<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended May 24, 1997.
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
........ ........
Commission file number 1-9637.
LILLIAN VERNON CORPORATION
--------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-2529859
- --------------------------------- ------------------------------------
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
543 Main Street, New Rochelle, New York 10801
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(Address of principal executive offices) (Zip Code)
914-576-6400
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(Registrant's telephone number, including area code)
N/A
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(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 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 [ ]
Number of shares outstanding of each of the issuer's classes of common stock:
9,609,003 Shares of Common Stock, $.01 par value, as of June 27, 1997.
<PAGE>
LILLIAN VERNON CORPORATION
--------------------------
Form 10-Q
May 24, 1997
Part I. Financial Information Page #
- ----------------------------- ------
Item 1.
Consolidated Balance Sheets as of
May 24, 1997, May 25, 1996
(unaudited) and February 22, 1997
(audited) 3
Consolidated Statements of Operations
for the quarters ended May 24, 1997
and May 25, 1996 (unaudited) 4
Consolidated Statements of
Cash Flows for the quarters ended
May 24,1997 and May 25, 1996
(unaudited) 5
Notes to Consolidated Financial
Statements 6
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-8
Part II. Other Information 9
- --------------------------
Signatures 10
Exhibits 11
Page 2 of 11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 24, MAY 25, FEBRUARY 22,
ASSETS 1997 1996 1997
------ --------- --------- ---------
(Unaudited) (Audited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 22,979 $ 15,293 $ 22,746
Accounts receivable, net 10,897 9,027 24,476
Merchandise inventories 31,361 30,689 30,480
Deferred income taxes 1,495 870 1,548
Prepayments and other current assets 12,969 24,219 10,438
--------- --------- ---------
Total current assets 79,701 80,098 89,688
Property, plant and equipment, net (Note 1) 39,938 37,512 40,319
Deferred catalog costs 5,872 6,339 6,140
Other assets 2,369 2,949 2,402
--------- --------- ---------
Total $ 127,880 $ 126,898 $ 138,549
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Trade accounts payable and accrued expenses $ 10,207 $ 10,500 $ 14,485
Customer deposits 102 99 260
Current portion of long-term debt and lease obligations 1,499 1,461 1,489
Income taxes payable -- -- 2,715
Deferred income taxes -- -- --
--------- --------- ---------
Total current liabilities 11,808 12,060 18,949
Long-term debt, less current portion 635 1,908 1,270
Capital lease obligations, less current portion 64 289 124
Deferred compensation 3,482 3,200 3,500
Deferred income taxes 575 633 380
--------- --------- ---------
Total liabilities 16,564 18,090 24,223
--------- --------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding -- -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; issued - 10,364,224 shares, 10,336,415 shares
and 10,363,320 shares 104 103 104
Additional paid-in capital 30,793 30,489 30,783
Retained earnings 91,509 87,603 94,553
Unearned compensation (62) (125) (94)
Treasury stock, at cost - 754,058 shares, 608,458 shares
and 753,458 shares (11,028) (9,262) (11,020)
--------- --------- ---------
Total stockholders' equity 111,316 108,808 114,326
--------- --------- ---------
Total $ 127,880 $ 126,898 $ 138,549
--------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
Page 3 of 11
<PAGE>
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Quarter Ended
--------------------
May 24, May 25,
1997 1996
-------- --------
<S> <C> <C>
Revenues $ 27,748 $ 26,313
Costs and expenses:
Product and delivery costs 14,297 14,048
Selling, general and administrative expenses 17,264 17,861
-------- --------
31,561 31,909
-------- --------
Operating loss (3,813) (5,596)
Interest income 353 293
Interest expense (93) (116)
-------- --------
Loss before income taxes (3,553) (5,419)
Provision for (benefit from) income taxes:
Current (1,455) (1,851)
Deferred 247 63
-------- --------
(1,208) (1,788)
-------- --------
Net loss ($ 2,345) ($ 3,631)
-------- --------
Net loss per common share ($.24) ($.38)
-------- --------
Weighted average number of common shares
outstanding 9,610 9,617
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements
Page 4 of 11
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LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
----------------------
MAY 24, MAY 25,
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,345) ($3,631)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 619 602
Amortization 65 57
(Increase) decrease in accounts receivable 13,579 12,408
(Increase) decrease in merchandise inventories (881) 259
(Increase) decrease in prepayments and other current assets (2,531) (9,988)
(Increase) decrease in deferred catalog costs 268 167
(Increase) decrease in other assets 0 (48)
Increase (decrease) in trade accounts payable and accrued expenses (4,278) (1,615)
Increase (decrease) in customer deposits (158) (29)
Increase (decrease) in income taxes payable (2,715) (2,892)
Increase (decrease) in deferred compensation (18) 101
Increase (decrease) in deferred income taxes 248 63
-------- --------
Net cash provided by (used in) operating activities 1,853 (4,546)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (238) (4,490)
-------- --------
Net cash used in investing activities (238) (4,490)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt and capital lease obligations (685) (677)
Proceeds from issuance of common stock 10 849
Dividends paid (700) (690)
Payments to acquire treasury stock (8) (1,575)
Other 1 651
-------- --------
Net cash used in financing activities (1,382) (1,442)
-------- --------
Net increase (decrease) in cash and cash equivalents 233 (10,478)
-------- --------
Cash and cash equivalents at beginning of period 22,746 25,771
-------- --------
Cash and cash equivalents at end of period $ 22,979 $15,293
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 144 $ 216
Income taxes 2,845 3,104
</TABLE>
See Notes to Consolidated Financial Statements
Page 5 of 11
<PAGE>
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The year-end condensed balance sheet data was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. The interim financial
statements furnished with this report reflect all adjustments, consisting only
of items of a normal recurring nature, which are, in the opinion of management,
necessary for the fair statement of the consolidated financial condition and
consolidated results of operations for the interim periods presented. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended February 22, 1997.
1. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
May 24, May 25, February 22,
1997 1996 1997
------- ------- ------------
<S> <C> <C> <C>
Land and buildings $31,743 $28,078 $31,656
Machinery and equipment 26,658 23,851 26,512
Furniture and fixtures 3,318 3,248 3,313
Leasehold improvements 3,776 3,801 3,776
Capital leases 1,262 1,262 1,262
------- ------- -------
Total property, plant &
equipment, at cost 66,757 60,240 66,519
Less, accumulated depreciation
and amortization 26,819 22,728 26,200
------- ------- -------
Property, plant and equipment - net $39,938 $37,512 $40,319
------- ------- -------
</TABLE>
Page 6 of 11
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended May 24, 1997
Revenues for the quarter ended May 24, 1997 of $27.7 million increased by $1.4
million, or 5.5%, as compared to the same period last year. The major reason
for the increase was a rise of 13.4% in average revenue per order. Circulation
increased slightly in the first quarter, as compared to the first quarter last
year, although the mix of catalogs mailed in the current year was geared more
towards the Company's specialty catalogs, rather than its core catalog. The
Company mailed new Spring editions of its Neat Ideas For An Organized Life,
Personalized Gifts, and Welcome To The Best Of Lillian Vernon catalogs in the
current quarter.
Product and delivery costs increased by $.2 million, or 1.8%, in the quarter
ended May 24, 1997, as compared to the same period last year. As a percentage
of revenues, these costs decreased from 53.4% to 51.5% in the current quarter.
Product and delivery costs include the cost of merchandise sold, and the cost
of receiving, filling and shipping the Company's orders, reduced by shipping
and handling fees charged to customers. The improvement in this ratio was
primarily due to a higher gross margin on merchandise sold.
Selling, general and administrative (SG&A) expenses, the largest component of
which is the cost of producing, printing and distributing the Company's
catalogs, decreased $.6 million, or 3.3%, in the current quarter. As a
percentage of revenues, SG&A costs declined from 67.9% to 62.2%. The
improvement in SG&A expenses is largely due to a decrease of 20% in the average
cost of paper used in catalog production. In addition, the rise in average
revenue per catalog also contributed to lowering the costs as a percentage of
revenues. Lower paper costs are expected to continue to favorably affect the
Company's earnings for the balance of the current fiscal year, and a
circulation increase is planned.
Interest income for the quarter ended May 24, 1997 of $.4 million was $.1
million more than the first quarter of the prior year, principally due to a
higher investment balance. Interest expense for the current quarter of $.1
million was slightly lower than the same period last year, due to debt
repayments.
The effective income tax rate was 34% in the current quarter, the same as in
the first quarter of fiscal 1997.
Financial Condition
The Company's current ratio at May 24, 1997 was 6.75 to 1, compared to 4.73 to
1 at February 22, 1997 and 6.64 to 1 at May 25, 1996. The Company's working
capital needs have been met with funds generated from operations.
The Company used $10.7 million less cash during the current first quarter,
compared to the same period last year, principally because capital expenditures
were lower. Last year, the Company spent $4.5 million in the first quarter for
capital expenditures, mostly for the expansion of its National Distribution
Center, which was completed in the fall of 1996, compared to $.3 million this
year. Also, the timing of the Company's purchases of paper for production of
its catalogs resulted in less paper being acquired during the first quarter of
the current year, compared to last year.
The Company paid dividends totaling $.7 million, the same as in the first
quarter last year.
Page 7 of 11
<PAGE>
On October 10, 1995, the Board of Directors authorized the Company to purchase
up to 1 million shares of its common stock in the open market from time to
time, subject to market conditions. During the fiscal quarter ended May 24,
1997, the Company purchased 600 shares at a total cost of $8,500. Shares
repurchased under the plan from inception through May 24, 1997 total 385,100 at
a cost of $5.1 million.
Forward Looking Statements
Except for historical information contained herein, this Report on Form 10-Q
contains forward-looking statements which are based on the Company's current
expectations and assumptions. Various factors could cause actual results to
differ materially from those set forth in such statements. These factors
include, but are not limited to, the potential for changes in consumer
spending, consumer preferences and general economic conditions, increasing
competition in the direct mail industry, changes in government regulations,
dependence on foreign suppliers, and possible future increases in operating
costs, including postage and paper costs. For further information, see Part I
of Form 10-K for the fiscal year ended February 22, 1997.
Page 8 of 11
<PAGE>
PART II.
OTHER INFORMATION
-----------------
Items 1, 2, 3, 4, and 5 are not applicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11: Computation of Loss per Share Assuming Primary and
Full Dilution
Reports on Form 8-K: None
Page 9 of 11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Lillian Vernon Corporation
Date: June 30, 1997 By: /s/ Robert S. Mednick
---------------------------
Robert S. Mednick
Vice President,
Chief Financial Officer
Page 10 of 11
<PAGE>
EXHIBIT 11
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
COMPUTATION OF LOSS PER SHARE ASSUMING PRIMARY AND FULL DILUTION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MAY 24, 1997 MAY 25, 1996
---------------------------- ----------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
--------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Net loss ($2,345) ($2,345) ($3,631) ($3,631)
--------- --------------- --------- ---------------
Common Shares:
Average number of shares outstanding 9,610 9,610 9,617 9,617
Assumed exercise of stock options 43 114 22 30
--------- --------------- --------- ---------------
9,653 9,724 9,639 9,647
--------- --------------- --------- ---------------
Loss Per Share ($.24) ($.24) ($.38) ($.38)
--------- --------------- --------- ---------------
</TABLE>
Page 11 of 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> MAY-24-1997
<CASH> 22,979
<SECURITIES> 0
<RECEIVABLES> 10,897
<ALLOWANCES> 0
<INVENTORY> 31,361
<CURRENT-ASSETS> 79,701
<PP&E> 66,757
<DEPRECIATION> 26,819
<TOTAL-ASSETS> 127,880
<CURRENT-LIABILITIES> 11,808
<BONDS> 699
0
0
<COMMON> 104
<OTHER-SE> 111,212
<TOTAL-LIABILITY-AND-EQUITY> 127,880
<SALES> 27,748
<TOTAL-REVENUES> 27,748
<CGS> 14,297
<TOTAL-COSTS> 31,561
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93
<INCOME-PRETAX> (3,553)
<INCOME-TAX> (1,208)
<INCOME-CONTINUING> (2,345)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,345)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
