FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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 (I.R.S. Employer Identification No.)
incorporation or organization)
One Merrick Avenue, Westbury, NY 11590
(Address of principal executive offices) (Zip Code)
(516) 683-6000
(Registrant's Telephone Number, Including Area Code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No__
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act)
Yes ___ No X_
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value 10,560,704 shares outstanding as of April 30, 2003
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31,
2003 December 31,
(unaudited) 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $108 $62
Accounts receivable, less allowances of
$2,684 in 2003 and $3,888 in 2002 12,680 19,143
Merchandise inventories 42,763 41,333
Prepaid expenses 2,144 1,603
Deferred income taxes - 15
Other current assets 2,645 2,505
TOTAL CURRENT ASSETS 60,340 64,661
PROPERTY AND EQUIPMENT, net 20,408 20,850
EXCESS OF COST OVER NET ASSETS ACQUIRED, net 14,952 14,952
OTHER INTANGIBLES, net 8,903 9,000
OTHER ASSETS 2,119 2,123
TOTAL ASSETS $106,722 $111,586
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $11,500 $14,200
Accounts payable and trade acceptances 3,871 2,720
Accrued expenses 13,503 13,894
Income taxes payable 802 2,463
TOTAL CURRENT LIABILITIES 29,676 33,277
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, shares
authorized 25,000,000; shares issued
and outstanding 10,560,704 in 2003
and 10,560,704 in 2002 106 106
Paid-in capital 61,405 61,405
Retained earnings 16,014 17,277
Notes receivable for shares issued to
stockholders (479) (479)
TOTAL STOCKHOLDERS' EQUITY 77,046 78,309
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $106,722 $111,586
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended March 31,
2003 2002
Net Sales $24,284 $24,187
Cost of Sales 13,426 13,126
Distribution Expenses 4,454 5,816
Selling, General and Administrative Expenses 7,321 6,852
Loss from Operations (917) (1,607)
Interest Expense 111 227
Other Income (17) (22)
Loss Before Income Taxes (1,011) (1,812)
Income Tax Benefit (409) (732)
Loss from Continuing Operations (602) (1,080)
Loss from Discontinued Operations, net of tax - (117)
NET LOSS ($602) ($1,197)
BASIC AND DILUTED LOSS PER COMMON SHARE
FROM CONTINUING OPERATIONS ($0.06) ($0.10)
LOSS PER COMMON SHARE FROM DISCONTINUED
OPERATIONS - ($0.01)
BASIC AND DILUTED LOSS PER COMMON SHARE ($0.06) ($0.11)
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended March 31,
2003 2002
OPERATING ACTIVITIES
Net loss ($602) ($1,197)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 844 863
Deferred income taxes 412 148
Provision for losses on accounts receivable 49 9
Reserve for sales returns and allowances 1,316 1,527
Minority interest - 73
Changes in operating assets and
liabilities:
Accounts receivable 5,098 2,609
Merchandise inventories (1,430) (384)
Prepaid expenses, other current assets
and other assets (677) (1,883)
Accounts payable and trade acceptances
and accrued expenses 363 (607)
Accrued income taxes payable (1,661) -
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,712 1,158
INVESTING ACTIVITIES
Purchase of property and equipment (305) (514)
NET CASH USED IN
INVESTING ACTIVITIES (305) (514)
FINANCING ACTIVITIES
Repayment of short-term borrowings (2,700) (5,038)
Cash dividends paid (661) (655)
Proceeds from the exercise of stock options - 32
NET CASH USED IN
FINANCING ACTIVITIES (3,361) (5,661)
Effect of exchange rate on cash and cash
equivalents - 140
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 46 (4,877)
Cash and cash equivalents at beginning of
period 62 5,021
CASH AND CASH EQUIVALENTS AT END OF PERIOD $108 $144
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation The accompanying unaudited
condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in
the United States 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 three-month period
ended March 31, 2003 are not necessarily indicative of the
results that may be expected for the year ending December 31,
2003. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements
and footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002.
Note B - Inventories
Merchandise inventories, principally finished goods, are priced
at the lower of cost (first-in, first-out basis) or market
method.
Note C - Distribution Expenses
Distribution expenses primarily consist of freight-out,
warehousing expenses, and handling cost of products sold. These
expenses also include relocation charges, duplicate rent and
other costs associated with the Company's move into its
Robbinsville, New Jersey warehouse, amounting to $0.4 million in
the first quarter of 2003 as compared to $1.0 million in the
first quarter of 2002.
Note D - Credit Facility
As of March 31, 2003, the Company had $1.7 million of letters of
credit and trade acceptances outstanding and $11.5 million of
borrowings under its $40 million three-year secured, reducing
revolving credit agreement (the "Agreement"), and as a result,
the availability under the Agreement was $26.8 million. Interest
rates on borrowings at March 31, 2003 ranged from 3.125% to
4.125%.
Note E - Capital Stock and Stock Options
Cash Dividends: On January 16, 2003, the Board of Directors of
the Company declared a quarterly cash dividend of $0.0625 per
share to stockholders of record on February 6, 2003, paid on
February 20, 2003. On April 29, 2003, the Board of Directors
declared a regular quarterly cash dividend of $0.0625 per share
to stockholders of record on May 5, 2003, to be paid on May 20,
2003.
Loss Per Share: Basic and diluted loss per share have been computed
by dividing net loss by the weighted average number of common
shares outstanding of 10,561,000 for the three months ended
March 31, 2003 and 10,493,000 for the three months ended March
31, 2002. The effects of outstanding stock options on the weighted
average number of common shares outstanding have been excluded for
purposes of determining diluted loss per share for all periods
presented as their effects would be antidilutive.
LIFETIME HOAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note E - Capital Stock and Stock Options (continued)
Accounting for Stock Option Plan: The Company has a stock option
plan, which is more fully described in the footnotes to the financial
statements included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2002. The Company accounts for
options granted under the plan under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations. No
stock-based employee compensation cost is reflected in net
loss, as all options granted under the plans had an exercise
price equal to the market values of the underlying common stock
on the date of grant. The following table illustrates the effect
on net loss and net loss per share if the Company had applied the
fair value recognition provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-
Based Compensation" to stock-based employee compensation.
Three Months
Ended March 31,
(in thousands,
except per share data)
2003 2002
Net loss, as reported ($602) ($1,197)
Deduct: Total stock option
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects (8) (47)
Proforma net loss ($610) ($1,244)
Loss per common share:
Basic and diluted - as reported ($0.06) ($0.11)
Basic and diluted - proforma ($0.06) ($0.12)
Note F - Sale of Prestige Companies
Effective September 27, 2002, the Company sold its 51%
controlling interest in Prestige Italiana, Spa and, together with
its minority interest shareholder, caused Prestige Haushaltswaren
GmbH (together with Prestige Italiana, Spa, "Prestige Companies")
to sell all of its receivables and inventory to a European
housewares distributor. Accordingly, the Company has classified
the Prestige Companies business as discontinued operations. Net
sales for the Prestige Companies totaled $2.2 million for the
three-month period ended March 31, 2002. Net loss from the
Prestige Companies discontinued operations totaled $117,000 for
the three-month period ended March 31, 2002. For 2002, the
Company has reclassified its financial statements to reflect the
results of operations of the Prestige Companies as discontinued
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth income statement data of the
Company as a percentage of net sales for the periods indicated
below.
Three Months Ended
March 31,
2003 2002
Net sales 100.0 % 100.0 %
Cost of sales 55.3 54.3
Distribution expenses 18.4 24.1
Selling, general and administrative
expenses 30.1 28.3
Loss from operations (3.8) (6.7)
Interest expense 0.5 0.9
Other income (0.1) (0.1)
Loss before income taxes (4.2) (7.5)
Income tax benefit (1.7) (3.0)
Loss from continuing operations (2.5) (4.5)
Loss from discontinued operations - (0.4)
Net loss (2.5) % (4.9) %
Seasonality
Although the Company sells its products throughout the year, the
Company has traditionally had higher net sales during its third
and fourth quarters. Accordingly, operating results for the
three months ending March 31, 2003 are not necessarily indicative
of the results that may be expected for the year ending December
31, 2003.
Three Months Ended March 31, 2003
Compared to Three Months ended March 31, 2002
Net Sales
Net sales for the three months ended March 31, 2003 were $24.3
million, an increase of $0.1 million or 0.4% over the comparable
2002 period. The increase in sales volume in the first quarter
was attributable primarily to slightly higher sales in the
Company's core or traditional business, partially offset by lower
sales in the Kamenstein business.
Cost of Sales
Cost of sales for the three months ended March 31, 2003 was $13.4
million, an increase of $0.3 million or 2.3% from the comparable
2002 period. Cost of sales as a percentage of net sales increased
to 55.3% from 54.3%, primarily as a result of selling
discontinued products at aggressive prices during the first quarter
of 2003. Excluding discontinued products, the cost of sales as a
percentage of net sales was approximately the same as for the
prior year quarter.
Distribution Expenses
Distribution expenses for the three months ended March 31, 2003
were $4.5 million, a decrease of $1.4 million, or 23.4%, from the
comparable 2002 period. Excluding the expenses associated with
the move to the new Robbinsville, New Jersey warehouse, which
were approximately $0.4 million in the first quarter of 2003 as
compared to $1.0 million in the first quarter of 2002,
distribution expenses decreased by approximately $0.7 million in
the first quarter of 2003. The lower expenses were primarily
decreased payroll expense, the result of labor efficiencies
realized from the new systems in our Robbinsville, New Jersey
warehouse.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months
ended March 31, 2003 were $7.3 million, an increase of 6.8%, or
$0.5 million, over the comparable 2002 period. The increase was
primarily attributable to higher personnel costs, including a
planned increase in product development staffing, and increased
operating expenses in the outlet stores associated with an
increase in the number of stores in operation in the first
quarter of 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $40 million three-year secured, reducing
revolving credit facility under an agreement (the "Agreement")
with a group of banks. The credit facility reduces to $35
million at December 31, 2003 and has a maturity date of November
8, 2004. Borrowings under the Agreement are secured by all of
the assets of the Company. Under the terms of the Agreement, the
Company is required to satisfy certain financial covenants,
including limitations on indebtedness and sale of assets; a
minimum fixed charge ratio; and net worth maintenance.
Borrowings under the Agreement have different interest rate
options that are based on an alternate base rate, LIBOR rate, or
the lender's cost of funds rate. As of March 31, 2003, the
Company had $1.7 million of letters of credit and trade
acceptances outstanding and $11.5 million of borrowings under the
Agreement and, as a result, the availability under the Agreement
was $26.8 million. Interest rates on borrowings at March 31,
2003 ranged from $3.125% to 4.125%.
At March 31, 2003, the Company had cash and cash equivalents of
$108,000 versus $62,000 at December 31, 2002.
On April 29, 2003, the Board of Directors declared a regular
quarterly cash dividend of $0.0625 per share to stockholders of
record on May 5, 2003, to be paid on May 20, 2003. The dividend
to be paid will be approximately $660,000.
The Company believes that its cash and cash equivalents,
internally generated funds and its existing credit arrangements
will be sufficient to finance its operations for at least the
next 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 all of its
purchase orders with its foreign manufacturers in United States
dollars. Thus, notwithstanding any fluctuation in foreign
currencies, the cost of the Company's purchase orders 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.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Market risk represents the risk of loss that may impact the
consolidated financial position, results of operations or cash
flows of the Company. The Company is exposed to market risk
associated with changes in interest rates. The Company's line of
credit bears interest at variable rates. The Company is subject
to increases and decreases in interest expense on its variable
rate debt resulting from fluctuations in the interest rates of
such debt. There have been no changes in interest rates that
would have a material impact on the consolidated financial
position, results of operations or cash flows of the Company for
the three-month period ended March 31, 2003.
Item 4. Control and Procedures
The Chief Executive Officer and the Chief Financial Officer of
the Company (its principal executive officer and principal
financial officer, respectively) have concluded, based on their
evaluation as of a date within 90 days prior to the date of the
filing of this Report on Form 10-Q, that the Company's controls
and procedures are effective to ensure that information required
to be disclosed by the Company in the reports filed by it under
the Securities and Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and include controls and
procedures designed to ensure that information required to be
disclosed by the Company in such reports is accumulated and
communicated to the Company's management, including the Chief
Executive Officer and Chief Financial Officer of the Company, as
appropriate to allow timely decisions regarding required
disclosure.
There were no significant changes in the Company's internal
controls or in other factors that could significantly affect
these controls subsequent to the date of such evaluation.
PART II - OTHER INFORMATION
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 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.
Item 6. Exhibit(s) and Reports on Form 8-K.
(a)Exhibit(s) in the first quarter of 2003:
Exhibit 99.1 Certification by Jeffrey Siegel, Chief
Executive Officer, and Robert McNally, Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b)Reports on Form 8-K in the first quarter of 2003: NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Lifetime Hoan Corporation
May 14, 2003
/s/ Jeffrey Siegel
__________________________________
Jeffrey Siegel
Chief Executive Officer and President
(Principal Executive Officer)
May 14, 2003
/s/ Robert McNally
__________________________________
Robert McNally
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
CERTIFICATIONS
I, Jeffrey Siegel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lifetime
Hoan Corporation ("the registrant");
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report:
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
__/s/ Jeffrey Siegel______________
Jeffrey Siegel
President and Chief Executive Officer
CERTIFICATIONS
I, Robert McNally, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lifetime
Hoan Corporation ("the registrant");
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report:
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I
have indicated in this quarterly report whether or not there
were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003
___/s/ Robert McNally___________
Robert McNally
Vice President and Chief Financial
Officer
EXHIBIT 99.1
Certification by Jeffrey Siegel, Chief Executive Officer, and
Robert McNally, Chief Financial Officer,
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
I, Jeffrey Siegel, Chief Executive Officer, and I, Robert
McNally, Chief Financial Officer, of Lifetime Hoan Corporation, a
Delaware corporation (the "Company"), each hereby certifies that:
(1) The Company's periodic report on Form 10-Q for the period
ended March 31, 2003 (the "Form 10-Q") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended; and
(2) The information contained in the Form 10-Q fairly presents,
in all material respects, the financial condition and results of
operations of the Company.
/s/ Jeffrey Siegel /s/ Robert McNally
Jeffrey Siegel Robert McNally
Chief Executive Officer Chief Financial Officer
Date: May 14, 2003 Date: May 14, 2003
