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FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 1999
Commission file number 1-19254
Lifetime Hoan Corporation
(Exact name of registrant as specified in its charter)
Delaware 11-2682486
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
One Merrick Avenue,
Westbury, NY 11590
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (516) 683-6000
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 periods 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
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value 12,599,733 shares outstanding as of
July 31, 1999
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30,
1999 December 31,
(unaudited) 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $339 $9,438
Accounts receivable, less allowances of
$1,820 in 1999 and
$1,527 in 1998 16,347 13,306
Merchandise inventories 55,772 44,938
Prepaid expenses 2,678 2,956
Deferred income taxes 665 397
Other current assets 1,517 1,230
TOTAL CURRENT ASSETS 77,318 72,265
PROPERTY AND EQUIPMENT, net 12,346 11,823
EXCESS OF COST OVER NET ASSETS ACQUIRED,net 9,337 9,316
OTHER INTANGIBLES, net 10,365 10,560
OTHER ASSETS 1,099 1,108
TOTAL ASSETS $110,465 $105,072
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $1,200 $ -
Accounts payable and trade acceptances 3,414 2,706
Accrued expenses 11,337 10,263
Income taxes 1,936 956
TOTAL CURRENT LIABILITIES 17,887 13,925
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, shares
authorized 25,000,000:
shares issued and outstanding 12,599,733
in 1999 and 12,588,264 in 1998 126 126
Paid-in capital 76,192 76,115
Retained earnings 17,206 15,859
Notes receivable for shares issued to
stockholders (908) (908)
Deferred compensation (38) (45)
TOTAL STOCKHOLDERS' EQUITY 92,578 91,147
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $110,465 $105,072
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Net Sales $26,903 $24,184 $44,720 $46,052
Cost of Sales 13,525 12,171 22,689 23,643
Gross Profit 13,378 12,013 22,031 22,409
Selling, General and
Administrative Expenses 8,945 8,095 17,170 15,380
Income Before Income Taxes 4,433 3,918 4,861 7,029
Income Taxes 1,769 1,600 1,940 2,800
NET INCOME $2,664 $2,318 $2,921 $4,229
EARNINGS PER COMMON SHARE-
BASIC AND DILUTED $0.21 $0.18 $0.23 $0.33
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
1999 1998
OPERATING ACTIVITIES
Net income $2,921 $4,229
Adjustments to reconcile net income
to net cash (used in) operating
activities:
Depreciation and amortization 1,406 1,250
Deferred tax (benefit) (268) (548)
Provision for losses on accounts receivable 340 61
Reserve for sales returns and allowances 765 276
Changes in operating assets and liabilities:
Accounts receivable (4,145) 1,405
Merchandise inventories (10,833) (8,241)
Prepaid expenses, other current assets
and other assets - 231
Accounts payable, trade acceptances
and accrued expenses 1,599 (2,028)
Income taxes payable 979 448
NET CASH (USED IN) OPERATING ACTIVITIES (7,236) (2,917)
INVESTING ACTIVITIES
Purchase of property and equipment, net (1,565) (1,214)
NET CASH (USED IN) INVESTING ACTIVITIES (1,565) (1,214)
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net 1,200 -
Proceeds from the exercise of stock options 76 300
Cash dividends paid (1,574) (1,568)
NET CASH (USED IN) FINANCING ACTIVITIES (298) (1,268)
(DECREASE) IN CASH AND CASH EQUIVALENTS (9,099) (5,399)
Cash and cash equivalents at beginning
of period 9,438 7,773
CASH AND CASH EQUIVALENTS AT END OF PERIOD $339 $2,374
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six month period
ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999. It is
suggested that these condensed financial statements be read in
conjunction with the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Note B - Inventories
Merchandise inventories, principally finished goods, are priced
at the lower of cost (first-in, first-out basis) or market.
Note C - Line of Credit Agreement
The Company has available an unsecured $25,000,000 line of credit
with a bank (the "Line") which may be used for short-term
borrowings or letters of credit. As of June 30, 1999, the
Company had $12,228,000 of letters of credit and trade
acceptances outstanding and $1,200,000 of borrowings. The Line is
cancelable by either party at any time. Borrowings under the Line
bear interest payable daily at a negotiated short-term borrowing
rate. The average daily borrowing rate was 6.1%. The Company is
also charged a nominal fee on the entire Line.
Note D - Capital Stock
Cash Dividends: On May 3, 1999 the Board of Directors declared a
regular quarterly cash dividend of $0.0625 per share to
shareholders of record on May 5, 1999 paid on May 19, 1999. On
August 4, 1999, the Board of Directors of the Company declared
another regular quarterly cash dividend of $0.0625 per share to
shareholders of record on August 5, 1999, payable on August 19,
1999.
Earnings Per Share: Basic earnings per share has been computed
by dividing net income by the weighted average number of common
shares outstanding of 12,599,000 for the three months ended June
30, 1999 and 12,571,000 for the three months ended June 30, 1998.
For the six month periods ended June 30, 1999 and June 30, 1998,
the weighted average number of common shares outstanding were
12,595,000 and 12,554,000 respectively. Diluted earnings per
share has been computed by dividing net income by the weighted
average number of common shares outstanding, including the
dilutive effects of stock options, of 12,811,000 for the three
months ended June 30, 1999 and 12,891,000 for the three months
ended June 30, 1998. For the six month periods ended June 30,
1999 and June 30, 1998, the diluted number of common shares
outstanding were 12,816,000 and 12,858,000, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth income statement data of the
Company as a percentage of net sales for the periods indicated
below.
Three Months Six Months
Ended Ended
June 30, June 30,
1999 1998 1999 1998
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 50.3 50.3 50.7 51.3
Gross profit 49.7 49.7 49.3 48.7
Selling, general and
administrative expenses 33.2 33.5 38.4 33.5
Income before income taxes 16.5 16.2 10.9 15.2
Income taxes 6.6 6.6 4.4 6.0
Net Income 9.9% 9.6% 6.5% 9.2%
Three Months Ended June 30, 1999
Compared to Three Months ended June 30, 1998
Net Sales
Net sales for the three months ended June 30, 1999 were $26.9
million, an increase of $2.7 million or 11.2% over the comparable
1998 quarter. The sales growth was due principally to shipments
of our bakeware and baking-related products relating to the
August 1998 acquisition of Roshco, Inc., shipments of our new
Reverer branded cutlery, and increased shipments of Farberwarer
and Hoffritzr branded products, partially offset by lower sales
in our non-branded products.
Gross Profit
Gross profit for the three months ended June 30, 1999 was $13.4
million, an increase of 11.4% from the comparable 1998 period.
Gross profit as a percentage of net sales was 49.7% for both
periods.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months
ended June 30, 1999 were approximately $8.9 million, an increase
of approximately $850,000, or 10.5% from the comparable 1998
quarter. As a percentage of sales these expenses decreased
slightly to 33.2% compared to 33.5% in the 1998 quarter. The
higher expenses were attributable to the added expenses of
operating the Roshco warehouse and office facility and increased
personnel costs.
Six Months Ended June 30, 1999
Compared to Six Months ended June 30, 1998
Net Sales
Net sales for the six months ended June 30, 1999 were $44.7
million, a decrease of $1.3 million or 2.9% as compared to the
corresponding 1998 period. The decrease in sales was
attributable to the Company's inability to ship customer orders
in the first quarter of 1999 due to significant problems related
to the installation of a new warehouse management system in
January 1999. As a consequence, net sales during the first
quarter of 1999 declined sharply as compared to the corresponding
quarter in the prior year. All significant issues relating to the
installation of the new warehouse management system have been
resolved.
Gross Profit
Gross profit for the six months ended June 30, 1999 was $22.0
million, a decrease of 1.7% from the comparable 1998 period.
Gross profit as a percentage of net sales increased to 49.3% from
48.7% in the comparable 1998 period due primarily to changes in
the overall sales product mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months
ended June 30, 1999 were $17.2 million, an increase of 11.6% from
the comparable 1998 period. The higher expenses were attributable
to the added expenses of operating the Roshco warehouse and
office facility and increased personnel costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $25,000,000 unsecured line of credit with a
bank (the "Line") which may be used for short-term borrowings or
letters of credit and trade acceptances. Borrowings under the
Line bear interest payable daily at a negotiated short-term
borrowing rate. The Company is also charged a nominal fee on the
entire Line. As of June 30, 1999, the Company had $12,228,000 of
letters of credit and trade acceptances outstanding under the
Line and $1,200,000 of borrowings and, as a result, the
availability under the Line was $11,572,000. The average daily
borrowing rate was 6.1%. The Line is cancelable by either party
at any time.
At June 30, 1999, the Company had cash and cash equivalents of
$339,000 versus $9.4 million at December 31, 1998.
The decrease in cash and increase in short-term borrowings during
the first six months of 1999 were used primarily to fund the
Company's increased inventory levels and accounts receivable,
partially offset by increases in current liabilities.
On August 4, 1999, the Board of Directors declared another
regular quarterly cash dividend of $0.0625 per share to
shareholders of record on August 5, 1999, to be paid on August
19, 1999. The dividend to be paid will be $787,000.
The Company expects that all capital expenditures expected to be
incurred in 1999 will be financed from current operations, cash
and cash equivalents and, if needed, short term borrowings.
The Company believes that its cash and cash equivalents,
internally generated funds and its existing credit arrangements
will be sufficient to finance its operations for at least the
next 12 months.
The results of operations of the Company for the periods
discussed have not been significantly affected by inflation or
foreign currency fluctuation. The Company negotiates its purchase
orders with its foreign manufacturers in United States dollars.
Thus, notwithstanding any fluctuation in foreign currencies, the
Company's cost for any purchase order is not subject to change
after the time the order is placed. However, any weakening of the
United States dollar against local currencies could lead certain
manufacturers to increase their United States dollar prices for
products. The Company believes it would be able to compensate for
any such price increase.
Year 2000
The Company is in the process of investigating issues that could
affect its operations regarding Year 2000 compliance issues. The
Year 2000 compliance issues revolve around the fact that most
computer systems do not recognize a year by its traditional four
digit format. Instead, computer systems recognize the last two
digits for a specified year. If not properly addressed, these
issues could potentially have an adverse material impact on the
Company's operations.
The Company has installed a new financial/accounting systems and
a separate new warehouse management system to address the
financial and operational needs of its business. These systems
are operational and the Company has received confirmation from
the management of these new systems certifying that these systems
are in fact Year 2000 compliant. Testing of these systems to
ensure that they are Year 2000 compliant has begun and should be
fully completed by the end of the third quarter of 1999. As
results of this testing process become available over the next
two months, the Company will make contingency plans where it
deems necessary.
The Company relies on third parties for inventory, supplies,
financial products and other key services. Third party entities
that could have a potential material impact on the operations of
the Company's business have been contacted to determine the
progress that each has made in connection with Year 2000
compliance issues. Despite the Company's efforts, there can be
no guarantee that the systems of other companies which the
Company relies on to conduct its day-to-day business will be
compliant. In such event, the Company may, among other things,
experience difficulties in obtaining inventory and supplies. The
Company will make contingency plans for any entity it feels has
not made satisfactory progress towards being Year 2000 compliant.
Contingency plans may include increasing inventory levels,
securing alternate supply sources and taking other appropriate
measures.
The Company is also dependent upon its customers for sales and
cash flow. Interruption in our customers' operations due to Year
2000 issues could result in reduced sales and cash flow for the
Company, and higher inventories. The Company is monitoring the
status of its customers to determine potential risks and develop
possible alternatives.
Although the Company believes that with the implementation of the
new financial/accounting and warehouse management systems, along
with the evaluation process of significant third party entities,
the possibility of significant interruptions of normal operations
should be reduced, there can be no assurance that failure of the
Company, third party vendors or customers to be Year 2000
compliant could have an adverse material impact on the operations
of the Company's business.
Notwithstanding Year 2000 issues, the Company decided to install
the new financial/accounting systems and a separate new warehouse
management system to accommodate the Company's growth. Therefore,
at this time, the costs relating to Year 2000 compliance
activities have not been significant and, based on management's
best estimates, are not expected to be significant. However, due
to the complexity and pervasiveness of Year 2000 issues, in
particular the uncertainty regarding the compliance programs of
third parties, no assurance can be given that costs will not
exceed those currently anticipated by the Company.
Forward Looking Statements: This Quarterly Report on Form 10-Q
contains certain forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, including statements concerning the Company's
future products, results of operations and prospects. These
forward-looking statements involve risks and uncertainties,
including risks relating to general economic and business
conditions, including changes which could affect customer payment
practices or consumer spending; industry trends; the loss of
major customers; changes in demand for the Company's products;
the timing of orders received from customers; cost and
availability of raw materials; increases in costs relating to
manufacturing and transportation of products; dependence on
foreign sources of supply and foreign manufacturing; risks
relating to Year 2000 issues; and the seasonal nature of the
business as detailed elsewhere in this Quarterly Report on Form
10-Q and from time to time in the Company's filings with the
Securities and Exchange Commission. Such statements are based on
management's current expectations and are subject to a number of
factors and uncertainties which could cause actual results to
differ materially from those described in the forward-looking
statements.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
The Company's annual meeting of stockholders was held on June
9, 1999. At the meeting, all six director nominees were elected
and the appointment of Ernst & Young, LLP as independent auditors
was ratified.
(a) The following directors were elected for a one-year term by
the votes indicated:
FOR AGAINST ABSTAIN
Milton L. Cohen 11,364,770 18,730 0
Jeffrey Siegel 11,365,548 17,952 0
Craig Phillips 11,366,101 17,399 0
Bruce Cohen 11,364,270 19,230 0
Ronald Shiftan 11,366,101 17,399 0
Howard Bernstein 11,358,601 24,899 0
(b) Ernst & Young LLP was re-appointed as independent auditors to
audit the Company's financial statements for the fiscal year
ending December 31, 1999 by the following vote:
FOR AGAINST ABSTAIN
11,373,105 10,395 0
Item 6. Exhibit(s) and Reports on Form 8-K.
(a) Exhibit(s) in the second quarter of 1999:
Exhibit Description
No. 27 Financial Data Schedule
(b) Reports on Form 8-K in the second quarter of 1999:
NONE
Exhibit 27. Financial Data Schedule
Lifetime Hoan Corporation
Financial Data Schedule
Pursuant to Item 601(c) of Regulation S-K
This schedule contains summary financial information extracted
from the financial statements included in the form 10-Q
and is qualified in its entirety by reference to such financial
statements for the Six Months ended June 30, 1999.
(in thousands, except per share data)
Item
Number Item Description Amount
5-02(1) Cash and Cash Items $ 339
5-02(2) Marketable Securities $ 0
5-02(3)(a)(1) Notes and Accounts Receivable -
Trade $ 16,432
5-02(4) Allowances for Doubtful Accounts $ 85
5-02(6) Inventory $ 55,772
5-02(9) Total Current Assets $ 77,318
5-02(13) Property, Plant and Equipment $ 19,439
5-02(14) Accumulated Depreciation $ 7,093
5-02(18) Total Assets $ 110,465
5-02(21) Total Current Liabilities $ 17,887
5-02(22) Bonds, Mortgages and Similar
Debt $ 0
5-02(28) Preferred Stock - Mandatory
Redemption $ 0
5-02(29) Preferred Stock - No Mandatory
Redemption $ 0
5-02(30) Common Stock $ 126
5-02(31) Other Stockholders' Equity $ 92,452
5-02(32) Total Liabilities and
Stockholders' Equity $ 110,465
5-03(b)1(a) Net Sales of Tangible Products $ 44,422
5-03(b)1 Total Revenues $ 44,720
5-03(b)2(a) Cost of Tangible Goods Sold $ 22,689
5-03(b)2 Total Costs and Expenses
Applicable to Sales and Revenues $ 22,689
5-03(b)3 Other Costs and Expenses $ 0
5-03(b)5 Provision for Doubtful Accounts
and Notes $ 340
5-03(b)(8) Interest and Amortization of
Debt Discount $ 0
5-03(b)(10) Income Before Taxes and Other
Items $ 4,861
5-03(b)(11) Income Tax Expense $ 1,940
5-03(b)(14) Income/Loss Continuing Operations $ 2,921
5-03(b)(15) Discontinued Operations $ 0
5-03(b)(17) Extraordinary Items $ 0
5-03(b)(18) Cumulative effect - Changes in
Accounting Principles $ 0
5-03(b)(19) Net Income or Loss $ 2,921
5-03(b)(20) Earnings Per Share - Primary $ 0.23
5-03(b)(20) Earnings Per Share - Fully
Diluted $ 0.23
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.
Lifetime Hoan Corporation
August 13, 1999
/s/ Milton L. Cohen
__________________________________
Milton L. Cohen
Chairman of the Board of Directors
and President
(Principal Executive Officer)
August 13, 1999
/s/ Robert McNally
__________________________________
Robert McNally
Vice President - Finance and Treasurer
(Principal Financial and Accounting
Officer)