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Page 1 of 13
FORM 10-Q
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, 1997
Commission file number 1-19254
Lifetime Hoan Corporation
(Exact name of registrant as specified in its charter)
Delaware 11-2682486
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer)
Identification No.)
One Merrick Avenue, Westbury, NY 11590
(Address of principal executive offices) (Zip Code)
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 12,496,262 shares outstanding as of
October 31, 1997
INDEX
LIFETIME HOAN CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Income for the
Three and Nine months ended September 30, 1997 and 1996 4
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the
Nine months ended September 30, 1997 5
Condensed Consolidated Statements of Cash Flows for the
Nine months ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements for the
Nine months ended September 30, 1997 7
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations 9
PART II. OTHER INFORMATION 12
SIGNATURES 14
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
LIFETIME HOAN CORPORATION
September December
30, 31,
1997 1996
(unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $37,991 $1,093,432
Accounts receivable, less allowances of $805,000
(1997)
and $791,000 (1996) 14,744,508 14,000,366
Merchandise inventories 44,787,308 39,916,990
Prepaid expenses 4,113,652 4,930,194
Deferred income taxes 1,274,000 1,018,000
Other current assets 1,226,862 925,181
TOTAL CURRENT ASSETS 66,184,321 61,884,163
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation
and amortization of $5,000,972 (1997) and 9,445,775 8,696,802
$4,016,403 (1996)
EXCESS OF COST OVER NET ASSETS ACQUIRED, net of
Accumulated amortization of $822,200 (1997) and 1,857,002 1,905,902
$773,300 (1996)
OTHER INTANGIBLES, net of accumulated
amortization of
$628,500 (1997) and $335,250 (1996) 11,047,634 11,340,884
OTHER ASSETS 989,728 944,164
$89,524,460 $84,771,915
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and trade acceptances $5,214,671 $4,012,132
Accrued expenses 5,042,312 6,882,422
Income taxes 1,315,841 1,318,728
Short term borrowings 1,000,000
TOTAL CURRENT LIABILITIES 11,572,824 13,213,282
STOCKHOLDERS' EQUITY
Series B Preferred Stock, $1 par value,
authorized 2,000,000
Shares; none issued
Common Stock, $.01 par value, authorized
25,000,000 shares;
Issued and outstanding 12,494,749 (1997) and 124,948 124,065
12,406,509 (1996)
Paid-in capital 75,182,094 74,756,842
Retained earnings 3,618,369 (2,336,661)
78,925,411 72,544,246
Less:
Notes receivable for shares issued to 908,064 908,064
stockholders
Deferred compensation 65,711 77,549
77,951,636 71,558,633
$89,524,460 $84,771,915
Note: The Balance Sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
LIFETIME HOAN CORPORATION
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Net sales $24,515,723 $25,116,296 $67,757,158 $65,380,614
Cost of sales 12,104,533 11,707,992 34,440,486 32,782,813
12,411,190 13,408,304 33,316,672 32,597,801
Selling, general and 7,462,978 8,502,046 23,552,991 22,622,276
INCOME FROM OPERATIONS 4,948,212 4,906,258 9,763,681 9,975,525
Other (income) deductions:
Interest expense 6,754 193,399 54,195 527,932
Other (income), net (36,041) (25,120) (95,544) (78,881)
INCOME BEFORE INCOME TAXES 4,977,499 4,737,979 9,805,030 9,526,474
Provision for federal, state
and local
Income taxes 1,923,000 1,865,000 3,850,000 3,710,000
NET INCOME $3,054,499 $2,872,979 $5,955,030 $5,816,474
NET INCOME PER SHARE $0.24 $0.23 $0.47 $0.46
WEIGHTED AVERAGE SHARES
OUTSTANDING 12,673,562 12,689,031 12,648,537 12,678,828
See notes to condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
LIFETIME HOAN CORPORATION
Common Stock Paid-in Retained Notes Deferred
Receivable
Shares Amount Capital Earnings from Compensation Total
Stockholders
Balance at
Dec. 31, 1996 12,406,509 $124,065 $74,756,842 ($2,336,661) ($908,064) ($77,549) $71,558,633
Exercise of stoc 88,240 883 425,252 426,135
options
Net income for
the Nine months
ended
September 30, 1997 5,955,030 5,955,030
30, 1997
Amortization of 11,838 11,838
deferred compensation
Balance at
Sept 30, 1997 12,494,749 $124,948 $75,182,094 $3,618,369 ($908,064) ($65,711) $77,951,636
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
LIFETIME HOAN CORPORATION
Nine Nine
Months Months
Ended Ended
September 30, September 30,
1997 1996
OPERATING ACTIVITIES
Net income $5,955,030 $5,816,474
Adjustments to reconcile net income to
net cash
Provided by / (used in) operating
activities:
Depreciation and amortization 1,347,136 1,122,484
Amortization of deferred compensation 11,838 11,838
Deferred tax (benefit) (256,000) 70,000
Provision for losses on accounts 1,952,824 446,256
receivable
Changes in operating assets and
liabilities:
Accounts receivable (2,696,966) (1,975,528)
Merchandise inventories (4,870,318) (73,089)
Prepaid expenses, other current assets
and other assets 469,297 (2,233,752)
Accounts payable and trade acceptances
and accrued expenses (637,571) 2,785,077
Income taxes payable (2,887) 744,071
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,272,383 6,713,831
INVESTING ACTIVITIES
Purchase of property and equipment, net (1,753,959) (1,726,877)
Purchase of intangibles (9,077,617)
NET CASH (USED IN)
INVESTING ACTIVITIES (1,753,959) (10,804,494)
FINANCING ACTIVITIES
(Repayments)/Proceeds from short term (1,000,000) 3,800,000
borrowings, net
Proceeds from the exercise of warrants 6,147
Proceeds from the exercise of stock 426,135 111,566
options
Repayment of note receivable 140,000
NET CASH (USED IN) / PROVIDED BY
FINANCING ACTIVITIES (573,865) 4,057,713
(DECREASE) IN CASH AND CASH
EQUIVALENTS (1,055,441) (32,950)
Cash and cash equivalents at beginning of 1,093,432 89,797
period
CASH AND CASH EQUIVALENTS AT END OF $37,991 $56,847
PERIOD...
See notes to condensed consolidated
financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
LIFETIME HOAN CORPORATION
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, 1997 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
Note B - Inventories
Merchandise inventories, principally finished goods, are recorded
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, 1997, the
Company had $10,731,000 of letters of credit outstanding and no
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 Company is charged a
nominal fee on the entire Line.
Note D - Capital Stock
Net Income Per Share: Net income per common share is based on net
income divided by the weighted average number of common shares and
equivalents outstanding during the periods.
Recent Accounting Pronouncement: In February 1997, the Financial
Accounting Standards Board issued Statement No. 128, Earnings Per
Share, which is required to be adopted on December 31, 1997. At
that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be
excluded. The new requirement is expected to have no impact on
the third quarter ended September 30, 1997 or September 30, 1996
earnings per share. It is expected to increase earnings per share
by $0.01 for each of the nine month periods ended September 30,
1997 and September 30, 1996. There is no expected impact of
Statement 128 on the calculation of fully diluted earnings per
share for these quarters or nine month periods.
Stock Dividend: On February 5, 1997, the Board of Directors of
the Company declared a 10% stock dividend to shareholders of
record on February 18, 1997, paid February 26, 1997. The stock
dividend was recorded at its market value, $12.00 per share. All
common stock data in the condensed consolidated financial
statements give retroactive effect to the February 1997 stock
dividend.
Note E - Meyer Agreement
On July 1, 1997, the Company entered into an agreement with Meyer
Corporation, regarding the operation of the Company's Farberware
retail outlet stores. Pursuant to the agreement, the Company will
continue to own and operate the Farberware retail outlet stores,
which the Company acquired in 1996. Meyer Corporation, the
licensed manufacturer of Farberware branded cookware products,
will merchandise, stock and offer Farberware cookware products for
sale directly to the public in the Farberware stores and will be
apportioned 60% of the selling space. Meyer Corporation will
receive all revenue from sales of Farberware cookware, and will
reimburse the Company an amount equal to 62.5% of the expenses, as
defined, attributable to the stores.
In addition, Meyer acquired all cookware inventory from the
Company for approximately $3.1 million. The Company has not
recognized any gain or loss as a result of this transaction.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the operating 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,
1997 1996 1997 1996
Net Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 49.4 46.6 50.8 50.1
Gross profit 50.6 53.4 49.2 49.9
Selling, general and 30.4 33.9 34.8 34.6
administrative expenses
Income from operations 20.2 19.5 14.4 15.3
Other (income), expense 0.0 0.8 0.0 0.8
Income before income taxes 20.2 18.8 14.4 14.5
Income taxes 7.8 7.4 5.7 5.7
Net Income 12.5 % 11.4 % 8.8 % 8.9 %
Three Months Ended September 30, 1997
Compared to Three Months Ended September 30, 1996
Net Sales
Net sales for the three months ended September 30, 1997 were $24.5
million, a 2.4% decrease of $601,000 from the comparable 1996
period. Excluding net sales of the Company's Farberware outlet
stores, net sales increased approximately 5% over the comparable
quarter in 1996. The growth came primarily from the Hoffritz and
Farberware lines offset in part by decreased sales of certain
"impulse purchase" products.
Net sales attributable to the outlet stores decreased as a result
of the previously announced agreement signed in July 1997 with
Meyer Corporation. Under the terms of the agreement, sales of
cookware products in Farberware retail outlet stores are for the
account of Meyer Corporation.
Gross Profit
Gross profit for the three months ended September 30, 1997 was
$12.4 million, a decrease of 7.4% or $997,000 over the comparable
1996 period. Gross profit as a percentage of net sales was 50.6%
as compared to 53.4% for the 1996 period. This decrease is
primarily due to a change in the overall sales mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months
ended September 30, 1997 were $7.5 million, a decrease of $1.0
million or 12.2% from the comparable 1996 period. Selling, general
and administrative expenses as a percentage of net sales were
30.4% during the three month period in 1997 as compared to 33.9%
for the 1996 period. This percentage decrease is primarily
attributable to reduced operating expenses of the Farberware
Outlet Stores resulting from the Meyer agreement along with
reduced warehouse and insurance expenses.
Nine Months Ended September 30, 1997
Compared to Nine Months Ended September 30, 1996
Net Sales
Net sales for the nine months ended September 30, 1997 were $67.8
million, an increase of $2.4 million or 3.6% from the comparable
1996 period. The sales growth was primarily due to increased net
sales in the Hoffritz and Farberware lines and Farberware Outlet
Stores offset by decreased sales of certain "impulse-purchase"
products.
Gross Profit
Gross profit for the nine months ended September 30, 1997 was
$33.3 million, an increase of $719,000 or 2.2% over the comparable
1996 period. Gross profit as a percentage of net sales was 49.2%
as compared to 49.9% for the 1996 period. This slight decrease is
primarily due to a change in the overall sales mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months
ended September 30, 1997 were $23.6 million, an increase of
$931,000 or 4.1% from the comparable 1996 period. Selling, general
and administrative expenses as a percentage of net sales were
relatively constant at 34.8% during the nine month period in
1997 as compared to 34.6% for the 1996 period.
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
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.
Borrowings under the Line bear interest payable daily at a
negotiated short term borrowing rate. The Company is charged a
nominal fee on the entire Line. As of September 30, 1997, the
Company had no borrowings and $10,731,000 of letters of credit
outstanding under the Line and, as a result, the availability
under the Line was $14,269,000. The Line is cancelable by either
party at any time.
At September 30, 1997, the Company had cash and cash equivalents
of $38,000 versus $1.1 million at December 31, 1996, a decrease of
$1.1 million. The decrease is primarily attributable to the
Company's increased inventory levels and decreased accrued
expenses offset by increased accounts payable and trade
acceptances.
The Company estimates that approximately $7.0 million of capital
expenditures originally scheduled for 1997 will be incurred in
1998. These expenditures are primarily for the new state of the
art distribution facility. These expenditures will be financed
from current operations and, if needed, short term borrowings.
Products are sold to retailers primarily on 30-day credit terms,
and to distributors primarily on 60-day credit terms.
On July 1, 1997, the Company entered into an agreement with Meyer
Corporation, regarding the operation of the Company's Farberware
retail outlet stores. Pursuant to the agreement, the Company will
continue to own and operate the Farberware retail outlet stores,
which the Company acquired in 1996. Meyer Corporation, the
licensed manufacturer of Farberware branded cookware products,
will merchandise, stock and offer Farberware cookware products for
sale directly to the public in the Farberware stores. Meyer
Corporation will receive all revenue from sales of Farberware
cookware, and will reimburse the Company an amount equal to 62.5%
of the expenses, as defined, attributable to the stores.
In addition, Meyer acquired all cookware inventory from the
Company for approximately $3.1 million. The Company did not
recognize any gain or loss as a result of this transaction.
The Board of Directors of the Company declared a quarterly cash
dividend of $0.0625 per share, payable on November 19,1997 to
shareholders of record on November 5, 1997.
The Company believes that its cash and cash equivalents,
internally generated funds and its existing credit arrangements
will be sufficient to finance its operations and its dividend
payments for 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, the 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.
PART II - OTHER INFORMATION
Item 6. Exhibit(s) and Reports on Form 8-K.
(a) Exhibit(s) in the third quarter of 1997:
Exhibit Description
No.
27 Financial Data Schedule
(b) Reports on Form 8-K in the third quarter of 1997: 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, 1997.
Item Item Description Amount
Number
5-02(1) Cash and Cash Items $ 37,991
5-02(2) Marketable Securities $ 0
5- Notes and Accounts Receivable - $ 14,819,50
02(3)(a)( Trade 8
1)
5-02(4) Allowances for Doubtful $ 75,000
Accounts
5-02(6) Inventory $ 44,787,308
5-02(9) Total Current Assets $ 66,184,321
5-02(13) Property, Plant and Equipment $ 14,446,747
5-02(14) Accumulated Depreciation $ 5,000,972
5-02(18) Total Assets $ 89,524,460
5-02(21) Total Current Liabilities $ 11,572,824
5-02(22) Bonds, Mortgages and Similar $ 0
Debt
5-02(28) Preferred Stock - Mandatory $ 0
Redemption
5-02(29) Preferred Stock - No Mandatory $ 0
Redemption
5-02(30) Common Stock $ 124,948
5-02(31) Other Stockholders' Equity $ 77,826,688
5-02(32) Total Liabilities and $ 89,524,460
Stockholders' Equity
5- Net Sales of Tangible Products $ 67,394,853
03(b)1(a)
5-03(b)1 Total Revenues $ 67,757,158
5- Cost of Tangible Goods Sold $ 34,440,486
03(b)2(a)
5-03(b)2 Total Costs and Expenses
Applicable
to Sales and Revenues $ 34,440,486
5-03(b)3 Other Costs and Expenses $ 0
5-03(b)5 Provision for Doubtful Accounts $ 392,895
and Notes
5- Interest and Amortization of $ 54,195
03(b)(8) Debt Discount
5- Income Before Taxes and Other $ 9,805,030
03(b)(10) Items
5- Income Tax Expense $ 3,850,000
03(b)(11)
5- Income/Loss Continuing $ 5,955,030
03(b)(14) Operations
5- Discontinued Operations $ 0
03(b)(15)
5- Extraordinary Items $ 0
03(b)(17)
5- Cumulative effect - Changes in
03(b)(18) Accounting
Principles $ 0
5- Net Income or Loss $ 5,955,030
03(b)(19)
5- Earnings Per Share - Primary $ 0.47
03(b)(20)
5- Earnings Per Share - Fully $ 0.47
03(b)(20) Diluted
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
/s/ Milton L. Cohen November 14,
1997
__________________________________
Milton L. Cohen
Chairman of the Board of Directors
and President
(Principal Executive Officer)
/s/ Brian Lawrence November 14,
1997
__________________________________
Brian Lawrence
Controller
(Principal Financial and Accounting Officer)
