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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 September 30, 2001
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 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
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, 10,491,101 shares outstanding as of
October 31, 2001
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30,
2001 December 31,
(unaudited) 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $67 $1,325
Accounts receivable, less allowances of
$3,289 in 2001 and $3,582 in 2000 24,021 18,158
Merchandise inventories 55,265 45,595
Prepaid expenses 1,842 3,477
Deferred income taxes 374 870
Other current assets 3,168 2,667
TOTAL CURRENT ASSETS 84,737 72,092
PROPERTY AND EQUIPMENT, net 21,961 13,085
EXCESS OF COST OVER NET ASSETS ACQUIRED, net 15,649 15,906
OTHER INTANGIBLES, net 9,479 9,780
OTHER ASSETS 2,296 1,256
TOTAL ASSETS $134,122 $112,119
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $29,725 $10,746
Accounts payable and trade acceptances 10,438 6,709
Accrued expenses 16,006 16,619
TOTAL CURRENT LIABILITIES 56,169 34,074
MINORITY INTEREST 140 528
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, shares
authorized 25,000,000:
shares issued and outstanding 10,491,101
in 2001 and 10,501,630 in 2000 105 105
Paid-in capital 61,087 61,155
Retained earnings 17,269 17,359
Notes receivable for shares issued to
stockholders (486) (908)
Deferred compensation (2) (14)
Accumulated other comprehensive loss (160) (180)
TOTAL STOCKHOLDERS' EQUITY 77,813 77,517
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $134,122 $112,119
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,
2001 2000 2001 2000
Net Sales..................... $36,600 $33,505 $95,478 $86,661
Cost of Sales................. 20,407 17,585 52,987 45,354
Gross Profit.................. 16,193 15,920 42,491 41,307
Selling, General and
Administrative Expenses. 14,167 11,896 38,590 32,896
Interest Expense.............. 394 283 940 477
Other (Income),net............ (240) (244) (473) (470)
Income Before Income Taxes.... 1,872 3,985 3,434 8,404
Income Taxes.................. 846 1,706 1,564 3,589
NET INCOME.................... $1,026 $2,279 $1,870 $4,815
EARNINGS PER COMMON SHARE-BASIC $0.10 $0.22 $0.18 $0.43
EARNINGS PER COMMON SHARE-DILUTED $0.10 $0.21 $0.18 $0.43
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
2001 2000
OPERATING ACTIVITIES
Net income $1,870 $4,815
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 2,740 2,493
Deferred tax (benefit) 496 454
Provision for losses on accounts receivable 480 74
Reserve for sales returns and allowances 4,809 4,110
Minority Interest (388) (185)
Changes in operating assets and liabilities,
excluding the effects of the M. Kamenstein,
Inc. acquisition:
Accounts receivable (11,153) (1,091)
Merchandise inventories (9,670) 1,409
Prepaid expenses, other current assets
and other assets 518 (1,365)
Accounts payable, trade acceptances
and accrued expenses 3,118 483
Income taxes payable - (182)
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (7,180) 11,015
INVESTING ACTIVITIES
Purchase of property and equipment, net (10,883) (1,668)
M. Kamenstein, Inc. acquisition costs. (164) -
NET CASH (USED IN) INVESTING ACTIVITIES (11,047) (1,668)
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net 18,979 2,135
Proceeds from the exercise of stock options 20 47
Repurchase of Common Stock................ (88) (10,653)
Cash dividends paid (1,960) (2,083)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 16,951 (10,554)
EFFECT OF EXCHANGE RATE ON CASH AND CASH
EQUIVALENTS 18 -
(DECREASE) IN CASH AND CASH
EQUIVALENTS (1,258) (1,207)
Cash and cash equivalents at beginning of 1,325 1,563
period
CASH AND CASH EQUIVALENTS AT END OF PERIOD $67 $356
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 accounting
principles generally accepted in the United States 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, 2001 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2001. 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, 2000.
Recent Accounting Pronouncements: In June 2000, SFAS No. 133
was amended by SFAS No.138, "Accounting for Certain Derivative
Financial Instruments and Certain Hedging Activities", which
amended or modified certain issues discussed in SFAS No. 133.
SFAS No. 138 is effective for all fiscal years beginning after
June 15, 2000. SFAS No. 133 and SFAS No. 138 establish accounting
and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either as an asset
or a liability measured at its fair value. The statements also
require that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria
are met. The adoption did not have a material effect on the
Company's consolidated financial statements.
In July 2001, the FASB issued SFAS No.'s 141 and 142, "Business
Combinations" and "Goodwill and Other Intangibles". FASB 141
requires all business combinations initiated after June 30, 2001
to be accounted for using the purchase method. Under FASB 142,
goodwill is no longer subject to amortization over its estimated
useful life. Rather, goodwill is subject to at least an annual
assessment for impairment, applying a fair-value based test.
Additionally, an acquired intangible asset should be separately
recognized if the benefit of the intangible asset is obtained
through contractual or other legal rights, or if the intangible
asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirer's intent to do so. Other intangible
assets will continue to be valued and amortized over their
estimated lives; in-process research and development will
continue to be written off immediately. Statement No. 142 is
effective for fiscal years beginning after December 15, 2001.
The Company does not expect that the implementation of these
guidelines will have a material impact on its consolidated
financial position or results of operations.
Note B - Inventories
Merchandise inventories, principally finished goods, are priced
at the lower of cost (first-in, first-out basis) or market.
Note C - BORROWINGS
On November 9, 2001, the Company entered into a $45 million three-
year secured revolving credit agreement and in conjunction
therewith canceled its $40 million short-term lines of credit.
Under the terms of the Agreement, the Company is required to
satisfy certain financial covenants, which, among other things,
include: a limitation on indebtedness based upon EBITDA, as
defined; a fixed charge ratio; and a minimum net worth.
Borrowings under the credit facility have different interest rate
options that are based on either an alternate base rate, LIBO
rate, or lender's cost of funds rate.
At September 30, 2001, the Company had available an unsecured
$30,000,000 line of credit with one bank, which was used for
short-term borrowings or letters of credit. Borrowings under the
line bore interest payable daily at a negotiated short-term
borrowing rate. The effective interest rate at September 30,
2001 was 4.50%. As of September 30, 2001, the Company had
$6,434,000 of letters of credit and trade acceptances outstanding
and $16,300,000 of borrowings.
In April 2001, the Company obtained an additional $10,000,000
line of credit with a second bank which was used for short-term
borrowings. Borrowings under this line bore interest payable
monthly at a negotiated short-term borrowing rate. The effective
interest rate at September 30, 2001 was 4.75%. As of September
30, 2001, the Company had $10,000,000 of borrowings under this
line. Both lines were canceled on November 9, 2001 in
conjunction with the new three-year secured revolving credit
agreement.
In addition to the lines above, the Prestige Companies (the
Company's 51% controlled European subsidiaries) have three lines
of credit with three separate banks for a total available credit
facility of approximately $3.6 million. As of September 30, 2001,
the Prestige Companies had approximately $3,425,000 of borrowings
against these lines. Interest rates on these lines of credit
range from 6.125% to 8.9%.
Note D - Capital Stock
Cash Dividends: On July 31, 2001, the Board of Directors
declared a regular quarterly cash dividend of $0.0625 per share
to shareholders of record on August 3, 2001 paid on August 17,
2001. On October 26, 2001, the Board of Directors of the Company
declared a regular quarterly cash dividend of $0.0625 per share
to shareholders of record on November 6, 2001, payable on
November 20, 2001.
Earnings Per Share: Basic earnings per share has been computed
by dividing net income by the weighted average number of common
shares outstanding of 10,491,000 for the three months ended
September 30, 2001 and 10,567,000 for the three months ended
September 30, 2000. For the nine month periods ended September
30, 2001 and September 30, 2000, the weighted average numbers of
common shares outstanding were 10,492,000 and 11,159,000
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 10,549,000 for the three months ended September 30,
2001 and 10,646,000 for the three months ended September 30,
2000. For the nine month periods ended September 30, 2001 and
September 30, 2000, the diluted weighted average numbers of
common shares outstanding were 10,548,000 and 11,243,000,
respectively.
Common Stock Buy Back: The Board of Directors of the Company has
authorized a repurchase of up to 3,000,000 of its outstanding
common shares in the open market. As of September 30, 2001, a
total of 2,128,000 common shares had been repurchased and retired
at a cost of approximately $15,235,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND 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,
2001 2000 2001 2000
Net Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 55.8 52.5 55.5 52.3
Gross profit 44.2 47.5 44.5 47.7
Selling, general and 38.7 35.5 40.4 38.0
administrative expenses
Interest expense 1.1 0.8 1.0 0.6
Other (income), net (0.7) (0.7) (0.5) (0.5)
Income before income taxes 5.1 11.9 3.6 9.6
Tax provision 2.3 5.1 1.6 4.1
Net Income 2.8 % 6.8 % 2.0 % 5.5 %
Three Months Ended September 30, 2001
Compared to Three Months ended September 30, 2000
Net Sales
Net sales for the three months ended September 30, 2001 were
$36.6 million, $3.1 million or 9.2% greater than the comparable
2000 quarter. The sales increase was attributable to the M.
Kamenstein, Inc. business, acquired in September 2000, which
contributed $7.0 million of net sales to the third quarter
results as compared to $2.0 million in the 2000 quarter.
Excluding Kamenstein, sales were 5.9% lower in the 2001 quarter,
due primarily to the effects of an uncertain economic climate and
retail environment on the Company's retail customers.
Gross Profit
Gross profit for the three months ended September 30, 2001 was
$16.2 million, an increase of $273,000 or 1.7% from the
comparable 2000 period. Gross profit as a percentage of net
sales decreased to 44.2% from 47.5%, due to of the impact of the
increase in sales of M.Kamenstein, Inc., which currently generate
lower gross margins than the Company's traditional business and
to a lesser extent, product mix and customer mix in the Company's
business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months
ended September 30, 2001 were approximately $14.2 million, an
increase of $2.3 million or 19.1% from the comparable 2000
quarter. The increase was primarily attributable to the added
operating expenses of the M. Kamenstein, Inc. business acquired
in September 2000, and relocation charges and excess rent expense
associated with the Company's move into its new warehouse.
Nine Months Ended September 30, 2001
Compared to Nine Months ended September 30, 2000
Net Sales
For the nine months ended September 30, 2001 net sales were $95.5
million, an increase of $8.8 million or 10.2% compared to the
corresponding 2000 period. The sales increase was attributable
to the M. Kamenstein, Inc. business, acquired in September 2000,
which contributed an additional $13.3 million to net sales.
Excluding Kamenstein, sales were 5.3% lower in the 2001 period,
due primarily to the effects of an uncertain economic climate and
retail environment on the Company's retail customers.
Gross Profit
Gross profit for the nine months ended September 30, 2001 was
$42.5 million, an increase of $1.2 million or 2.9% from the
comparable 2000 period. Gross profit as a percentage of net
sales was 44.5% for the nine months ended September 30, 2001 as
compared to 47.7% in the comparable 2000 period, due primarily to
the impact of the added sales of M.Kamenstein, Inc., which
currently generate lower gross margins than the Company's
traditional business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months
ended September 30, 2001 were $38.6 million, an increase of $5.7
million or 17.3% from the comparable 2000 period. The increase
was primarily attributable to the added operating expenses of the
M. Kamenstein, Inc. business acquired in September 2000, and
relocation charges and excess rent expense associated with the
Company's move into its new warehouse.
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; 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
On November 9, 2001, the Company entered into a $45 million three-
year secured revolving credit agreement and in conjunction
therewith canceled its $40 million short-term lines of credit.
Under the terms of the Agreement, the Company is required to
satisfy certain financial covenants, which, among other things,
include: a limitation on indebtedness based upon EBITDA, as
defined; a fixed charge ratio; and a minimum net worth.
Borrowings under the credit facility have different interest rate
options that are based on either an alternate base rate, LIBO
rate, or lender's cost of funds rate.
At September 30, 2001, the Company had a $30,000,000 unsecured
line of credit with one bank, which was used for short-term
borrowings or letters of credit and trade acceptances.
Borrowings under the line bore interest payable daily at a
negotiated short-term borrowing rate. The effective interest
rate at September 30, 2001 was 4.50%. As of September 30, 2001,
the Company had $6,434,000 of letters of credit and trade
acceptances outstanding and $16,300,000 of borrowings and, as a
result, the availability under the line was $7,266,000.
In April 2001, the Company obtained an additional $10,000,000
line of credit with a second bank which was used for short-term
borrowings. Borrowings under this line bore interest payable
monthly at a negotiated short-term borrowing rate. The effective
interest rate at September 30, 2001 was 4.75%. As of September
30, 2001, the Company had $10,000,000 of borrowings under this
line. Both lines were canceled November 9, 2001 in conjunction
with the new three year secured revolving credit agreement.
In addition to the lines above, the Prestige Companies (the
Company's 51% controlled European subsidiaries) have three lines
of credit with three separate banks for a total available credit
facility of approximately $3.6 million. As of September 30, 2001,
the Prestige Companies had approximately $3,425,000 of borrowings
against these lines. Interest rates on these lines of credit
range from 6.125% to 8.9%.
At September 30, 2001, the Company had cash and cash equivalents
of $67,000 versus $1.3 million at December 31, 2000. In addition
short-term borrowings increased by $19.0 million during the first
nine months of 2001. The decrease in cash and increase in short-
term borrowings was primarily attributable to capital
expenditures made for the Company's new leased warehouse facility
and to fund increased inventory levels and accounts receivable.
On October 26, 2001, the Board of Directors declared a regular
quarterly cash dividend of $0.0625 per share to shareholders of
record on November 6, 2001, to be paid on November 20, 2001. The
dividend to be paid will be approximately $656,000.
The Company believes that all capital expenditures expected to be
incurred in 2001 will be financed from current operations, cash
and cash equivalents and additional borrowings under its credit
agreement.
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 a
significant majority of 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.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Market risk represents the risk of loss that may impact the
consolidated financial position, results of operations or cash
flows of the Company. The Company is exposed to market risk
associated with changes in interest rates. The Company's lines
of credits bear interest at variable rates. The Company is
subject to increases and decreases in interest expense on its
variable rate debt resulting from fluctuations in the interest
rates of such debt. There have been no changes in interest rates
that would have a material impact on the consolidated financial
position, results of operations or cash flows of the Company
during the nine month period ended September 30, 2001.
PART II - OTHER INFORMATION
Item 6. Exhibit(s) and Reports on Form 8-K.
(a) Exhibit(s) in the third quarter of 2001: NONE
(b) Reports on Form 8-K in the third quarter of 2001:
NONE
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 10, 2001
/s/ Jeffrey Siegel
__________________________________
Jeffrey Siegel
Chairman of the Board of Directors
(Principal Executive Officer)
November 10, 2001
/s/ Robert McNally
__________________________________
Robert McNally
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)