and tax bases of assets and liabilities. The temporary differences arise principally from restructuring charges, postretirement benefits, depreciation and other employee benefits. 3. On June 13, 2000, the Company purchased all of the stock of Viners of Sheffield, Ltd. (Viners), a London based marketer of flatware and cookware in the United Kingdom, for approximately $25,000 in cash. On June 30, 2000, the Company acquired all of the net assets of Sakura, Inc. (Sakura) a domestic importer of consumer dinnerware, for approximately $40,000 in cash. On August 9, 2000, the Company completed the acquisition of the stock of Delco International Ltd. (Delco), a leading foodservice tableware supplier for $60,000 in cash. The above three acquisitions were recorded using the purchase method of accounting and accordingly, their operating results have been included in the Company's consolidated financial statements since their respective acquisition dates. Excess purchase price over the net fair value of assets acquired (including certain acquisition costs) totaled $113,346. These intangibles, primarily goodwill, are being amortized over forty years using the straight line method. 11 ONEIDA LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Thousands) 4. During the year ended January 27, 2001, the Company recorded restructuring and unusual charges totaling $39,000. Included in this total was an inventory writedown of $24,000 related to product rationalization as a result of recent acquisitions as well as significant other stock keeping unit reductions. The Company established a $24,000 inventory reserve in the second quarter of 2000, approximately half of which was utilized through the most recent year end. In the second quarter and first half of the current year, $3,400 and $8,300,respectively, of the reserve was utilized to dispose of excess and discontinued product. The remainder of the restructuring and unusual costs accrued of $15,000 related primarily to the consolidation of sales, marketing, logistics and administrative functions, realignment of product lines, "make versus buy" decisions and the impairment of certain manufacturing and procurement assets. All assets identified as impaired were written down by $5,000 to their net realizable value in the prior year. Other restructuring payments made to date totaled $8,700, of which $1,200 and $2,200 were paid in the current quarter and year to date. There were no significant adjustments made to the original accruals for restructuring and unusual charges. 5. Basic and diluted earnings per share are presented for each period in which a statement of operations is presented. Basic earnings per share is computed by dividing income less preferred stock dividends by the weighted average shares actually outstanding for the period. Diluted earnings per share includes the potentially dilutive effect of shares issuable under the employee stock purchase and incentive stock option plans. The following is a reconciliation of basic earnings per share to diluted earnings per share for the three months ended July 28, 2001 and July 29, 2000: Net Preferred Adjusted Earnings Income Stock Net Income Average Per (Loss) Dividends (Loss) Shares Share -------------------------------------------------------------------------------- 2001: Basic earnings per share.............. $1,703 $(32) $1,671 16,459 $.10 Effect of stock options. 94 Diluted earnings per share.............. 1,703 (32) 1,571 16,553 .10 -------------------------------------------------------------------------------- 2000: Basic earnings(loss) per share.............. $(16,817) (33) (16,850) 16,209 $(1.04) Effect of stock options. 0 Diluted earnings(loss) per share.............. (16,817) (33) (16,850) 16,209 $(1.04) -------------------------------------------------------------------------------- 12 ONEIDA LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Thousands) The following is a reconciliation of basic earnings per share to diluted earnings per share for the six months ended July 28, 2001 and July 29, 2000: Net Preferred Adjusted Earnings Income Stock Net Income Average Per (Loss) Dividends (Loss) Shares Share -------------------------------------------------------------------------------- 2001: Basic earnings per share.............. $2,143 $(64) $2,079 16,433 $.13 Effect of stock options. 86 Diluted earnings per share.............. 2,143 (64) 2,079 16,519 .13 -------------------------------------------------------------------------------- 2000: Basic earnings (loss) per share.............. $(9,349) (65) (9,414) 16,286 $(.58) Effect of stock options. 0 Diluted earnings (loss) per share.............. (9,349) (65) (9,414) 16,286 (.58) -------------------------------------------------------------------------------- 6. Included in the long-term debt caption on the balance sheet are various senior notes. The note agreements relating thereto contain provisions which, among other things require maintenance of certain financial ratios related to levels of indebtedness, minimum net worth and interest coverage levels. The covenants limit certain types of payments including dividends and investments. At July 28, 2001, the maximum amount available for payment of dividends was $3,269. During the first quarter of 2001, the Company and its lenders negotiated revised covenant levels and entered into a security agreement collateralizing the Company's debt with all of the domestic assets (excluding real estate holdings) of the Company and certain of its material domestic subsidiaries, as well as a majority of its investment in Oneida UK Limited. The Company is currently in compliance with all financial covenants. 7. The Company's operations and assets are in one principal industry; tableware products. The Company's reportable segments are grouped around the manufacture and distribution of three major product categories: metal tableware, china dinnerware and glass tabletop products. The Company also distributes a variety of other tabletop accessories. These products are sold directly to a broad base of retail outlets including department stores, mass merchandisers, Oneida Home stores and chain stores. Additionally, these products are sold to special sales markets, which include customers who use them as premiums, incentives and business gifts. The Company also sells directly or through distributors to foodservice operations worldwide, including hotels, restaurants, airlines, 13 ONEIDA LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Thousands) cruise lines, schools and healthcare facilities. The Company's operations are located in the United States, Canada, Mexico, Italy, Australia, The United Kingdom and China. Sales by reportable segment for the second quarter and first half of 2001 and 2000 were as follows: (000) ----- Second Quarter Metal Dinnerware Glass Other Total -------------- ------------------------------------------------ 2001 Net Sales $78,400 $32,800 $7,200 $1,028 $119,428 2000 Net Sales $64,800 $28,900 $8,000 $2,310 $104,010 Year to date Metal Dinnerware Glass Other Total ------------ ------------------------------------------------ 2001 Net Sales $161,900 $66,700 $15,100 $2,534 $246,234 2000 Net Sales $144,400 $58,000 $16,300 $3,511 $222,211 8. In June 2001, the Financial Accounting Standards Board approved Statements of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") which are effective June 30, 2001 and December 31, 2001 respectively, for the Corporation. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Under SFAS 142, amortization of goodwill, including goodwill recorded in past business combinations, will discontinue upon adoption of this standard. In addition, goodwill recorded as a result of business combinations completed during the six-month period ending December 31, 2001 will not be amortized. All goodwill and intangible assets will be tested for impairment in accordance with the provisions of the Statement. The Corporation is currently reviewing the provisions of SFAS 141 and SFAS 142 and assessing the impact of adoption. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Quarter ended July 28, 2001 compared with the quarter ended July 29, 2000 (In Thousands) Operations Net Sales by Product Line: Three Months Ended July 2001 2000 %Change ------- ------- ----- Metal products....... $ 78,400 $64,800 21.0 Dinnerware Products.. 32,800 28,900 13.5 Glass products....... 7,200 8,000 (10.0) Other Products....... 1,028 2,310 (55.5) -------- -------- ---- Total............... $119,428 $104,010 14.8 ======== ======== ==== Quarterly Review Consolidated net sales for the quarter ended July 28, 2001 increased $15,418 over the same period a year ago. The increase in metal and dinnerware product sales is attributable to the acquisition of the Delco flatware offering in the second half of 2000 and the Viners flatware and Sakura dinnerware product lines in June of 2000. The slowdown in consumer spending negatively affected domestic sales through consumer channels, which decreased by 5.8% from the same quarter last year. Sales in domestic foodservice markets increased 30.6% over the second quarter of 2000, primarily attributable to the Delco acquisition. Domestic foodservice sales totaled 49.1% of the Company's sales in the current quarter. During the same period, international sales grew by 25.1%, primarily due to the Viners acquisition, accounting for 17.3% of the Company's total second quarter sales. Gross margin as a percentage of net sales was 35.0% in the second quarter of 2001 as compared to 36.5% for the same period of 2000. The decrease in gross margin this quarter is due to product mix changes related to the above referenced downturn in consumer sales in 2001. To meet the lower demand, the Company's manufacturing plants operated at a lower capacity in the current quarter, generating unfavorable variances. Total operating expenses increased by $4,358, or 14.6%, from the same quarter last year due to the inclusion of the three acquisitions that took place in the late second and third quarters of 2000. As a percentage of sales, operating expenses remained flat with the same quarter last year at 28.6%. During the second and third quarters of 2000, the Company recorded restructuring and unusual charges totaling $39,000. Included in this total was an inventory writedown of $24,000 related to product rationalization as a result of recent acquisitions as well as significant other stock keeping unit reductions. The Company established a $24,000 inventory reserve in the second quarter of 2000, approximately half of which was utilized through the most recent year end. In the second quarter of the current year, another $3,400 of the reserve was utilized to dispose of excess and discontinued product. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Quarter ended July 28, 2001 compared with the quarter ended July 29, 2000 (In Thousands) The remainder of the restructuring costs accrued of $15,000 related primarily to the consolidation of sales, marketing, logistics and administrative functions, realignment of product lines, "make versus buy" decisions and the impairment of certain manufacturing and procurement assets. All assets identified as impaired were written down by $5,000 to their net realizable value in the prior year. Other restructuring payments made to date totaled $8,700, of which $1,200 was paid in the current quarter. There were no significant adjustments made to the original accruals for restructuring and unusual charges. Interest expense, prior to capitalized interest, was $6,065 for the quarter ended July 28, 2001, an increase of $1,715 from the second quarter of 2000. This increase is due to higher average borrowings incurred in the current quarter. The increase in debt levels is attributable to the funding of the acquisitions made by the Company in 2000. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Six Months ended July 28, 2001 compared with the six months ended July 29, 2000 (In Thousands) Operations Net Sales by Product Line: Six Months Ended July 2001 2000 %Change ------- ------- ----- Metal products....... $161,900 $144,400 12.1 Dinnerware Products.. 66,700 58,000 15.0 Glass products....... 15,100 16,300 ( 7.4) Other Products....... 2,534 3,511 (27.8) -------- -------- ---- Total............... $246,234 $222,211 10.4 ======== ======== ==== Year to date review Consolidated net sales for the six months ended July 28, 2001 increased $24,023 over the same period a year ago. The increase in metal and dinnerware product sales is attributable to the acquisition of the Delco flatware offering in the second half of 2000 and the Viners flatware and Sakura dinnerware product lines in June of 2000. Increases from the Company's 2000 acquisitions were somewhat offset by declines in the Company's core businesses, particularly in all consumer product markets. Year to date, sales of domestic consumer products have declined 11.3% over the same period last year. Due to the Delco acquisition, domestic foodservice sales now account for slightly less than one-half of the Company's 2001 sales. Sales to domestic foodservice customers have increased by 30.4% over the first half of 2000. International sales increased by 23.6%, to $42,444 from the same period last year, primarily due to the Viners acquisition. Gross margin as a percentage of net sales for the first six months of the current year was 33.8% as compared to 37.7% for the same period of 2000. This decrease in gross margin is primarily related to a slowdown in consumer product sales in 2001. These products tend to yield a higher gross margin than foodservice sales. In addition, to match the lower demand while still decreasing inventories, the Company's production facilities have been operating at a lower capacity than in 2000, thus generating negative manufacturing variances. Total operating expenses increased by $7,074, or 11.6%, over the first six months of the prior year due to the inclusion of the three acquisitions that took place in the late second and third quarters of 2000. As a percentage of sales, operating expenses were 27.7% in the current year to date, compared to 27.5% in 2000. The Company completed the integration of the Delco operations into its existing foodservice operations in the first quarter of 2001. This has lowered fixed operating costs and should continue to do so over the course of the rest of this year. During the second and third quarters of 2000, the Company recorded restructuring and unusual charges totaling $39,000. Included in this total was an inventory writedown of $24,000 related to product rationalization as a result of recent acquisitions as well as significant other stock keeping unit reductions. The Company established a $24,000 inventory reserve in the first half of 2000, approximately half of which was utilized through the most recent year end. In the current year, another $8,300 of the reserve was utilized to dispose of excess and discontinued product. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Six Months ended July 28, 2001 compared with the six months ended July 29, 2000 (In Thousands) The remainder of the restructuring costs accrued of $15,000 related primarily to the consolidation of sales, marketing, logistics and administrative functions, realignment of product lines, "make versus buy" decisions and the impairment of certain manufacturing and procurement assets. Of these costs, $8,000 were expensed in first half of 2000. All assets identified as impaired were written down by $5,000 to their net realizable value in the prior year. Other restructuring payments made to date totaled $8,700, of which $2,200 was paid in the current year. There were no significant adjustments made to the original accruals for restructuring and unusual charges. Interest expense, prior to capitalized interest, was $13,277 for the six months ended July 28, 2001, an increase of $5,852 from the second quarter of 2000. This increase is due to higher average borrowings outstanding in 2001, attributable to the funding of the acquisitions made by the Company in 2000. Liquidity & Financial Resources A prime objective of the Company in 2001 is to strengthen its balance sheet and reduce debt. During the first half of 2001, continual significant progress has been made toward attaining these goals. Year to date, inventories has been reduced by $19,000, while debt and current liabilities have declined by $21,600. The Company spent approximately $5,700 on capital projects focused primarily on its manufacturing facilities and retail fixturing. Capital spending for the remainder of 2001 is anticipated to be approximately $3,500. Included in the long-term debt caption on the balance sheet are various senior notes. The note agreements relating thereto contain provisions which, among other things require maintenance of certain financial ratios related to levels of indebtedness, minimum net worth and interest coverage levels. The covenants limit certain types of payments including dividends and investments. At July 28, 2001, the maximum amount available for payment of dividends was $3,269. During the first quarter of 2001, the Company was not in compliance with certain of its debt covenants. The lenders waived violation of these covenants and amended the covenants to agreed upon levels. The Company collateralized its debt with all domestic assets (excluding real estate holdings) and a majority of its investment in Oneida UK. The Company is currently in compliance with all financial covenants. Management believes there is sufficient liquidity to support the Company's ongoing funding requirements from future operations as well as the availability of bank lines of credit. Working capital was $208,238 as of July 28, 2001. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Six Months ended July 28, 2001 compared with the six months ended July 29, 2000 (In Thousands) New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board approved Statements of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") which are effective June 30, 2001 and December 31, 2001 respectively, for the Corporation. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Under SFAS 142, amortization of goodwill, including goodwill recorded in past business combinations, will discontinue upon adoption of this standard. In addition, goodwill recorded as a result of business combinations completed during the six-month period ending December 31, 2001 will not be amortized. All goodwill and intangible assets will be tested for impairment in accordance with the provisions of the Statement. The Corporation is currently reviewing the provisions of SFAS 141 and SFAS 142 and assessing the impact of adoption. Forward Looking Information With the exception of historical data, the information contained in this Form 10-Q, as well as those other documents incorporated by reference herein, is forward-looking. For the purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions readers that changes in certain factors could affect the Company's future results and could cause the Company's future consolidated results to differ materially from those expressed herein. Such factors include, but are not limited to: general economic conditions in the Company's markets; difficulties or delays in the development, production and marketing of new products; the impact of competitive products and pricing; certain assumptions related to consumer purchasing patterns; significant increases in interest rates or the level of the Company's indebtedness; major slowdowns in the retail, travel or entertainment industries; the loss of several of the Company's major customers; under utilization of the Company's plants and factories; the amount and rate of growth of the Company's selling, general and administrative expenses. 19 ONEIDA LTD UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-Q JULY 28, 2001 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ONEIDA LTD (Registrant) Date: September 10, 2001 /s/ GREGG R. DENNY ------------------ Gregg R. Denny Chief Financial Officer 20