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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 1998
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Commission File Number 0-28174
The Lamaur Corporation
(Exact name of registrant as specified in its charter)
Delaware 68-0301547
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Lovell Avenue, Mill Valley CA 94941
(Address of principal executive offices) (Zip Code)
(415) 380-8200
(Registrants telephone number, including area code)
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 [ ]
At July 31, 1998, there were 5,884,468 shares of the Registrants $.01 par
value Common Stock outstanding.
<PAGE>
This quarterly report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the safe harbor provision of the Private Securities
Litigation Reform Act of 1995, including statements regarding future performance
of WILLOW LAKE lines or the Companys ability to attain any particular level of
sales or to be profitable in the future, the Companys ability to meet
working capital requirements for the remainder of 1998, and the Companys
ability to be in compliance with its loan agreement, and the Companys
expectations regarding the sale of assets or its ability to achieve other
strategic initiatives. They involve known and unknown risks and uncertainties
that may cause the Companys actual results in future periods to be materially
different from any future performance suggested herein. Further, the Company
operates in an industry sector where securities values may be volatile and may
be influenced by economic and other factors beyond the Companys control. In the
context of the forward-looking information provided in this Form 10-Q and in
other reports, please refer to the discussions of risk factors and investment
considerations detailed in, as well as the other information contained in, the
Companys filings with the Securities and Exchange Commission.
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<TABLE>
<CAPTION>
THE LAMAUR CORPORATION
Index to Form 10-Q
June 30, 1998
Page No.
<S> <C>
Part I - Financial Information
Item 1. Condensed Financial Statements (Unaudited)
Balance Sheets as of June 30, 1998 and December 31, 1997 4
Statements of Operations for the Three and Six Months Ended 5
June 30, 1998 and 1997
Statements of Cash Flows for the Six Months Ended 6
June 30, 1998 and 1997
Notes to Condensed Financial Statements 7
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations for the Three and Six Months Ended June 30, 1998 8
and 1997
Part II - Other Information 10
Signature 11
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
<TABLE>
<CAPTION>
THE LAMAUR CORPORATION
CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
June 30, December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 232 $ 6,465
Receivables from DowBrands 3 741
Accounts receivable, net 12,857 15,943
Inventories 13,372 15,523
Prepaid expenses and other current assets 401 453
---------------- ----------------
Total current assets 26,865 39,125
Property, Plant and Equipment, Net 18,477 19,131
Other Assets 51 70
---------------- ----------------
Total Assets $ 45,393 $ 58,326
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 12,876 $ 14,592
Accrued expenses 3,120 4,666
Accrued salaries, wages and employee-related expenses 1,700 2,211
Current portion of long-term debt 1,629 1,612
Payables to related parties - 250
---------------- ----------------
Total current liabilities 19,325 23,331
Long-Term Debt 15,511 23,546
Related Party Obligations - 500
Stockholders' Equity
Preferred stock, $.01 par value, 4,000,000 shares authorized:
Series A Preferred stock, $.01 par value, 1,000,000 shares issued
and outstanding at June 30, 1998 and December 31, 1997.
($10.0 million liquidation preference) 8,500 8,500
Series B Preferred stock, $.01 par value, 763,500 shares issued
and outstanding at June 30, 1998 and December 31, 1997.
($5.0 million liquidation preference) 5,000 5,000
Common stock, $.01 par value, 12,000,000 shares authorized,
5,884,468 and 5,747,544 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively. 59 57
Additional paid-in-capital 20,552 19,852
Stock subscriptions receivable (50) (50)
Accumulated deficit (23,504) (22,410)
---------------- ----------------
Total stockholders' equity 10,557 10,949
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Total Liabilities and Stockholders' Equity $ 45,393 $ 58,326
================ ================
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE LAMAUR CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales $ 19,645 $ 25,401 $ 42,477 $ 51,681
Net Sales to DowBrands - 5,115 - 8,048
-------------- -------------- -------------- --------------
Total Net Sales 19,645 30,516 42,477 59,729
Cost of Goods Sold 11,426 18,068 24,467 35,384
-------------- -------------- -------------- --------------
Gross Margin 8,219 12,448 18,010 24,345
Selling, General and Administrative Expenses 9,330 13,431 17,745 26,559
-------------- -------------- -------------- --------------
Operating Income (Loss) (1,111) (983) 265 (2,214)
Interest Expense (590) (435) (1,403) (833)
Other Income (Expense) (9) 89 44 281
-------------- -------------- -------------- --------------
Net Loss (1,710) (1,329) (1,094) (2,766)
Dividends on Series B Preferred Stock (100) (100) (200) (200)
-------------- -------------- -------------- --------------
Net Loss Available to Common Shareholders $ (1,810) $ (1,429) $ (1,294) $ (2,966)
============== ============== ============== ==============
Basic Loss per Common Share $ (0.31) $ (0.25) $ (0.22) $ (0.52)
============== ============== ============== ==============
Average Number of Basic Common Shares Outstanding 5,863 5,675 5,814 5,661
============== ============== ============== ==============
Diluted Loss per Common Share $ (0.31) $ (0.25) $ (0.22) $ (0.52)
============== ============== ============== ==============
Average Number of Diluted Common Shares Outstanding 5,863 5,675 5,814 5,661
============== ============== ============== ==============
See notes to financial statements
</TABLE>
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<TABLE>
<CAPTION>
THE LAMAUR CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
-------------------------------------
1998 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (1,094) $ (2,766)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Utilization of DowBrands credits - (750)
Loss on disposal of assets 3 12
Depreciation and amortization 1,014 774
Effect of changes in:
Receivables 3,824 (1,164)
Inventories 2,151 (3,343)
Prepaid expenses and other assets 52 (3,961)
Payables (1,916) 4,429
Accrued expenses (1,930) (3,347)
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Net cash provided by (used in) operating activities 2,104 (10,116)
Cash Flows From Investing Activities:
Additions to property, plant and equipment (344) (1,450)
Proceeds from sale of assets - 16
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Net cash used in investing activities (344) (1,434)
Cash Flows From Financing Activities:
Borrowings (repayments) under revolving credit agreement, net (7,255) 4,190
Borrowings of long-term debt - 3,496
Repayments of long-term debt (763) (676)
Proceeds from sales of common stock, net 25 132
Payment of preferred dividends - (300)
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Net cash provided by (used in) financing activities (7,993) 6,842
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Net Decrease in Cash and Cash Equivalents (6,233) (4,708)
Cash and Cash Equivalents at Beginning of Period 6,465 12,081
================= ================
Cash and Cash Equivalents at End of Period $ 232 $ 7,373
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See notes to financial statements
</TABLE>
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THE LAMAUR CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND OPERATIONS
The Company develops, formulates, manufactures and markets personal hair care
products, consisting of shampoos, conditioners, hair sprays, permanent wave
products and other styling aids, for both consumer and professional hair care
markets.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed financial statements are unaudited and include all
adjustments, which consist of only normal recurring accruals, that management
considers necessary to fairly present the results for such periods. These
financial statements should be read in conjunction with the financial statements
and notes contained in The Lamaur Corporations (the Company) Annual Report on
Form 10-K for the year ended December 31, 1997. Results for interim periods are
not necessarily indicative of results for the full year.
Cash and Cash Equivalents - The Company considers all investments with an
original maturity of three months or less on their acquisition date to be cash
equivalents. These investments consist of U.S. Treasuries which at June 30, 1998
and December 31, 1997 were $0 and $6.2 million, respectively. These U.S.
Treasuries represent restricted securities which are maintained as collateral in
support of the revolving line of credit with Norwest Business Credit.
Earnings Per Share - Basic EPS is calculated using loss available to common
shareholders divided by the weighted average of common shares outstanding during
the year. Diluted EPS is similar to Basic EPS except that the weighted average
common shares outstanding is increased to include the number of additional
common shares that would have been outstanding if the dilutive outstanding
items, such as options had been exercised. The treasury stock method is used to
calculate dilutive shares which reduces the gross number of dilutive shares by
the number of shares purchasable from the proceeds of the options assumed to be
exercised. All prior year earnings per share have been restated in accordance
with the provisions of Statement of Financial Accounting Standards No. 128,
Earnings Per Share.
Comprehensive Income - Effective January 1, 1998, the Company adopted Statement
of Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive
Income. SFAS 130 requires the disclosure of comprehensive income and its
components in the general-purpose financial statements. For the periods ended
June 30, 1998 and 1997, the Company did not engage in transactions related to
foreign currency translation, unrealized gains in securities, or minimum pension
liability adjustments. Accordingly, comprehensive income equals net income.
Disclosures About Segments of an Enterprise and Related Information - In June
1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131 (SFAS 131), Disclosures about Segments of an
Enterprise and Related Information, which is effective for the Company
beginning January 1, 1998. SFAS 131 redefines how operating segments are
determined and requires disclosure of certain financial and descriptive
information about a companys operating segments. Lamaur has not yet completed
its analysis of operating segments on which it will report. However, a
preliminary analysis has concluded that the current reportable segments are
consistent with the management approach methodology outlined in SFAS 131.
Reclassification - Certain reclassifications have been made in the accompanying
financial statements in order to conform with the 1998 presentation.
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<CAPTION>
Inventories are stated at the lower of weighted average cost or market and
include the following:
June 30, December 31,
1998 1997
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(In thousands)
<S> <C> <C>
Finished goods $ 8,568 $ 9,233
Work in process 44 93
Raw materials 4,760 6,197
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Total $ 13,372 $ 15,523
================ ================
</TABLE>
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
Six months and three months ended June 30, 1998 compared to the
six months and three months ended June 30, 1997.
Net sales for the six months ended June 30, 1998 were $42.5 million compared
with $59.7 million for the same period in 1997, a decrease of $17.2 million or
28.8%. Net sales for the three months ended June 30, 1998 were $19.6 million
compared with $30.5 million for the same period in 1997, a decrease of $10.9
million or 35.7%. The decrease in net sales for the six months and three months
ended June 30, 1998 is principally due to the decline in sales of contract
manufacturing as a result of the expiration of the manufacturing agreement with
DowBrands in November 1997 and the decline in sales of Perma Soft, Salon Style,
Style, and the Color Soft retail brands and the brands in the Companys salon
division. There were no sales to DowBrands for the six months or three months
ended June 30, 1998 as compared with $8.0 million and $5.1 million,
respectively, for the same periods in 1997. Perma Soft, Salon Style, Style,
Color Soft retail brands and the salon division brands had sales declines of
$4.4 million, $3.5 million, $2.7 million, $1.8 million and $1.5 million,
respectively, during the six months ended June 30, 1998, and declines of $2.1
million, $1.6 million, $1.4 million, $1.2 million and $1.6 million respectively
during the three months ended June 30, 1998 as compared with the same periods in
1997. Perma Soft, Salon Style and Style have continued to decline in sales since
management began its turnaround efforts in the first quarter of 1996. Management
believes that sales of these and the Companys other retail brands are likely to
continue to decline.
The Company experienced sales growth from Willow Lake during the six months and
three months ended June 30, 1998 as compared with the same periods in 1997. The
increased sales of Willow Lake in 1998 are principally attributable to the
launch of the Willow Lake fixative line which started shipping in the fourth
quarter of 1997. Willow Lake, the Companys premium-priced retail hair care
product line targeted for the Naturals category and positioned as Natures
Prescription for Beautiful Hair, was introduced in the fourth quarter of 1996.
Sales growth of Willow Lake will be in part dependent upon competition from
other brands, consumer acceptance and marketing support behind this brand.
Gross margin as a percentage of net sales was 42.4% for the six months ended
June 30, 1998, as compared with 40.8% for the same period in 1997. Gross margin
as a percentage of net sales was 41.8% for the three months ended June 30, 1998
as compared with 40.8% for the same period in 1997. The improvement in the gross
margin as a percentage of net sales for the six months and three months ended
June 30, 1998 is principally due to a change in product mix including increased
sales of higher margin Willow Lake products.
Selling, general and administrative (SG&A) expenses were $17.7 million or 41.8%
of net sales for the six months ended June 30, 1998, as compared with $26.6
million or 44.5% of net sales for the same period last year, a decrease of $8.9
million. SG&A expenses were $9.3 million or 47.5% of net sales for the three
months ended June 30, 1998, as compared with $13.4 million or 44.0% of net sales
for the same period last year, a decrease of $4.1 million. The decreases are
principally attributed to reduced marketing expenses of $7.4 million and $3.6
million for the six and three months ended June 30, 1998, respectively, and
reduced personnel, travel and other expenses as a result of the Companys cost
cutting efforts. In 1997 the Company increased its marketing to support the
launch of Willow Lake, and in 1998 such support was substantially reduced. In
addition the Company has reduced marketing expenditures for other brands which
have continued to experience sales declines. The lower level of marketing
support in 1998 is a result of the Companys limited working capital. Because of
the Companys limited working capital and the competitive environment for hair
care products there can be no assurance concerning the future performance of
Willow Lake and other brands or the Companys ability to attain any particular
level of sales or to be profitable in the future with the lower level of
marketing.
Interest expense increased to $1.4 million for the six months ended June 30,
1998, as compared with $0.8 million in the same period last year. Interest
expense increased to $0.6 million for the three months ended June 30, 1998, as
compared with $0.4 million in the same period last year. The increase in
interest expense is principally attributable to higher borrowings under the
Companys revolving line of credit with Norwest Business Credit to support the
Companys working capital needs, the increased interest rate invoked by Norwest
as a result of the Company being out of compliance with certain financial loan
covenants during a portion of 1997, and fees related to the loan amendment in
March 1998.
As a result of the foregoing factors, the net loss for the six months ended June
30, 1998 was $1.1 million compared with $2.8 million for the same period in
1997.
Liquidity and Capital Resources
The Companys net working capital decreased by $8.3 million, from $15.8 million
at December 31, 1997 to $7.5 million at June 30, 1998.
As of June 30, 1998, the amounts outstanding under the Companys revolving and
term loan facilities were $10.4 million and $5.5 million, respectively, as
compared with $17.7 million and $6.2 million, respectively, as of December 31,
1997. In April 1998 the Company reduced its investment in US Treasury Securities
from approximately $4.3 million to zero in accordance with the March 31, 1998
Amended Loan Agreement with Norwest Business Credit. These funds were used to
pay down the revolving loan facility. The amendment also provided for setting
1998 financial covenants on the credit facility and increased the interest rate
on the revolver from 1.5% to 2.5% above the base rate and increased the interest
rate on the term loan from 1.75% to 2.75% above the base rate. The interest
rates on the loans are variable and are tied to Norwest Banks base rate which
was 8.5% at June 30, 1998. The interest rates on the revolver and the term loan
are currently 11.0% and 11.25%, respectively. In addition Norwest lowered the
advance rates on eligible receivables by five percentage points and eligible
inventory by six percentage points. The term loan requires monthly principal
payments of $116,666. The revolving line of credit and term loan with Norwest
are secured by all of the assets of the Company and are payable in full by
November 15, 2000. As of June 30, 1998 the Company was not in compliance with
certain financial loan covenants. In August the Company received a waiver from
the lender in regards to these covenants. No assurance can be given that the
Company will continue to be in compliance with the financial loan covenants.
In March 1998 Intertec Holdings, L.P. purchased 109,581 shares of the Companys
common stock at $8.00 per share under a stock purchase agreement entered into in
March 1996 between the Company and Intertec Holdings, L.P.. This was the basis
upon which the Company paid off the remaining balance of $750,000 on a note
payable to Intertec Holdings, L.P. for a license fee pursuant to a 1993 license
agreement for its proprietary technology between the Company and Intertec Ltd.,
a limited partnership controlled by the Companys Chairman of the Board.The stock
purchase fulfills the obligation of Intertec Holdings, L.P. to purchase a total
of 146,107 shares under the agreement.
Total accounts payable exceeding their normal payment terms were approximately
$8.0 million as of June 30, 1998. Because the Company has announced its intent
to obtain financing, and or establish an alliance through a merger or sale,
major trade creditors and other creditors have extended their normal terms to
allow the Company additional time to make payments. The Company is operating its
business to preserve working capital in order to pay the Companys current and
extended obligations. To date the Company has been able to make timely shipments
to its customers.
On July 31, 1998 the Company sold its Professional Salon Brands, including trade
names and inventory ($3.0 million) for $11.0 million to Zotos International,
Inc., a subsidiary of Shiseido Co., Ltd. Tokyo, Japan. The Company received
$10.5 million cash. The balance of $.5 million will be held in an escrow
account for six months in order to provide funds for product returns and
indemnity payments that the Company may become obligated to make to Zotos. The
proceeds from this sale will be used to pay down a portion of the Companys loan
facility with Norwest Business Credit, reduce past due obligations to other
creditors and for working capital.
As of June 30, 1998, the Company was $400,000 in arrears on the payment of
dividends on its Series B preferred stock. The preferred stock provides for an
annual dividend of $400,000, payable quarterly.
The Companys ability to continue operations in the long term is dependent upon
obtaining additional financing, which could occur as the result of a sale or a
restructuring and refinancing of its manufacturing operation. The Company is
actively pursuing these alternatives. No assurance can be given as to the timing
of such financing or that a financing will be concluded. The Company is
developing plans to restructure and continue its Retail operations.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities and Use of Proceeds. None.
Item 3. Defaults Upon Senior Securities.
On June 30, 1998, the Company failed to pay a dividend of $100,000 on
its Series B Preferred Stock and is in arrears in the aggregate amount
of $400,000.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K. None.
<PAGE>
SIGNATURE
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.
THE LAMAUR CORPORATION
(Registrant)
__________________________________________
DATE: August 14, 1998 /s/ John D. Hellmann
Vice President - Finance and Chief Financial
Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001011154
<NAME> The Lamaur Corporation
<MULTIPLIER> 1000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
<CASH> 232
<SECURITIES> 0
<RECEIVABLES> 13,418
<ALLOWANCES> 558
<INVENTORY> 13,372
<CURRENT-ASSETS> 26,865
<PP&E> 22,510
<DEPRECIATION> 4,033
<TOTAL-ASSETS> 45,393
<CURRENT-LIABILITIES> 19,325
<BONDS> 15,511
0
13,500
<COMMON> 59
<OTHER-SE> (3,002)
<TOTAL-LIABILITY-AND-EQUITY> 45,393
<SALES> 42,477
<TOTAL-REVENUES> 42,477
<CGS> 24,467
<TOTAL-COSTS> 24,467
<OTHER-EXPENSES> 17,745
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 1,403
<INCOME-PRETAX> (1,094)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,094)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,094)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
