U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 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 organization) Identification No.)
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 12,600,146 shares outstanding as of
October 31, 1999
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September
30, 1999 December
(unaudited) 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $236 $9,438
Accounts receivable, less allowances of
$1,591 in 1999 and $1,527 in 1998 12,631 13,306
Merchandise inventories 61,597 44,938
Prepaid expenses 2,608 2,956
Deferred income taxes 632 397
Other current assets 1,571 1,230
TOTAL CURRENT ASSETS 79,275 72,265
PROPERTY AND EQUIPMENT, net 12,545 11,823
EXCESS OF COST OVER NET ASSETS ACQUIRED,net 9,368 9,316
OTHER INTANGIBLES, net 10,268 10,560
OTHER ASSETS 1,149 1,108
TOTAL ASSETS $112,605 $105,072
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $5,900 $ -
Accounts payable and trade acceptances 5,594 2,706
Accrued expenses 8,921 10,263
Income taxes - 956
TOTAL CURRENT LIABILITIES 20,415 13,925
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, shares
authorized 25,000,000;
shares issued and outstanding 12,600,146
in 1999 and 12,588,264 in 1998 126 126
Paid-in capital 76,194 76,115
Retained earnings 16,812 15,859
Notes receivable for shares issued to (908) (908)
stockholders
Deferred compensation (34) (45)
TOTAL STOCKHOLDERS' EQUITY 92,190 91,147
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $112,605 $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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Net Sales $22,950 $31,313 $67,670 $77,365
Cost of Sales 12,254 16,003 34,943 39,646
Gross Profit 10,696 15,310 32,727 37,719
Selling, General and
Administrative Expenses 10,033 9,191 27,203 24,572
Income Before Income Taxes 663 6,119 5,524 13,147
Income Taxes 270 2,425 2,210 5,225
NET INCOME $393 $3,694 $3,314 $7,922
EARNINGS PER COMMON SHARE-BASIC $0.03 $0.29 $0.26 $0.63
EARNINGS PER COMMON SHARE-
DILUTED $0.03 $0.29 $0.26 $0.62
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
1999 1998
OPERATING ACTIVITIES
Net income $3,314 $7,922
Adjustments to reconcile net income to net
cash (used in) operating activities:
Depreciation and amortization 2,157 1,808
Deferred tax (benefit) (235) (564)
Provision for losses on accounts receivable 375 78
Reserve for sales returns and allowances 1,239 790
Changes in operating assets and liabilities,
excluding the effects of the Roshco, Inc.
acquisition:
Accounts receivable (939) (3,332)
Merchandise inventories (16,659) (7,456)
Prepaid expenses, other current assets
and other assets (15) (263)
Accounts payable, trade acceptances
and accrued expenses 2,166 (5,131)
Income taxes payable (974) 801
NET CASH (USED IN) OPERATING ACTIVITIES (9,571) (5,347)
INVESTING ACTIVITIES
Purchase of property and equipment, net (2,333) (1,383)
Purchase of marketable securities - (256)
Payment of note payable of acquired
business - (2,586)
Acquisition of Roshco, Inc. (916) (4,758)
NET CASH (USED IN) INVESTING ACTIVITIES (3,249) (8,983)
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net 5,900 9,200
Proceeds from the exercise of stock options 80 321
Cash dividends paid (2,362) (2,355)
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,618 7,166
(DECREASE) IN CASH AND CASH
EQUIVALENTS (9,202) (7,164)
Cash and cash equivalents at beginning of 9,438 7,773
period
CASH AND CASH EQUIVALENTS AT END OF PERIOD $236 $609
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 nine month period
ended September 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 September 30, 1999, the
Company had $8,023,000 of letters of credit and trade acceptances
outstanding and $5,900,000 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 for the three months ended
September 30, 1999 was 6.5%. The Company is also charged a
nominal fee on the entire Line.
Note D - Capital Stock
Cash Dividends: On August 4, 1999 the Board of Directors
declared a regular quarterly cash dividend of $0.0625 per share
to shareholders of record on August 5, 1999, paid on August 19,
1999. On October 26, 1999, the Board of Directors of the Company
declared another regular quarterly cash dividend of $0.0625 per
share to shareholders of record on November 5, 1999, payable on
November 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 12,600,000 for the three months ended
September 30, 1999 and 12,585,000 for the three months ended
September 30, 1998. For the nine month periods ended September
30, 1999 and September 30, 1998, the weighted average number of
common shares outstanding were 12,597,000 and 12,565,000
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 12,767,000 for the three months ended September 30,
1999 and 12,809,000 for the three months ended September 30,
1998. For the nine month periods ended September 30, 1999 and
September 30, 1998, the diluted number of common shares
outstanding were 12,794,000 and 12,842,000, 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 Nine Months
Ended Ended
September 30, September 30,
1999 1998 1999 1998
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 53.4 51.1 51.6 51.2
Gross profit 46.6 48.9 48.4 48.8
Selling, general and
administrative expenses 43.7 29.4 40.2 31.8
Income before income taxes 2.9 19.5 8.2 17.0
Income taxes 1.2 7.7 3.3 6.8
Net Income 1.7% 11.8% 4.9% 10.2%
Three Months Ended September 30, 1999
Compared to Three Months ended September 30, 1998
Net Sales
Net sales were $22.9 million for the third quarter of 1999 versus
$31.3 million in the third quarter of 1998, a decrease of 26.7%.
The sales decline was attributable to additional problems
encountered during the quarter in the Company's new warehouse
management system that impacted its ability to ship merchandise
to its customers. The Company believes that appropriate measures
have been taken to rectify the problems and stabilize the system.
However, these problems created a backup of orders which in turn
resulted in increased inventory levels well beyond the
warehouse's efficient capacity, which continues to negatively
affect the current level of shipments.
Gross Profit
Gross profit for the three months ended September 30, 1999 was
$10.7 million, a decrease of 30.1% from the comparable 1998
period. Gross profit as a percentage of sales declined to 46.6%
from 48.9% due to an unfavorable change in the overall sales
product mix and customer mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months
ended September 30, 1999 were approximately $10.0 million, an
increase of 9.2% from the comparable 1998 quarter. The higher
expenses were primarily attributable to increased warehouse
personnel expenses and warehouse operating expenses and, to a
lesser extent, increased depreciation expense related to the
installation of a new financial/accounting system and a separate
new warehouse management system.
Nine Months Ended September 30, 1999
Compared to Nine Months ended September 30, 1998
Net Sales
For the nine months ended September 30, 1999 net sales totaled
$67.7 million versus $77.4 million for the comparable period in
1998. The decrease in sales was attributable to the Company's
inability to ship customer orders in the first and third quarters
of 1999 due to significant problems related to the installation
of a new warehouse management system. As a consequence, net
sales during the first and third quarters of 1999 declined as
compared to the corresponding quarters in the prior year. The
Company believes that appropriate measures have been taken to
rectify the problems and stabilize the system. However, the
problems in the third quarter created a backup of orders which in
turn resulted in increased inventory levels well beyond the
warehouse's efficient capacity, which continues to negatively
affect the current level of shipments.
Gross Profit
Gross profit for the nine months ended September 30, 1999 was
$32.7 million, a decrease of 13.2% from the comparable 1998
period. Gross profit as a percentage of net sales was 48.4% for
the nine months ended September 30, 1999 as compared to 48.8% in
the comparable 1998 period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months
ended September 30, 1999 were $27.2 million, an increase of 10.7%
from the comparable 1998 period. The higher expenses were
primarily attributable to the added expenses of operating the
Roshco warehouse and office facility, increased warehouse
personnel costs, warehouse operating expenses, and increased
depreciation expense related to the installation of a new
financial management system and a separate new warehouse
management system.
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.
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 September 30, 1999, the Company had $8,023,000
of letters of credit and trade acceptances outstanding and
$5,900,000 of borrowings and, as a result, the availability under
the Line was $11,077,000. The average daily borrowing rate for
the three months ended September 30, 1999 was 6.5%. The Line is
cancelable by either party at any time.
At September 30, 1999, the Company had cash and cash equivalents
of $236,000 versus $9.4 million at December 31, 1998.
The decrease in cash during the first nine months of 1999
resulted primarily from the funding of the Company's increased
inventory levels, purchases of property and equipment and the
payment of cash dividends, partially offset by increases in
current liabilities.
On October 26, 1999, the Board of Directors declared another
regular quarterly cash dividend of $0.0625 per share to
shareholders of record on November 5, 1999, to be paid on
November 19, 1999. The dividend to be paid will be approximately
$787,000.
On September 23, 1999 the Company announced it entered into an
agreement to acquire a 51% controlling interest in each of
Prestige Italiana, Spa. and Prestige Haushaltswaren GmbH
(together the "Prestige Companies"). The Prestige Companies
market and distribute kitchen tools, gadgets, cutlery, and
bakeware under the Prestige trade name in Italy and Germany and
for the twelve months ended August 31, 1999, the Prestige
Companies had combined net sales of approximately $10 million.
The Company paid approximately $1.3 million for its 51% ownership
positions.
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
predominantly all of its purchase orders with its foreign
manufacturers in United States dollars. Thus, notwithstanding any
fluctuation in foreign currencies, the Company's cost for its
purchases 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 system 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
suppliers 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 was performed in the third
quarter of 1999 and, so far, the results indicate that these
systems are Year 2000 compliant. Additional testing is being
performed and 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. If any of such systems are non-compliant, 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 system 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not trade in derivative financial instruments.
The Company's revolving line of credit bears interest at a
variable rate and, therefore, the Company is subject to market-
risk in the form of interest rate fluctuations.
PART II - OTHER INFORMATION
Item 6. Exhibit(s) and Reports on Form 8-K.
(a) Exhibit(s) in the third quarter of 1999:
Exhibit No. Description
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K in the third 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 Nine Months ended September 30, 1999.
(in thousands, except per share data)
Item Item Description Amount
Number
5-02(1) Cash and Cash Items $ 236
5-02(2) Marketable Securities $ 0
5-02(3)(a)(1) Notes and Accounts Receivable -
Trade $ 12,716
5-02(4) Allowances for Doubtful Accounts $ 85
5-02(6) Inventory $ 61,597
5-02(9) Total Current Assets $ 79,275
5-02(13) Property, Plant and Equipment $ 20,083
5-02(14) Accumulated Depreciation $ 7,538
5-02(18) Total Assets $ 112,605
5-02(21) Total Current Liabilities $ 20,415
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 $ 92,064
5-02(32) Total Liabilities and
Stockholders' Equity $ 112,605
5-03(b)1(a) Net Sales of Tangible Products $ 67,220
5-03(b)1 Total Revenues $ 67,670
5-03(b)2(a) Cost of Tangible Goods Sold $ 34,943
5-03(b)2 Total Costs and Expenses
Applicable to Sales and Revenues $ 34,943
5-03(b)3 Other Costs and Expenses $ 0
5-03(b)5 Provision for Doubtful Accounts
and Notes $ 375
5-03(b)(8) Interest and Amortization of
Debt Discount $ 0
5-03(b)(10) Income Before Taxes and Other
Items $ 5,524
5-03(b)(11) Income Tax Expense $ 2,210
5-03(b)(14) Income/Loss Continuing Operations $ 3,314
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 $ 3,314
5-03(b)(20) Earnings Per Share - Primary $ 0.26
5-03(b)(20) Earnings Per Share - Fully
Diluted $ 0.26
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
November 12, 1999
/s/ Milton L. Cohen
__________________________________
Milton L. Cohen
Chairman of the Board of Directors
and President
(Principal Executive Officer)
November 12, 1999
/s/ Robert McNally
__________________________________
Robert McNally
Vice President - Finance and Treasurer
(Principal Financial and Accounting
Officer)
