4
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 2002
Commission file number 1-19254
Lifetime Hoan Corporation
(Exact name of registrant as specified in its charter)
Delaware 11-2682486
(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer Identification No.)
One Merrick Avenue, Westbury, NY 11590
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 683-6000
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No__
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value 10,497,690 shares outstanding as of April 30,
2002
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, December 31,
2002 2001
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $144 $5,021
Accounts receivable, less allowances of
$2,971 in 2002 and
$3,649 in 2001 16,597 20,742
Merchandise inventories 42,687 42,303
Prepaid expenses 3,510 2,084
Deferred income taxes - 148
Other current assets 4,192 3,702
TOTAL CURRENT ASSETS 67,130 74,000
PROPERTY AND EQUIPMENT, net 22,124 22,376
EXCESS OF COST OVER NET ASSETS ACQUIRED, 15,498 15,498
net
OTHER INTANGIBLES, net 9,293 9,390
OTHER ASSETS 2,073 2,106
TOTAL ASSETS $116,118 $123,370
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $17,809 $22,847
Accounts payable and trade acceptances 6,688 4,955
Accrued expenses 14,783 17,123
TOTAL CURRENT LIABILITIES 39,280 44,925
MINORITY INTEREST 457 384
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, shares
authorized 25,000,000; shares
issued and outstanding 10,497,690 in 2002
and 10,491,101 in 2001 105 105
Paid-in capital 61,119 61,087
Retained earnings 15,808 17,660
Notes receivable for shares issued to (486) (486)
stockholders
Accumulated other comprehensive loss (165) (305)
TOTAL STOCKHOLDERS' EQUITY 76,381 78,061
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $116,118 $123,370
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,
2002 2001
Net Sales $26,398 $31,307
Cost of Sales 14,394 17,367
Gross Profit 12,004 13,940
Selling, General and Administrative Expenses 13,779 12,692
Interest Expense 286 202
Other (Income) (141) (84)
(Loss) Income Before Income Taxes (1,920) 1,130
Income Taxes (723) 491
NET (LOSS) INCOME ($1,197) $639
(LOSS) EARNINGS PER COMMON SHARE-BASIC AND
DILUTED ($0.11) $0.06
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
2002 2001
OPERATING ACTIVITIES
Net (loss) income ($1,197) $639
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation and amortization 863 845
Deferred income taxes 148 153
Provision for losses on accounts 9 (9)
receivable
Reserve for sales returns and allowances 1,527 1,692
Minority interest 73 (68)
Changes in operating assets and
liabilities:
Accounts receivable 2,609 56
Merchandise inventories (384) (3,796)
Prepaid expenses, other current assets
and other assets (1,883) 232
Accounts payable and trade acceptances
and accrued expenses (607) 3,182
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,158 2,926
INVESTING ACTIVITIES
Purchase of property and equipment, net (514) (4,180)
Acquisition of M. Kamenstein, Inc. - (164)
NET CASH USED IN
INVESTING ACTIVITIES (514) (4,344)
FINANCING ACTIVITIES
(Repayment) proceeds of short-term (5,038) 3,512
borrowings
Repurchase of common stock - (63)
Cash dividends paid (655) (656)
Proceeds from the exercise of stock options 32 -
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (5,661) 2,793
EFFECT OF EXCHANGE RATE ON CASH AND CASH
EQUIVALENTS 140 (51)
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (4,877) 1,324
Cash and cash equivalents at beginning of 5,021 1,325
period
CASH AND CASH EQUIVALENTS AT END OF $144 $2,649
PERIOD
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 generally accepted 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, 2002 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2002. It is suggested that these condensed
financial statements be read in conjunction with the financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.
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 - Credit Facilities
As of March 31, 2002, the Company had $2,970,000 of letters of
credit and trade acceptances outstanding and $15,400,000 of
borrowings under its $45 million three-year secured, reducing
revolving credit agreement (the "Agreement"), and as a result,
the availability under the Agreement was $26,630,000. Interest
rates on borrowings at March 31, 2002 ranged from $3.875% to
3.9375%.
In addition to the Agreement, the Prestige Companies (the
Company's 51% controlled European subsidiaries) have three lines
of credit with three separate banks for total available credit
facilities of approximately $3.4 million. As of March 31, 2002,
the Prestige Companies had borrowings of approximately $2.4
million against these lines. Interest rates on these lines of
credits ranged from 5.85% to 8.25%.
Note D - Capital Stock
Cash Dividends: On January 28, 2002, the Board of Directors of
the Company declared a quarterly cash dividend of $0.0625 per
share to stockholders of record on February 6, 2002, paid on
February 20, 2002. On May 2, 2002, the Board of Directors
declared a regular quarterly cash dividend of $0.0625 per share
to stockholders of record on May 6, 2002, to be paid on May 20,
2002.
Earnings Per Share: Basic earnings per share has been computed by
dividing net income (loss) by the weighted average number of
common shares outstanding of 10,493,000 for the three months
ended March 31, 2002 and 10,497,000 for the three months ended
March 31, 2001. Diluted earnings per share has been computed by
dividing net income by the weighted average number of common
shares outstanding, plus the dilutive effects of stock options,
of 10,561,000 for the three months ended March 31, 2001.
Note E - New Accounting Pronouncements
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the
purchase method. Under SFAS No. 142, goodwill and intangible
assets with indefinite lives are no longer amortized but are
reviewed at least annually for impairment. Had this standard
been applied for the three months ended March 31, 2001, net
income would have been increased by $82,000, basic and diluted
earnings per share would have been $0.07.
Effective January 1, 2002, the Company adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets
("SFAS No. 144"), which supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of." The primary objectives of SFAS No. 144 is to
develop one accounting model based on the framework established
in SFAS No. 121 for long-lived assets to be disposed of by sale,
and to address significant implementation issues. The adoption of
this statement did not have an impact on the Company's
consolidated results of operations or financial position.
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,
2002 2001
Net sales 100.0 % 100.0 %
Cost of sales 54.5 55.5
Gross profit 45.5 44.5
Selling, general and administrative 52.2 40.5
expenses
Interest expense 1.1 0.6
Other (income) (0.5) (0.1)
(Loss) income before income taxes (7.3) 3.5
Income taxes (2.7) 1.5
Net (loss) income (4.6) % 2.0 %
Three Months Ended March 31, 2002
Compared to Three Months ended March 31, 2001
Net Sales
Net sales for the three months ended March 31, 2002 were $26.4
million, a decrease of $4.9 million or 15.7% from the comparable
2001 period. The lower sales volume in the first quarter was
attributable primarily to the startup of our new automated
warehouse which negatively affected shipments in our core
business and to a lesser extent, lower sales in the Kamenstein
business.
Gross Profit
Gross profit for the three months ended March 31, 2002 was $12.0
million, a decrease of 13.9% from the comparable 2001 period.
Gross profit as a percentage of net sales increased to 45.5% from
44.5% due primarily to higher gross margins in the Kamenstein
business, the result of better sourcing of products from
suppliers.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months
ended March 31, 2002 were $13.8 million, an increase of 8.6% from
the comparable 2001 period. The increase was primarily
attributable to relocation charges and duplicate rent and other
expenses associated with the Company's move into its new New
Jersey warehouse.
Forward Looking Statements: This Quarterly Report on Form 10-Q
contains certain forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, including statements concerning the Company's
future products, results of operations and prospects. These
forward-looking statements involve risks and uncertainties,
including risks relating to general economic and business
conditions, including changes which could affect customer payment
practices or consumer spending; industry trends; the loss of
major customers; changes in demand for the Company's products;
the timing of orders received from customers; cost and
availability of raw materials; increases in costs relating to
manufacturing and transportation of products; dependence on
foreign sources of supply and foreign manufacturing; and the
seasonal nature of the business as detailed from time to time in
the Company's filings with the Securities and Exchange
Commission. Such statements are based on management's current
expectations and are subject to a number of factors and
uncertainties which could cause actual results to differ
materially from those described in the forward-looking
statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $45 million three-year secured, reducing
revolving credit agreement (the "Agreement") with a group of
banks. The Agreement matures on November 8, 2004. Borrowings
under the Agreement are secured by all of the assets of the
Company and the facility reduces to $40 million at December 31,
2002 and to $35 million at December 31, 2003. 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,
2002, the Company had $2,970,000 of letters of credit and trade
acceptances outstanding and $15,400,000 of borrowings under the
agreement and, as a result, the availability under the Agreement
was $26,630,000. Interest rates on borrowings at March 31, 2002
ranged from $3.875% to 3.9375%.
In addition to the Agreement, the Prestige Companies (the
Company's 51% controlled European subsidiaries) have three lines
of credit with three separate banks for total available credit
facilities of approximately $3.4 million. As of March 31, 2002,
the Prestige Companies had borrowings of approximately $2.4
million against these lines. Interest rates on these lines of
credits ranged from 5.85% to 8.25%.
At March 31, 2002, the Company had cash and cash equivalents of
$144,000 versus $5.0 million at December 31, 2001. The decrease
in cash was due to the pay down of short-term borrowings, the
increased combined balances of prepaid expenses, other current
assets and other assets, offset by the decrease in accounts
receivable.
On May 2, 2002 the Board of Directors declared a regular
quarterly cash dividend of $0.0625 per share to stockholders of
record on May 6, 2002, to be paid on May 20, 2002. The dividend
to be paid will be approximately $656,000.
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
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
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 lines
of credits bear interest at variable rates. The Company is
subject to increases and decreases in interest expense on its
variable rate debt resulting from fluctuations in the interest
rates of such debt. There have been no changes in interest rates
that would have a material impact on the consolidated financial
position, results of operations or cash flows of the Company for
the three month period ended March 31, 2002.
PART II - OTHER INFORMATION
Item 6. Exhibit(s) and Reports on Form 8-K.
(a) Exhibit(s) in the first quarter of 2002: NONE
(b) Reports on Form 8-K in the first quarter of 2002: 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, 2002
/s/ Jeffrey Siegel
__________________________________
Jeffrey Siegel
Chief Executive Officer and President
(Principal Executive Officer)
May 14, 2002
/s/ Robert McNally
__________________________________
Robert McNally
Vice President - Finance and Treasurer
(Principal Financial and Accounting
Officer)
