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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
[No Fee Required]
For the fiscal year ended December 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
[No Fee Required]
For the transition period from to
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, New York 11590
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516)
683-6000
Securities registered pursuant to Section 12(b) of the
Act: None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, par value $.01 per share
(Title of Class)
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 __ No X
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to
this Form 10-K [ ].
The aggregate market value of 4,339,000 shares of the
voting stock held by non-affiliates of the registrant
as of February 28, 2001 was approximately
$29,562,000. Directors, executive officers, and
trusts controlled by said individuals are considered
affiliates for the purpose of this calculation, and
should not necessarily be considered affiliates for
any other purpose.
The number of shares of Common Stock, par value $.01
per share, outstanding as of February 28, 2001 was
10,492,130.
DOCUMENTS INCORPORATED BY REFERENCE
See Part III hereof with respect to incorporation by
reference from the registrant's definitive proxy
statement to be filed pursuant to Regulation 14A
under the Securities & Exchange Act of 1934 and the
Exhibit Index hereto.
LIFETIME HOAN CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART 1
1. Business 3
2. Properties 10
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders
11
PART II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters 11
6. Selected Financial Data 12
7. Management's Discussion and Analysis of Financial
Condition
and Results of Operations 13
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements with Accountants on
Accounting
and Financial Disclosure 17
PART III
10. Directors and Executive Officers of the Registrant18
11. Executive Compensation 19
12. Security Ownership of Certain Beneficial Owners and
Management 19
13. Certain Relationships and Related Transactions 19
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 20
Exhibit Index 20
Index to Financial Statements and Financial Statement
Schedule F-1
Signatures
2
PART I
ITEM 1. BUSINESS
General
Forward Looking Statements: This Annual Report on Form
10-K 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 Annual Report on Form 10-K 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.
Lifetime Hoan Corporation designs, markets and
distributes a broad range of household cutlery,
kitchenware, cutting boards, pantryware and bakeware
products. The Company has developed a strong consumer
franchise by promoting and marketing innovative products
under both owned and licensed trade names. Owned trade
names include Hoffritzr, Prestiger, Tristarr, Old
Homesteadr, Roshcor, Baker's Advantager, Kamensteinr and
Hoanr. Licensed trade names include Farberwarer,
KitchenAidr and various names under license from The
Pillsbury Company. The Farberwarer trade name is used
pursuant to a 200 year royalty-free license. As used
herein, unless the context requires otherwise, the terms
"Company" and "Lifetime" mean Lifetime Hoan Corporation
and its subsidiaries.
Sales growth is stimulated by expanding product offerings
and penetrating various channels of distribution, both
domestically and internationally. In addition, the
following acquisitions and agreements have been made
which have had a favorable impact on the Company's
business:
Hoffritzr
In September 1995, the Company acquired the Hoffritzr
trademarks and brand name. The Company uses the name on
various products including cutlery, scissors, personal
care implements, kitchen tools, bakeware, barware and
barbecue accessories. The Company believes that Hoffritzr
is a well-known, respected name with a history of
quality. The acquisition has enabled the Company to sell
products at higher price points than the rest of the
Company's products. Since acquiring the brand name, the
Company has continuously designed and developed new items
each year and currently sells approximately 300 types of
items under the Hoffritz brand name. The Company markets
these products primarily through major department stores
and high end specialty stores nationwide.
3
Farberwarer
In April 1996, the Company entered into an agreement to
acquire certain assets of Farberware, Inc.
("Farberware"). Under the terms of the acquisition
agreement, and a joint venture agreed to by the Company
and Syratech Corporation in connection therewith, the
Company acquired a 200 year, royalty-free, exclusive
right to use the Farberwarer name in connection with the
product lines covered by its then existing license
agreement, which included kitchen cutlery products
(excluding flatware) and kitchen tools such as spatulas,
barbecue forks and "gadgets" (but excluding appliances),
plus certain limited additional products. This agreement
enables the Company to market products under the
Farberwarer name without paying additional royalties.
The Company also acquired 50 Farberware outlet stores.
In addition, rights to license the Farberwarer name for
use by third parties in certain product categories are
held by a joint venture, owned equally by the Company and
a wholly-owned subsidiary of Syratech Corporation.
Microban
In April 1997, the Company entered into an agreement with
the Microban Products Company whereby the Company secured
exclusive rights to incorporate Microban antibacterial
protection into plastic components of cutting boards,
kitchen tools, kitchen gadgets, and cutlery.
Meyer Agreement
In 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 continues to own and operate the
Farberware retail outlet stores, which the Company
acquired in 1996, and Meyer Corporation, the licensed
manufacturer of Farberware branded cookware products,
assumes responsibility for merchandising and stocking
cookware products in the stores. Meyer Corporation
receives all revenue from sales of Farberware cookware,
currently occupies 40% of the space in each store and
reimburses the Company for 40% of the operating expenses
of the stores.
Salton Agreement
Effective January 1, 2000, the Company entered into an
agreement with Salton Inc., regarding the operation of
the Company's Farberware retail outlet stores. Pursuant
to the agreement, the Company continues to own and
operate the Farberware retail outlet stores, which the
Company acquired in 1996 and Salton Inc., the licensed
manufacturer of Farberware branded electric products,
assumes responsibility for merchandising and stocking
electric products in the stores. Salton Inc. receives all
revenue from sales of Farberware electric, occupies 20%
of the space in each store and reimburses the Company for
20% of the operating expenses attributable to the stores.
Roshco Acquisition
In August 1998, the Company acquired all of the
outstanding common stock of Roshco, Inc. ("Roshco"), a
privately-held bakeware and baking-related products
distributor, located in Chicago, Illinois. Roshco
markets its bakeware and baking-related products under
the Roshco and Baker's Advantage trade names. The
purchase price consisted of an initial cash payment of
$5.0 million and notes payable of $1.5 million. In 1999
and 2000, the Company paid $500,000 each year towards the
notes payable. The Company was also obligated to make
additional payments based on annual sales volume for
bakeware and baking-related products for a period of two
years. In 1999 and 2000, the Company paid approximately
$416,000 and $543,000, respectively, to fulfill its
obligation of additional payments due related to the
acquisition. The Company also assumed bank debt of $2.6
million that was paid on the acquisition date.
Revere Agreement
In October 1998, the Company entered into a licensing
agreement with Corning Consumer Products Company. This
agreement allowed the Company to design and market
cutlery and cutting boards under the Reverer trademark in
the United States and Canada. Shipments of products
under the Reverer trade name began in the second quarter
of 1999.
During 2000, the Company terminated the agreement with
Corning Consumer Products. Revenue from Reverer branded
products for the years ended 2000 and 1999 were not
material.
4
Prestige Acquisition
In September 1999, the Company acquired 51% of the
capital stock of Prestige Italiana, Spa. ("Prestige
Italy") and Prestige Haushaltswaren GmbH ("Prestige
Germany") (together, the "Prestige Companies") for
approximately $1.3 million in cash.
Meyer Corporation will continue to own 49% of the
Prestige Companies.
The Prestige Companies market and distribute kitchen
tools, gadgets, cutlery and bakeware under the Prestiger
trade name in Italy and Germany.
Salton Agreement
In January 2000, the Company entered into an agreement
with Salton Inc., regarding the operation of the
Company's Farberware retail outlet stores. Pursuant to
the agreement, the Company continues to own and operate
the Farberware retail outlet stores, which the Company
acquired in 1996, and Salton Inc., the licensed
manufacturer of Farberware branded electric products,
assumes responsibility for merchandising and stocking
electric products in the stores. Salton Inc. receives all
revenue from sales of Farberware electric products,
occupies 20% of the space in each store and reimburses
the Company for 20% of the operating expenses
attributable to the stores.
Kamenstein Acquisition
Effective September 1, 2000, the Company acquired the
assets and certain liabilities of M. Kamenstein, Inc.
("Kamenstein"), a privately-held 107-year old housewares
company whose products include pantryware, teakettles,
and home organization accessories. Kamenstein's revenues
were approximately $21.0 million for the twelve month
period ended August 31, 2000. In acquiring Kamenstein,
the Company assumed bank debt and other indebtedness of
approximately $10.0 million. The Company is obligated to
make contingent payments based on annual gross profit
dollars earned on sales of the business for a period of 3
years. Kamenstein contributed $7.6 million in sales to
the Company's total net sales for the four-month period
ended December 31, 2000.
KitchenAid Agreement
On October 16, 2000, the Company entered into a licensing
agreement with KitchenAid, a division of the Whirlpool
Corporation. This agreement allows the Company to
design, manufacture and market an extensive range of
kitchen utensils, barbecue items and pantryware products
under the KitchenAidr brand name. Shipments of products
under the KitchenAidr name are expected to begin late in
the second quarter of 2001.
5
Products
The Company designs, markets and distributes a broad
range of household cutlery, kitchenware, cutting boards,
pantryware and bakeware, marketing its products under
various trade names including Farberwarer, Hoffritzr,
Prestiger, Kamensteinr, KitchenAidr, Hoanr and Bakers
Advantager.
Cutlery
The Company markets and distributes household cutlery
under a variety of trade names including Farberwarer,
Hoffritzr, and Tristarr. Cutlery is sold individually, in
blister packages, boxed sets and in sets fitted into
wooden counter blocks, resin carousels and stainless
carousels.
Cutlery is generally shipped as individual pieces from
overseas manufacturers to the Company's warehouse
facilities in central New Jersey. This permits the
Company to configure the quantity, style and contents of
cutlery sets to meet customer requirements as to product
mix and pricing. The sets are then assembled and
packaged for shipment to customers.
Kitchenware
The Company sells over 3,400 kitchenware items under
various trade names including Farberwarer, Hoffritzr,
KitchenAidr, Hoanr, Prestiger, Smart Choice and
Pillsbury. The kitchenware items are manufactured to the
Company's specifications outside the United States and
are generally shipped fully assembled. These items are
typically packaged on a card which can be mounted for
sale on racks at the retailers' premises for maximum
display visibility. Products include the following:
Kitchen Tools and Gadgets
Food preparation and serving tools such as metal,
plastic and wooden spoons, spatulas, serving forks,
graters, strainers, ladles, shears, vegetable and fruit
knives, juicers, pizza cutters, pie servers, and slicers;
Barbecue accessories, in sets and individual pieces,
featuring such items as spatulas, tongs, forks, skewers,
hamburger and fish grills, brushes, corn holders, food
umbrellas, and nut and lobster crackers.
Impulse Purchase Products
J-Hook and Clip Strip merchandising systems which
enable the Company to create additional selling space in
the stores. The line consists of a variety of quality,
novelty items designed to trigger impulse buying. This
line is targeted towards supermarkets and mass merchants.
6
Cutting Boards
The Company designs and markets a full range of
cutting boards made of polyethylene, wood, glass and
acrylic. These products are distributed under several
trade names including Farberwarer and Hoffritzr. All
cutting boards are imported. Boards are also packaged
with cutlery items and kitchen gadgets.
Bakeware
The Company designs, markets and distributes a
variety of bakeware and baking related products. Trade
names that these products are sold under include
Hoffritzr, Bakers Advantager, Roshcor and under a license
from Pillsbury, one of America's best known brands of
baking accessories, featuring the Poppin-FreshT logo on
such items as pastry brushes, spatulas, whisks, spoon and
cup sets, cookie cutters, mixing spoons and magnets.
This product line includes baking, measuring, and
rangetop products such as cookie sheets, muffin, cake and
pie pans, drip pans, bake, roast and loaf pans, scraper
sets, whisks, cutters, rolling pins, baking shells,
baking cups, measuring devices, thermometers, timers,
pizza stones, fondues, woks, ceramics and coasters.
These items are manufactured to the Company's
specifications outside the United States and are
generally shipped fully assembled.
Pantryware
In September 2000 with the acquisition of
Kamenstein, the Company began to design, market and
distribute pantryware, teakettles, spice racks and home
organization accessories. Products are distributed under
the trade names Kamensteinr, MKIr, Warren Kimbler, Claire
Murrayr and Debbie Mummr.
These product lines include bread boxes, mug
holders, paper towel dispensers, spice carousels, mail
caddy's, enamel teakettles, steel teakettles and hardwood
message centers. These items are manufactured to the
Company's specifications outside the United States and
are generally shipped fully assembled. The spices in the
spice carousels are filled domestically in Kamenstein's
Massachusetts warehouse.
New Products
The Company has a design and development department
consisting of 14 employees who create new products,
packaging and merchandising concepts. In excess of 400
items were developed or remodeled in 2000, including the
following:
Hoffritz: Introduction of a new line of stainless steel
and nylon kitchen tools.in 1999.
Cutlery: Introduction of Farberwarer Millenium forged
cutlery block sets and additional walnut block sets.
Gadgets: Introduction of 60 new kitchen tools and
gadgets to extend the Farberware Classic and Farberware
Pro product lines, and themed product display units for
retailers.
Bakeware: Introduction of Farberwarer and Roshcor cookie
press with 20 discs and 6 decorating tips and the
expansion of the Farberwarer and Roshcor fondue lines.
Kamenstein: Introduction of Warren Kimbler and Claire
Murrayr hardwood pantryware, numerous Snap It and
FlatRackr storage and organization products and
additional World of Motionr teakettles.
7
Sources of Supply
The Company sources its products from approximately 46
manufacturers located primarily in the Far East,
including the People's Republic of China and Malaysia,
and to a smaller extent in the United States, Korea,
France, Indonesia, Taiwan, Thailand and Italy. A
majority of its cutlery was purchased from four suppliers
in 2000 who accounted for 32%, 25%, 22% and 11% of the
total purchases, respectively, and from three suppliers
in 1999 who accounted for 47%, 26% and 17% of the total
purchases, respectively. A majority of its pantryware
was purchased from two suppliers in 2000 who accounted
for 59% and 11%, respectively, of the total purchases.
An interruption of supply from any of these manufacturers
could have an adverse impact on the Company's ability to
fill orders on a timely basis. However, the Company
believes other manufacturers with whom the Company does
business would be able to increase production to fulfill
the Company's requirements.
The Company's policy is to maintain a large inventory
base and, accordingly, it orders products substantially
in advance of anticipated time of sale to its customers.
While the Company does not have any long-term formal
arrangements with any of its suppliers, in certain
instances, particularly in the manufacture of cutlery,
the Company places firm commitments for products up to
twelve months in advance of receipt of firm orders from
customers. Lifetime's arrangements with most
manufacturers allow for flexibility in modifying the
quantity, composition and delivery dates of each order.
Excluding the Prestige Companies, all purchase orders are
in United States dollars. The Prestige Companies
purchase orders are in their local currency.
Marketing
The Company markets its product lines directly through
its own sales force and through a network of independent
sales representatives. The Company's products are sold
primarily in the United States to approximately 1,100
customers including national retailers, department store
chains, mass merchant retail and discount stores,
supermarket chains, warehouse clubs, direct marketing
companies, specialty chains and through other channels of
distribution. During the years ended December 31, 2000,
1999 and 1998, Walmart accounted for approximately 11%,
14% and 17% of net sales, respectively. No other
customer accounted for 10% or more of the Company's net
sales during 2000, 1999 and 1998.
Competition
The markets for household cutlery, kitchenware, cutting
boards, pantryware and bakeware are highly competitive
and include numerous domestic and foreign competitors,
some of which are larger than the Company. The primary
competitive factors in selling such products to retailers
are consumer brand name recognition, quality, packaging,
breadth of product line, distribution capability, prompt
delivery and price to the consumer.
8
Patents and Trademarks
The Company uses a number of owned trademarks, primarily
Hoffritzr, Bakers Advantager, Roshcor, Kamensteinr,
Tristarr and Hoanr, as well as Farberwarer which is
licensed under a 200 year royalty-free agreement, which
the Company considers significant to its competitive
position. Some of these trademarks are registered in the
United States and others have become distinctive marks as
to which the Company has acquired common law rights. The
Company also has licensed trademarks from The Pillsbury
Company and KitchenAid, a division of the Whirlpool
Corporation, which the Company uses in its business. The
Company also owns several design and utility patents
expiring from 2001 to 2017 on the overall design of some
of its products. The Company also acquired patents,
trademarks and copyrights as part of the Hoffritzr,
Roshco and Kamenstein acquisitions that expire from 2001
to 2022. The Company believes that the expiration of any
of its patents would not have a material adverse effect
on its business.
Seasonality
Although the Company sells its products throughout the
year, the Company has traditionally had higher net sales
during its third and fourth quarters. During 1999, the
Company experienced problems with the installation of a
new warehouse management system that negatively impacted
its ability to make shipments primarily in the first and
third quarters which impacted the normal seasonality of
quarterly shipments. The following table sets forth the
quarterly net sales for the years ended December 31,
2000, 1999 and 1998:
Net Sales (in thousands)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
2000 $27,600 $25,500 $33,500 $42,800
1999 17,800 26,900 23,000 39,100
1998 21,900 24,200 31,300 39,400
Backlog
The Company receives projections on a seasonal basis from
its principal customers; however, firm purchase orders
are most frequently placed on an as needed basis. The
Company's experience has been that while there may be
some modifications of customers' projections, the Company
is able, with some degree of certainty, to predict its
product needs.
The Company's backlog at December 31, 2000 and 1999 was
$7,341,000 and $9,802,000, respectively. The Company
expects to fill the 2000 backlog during 2001. The
Company does not believe that backlog is indicative of
its future results of operations or prospects. Although
the Company seeks commitments from customers well in
advance of shipment dates, actual confirmed orders are
typically not received until close to the required
shipment dates.
Employees
As of December 31, 2000, Lifetime had 685 819 full-time
employees, of whom 5 were employed in an executive
capacity, 66 in sales, marketing, design or product
development, 63 in financial, administrative or clerical
capacities, 370 in warehouse or distribution capacities
and 269 were outlet store personnel. Prestige Italy had
19 employees and Prestige Germany had 27 employees. None
of the Company's employees are represented by a labor
union. The Company considers its employee relations to be
good.
9
ITEM 2. PROPERTIES
The following table describes the facilities at which the
Company operates its business:
Description/Use of Location Approximate Owned Lease
Property Square Or Leased Expiration
Footage Date
Corporate Westbury,
headquarters and New York 47,000 Owned N/A
outlet store
Warehouse and Dayton, New
distribution Jersey 305,000 Leased 1/31/02
facility
Warehouse and Dayton, New
distribution Jersey 136,000 Leased 1/31/02
facility
Warehouse and Cranberry,
distribution New Jersey 152,000 Leased 6/30/04
facility
Bentonville
Showroom , Arkansas 1,000 Leased 3/31/02
Sales office Chicago, 1,000 Leased 12/31/03
Illinois
Prestige Italy
office, warehouse
and distribution Milan, 26,000 Owned N/A
facility Italy
Prestige Germany
office, warehouse Solingen,
and distribution Germany 24,000 Leased 3/31/01
facility
Tsim Sha
Showroom Tsui, Hong 1,700 Leased 12/31/01
Kong
Kamenstein Elmsford,
corporate New York 7,000 Leased 1/31/04
headquarters
Kamenstein Winchendon,
warehouse and Massachusetts 169,000 Owned N/A
distribution
facility
Aside from the properties listed above, the Company's
Outlet Store subsidiary leases approximately 53 stores in
retail outlet centers located in 22 states throughout the
United States. The square footage of the stores range
from approximately 2,000 square feet to 5,000 square
feet. The terms of these leases range from three to five
years with expiration dates beginning in January 2001 and
extending through August 2004.
The Company has signed a lease for a new build-to-suit
550,000 square foot warehouse and distribution center in
Robinnsville, New Jersey. The term of the lease is 15
years from the commencement date, which is anticipated to
be in the 3rd quarter of 2001.
10
ITEM 3. LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation
arising in the normal course of its business. The
Company believes that there are currently no material
legal proceedings the outcome of which would have a
material adverse effect on the Company's financial
position or its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded under the symbol
"LCUT" on The Nasdaq National Market ("Nasdaq") and has
been since its initial public offering in June 1991. In
2000, the Board of Directors increased the authorized
amount of Common Stock that could be bought back from
1,000,000 common shares to 3,000,000 common shares.
Through December 31, 2000, 2,113,500 common shares were
repurchased and through February 28, 2001, an aggregate
of 2,123,000 common shares were repurchased.
The following table sets forth the high and low sales
prices for the Common Stock of the Company for the fiscal
periods indicated as reported by Nasdaq.
2000 1999
High Low High Low
First Quarter $7.75 $5.31 $10.88 $9.38
Second Quarter $8.70 $6.75 $10.38 $7.25
Third Quarter $8.13 $6.19 $10.13 $7.25
Fourth Quarter $7.94 $6.50 $7.38 $4.78
At December 31, 2000, the Company estimates that there
were approximately 800 beneficial holders of the Common
Stock of the Company.
The Company paid quarterly cash dividends of $0.0625 per
share or a total annual cash dividend of $0.25 per share
on its Common Stock in each of 2000 and 1999. The Board
of Directors currently intends to maintain quarterly cash
dividends of $0.0625 per share of Common Stock for the
foreseeable future, although the Board may in its
discretion determine to modify or eliminate such dividend
at any time.
11
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below for the five
years in the period ended December 31, 2000 have been
derived from the audited financial statements of the
Company. The data for 1998 through 2000 should be read in
conjunction with "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of
Operations" and the audited financial statements and
related notes thereto included elsewhere herein.
(in thousands except per share data)
Year Ended December 31,
2000 1999 1998 1997 1996
INCOME STATEMENT DATA:
Net sales $129,375 $106,761 $116,746 $100,021 $98,426
Cost of sales 75,001 57,979 60,507 51,419 50,528
Gross profit 54,374 48,782 56,239 48,602 47,898
Selling, general and 47,903 42,250 35,306 33,114 31,915
administrative expenses
Income from operations 6,471 6,532 20,933 15,488 15,983
Interest expense 913 281 203 76 671
Other income, net (693) (532) (200) (149) (100)
Income before income taxes 6,251 6,783 20,930 15,561 15,412
Income taxes 2,817 2,822 8,372 6,000 6,060
Net income $3,434 $3,961 $12,558 $9,561 $9,352
Basic earnings per common $0.31 $0.32 $1.00 $0.77 $0.75
share
Weighted average shares - 10,995 12,572 12,570 12,459 12,395
basic
Diluted earnings per common $0.31 $0.31 $0.98 $0.75 $0.74
share
Weighted average shares - 11,079 12,671 12,843 12,720 12,676
diluted
Cash dividends paid per $0.25 $0.25 $0.25 $0.06 $ -
common share
December 31,
2000 1999 1998 1997 1996
BALANCE SHEET DATA:
Current assets $72,092 $82,304 $72,265 $69,709 $61,884
Current liabilities 34,074 27,688 13,925 12,051 13,213
Working capital 38,018 54,616 58,340 57,658 48,671
Total assets 112,119 116,384 105,072 92,957 84,772
Borrowings 10,746 8,073 - - 1,000
Stockholders' equity 77,517 87,808 91,147 80,906 71,559
12
ITEM 7. 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.
Year Ended December 31,
2000 1999 1998
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 58.0 54.3 51.8
Gross profit 42.0 45.7 48.2
Selling, general and adm. 37.0 39.6 30.2
Expenses
Income from operations 5.0 6.1 18.0
Interest expense 0.7 0.3 0.2
Other income, net (0.5) (0.5) (0.2)
Income before income taxes 4.8 6.3 18.0
Income taxes 2.2 2.6 7.2
Net income 2.6 % 3.7 % 10.8 %
2000 COMPARED TO 1999
Net Sales
Net sales in 2000 were $129.4 million, an increase of
approximately $22.6 million, or 21.2% higher than 1999.
Approximately $13.8 million of the sales increase was
attributable to acquisitions; the Prestige Companies
acquired in September 1999 and the Kamenstein business
acquired in September 2000. The remaining increase in
net sales reflects the positive impact of the Company's
return to normalized shipping rates and turnaround times
for customer orders during 2000. In 1999, net sales were
severely impacted as problems arose from the installation
of a new warehouse management system which hampered the
Company's ability to ship merchandise to its customers.
Gross Profit
Gross profit for 2000 was $54.4 million, an increase of
approximately $5.6 million or 11.5%. Gross profit as a
percentage of net sales decreased to 42.0% from 45.7%.
The decline in gross profit margin was primarily the
result of an inventory shortfall revealed during the 2000
year-end physical inventory. Consequently, the Company
has recorded a charge of approximately $4.0 million
(which reduced earnings by $0.23 and $0.22 basic and
diluted per common share for the fourth quarter and year
ended December 31, 2000, respectively), which is included
in cost of goods sold for 2000. The Company investigated
the shortfall; however, the ultimate cause could not be
finally determined. Accordingly, the associated charge
was reported in the fourth quarter of 2000. The Company
is reviewing its procedures and operating and financial
controls and, based upon such review, where appropriate,
will implement enhanced procedures and controls.
Gross profit margin also decreased as a result of certain
efforts to clean up and reduce inventory in preparation
for the move to the new warehouse in 2001.
13
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2000
were $47.9 million, an increase of $5.7 million, or
13.4%, over 1999. The increase in selling, general and
administrative expenses was primarily attributable to the
expenses related to the Kamenstein business that was
acquired in September 2000 and to the Prestige Companies
which were acquired in September 1999. Excluding the
expenses relating to the Kamenstein business and the
Prestige Companies, selling general and administrative
expenses increased by approximately $200,000.
As a percentage of net sales, selling, general and
administrative expenses decreased to 37.0% from 39.6%.
Interest Expense
Interest expense for 2000 was $913,000, an increase of
$632,000 from 1999. This increase was due attributable to
a higher level of borrowings throughout 2000 under the
Company's lines of credit.
1999 COMPARED TO 1998
Net Sales
Net sales in 1999 were $106.8 million, a decrease of
approximately $10.0 million, or 8.6% below 1998. The
decrease in sales was attributable to problems issues
experienced in our warehouse operations that resulted
from the installation of a new warehouse management
system in January 1999. The problems issues with the new
warehouse management system negatively impacted the
Company's ability to ship merchandise to its customers
and which in turn caused inventory to increase well
beyond the warehouse's efficient capacity. The Company
believes that appropriate measures were taken to rectify
these problems and that the system properly functioned at
acceptable levels during the fourth quarter.
Gross Profit
Gross profit for 1999 was $48.8 million, 13.3% lower than
1998. Gross profit as a percentage of net sales decreased
to 45.7% in 1999 as compared to 48.2% in 1998. This
decrease was primarily attributable to an increase in
reserves for slow moving and discontinued inventory and
to an increase in accruals for sales returns and
allowances.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1999
were $42.3 million, an increase of $6.9 million, or
19.7%, over 1998. The increase in selling, general and
administrative expenses was primarily attributable to
increased warehouse personnel expenses and warehouse
operating expenses, incremental selling, general and
administrative expenses related to the Prestige Companies
acquired in September 1999, increased software consulting
expenses and accruals for customer chargebacks related to
the problems issues associated with the installation of
the new warehouse management system.
Interest Expense
Interest expense for 1999 was $281,000, an increase of
$78,000 over 1998. This increase was due attributable to
increased borrowings under the Company's line of credit
during 1999, primarily due to lower sales and earnings in
the first three quarters of 1999 as compared to 1998.
14
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company had cash and cash
equivalents of $1.3 million, a decrease of $200,000 from
the prior year, working capital was $38.0 million, a
decrease of $16.6 million from 1999, and the current
ratio was 2.1 to 1.
Cash provided by operating activities was approximately
$22.4 million, primarily the result of decreased
merchandise inventories and net income. Cash used in
investing activities was approximately $3.2 million,
which was primarily the purchase of fixed assets. Cash
used in financing activities was approximately $19.3
million, primarily used for the repurchase of common
stock, the paydown of short term borrowings, including
debt assumed in the Kamenstein acquistion and the payment
of dividends.
Capital expenditures were $2.0 million in 2000 and $2.6
million in 1999. Total planned capital expenditures for
2001 are estimated at $13.0 million. These expenditures
will be primarily for machinery, equipment, computer
hardware and computer software for the new leased build-
to-suit warehouse and distribution facility. These
expenditures are expected to be funded from current
operations, cash and cash equivalents and bank
borrowings.
Effective September 1, 2000, the Company acquired the
assets and certain liabilities of Kamenstein, a privately-
held 107-year old housewares company whose products
include pantryware, teakettles, and home organization
accessories. Kamenstein's revenues were approximately
$21.0 million for the twelve month period ended August
31, 2000. In acquiring Kamenstein, the Company assumed
bank debt and other indebtedness of approximately $10.0
million. The Company is obligated to make contingent
payments in the future based on annual gross profit
dollars earned by the business for a 3-year period.
The Company has available anan unsecured $25,000,000
$25,000,000 line of credit with a bank (the "Line") which
may be used for revolving credit loans or letters of
credit. Borrowings made under the Line bear interest
payable daily at a negotiated short term borrowing rate.
The effective interest rate at December 31, 2000 was
8.125%. As of December 31, 2000, the Company had
$4,200,000 of letters of credit and trade acceptances
outstanding and $6,7007,700,000 of borrowings under the
Line and, as a result, the availability under the Line
was $13,033,000100,000. The Line is cancelable by either
party at any time.
In addition to the Line, the Prestige Companies have
three lines of credit with three separate banks providing
a total available credit facility of approximately $3.3
million. As of December 31, 2000, the Prestige Companies
had borrowings of approximately $3.0 million against
these lines. Interest rates on these lines of credit
ranged from 6.125% to 8.9%.
15
Products are sold to retailers primarily on 30-day credit
terms, and to distributors primarily on 60-day credit
terms. As of December 31, 2000, the Company had an
aggregate of $1.3 million of accounts receivable
outstanding in excess of 60 days or approximately 5.0% of
gross receivables, and had inventory of $45.6 million.
The Company believes that its cash and cash equivalents
plus internally generated funds and its credit
arrangements will be sufficient to finance its operations
for the next twelve months.
The results of operations of the Company for the periods
discussed have not been significantly affected by
inflation or foreign currency fluctuations. The Company
negotiates predominantly all of its purchase orders with
its foreign manufacturers in United States dollars. Thus,
notwithstanding any fluctuations in foreign currencies,
the Company's cost for a purchase order is generally 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.
16
The Company believes that its cash and cash equivalents
plus internally generated funds and its credit
arrangements will be sufficient to finance its operations
for the next twelve 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 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are included herein commencing
on page F-1.
The following is a summary of the unaudited quarterly
results of operations for the years ended December 31,
2000 and 1999.
Three Months Ended
3/30 6/30 9/30 12/31
(in thousands, except per share data)
2000
Net sales $27,609 $25,547 $33,505 $42,714
Cost of sales 14,517 13,252 17,585 29,647
Net income (loss) 1,373 1,163 2,279 (1,381)
Basic earnings per $0.12 $0.10 $0.22 ($0.13)
common share
Diluted earnings per $0.12 $0.10 $0.21 ($0.13)
common share
1999
Net sales $17,817 $26,903 $22,950 $39,091
Cost of sales 9,164 13,525 12,254 23,036
Net income 257 2,664 393 647
Basic earnings per $0.02 $0.21 $0.03 $0.05
common share
Diluted earnings per $0.02 $0.21 $0.03 $0.05
common share
During the three month period ended December 31, 2000,
the Company recorded a charge relating to an inventory
shortfall of approximately $4.0 million (which reduced
earnings by $0.23 and $0.22 per basic and diluted common
share for fourth quarter and year ended December 31,
2000, respectively) which is included in cost of goods
sold.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The following table sets forth certain information
concerning the Executive Officers and Directors of the
Company:
Director
or
Executive
Officer of
Company or
Name Age Position Its
Predecessor
Since
Milton L. 72 Chairman of the 1958
Cohen Board of Directors
Jeffrey 58 Chief Executive 1967
Siegel Officer, President
and Director
Bruce Cohen 42 Executive Vice 1998
President
and Director
Craig 51 Vice-President - 1973
Phillips Distribution,
Secretary and
Director
Robert 54 Vice-President - 1997
McNally Finance,
Finance, Treasurer
and Treasurer
Ronald 56 Director 1991
Shiftan
Howard 80 Director 1992
Bernstein
Leonard 69 Director 2000
Florence
Mr. Milton L. Cohen has been continuously employed by
the Company as its Chairman of the Board since 1958.
Prior to 2000, Mr. Milton L. Cohen was also Chief
Executive Officer of the Company since 1958.
Mr. Siegel has been continuously employed by the
Company as its President since 1999. In 2000, Mr. Siegel
became the Chief Executive Officer of the Company. Prior
thereto Mr. Siegel was Executive Vice President of the
Company since 1967.
Mr. Phillips has been continuously employed by the
Company in his present capacity since 1981.
Mr. McNally has been continuously employed by the
Company in his present capacity since October 1997. Mr.
McNally, was formerly Senior Vice President - Finance for
Cybex International, Inc., (formerly Lumex, Inc.), a
manufacturer and distributor of healthcare products and
fitness equipment. Mr. McNally held that position for 15
years prior to joining the Company.
Mr. Bruce Cohen was first elected a Director in 1998
and has been continuously employed by the Company in his
present capacity since 1999. Prior thereto Mr. Bruce
Cohen was a Vice President - National Sales Manager for
the Company since 1991.
Mr. Shiftan has served as Deputy Executive Director of
The Port Authority of New York & New Jersey since 1998.
Prior to becoming Deputy Executive Director of the Port
Authority of New York & New Jersey, he had, since 1996,
been Chairman of Patriot Group, LLC, a financial advisory
firm. Prior thereto, Mr. Shiftan held executive
management positions in venture capital, investment
banking and financial advisory firms.
18
Mr. Bernstein has been a member of the Certified Public
Accounting firm, Cole, Samsel & Bernstein LLC (and its
predecessors), for approximately forty-nine years.
Mr. Florence has been Chairman of the Board, Chief
Executive Officer and President of Syratech, Inc., a
consumer products company, since 1986.
Milton L. Cohen is the father of Bruce Cohen.
Jeffrey Siegel and Craig Phillips are cousins.
The Board of Directors has an audit committee, whose
three members are independent directors.
The directors and officers of the Company are elected
annually by the stockholders and Board of Directors of
the Company, respectively. Directors serve until the next
annual meeting of the stockholders or until their
successors have been elected and qualified or until their
earlier resignation or removal. Officers are elected at
the first Board of Directors meeting following the annual
stockholders meeting and serve at the pleasure of the
Board of Directors.
Directors who are not employees of the Company receive
a retainer of $5,000 per year, an additional fee of
$1,000 for each Board meeting attended, plus
reimbursement of reasonable out-of-pocket expenses.
Directors who are employees of the Company do not receive
compensation for serving as directors or attending
meetings. The Company has entered into indemnification
agreements with the directors and officers of the
Company.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information
to appear under the caption "Executive Compensation" in
the Company's definitive Proxy Statement for its 2001
Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information
to appear under the caption "Principal Stockholders" in
the Company's definitive Proxy Statement for its 2001
Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information
to appear under the caption "Certain Transactions" in the
Company's definitive Proxy Statement for its 2001 Annual
Meeting of Stockholders.
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) and (2) - see list of Financial Statements and
Financial Statement Schedule on F-1.
(b) Reports on Form 8-K in the fourth quarter of 2000.
None.
(c) Exhibits*:
Exhibit
No. Description
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3[a] to
Form S-1 [No. 33-40154] of Lifetime Hoan
Corporation).
3.2 Amendment dated June 9, 1994 to the Restated
Certificate of Incorporation of the Company (incorporated
herein by reference to the December 31, 1994 Form 10-K
[No. 1-19254] of Lifetime Hoan Corporation).
3.3 By-Laws of the Company (incorporated herein by
reference to Exhibit 3[b] to Form S-1 [No. 33-40154]
of Lifetime Hoan Corporation).
10.1 Loan Agreement dated as of May 11, 1988 with Bank of
New York, as amended (incorporated by Reference to
Exhibit 10[d] to Form S-1 [No. 33-40154] of Lifetime
Hoan Corporation).
10.2 Amendment No. 6 dated as of March 5, 1992 between
Lifetime Hoan Corporation and The Bank of New York
(incorporated by reference to the December 31, 1991
Form 10-K [No. 1-19254] of Lifetime Hoan
Corporation).
10.3 Stock Option Plan for key employees of Lifetime Hoan
Corporation, as amended June 9, 1994 (incorporated
by reference to the December 31, 1994 Form 10-K [No.
1-19254] of Lifetime Hoan Corporation).
10.4 Promissory notes dated December 17, 1985 of Milton
L. Cohen, Jeffrey Siegel, Craig Phillips and Robert
Phillips, as amended (incorporated by reference to
Exhibit 10[f] to Form S-1 [No. 33-40154] of Lifetime
Hoan Corporation).
10.5 Lease to Dayton, New Jersey premises dated August
20, 1987 and amendment between the Company and
Isaac Heller (incorporated by reference to Exhibit
10[h] to Form S-1 [No. 33-40154] of Lifetime Hoan
Corporation).
10.6 License Agreement dated December 14, 1989 between
the Company and Farberware, Inc. (incorporated by
reference to Exhibit 10[j] to Form S-1 [No. 33-
40154] of Lifetime Hoan Corporation).
10.7 License Agreement dated as of April 19, 1991 between
the Company and The Pillsbury Company (incorporated
by reference to Exhibit 10[m] to Form S-1 [No. 33-
40154] of Lifetime Hoan Corporation).
20
10.8 Real Estate Sales Agreement dated October 28, 1993
between the Company and The Olsten Corporation
(incorporated by reference to the December 31, 1993
Form 10-K [No. 1-19254] of Lifetime Hoan
Corporation).
10.9 Amendment to the Real Estate Sales Agreement dated
September 26, 1994 between the Company and The
Olsten Corporation. (incorporated by reference to
the December 31, 1995 Form 10-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.10 Lease to additional Dayton, New Jersey premises
dated December 7, 1994. (incorporated by reference
to the December 31, 1995 Form 10-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.11 License Agreement dated December 21, 1995
between the Company and The Walt Disney Company.
10.12 Memorandum of purchase dated September 18, 1995
between the Company and Alco Capital Group, Inc.
(incorporated by reference to the September 30, 1995
Form 10-Q [No. 1-19254] of Lifetime Hoan
Corporation).
10.13 Registration Rights Agreement dated September
18, 1995 between the Company and Alco Capital Group,
Inc. (incorporated by reference to the September 30,
1995 Form 10-Q [No. 1-19254] of Lifetime Hoan
Corporation).
10.14 Amendment No. 1 dated September 26, 1995 to the
Lease for the additional Dayton, New Jersey
premises. (incorporated by reference to the
September 30, 1995 Form 10-Q [No. 1-19254] of
Lifetime Hoan Corporation).
10.15 Form of Extension Agreement dated as of
December 15, 1995 between Milton L. Cohen and
Lifetime Hoan Corporation (incorporated by reference
to the January 8, 1996 Form 8-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.16 Form of Extension Agreement dated as of
December 15, 1995 between Jeffrey Siegel and
Lifetime Hoan Corporation (incorporated by reference
to the January 8, 1996 Form 8-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.17 Form of Extension Agreement dated as of
December 15, 1995 between Craig Phillips and
Lifetime Hoan Corporation (incorporated by reference
to the January 8, 1996 Form 8-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.18 Asset Purchase Agreement by and between
Farberware, Inc., Far-b Acquisition Corp., Syratech
Corporation and Lifetime Hoan Corporation, dated
February 2, 1996.
10.19 Joint Venture Agreement by and among Syratech
Corporation, Lifetime Hoan Corporation and Far-b
Acquisition Corp., dated February 2, 1996.
10.20 Employment Agreement dated April 7, 1996 with
Milton L. Cohen (incorporated by reference to the
March 31, 1996 10-Q).
10.21 Employment Agreement dated April 7, 1996 with
Jeffrey Siegel (incorporated by reference to the
March 31, 1996 10-Q).
10.22 Employment Agreement dated April 7, 1996 with
Craig Phillips (incorporated by reference to the
March 31, 1996 10-Q).
10.23 Lifetime Hoan 1996 Incentive Stock Option Plan
(incorporated by reference to the March 31, 1996 10-
Q).
21
10.24 Lifetime Hoan 1996 Incentive Bonus Compensation
Plan (incorporated by reference to the March 31,
1996 10-Q).
10.25 Meyer Operating Agreement dated July 1, 1997
between Lifetime Hoan Corporation and Meyer
Corporation and Amendment to Agreement dated July 1,
1998.
10.26 Jeffrey Siegel Employment Agreement Amendment
No. 1, dated June 6, 1997
10.27 Milton L. Cohen Employment Agreement Amendment
No. 1, dated June 6, 1997
10.28 Stock Purchase Agreement between Lifetime Hoan
Corporation and Roshco, Inc. dated August 10, 1998.
10.29 Stock Purchase Agreement between Lifetime Hoan
Corporation and Meyer International Holdings Limited
and Prestige Italiana, SPA dated September 2, 1999.
10.30 Stock Purchase Agreement between Lifetime Hoan
Corporation and Meyer International Holdings Limited
and Prestige Haushaltswaren GmbH, dated September 2,
1999.
10.31 Asset Purchase Agreement between MK Acquisition
Corp., a wholly owned subsidiary of Lifetime Hoan
Corporation, and M. Kamenstein, Inc., dated
September 28, 2000.
21 Subsidiaries of the registrant
23 Consent of Ernst & Young LLP.
*The Company will furnish a copy of any of the exhibits
listed above upon payment of $5.00 per exhibit to cover
the cost of the Company furnishing the exhibits.
(d) Financial Statement Schedules - the response to this
portion of Item 14 is submitted as a separate
section of this report.
22
FORM 10-K -- ITEM 14(a)(1) and (2)
LIFETIME HOAN CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE
The following Financial Statements and Schedule of
Lifetime Hoan Corporation are included in Item 8.
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3
Consolidated Statements of Income for the
Years ended December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the
Years ended December 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7
The following financial statement schedule of Lifetime Hoan Corporation is
included in Item 14 (d);
Schedule II - Valuation and qualifying accounts S-1
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
F-1
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Lifetime Hoan Corporation
We have audited the accompanying consolidated balance
sheets of Lifetime Hoan Corporation as of December 31,
2000 and 1999 and the related consolidated statements of
income, stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 2000.
Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These consolidated
financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to
express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Lifetime Hoan
Corporation at December 31, 2000 and 1999, and the
consolidated results of its operations and its cash flows
for each of the three years in the period ended December
31, 2000, in conformity with accounting principles
generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements
taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
Melville, New York
February 1815, 2001
F-2
LIFETIME HOAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands - except per share data)
December 31,
ASSETS 2000 1999
CURRENT ASSETS
Cash and cash equivalents $1,325 $1,563
Accounts Receivable, less allowances of
$3,582
In 2000 and $2,609 in 1999 18,158 22,443
Merchandise inventories 45,595 54,046
Prepaid expenses 3,477 2,641
Deferred income taxes 870 1,257
Other current assets 2,667 354
TOTAL CURRENT ASSETS 72,092 82,304
PROPERTY AND EQUIPMENT, net 13,085 12,597
EXCESS OF COST OVER NET ASSETS ACQUIRED, net 15,906 10,756
OTHER INTANGIBLES, net 9,780 9,554
OTHER ASSETS 1,256 1,173
TOTAL ASSETS $112,119 $116,384
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short- term borrowings $10,746 $8,073
Accounts payable and trade acceptances 6,709 5,553
Accrued expenses 16,619 13,691
Income taxes - 371
TOTAL CURRENT LIABILITIES 34,074 27,688
MINORITY INTEREST 528 888
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, shares
authorized: 25,000,000;
shares issued and outstanding: 10,501,630 in
2000 and
11,817,646 in 1999 105 118
Paid-in capital 61,155 71,957
Retained Earnings 17,359 16,671
Notes receivable for shares issued to (908) (908)
stockholders
Deferred compensation (14) (30)
Accumulated other comprehensive Loss (180) -
TOTAL STOCKHOLDERS' EQUITY 77,517 87,808
TOTAL LIABLILITIES AND STOCKHOLDER'S EQUITY $112,119 $116,384
F-3
LIFETIME HOAN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands - except per share data)
Year Ended December 31,
2000 1999 1998
Net Sales $129,375 $106,761 $116,746
Cost of Sales 75,001 57,979 60,507
Gross Profit 54,374 48,782 56,239
Selling, General & Admin.
Expenses................ 47,903 42,250 35,306
Income from Operations 6,471 6,532 20,933
Interest 913 281 203
Expense.................
Other (Income),
net................. (693) (532) (200)
Income Before Income Taxes 6,251 6,783 20,930
Income Taxes................ 2,817 2,822 8,372
NET INCOME $3,434 $3,961 $12,558
BASIC EARNINGS PER COMMON SHARE $0.31 $0.32 $1.00
DILUTED EARNINGS PER COMMON $0.31 $0.31 $0.98
SHARE
See notes to consolidated financial statements.
F-4
LIFETIME HOAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Notes Accumul
Rec. ated
Common Paid- Retained able De- other Compre
Stock in from ferred Compre Total hensive
Shares Capital Earn- Stock- Compen hensive Income
Amount ings holders sation Loss
Bal. at 12,522 125 75,307 6,443 ($908) ($61) $80,906
Dec 31, 1997
Net income
For 1998 12,558 12,558 $12,558
Exercise of stock
options 66 1 458 459
Grant of
stock options 350 350
Amortization of
deferred compenstion 16 16
Comprehensive
income 12,558
Cash dividends (3,142) (3,142)
Balance at
Dec. 31, 1998 12,588 126 76,115 15,859(908) (45) 91,147
Net income for 1999 3,961 3,961 3,961
Exercise of stock
stock options 12 92 92
Repurchase and
retirement of
Common stock (782) (8) (4,250) (4,258)
Amortization of
deferred compensation 15 15
Comprehensive income $3,961
Cash dividends (3,149) (3,149)
Bal at
Dec 31, 1999 11,818 118 71,957 16,671 (908) (30) 87,808
Net income for 2000 3,434 3,434 3,434
Exercise of
stock options 15 74 74
Repurchase and
retirement of
common stock (1,331) (13)(10,876) (10,889)
Amortization of
deferred compensation 16 16
Foreign currency
translation adjustment ($180) (180) (180)
Comprehensive income $3,254
Cash dividends (2,746) (2,746)
Balance at
Dec. 31, 2000 $10,502 $105 17,359 (908) (14) (180) $77,517
See notes to consolidated financial statements.
F-5
LIFETIME HOAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2000 1999 1998
OPERATING ACTIVITIES
Net income $3,434 $3,961 $12,558
Adjustments to reconcile net income
To net cash (used in)provided by
operating activities:
Depreciation and amortization 3,461 2,815 2,480
Deferred income taxes 387 (860) 42
Provision for losses on accounts rec 1,077 640 444
Reserve for sales returns & allowances 5,859 5,838 3,683
Minority interest (360) 162 -
Changes in operating assets and
liabilities,excluding the
effects of the Kamenstein,
Roshco and Prestige acquisitions:
Accounts receivable 500 (11,742) (2,916)
Merchandise inventories 11,753 (7,203) 2,268
Prepaid expenses, other current
assets and other assets.......... (2,797) 1,142 1,985
Accounts payable, trade acceptances
and accrued expenses............. (483) 3,633 (5,067)
Income taxes (392) (518) 417
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 22,439 (2,132) 15,894
INVESTING ACTIVITIES
Purchases of property and
equipment, net................... (2,025) (2,552) (3,777)
Proceeds (purchases) of marketable
securities....................... 15 (25) (256)
Acquisition of Roshco, Inc. (1,043) (916) (4,926)
Acquisition of Prestige Companies - (1,338) -
Acquisition of M. Kamenstein, Inc. (125) - -
Payment of note payable of acquired
business......................... - - (2,587)
NET CASH (USED IN) INVESTING
ACTIVITIES (3,178) (4,831) (11,546)
FINANCING ACTIVITIES
Repurchase of common stock (10,889) (4,258) -
(Payments) proceeds of short term
borrowings, net................... (5,758) 6,403 -
Proceeds from the exercise of stock
stock options..................... 74 92 459
Cash dividends paid (2,746) (3,149) (3,142)
NET CASH (USED IN) FINANCING
ACTIVITIES (19,319) (912) (2,683)
EFFECT OF EXCHANGE RATE ON CASH AND
CASH EQUIVALENTS................... (180) - -
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS................... (238) (7,875) 1,665
Cash and cash equivalents at
beginning of year.................. 1,563 9,438 7,773
CASH AND CASH EQUIVALENTS AT END OF YEAR $1,325 $1,563 $9,438
See notes to consolidated financial statements.
F-6
LIFETIME HOAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Organization and Business: The accompanying consolidated
financial statements include the accounts of Lifetime Hoan
Corporation ("Lifetime"), its wholly-owned subsidiaries,
Outlet Retail Stores, Inc. ("Outlets"), Roshco, Inc.
("Roshco") and MK Acquisition Corp. ("Kamenstein") and its 51%
owned and controlled subsidiaries, Prestige Italiana, Spa.
("Prestige Italy") and Prestige Haushaltswaren GmbH ("Prestige
Germany") (together, the "Prestige Companies"), collectively,
the "Company". Significant intercompany accounts and
transactions have been eliminated in consolidation.
The Company is engaged in the design, marketing and
distribution of household cutlery, kitchenware, cutting
boards, pantryware and bakeware, marketing its products under
a number of trade names, some of which are licensed. The
Company sells its products primarily to retailers throughout
the United States.
Revenue Recognition: Revenue is recognized upon the
shipment of merchandise.
Inventories: Merchandise inventories, principally finished
goods, are priced by the lower of cost (first-in, first-out
basis) or market method.
Property and Equipment: Property and equipment is stated at
cost. Property and equipment other than leasehold
improvements is being depreciated by the straight-line method
over the estimated useful lives of the assets. Building and
improvements are being depreciated over 30 years and
machinery, furniture, and equipment over 5 to 10 years.
Leasehold improvements are amortized over the term of the
lease or the estimated useful lives of the improvements,
whichever is shorter.
Cash Equivalents: The Company considers highly liquid
instruments with a maturity of three months or less when
purchased to be cash equivalents.
Use of Estimates: The preparation of financial statements
in conformity with accounting principles generally accepted in
the United States requires management to make estimates and
assumptions that affect the amount reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
Excess of Cost Over Net Assets Acquired and Other
Intangibles: Excess of cost over net assets acquired pursuant
to acquisitions is being amortized by the straight-line method
over periods ranging from 30 to 40 years. Accumulated
amortization at December 31, 2000 and 1999 was $1,795,000 and
$1,333,000, respectively.
Other intangibles consist of a royalty-free license,
trademarks and brand names acquired pursuant to two
acquisitions and are being amortized by the straight-line
method over 30 years. Accumulated amortization at December
31, 2000 and 1999 was $1,896,000 and $1,506,000, respectively.
Amortization expense for the year ended December 31, 2000
and December 31, 1999 was $868,000 and $735,000, respectively.
Long-Lived Assets: If there are indicators of
impairment, the Company reviews the carrying value of its long-
lived assets in determining the ultimate recoverability of
their unamortized values using future undiscounted cash flow
analyses.
Income Taxes: Income taxes have been provided using
the liability method.
F-7
LIFETIME HOAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings Per Share: Basic earnings per share has been
computed by dividing net income by the weighted average number
of common shares outstanding of 10,995,000 in 2000, 12,572,000
in 1999, and 12,570,000 in 1998. 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 11,079,000 in 2000,
12,671,000 in 1999, and 12,843,000 in 1998.
NOTE B - ACQUISITIONS AND LICENSES
Kamenstein Acquisition: In September 2000, the Company
acquired the assets and certain liabilities of M. Kamenstein,
Inc. ("Kamenstein"), a privately-held 107-year old housewares
company whose products include pantryware, teakettles, and
home organization accessories. Kamenstein's revenues were
approximately $21.0 million for the twelve month period ended
August 31, 2000. In acquiring Kamenstein, the Company assumed
bank debt and other indebtedness of approximately $10.0
million. The Company is obligated to make contingent payments
in the future based on annual gross profit dollars by the
Kamenstein business for a 3 year period. Kamenstein
contributed $7.6 million in sales to the Company's total net
sales for the four month period ended December 31, 2000. This
acquisition was accounted for using the purchase method and
the Company recorded excess of cost over net assets acquired
of $6,063,000.
The table below reflects unaudited pro forma combined
results of the Company, Lifetime and Kamenstein as if the
acquisition had taken place at the beginning of fiscal 2000
and 1999. The pro forma financial information is not
necessarily indicative of the operating results that may occur
in the future or that would have occurred had the acquisition
of Kamenstein been affected on the dates indicated.
2000 1999
Net sales (in thousands) $142,296 $126,232
Net (loss) earnings(in thousands) 1,130 1,687
Basic (loss) earnings per common share $0.10 $0.13
Diluted(loss) earnings per common share $0.10 $0.13
Prestige Acquisition: In September 1999, the Company
acquired 51% of the capital stock and controlling interest in
each of Prestige Italy and Prestige Germany. The Company paid
approximately $1.3 million for its majority interests in the
Prestige Companies. This acquisition was accounted for using
the purchase method and the Company recorded excess of cost
over net assets acquired of $586,000.
Roshco Acquisition: In August 1998, the Company acquired
all of the outstanding common stock of Roshco, Inc.
("Roshco"), a privately-held bakeware and baking-related
products distributor. The purchase price consisted of an
initial cash payment of $5.0 million and notes payable of $1.5
million. The Company paid $500,000 in each year of 1999 and
2000 towards the notes payable. The Company was also
obligated to make additional payments based on annual sales
volume of bakeware and baking-related products for a period of
two years. In 1999 and 2000, the Company paid approximately
$416,000 and $543,000, respectively, to fulfill its obligation
for additional payments related to the acquisition. The
Company also assumed bank debt of $2.6 million that was paid
on the acquisition date. This acquisition was accounted for
using the purchase method and the Company recorded excess of
cost over net assets acquired of $8,208,000.
Pro forma results are not presented for the Prestige
and Roshco acquisitions due to immateriality.
Operations of the acquired entities have been included
since their respective dates of acquisition.
KitchenAid License Agreement: In October 2000, the
Company entered into a licensing agreement with KitchenAid, a
division of the Whirlpool Corporation. This agreement allows
the Company to design, manufacture and market an extensive
range of kitchen utensils, barbecue items and pantryware
products under the KitchenAidr brand name. Shipments of
products and related payments under the agreement are expected
to begin late in the second quarter of 2001.
F-8
LIFETIME HOAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE C - LINE OF CREDIT
The Company has available an unsecured $25,000,000 line of
credit with a bank (the "Line") which may be used for
revolving credit loans or letters of credit. Borrowings made
under the Line bear interest payable daily at a negotiated
short-term borrowing rate. The effective interest rate at
December 31, 2000 was 8.125%. As of December 31, 2000, the
Company had approximately $4,200,000 of letters of credit and
trade acceptances outstanding and $7,700,000 of borrowings
under the Line and, as a result, the availability under the
Line was $13,100,000. The Line is cancelable by either party
at any time. Commitment fees approximated $66,000 and $63,000
for the years ended December 31, 2000 and 1999, respectively.
In addition to the Line above, the Prestige Companies have
three lines of credit with three separate banks for a total
available credit facility of approximately $3.3 million. As
of December 31, 2000, the Prestige Companies had borrowings of
approximately $3.0 million against these lines. Interest
rates on these lines of credits range from 6.125% to 8.9%.
The Company paid interest of approximately $913,000,
$281,000 and $203,000 during the years ended December 31,
2000, 1999 and 1998, respectively.
NOTE D - CAPITAL STOCK
Cash Dividends: The Company paid regular quarterly
cash dividends of $0.0625 per share on its Common Stock, or a
total annual cash dividend of $0.25, in 2000, 1999 and 1998.
The Board of Directors currently intends to maintain a
quarterly cash dividend of $0.0625 per share of Common Stock
for the foreseeable future, although the Board may in its
discretion determine to modify or eliminate such dividend at
any time.
Common Stock Repurchase and Retirement: In December
1999, the Board of Directors of the Company authorized a
repurchase of up to 1,000,000 of its outstanding common shares
in the open market. In 2000, the Board of Directors increased
the authorized amount of Common Stock that could be bought
back from 1,000,000 common shares to 3,000,000 common shares.
Through December 31, 2000, 2,113,500 common shares were
repurchased for approximately $15,147,000.
Stock Option Plans: In June 2000, the stockholders of
the Company approved the adoption of a Stock Option Plan (the
"Plan"), which replaced all other Company stock option plans,
whereby options to purchase up to 1,750,000 shares of common
stock may be granted to key employees of the Company,
including directors and officers. The Plan authorizes the
Board of Directors of the Company to issue incentive stock
options as defined in Section 422A (b) of the Internal Revenue
Code and stock options that do not conform to the requirements
of that Section of the Code. All options expire on the tenth
anniversary of the date of grant and vest over a range of up
to five years, from the date of grant.
As of December 31, 2000, approximately 497,000 shares
were available for grant under the Company's stock option
plans.
F-9
LIFETIME HOAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE D - CAPITAL STOCK (continued)
The Company grants stock options for a fixed number of
shares to employees with an exercise price equal to the fair
value of the shares at the date of grant. The Company
accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and
related Interpretations because the Company believes the
alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation"
requires use of option valuation models that were not
developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings
per share is required by Statement No. 123, and has been
determined as if the Company has accounted for its employee
stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the
following weighted-average assumptions: risk-free interest
rates of 6.01%, 5.88% and 6.62% for 2000, 1999 and 1998,
respectively; 3.67% dividend yield in 2000, 4.68% dividend
yield in 1999 and 2.50% dividend yield in 1998; volatility
factor of the expected market price of the Company's common
stock of 0.45 in 2000, 0.07 in 1999 and 0.39 in 1998; and a
weighted-average expected life of the options of 5.0, 5.1 and
5.7years in 2000, 1999 and 1998, respectively.
The Black-Scholes option valuation model was developed
for use in estimating the fair value of traded options which
have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense
over the options' vesting period. The Company's pro forma
information is as follows:
Year Ended December 31,
2000 1999 1998
Pro forma net income (in thousands) $3,224 $3,720 $12,148
Pro forma basic earnings per common share $0.29 $0.30 $0.97
Pro forma diluted earnings per common share $0.29 $0.29 $0.95
F-10
LIFETIME HOAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE D - CAPITAL STOCK (continued)
A summary of the Company's stock option activity
and related information for the years ended December 31
follows:
2000 1999 1998
Options Weighted- Options Weighted Options Weighted
Ave. Ave. Ave.
Exercise Exercise Exercise
price price price
Bal.-Jan 1, 1,209,165 $7.49 1,041,545 $7.81 906,942 $6.95
Grants 109,500 $ 7.17 188,500 $5.71 222,000 $10.39
Exerciesd (14,984) $4.91 (11,882) $6.70 (66,018) $4.93
Canceled (58,346) $9.16 (8,998) $8.07 (21,379) $7.38
Bal-Dec 31,1999 1,245,335 $7.39 1,209,165 $7.49 1,041,545 $7.81
The weighted average fair values of options
granted during the years ended December 31, 2000, 1999 and
1998 were $0.64, $0.44 and $3.77, respectively.
The following table summarizes information about
employees' stock options outstanding at December 31, 2000:
Options Options Options Weighted Weighted Weighted
Price Outstanding Exercisable Average Average Average
Remaining Exercise Exercise
Contractual Price - Price-
Life Options Options
Outstanding Exercisable
$4.14-$5.51 366,058 241,183 4.8 $5.02 $4.77
years
$6.25 -$8.41 430,062 299,215 5.1 $6.89 $6.80
years
$8.64 -$10.87 449,215 324,841 4.4 $9.86 $9.94
years
1,245,335 865,239 4.8 $7.39 $7.39
years
In connection with the grant of certain options,
the Company recorded, and is amortizing, deferred
compensation.
In connection with the exercise of options under
a stock option plan which has since expired, the Company
received cash of $255,968 and notes in the amount of $908,064.
The notes bear interest at 9% and are due no later than
December 31, 2005.
F-11
LIFETIME HOAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE E - INCOME TAXES
Pre-tax income for the years ended December 31, 2000, 1999
and 1998 were comprised of domestic income of $6,850,000,
$6,794,000 and $20,930,000, respectively and foreign loss of
$599,000, $11,000 and $0, respectively.
The provision for income taxes consists of (in thousands):
Year Ended December 31,
2000 1999 1998
Current:
Federal $1,918 $2,941 $6,957
State and local 481 662 1,373
Foreign - Prestige
Companies 31 79
Deferred 387 (860) 42
Income tax provision $2,817 $2,822 $8,372
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components
of the Company's net deferred tax assets are as follows (in
thousands):
December 31,
2000 1999
Merchandise inventories $1,257 $1,533
Accounts receivable 801 767
allowances
Depreciation and (1,188) (1,043)
amortization
Foreign affiliates net
Operating losses 204 -
Total deferred tax assets 1,074 1,257
Valuation allowance (204) -
Net deferred tax assets $870 $1,257
While management believes that the Company's deferred tax
asset will be realized based on its generation of taxable
income in recent years and its future projected taxable
income, the substantial restrictions on and time periods
required to realize certain of the Company's NOL's make it
appropriate to record a valuation allowance against a portion
of those NOL's. A valuation allowance has been provided
against all of the Company's foreign net operating loss
carryforwards. Accordingly, the Company has provided a total
valuation allowance of $204,000 as of December 31, 2000.
There can be no assurance that the Company will generate
sufficient taxable earnings in future years to fully realize
recorded tax benefits.
The provision for income taxes differs from the amounts
computed by applying the applicable federal statutory rates as
follows (in thousands):
Year Ended December 31,
2000 1999 1998
Provision for Federal income taxes
At the statutory rate $2,125 $2,306 $7,116
Increases (decreases):
State and local income taxes,
net of Federal income tax benefit 318 437 906
Change in valuation allowance 204 - -
Other 139 - 350
Foreign taxes - Prestige
Companies 31 79 -
Provision for income taxes $2,817 $2,822 $8,372
The Company paid income taxes (net of refunds) of
approximately $4,970,000, $4,178,000 and $7,809,000 during the
years ended December 2000, 1999, and 1998, respectively.
F-12
LIFETIME HOAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE F - COMMITMENTS
Operating Leases: The Company has lease agreements for its
warehouses, showroom facilities, sales offices and outlet
stores which expire through June 30, 2016. These leases
provide for, among other matters, annual base rent escalations
and additional rent for real estate taxes and other costs.
Future minimum payments under non cancelable operating
leases are as follows (in thousands):
Year ended December
31:
2001 $7,453
2002 5,554
2003 3,787
2004 2,676
2005 2,282
Thereafter 28,779
$50,531
Under agreements with Meyer Corporation and Salton, Inc.,
the Company is reimbursed for use of floor space in its outlet
stores. Meyer Corporation reimbursed the Company 40.0% (as
amended from 52.0% in January 2000) of the operating lease
expenses of the outlet stores in 2000, which is not a sublease
commitment. In 2000, 1999 and 1998, Meyer Corporation
reimbursed approximately $1,463,000, $1,856,000 and
$1,710,000, respectively, for operating lease expense to the
Company. Salton Inc. reimbursed the Company 20.0% of the
operating lease expense of the outlet stores in 2000, which is
also not a sublease commitment. In 2000, Salton Inc.
reimbursed approximately $731,000 for operating lease expense
to the Company.
Rental and related expenses on the operating leases were
approximately $5,916,000, $5,554,000 and $4,715,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
Amounts for 2000, 1999 and 1998 are prior to the Meyer
Corporation and Salton Inc. reimbursements described above.
Royalties: The company has royalty licensing agreements
which expire through December 31, 2005. Future minimum
royalties payable are as follows (in thousands):
Year ended December
31:
2001 $1,000
2002 1,349
2003 502
2004 750
2005 1,000
$4,601
F-13
LIFETIME HOAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE F - COMMITMENTS (continued)
Legal Proceedings: The Company is, from time to time, a
party to litigation arising in the normal course of its
business. The Company believes that there are currently no
material legal proceedings that the outcome of which would
have a material adverse effect on the Company's financial
position or results of operations.
Employment Agreements: In April 1996, as amended in June
1997, the Company entered into employment agreements with its
then President and Executive Vice President, providing for
annual salaries of $700,000 and $400,000, respectively, and
for the payment of bonuses pursuant to the Company's 1996
Incentive Bonus Compensation Plan (the "Bonus Plan") (see
below). The employment agreements continue through April 2000
and thereafter for additional periods of one year each unless
terminated by either the Company or the executive.
Incentive Bonus Compensation Plan: In April 1996, the
Board of Directors adopted and in June 1996, the stockholders
approved an incentive bonus compensation plan ("1996 Bonus
Plan"). The 1996 Bonus Plan provided for the award of a
bonus, with respect to each of the ten fiscal years of the
Company beginning with the 1996 fiscal year, to each of the
then President and the Executive Vice President of the
Company. The bonus payable to each executive is an amount
equal to 3.5% of pretax income, before any provision for
executive compensation, stock options exercised during the
year under the Company's stock option plans and extraordinary
items. In June 2000, the stockholders of the Company approved
the adoption of an incentive bonus compensation plan ("2000
Bonus Plan"), which replaced the 1996 Bonus Plan. The 2000
Bonus Plan provides for the award of a bonus, to designated
Senior Executive Officers based on a predetermined financial
performance measurement. For 2000, the bonus payable to the
then Chief Executive Officer and President was the amount
equal to 3.5% of pretax income, before any provision for
executive compensation, stock options exercised during the
year under the Company's stock option plan and extraordinary
items. During the years ended December 31, 2000, 1999 and
1998, the Company recorded annual compensation expense of
approximately $600,000, $600,000 and $1.7 million,
respectively, pursuant to the bonus plans.
In February 2001, the Board of Directors declared a special
bonus for the above executives aggregating approximately
$850,000 related to year ended December 31, 2000.
NOTE G - RELATED PARTY TRANSACTIONS
In connection with the Roshco acquisition (see note B),
a director of the Company was paid $200,000 and received
options to purchase 100,000 shares of common stock (at an
exercise price of $10.63) as a financial advisory fee. The
fair value of the options granted, which vested immediately,
are was approximately $350,000. The $550,000 was included in
excess of cost over net assets acquired.
NOTE H - RETIREMENT PLAN
The Company maintains a defined contribution retirement plan
("the Plan") for eligible employees under Section 401(k) of
the Internal Revenue Code. Participants can make voluntary
contributions up to a maximum of 15% of their salary. The
Company made matching contributions to the Plan of
approximately $50,000 in 2000 and no contributions to the Plan
in 1999 and 1998.
F-14
LIFETIME HOAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE I - CONCENTRATION OF CREDIT RISK
The Company maintains cash and cash equivalents with
various financial institutions.
Concentrations of credit risk with respect to trade
accounts receivable are limited due to the large number of
entities comprising the Company's customer base and their
dispersion across the United States. The Company's accounts
receivable are not collateralized. The Company periodically
reviews the status of its accounts receivable and,
accordingly, where considered necessary, establishes an
allowance for doubtful accounts.
During the years ended December 31, 2000, 1999 and 1998,
one customer accounted for approximately 11%, 14% and 17% of
net sales, respectively.
NOTE J - OTHER
Property and Equipment:
Property and equipment consist of (in thousands):
December 31,
2000 1999
Land $942 $842
Building and improvements......... 7,119 6,381
Machinery, furniture and equipment 14,123 12,127
Leasehold improvements ........... 71 34
22,255 19,384
Less: accumulated depreciation and
and amortization................... 9,170 6,787
$13,085 $12,597
Depreciation expense for the year ended December 31, 2000
and December 31, 1999 was $2,593,000 and $2,080,000,
respectively.
Accrued Expenses:
Accrued expenses consist of (in thousands):
December 31,
2000 1999
Commissions............................ $708 $910
Accrued customer allowances and rebates 3,214 3,889
Obligation to Meyer Corporation........ 2,171 1,277
Due to Roshco (See Note B)............. 500 1,378
Due to M. Kamenstein, Inc.............. 666 -
Officer and employee bonuses........... 1,444 604
Accrued health insurance............... 718 128
Accrued salaries, vacation and
temporary.............................. 1,295 1,330
Other.................................. 5,903 4,175
$16,619 $13,691
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
LIFETIME HOAN CORPORATION
NOTE J - OTHER (Continued)
Sources of Supply: The Company sources its products from
approximately 46 manufacturers located primarily in the Far
East, including the People's Republic of China and Malaysia,
and to a smaller extent in the United States, Korea, France,
Indonesia, Taiwan, Thailand and Italy. A majority of its
cutlery was purchased from four suppliers in 2000 who
accounted for 32%, 25%, 22% and 11% of the total purchases,
respectively, and from three suppliers in 1999 who accounted
for 47%, 26% and 17% of the total purchases, respectively. A
majority of its pantryware was purchased from two suppliers in
2000 who accounted for 59% and 11% of the total purchases,
respectively. An interruption of supply from any of these
manufacturers could have an adverse impact on the Company's
ability to fill orders on a timely basis. However, the Company
believes other manufacturers with whom the Company does
business would be able to increase production to fulfill the
Company's requirements.
Inventory: During the three month period ended
December 31, 2000, the Company recorded a charge relating to
an inventory shortfall of approximately $4.0 million (which
reduced earning by $0.23 and $0.22 per basic and diluted per
common share for fourth quarter and year ended December 31,
2000, respectively) which is included in cost of goods sold.
Minority Interest: The Company has recorded
income of approximately $605,000 relating to minority interest
in operations of its consolidated subsidiary in the caption
other (income), net in the accompanying consolidated financial
statements of income for year ended December 31, 2000.
F-16
LIFETIME HOAN CORPORATION
Schedule II - Valuation and Qualifying Accounts
Lifetime Hoan Corporation
(in thousands)
COL. A COL. B COL. C COL. D COL.E
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End of
Description of Period Expenses (Describe) Period
Year ended December 31,2000
Deducted from asset accounts
Accounts:
Allowance for
doubtful accounts.... $85 $1,077 $777 (a) $385
Reserve for sales
Returns&allowances .. 2,524 5,859 (c) 5,186 (b) 3,197
$2,609 $6,936 $5,963 $3,582
Year ended December 31, 1999
Deducted from asset
Accounts:
Allowance for
doubtful accounts.. $420 $640 $975 (a) $85
Reserve for sales 1,107 5,838 (c) 4,421 (b) 2,524
Returns & allowance $1,527 $6,478 $5,396 $2,609
Year ended December 31, 1998
Deducted from asset
Accounts:
Allowance for
doubtful accounts $75 $444 $99 (a) $420
Reserve for sales 776 3,683 (c) 3,352 (b) 1,107
Returns & allowances $851 $4,127 $3,451 $1,527
(a) Uncollectible accounts written off, net of
recoveries.
(b) Allowances granted.
(c) Charged to net sales.
S-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ Jeffrey Siegel
Jeffrey Siegel
Chief Executive
Officer, President and
Director
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ Milton Cohen
Milton L. Cohen Chairman of the Board of
March 30, 2001
Directors
/s/ Jeffrey Siegel
Jeffrey Siegel Chief Executive Officer,
President March 30, 2001
and Director
/s/ Craig Phillips
Craig Phillips Vice-President - Distribution,
March 30, 2001
Secretary and Director
/s/ Robert McNally
Robert McNally Vice-President - Finance
March 30, 2001
and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Bruce Cohen
Bruce Cohen Executive Vice-President
March 30, 2001
and Director
/s/ Ronald Shiftan
Ronald Shiftan Director
March 30, 2001
/s/ Howard Bernstein
Howard Bernstein Director
March 30, 2001
/s/ Leonard Florence
Leonard Florence Director
March 30, 2001
Exhibit 21. Subsidiaries of the Registrant
Outlet Retail Stores, Inc.
Incorporated in the state of Delaware
Roshco, Inc.
Incorporated in the state of Illinois
Prestige Italiana, Spa.
Incorporated in the country of Italy
Prestige Haushaltswaren GmbH
Incorporated in the country of Germany
MK Acquisition Corp.
Incorporated in the state of Delaware
Exhibit 23. Consent of Ernst & Young LLPIndependent
Auditors
We consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-51774) of
Lifetime Hoan Corporation pertaining to the 1991 Stock
Option Plan, of our report dated February 15, 2001, with
respect to the consolidated financial statements and
schedule of Lifetime Hoan Corporation included in the
Annual Report (Form 10-K) for the year ended December 31,
2000.
Ernst & Young LLP
Melville, New York
March 30, 2001