_________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
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: 1-11007
TOASTMASTER INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1204566
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1801 NORTH STADIUM BOULEVARD, COLUMBIA, MISSOURI 65202
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (573)445-8666
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 OCTOBER 31, 1998, THERE WERE 7,551,950 SHARES OF
THE REGISTRANT'S COMMON STOCK OUTSTANDING.
<PAGE>
_________________________________________________________________________
TOASTMASTER INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS -
QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997 3
AND NINE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997
CONSOLIDATED BALANCE SHEETS -
SEPTEMBER 30, 1998 AND 1997 AND
DECEMBER 31, 1997 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
NINE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7-10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURE 11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
TOASTMASTER INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
QUARTER ENDED SEPT 30 NINE MONTHS ENDED SEPT 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales $ 37,855 $ 44,209 $ 92,923 $ 98,281
Cost of Sales 33,604 35,570 80,094 80,539
Gross Profit 4,251 8,639 12,829 17,742
Selling, General and
Admin. Expenses 5,567 5,472 15,430 16,101
Operating Income (Loss) (1,316) 3,167 (2,601) 1,641
Other Income - Interest 0 0 0 343
Other Expense - Interest 1,059 1,044 2,821 2,775
Income (Loss) Before Income Taxes (2,375) 2,123 (5,422) (791)
Income Tax Expense (Benefit) (752) 713 (1,905) (348)
Net Income (Loss) $ (1,623) $ 1,410 $ (3,517) $ (443)
Basic Earnings(Loss) per Common Share $ (0.21) $ 0.19 $ (0.47) $ (0.06)
Diluted Earnings(Loss) per
Common Share $ (0.21) $ 0.19 $ (0.46) $ (0.06)
Weighted Average Shares Used in Computation:
Basic Earnings per Common Share 7,552 7,538 7,547 7,538
Diluted Earnings per Common Share 7,592 7,550 7,588 7,542
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
<TABLE>
TOASTMASTER INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
9/30/98 12/31/97 9/30/97
<S> <C> <C> <C>
ASSETS
Cash $ 356 $ 178 $ 112
Accounts Receivable,less allowances 34,903 42,396 40,150
Inventories
Finished Goods 38,677 26,029 34,838
Raw Matl.,WIP 8,225 7,157 10,462
LIFO/Inventory Valuation Reserve (792) (1,360) (3,065)
Total Inventory 46,110 31,826 42,235
Deferred Income Tax 0 0 2,280
Prepaid Expenses 2,077 2,145 3,221
Income Taxes Receivable 5,645 4,070 1,116
Total Current Assets 89,091 80,615 89,114
Property, Plant and Equipment
Land 928 928 928
Buildings 10,602 9,885 9,833
Less:Accumulated Depreciation (5,781) (5,393) (5,267)
Machinery & Equipment 39,759 45,661 45,002
Less:Accumulated Depreciation (28,433) (31,818) (31,266)
Net Property, Plant & Equipment 17,075 19,263 19,230
Goodwill, net of accumulated
amortization 3,181 3,265 3,294
Other Assets 3,129 3,148 1,861
$ 112,476 $ 106,291 $ 113,499
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current Installments of
Long-Term Debt $ 2,054 $ 2,104 $ 2,117
Accounts Payable 7,812 4,383 8,724
Accrued Expenses 12,138 12,936 13,392
Deferred Income Taxes 1,456 1,456 0
Total Current Liabilities 23,460 20,879 24,233
Long Term Debt, Excl. Current
Installments 50,135 42,597 49,090
Deferred Income Taxes 801 801 579
Other Liabilities 805 695 325
Total Liabilities 75,201 64,972 74,227
Stockholders' Equity:
Common Stock, $.10 par value 760 760 760
Additional Paid-in Capital 25,340 25,344 25,340
Retained Earnings 11,905 15,878 13,696
Accumulated Other Comprehensive
Income (492) (375) (236)
37,513 41,607 39,560
Treasury Stock (238) (288) (288)
Total Stockholders' Equity 37,275 41,319 39,272
$ 112,476 $ 106,291 $ 113,499
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
<TABLE>
TOASTMASTER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
NINE MONTHS ENDED SEPT 30
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,517) $ (443)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 2,911 2,814
Loss on sale of prop., plant and equip. 26 0
Restructuring charge 0 123
Accounts receivable 7,493 2,554
Inventories (14,284) (7,758)
Prepaid expenses & other current assets 68 (1,311)
Other assets 15 (166)
Accounts payable 3,429 4,972
Accrued liabilities (688) (1,000)
Income taxes (1,575) (348)
------- -------
(2,605) (120)
Net cash flows used in ------- -------
operating activities (6,122) (563)
Cash flows from investing activities:
Additions to property,plant and equipment (1,349) (3,423)
Proceeds from sale of prop.,plant and equip. 688 0
Net cash flows used in investing activities (661) (3,423)
Cash flows from financing activities:
Proceeds from revolving credit agreement 111,128 106,005
Repayments of revolving credit agreement (102,044) (99,946)
Stock options exercised 43 0
Dividends paid (453) (453)
Repayment of long-term debt (1,596) (1,608)
Net cash flows provided by
financing activities 7,078 3,998
Foreign currency translation adjustment (117) 3
Net increase in cash 178 15
Cash at beginning of period 178 97
Cash at end of period $ 356 $ 112
Cash paid during the period for:
Interest $ 2,736 $ 2,699
Income taxes $ 0 $ 0
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
TOASTMASTER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying financial statements as of September 30, 1998
and September 30, 1997 and for the quarter and the nine months
then ended are unaudited. The balance sheet as of December 31,
1997 has been derived from the audited balance sheet as of that
date. The consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for
the interim periods. These financial statements should be read
in conjunction with the consolidated financial statements for the
year ended December 31, 1997 and notes thereto contained in the
Company's Annual Report to Shareholders incorporated by reference
in the Annual Report on Form 10-K for the year ended December 31,
1997. The results of operations for the interim periods shown
are not necessarily indicative of the results for the entire
fiscal year ending December 31, 1998.
2. The loan and security agreement between the Company and Fleet
Capital Corporation, as described in note 3 in the Notes to
Consolidated Financial Statements contained in the Company's
Annual Report to Shareholders, was amended as of March 11, 1998.
The amendment reduced by .5% the interest rate under the London
Interbank Offering Rate(LIBOR) option for borrowings under the
revolving credit and term loan provisions of the agreement. The
Company was not in compliance with Sec. 9.3(C), Quarterly Pre-Tax
Earnings, for the nine months ended September 30, 1998. A waiver
has been obtained for this non-compliance as of September 30,
1998.
3. Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." The adjustments that were previously made through
stockholders' equity for the minimum pension liability and
foreign currency adjustments will now be disclosed as other
comprehensive income. For the quarter ended September 30, 1998,
other comprehensive loss was $63 thousand and the total
comprehensive loss was $1.686 million. For the quarter ended
September 30, 1997, other comprehensive income was $4 thousand
and the total comprehensive income was $1.414 million. For the
nine months ended September 30, 1998, other comprehensive loss
was $117 thousand and the total comprehensive loss was $3.634
million. For the nine months ended September 30, 1997, other
comprehensive income was $3 thousand and the total comprehensive
loss was $440 thousand.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
STATEMENTS MADE IN THIS REPORT ON FORM 10-Q ARE FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE WORDS
"SHOULD," "WILL BE," "INTENDED," "CONTINUE," "BELIEVE," "MAY,"
"EXPECT," "HOPE," "ANTICIPATE," "GOAL," "FORECAST" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
THE COMPANY'S ACTUAL RESULTS, FINANCIAL CONDITION OR BUSINESS
COULD DIFFER MATERIALLY FROM ITS HISTORICAL RESULTS, FINANCIAL
CONDITION OR BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL
CONDITION OR BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS, FINANCIAL CONDITION OR BUSINESS" IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997,
AS WELL AS THOSE DISCUSSED ELSEWHERE IN THE COMPANY'S REPORTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
The following discussion should be read in conjunction with the
attached financial statements and notes thereto, and with the
Company's audited consolidated financial statements and notes
thereto for the fiscal year ended December 31, 1997.
The Company believes that sales of many of its products are
seasonal, with significant quantities of its products given as
gifts, and therefore sell in larger volumes during the Christmas
shopping season. Net sales reflect a reduction from revenues of
amounts related to sales discount programs, including absorption
of out-bound freight and certain allowances for advertising, the
latter of which are accounted for by certain competitors as
"advertising" expense. The Company views these amounts as price
reductions, thereby reducing net sales and lowering gross
profits, as well as selling, general and administrative expense.
As used in this Quarterly Report on Form 10-Q, the term
"revenues" are recorded net of product returns and are before
deduction of items referred to above that are used in computing
net sales. During the periods discussed below, net sales
averaged approximately 95% of revenues.
RESULTS OF OPERATIONS
Net sales decreased 14.4% to $37.9 million for the quarter ended
September 30, 1998 from $44.2 million for the quarter ended
September 30, 1997. For the nine months ended September 30,
1998, net sales decreased 5.5% to $92.9 million from $98.3
million for the comparable period in 1997.
The decline in sales in the third quarter and the nine months
reflects several different factors, including: delays in shipping
to meet orders received late in the quarter and the resulting
difficulty of scheduling carriers; delays in orders from some of
the Company's largest customers; temporary postponement of the
introduction of the Company's Global DesignTM, Porsche and
OperaTM product lines being imported from Europe to ensure UL
compliance; delays in production on certain <PAGE> products from Asian
suppliers; and difficulty in obtaining an adequate number of
shipping containers at Asian ports to get product to the U.S. in
a timely manner.
Kitchen appliance revenues were $31.6 million for the third
quarter of 1998, a decrease of 11% from $35.5 million for the
same period in 1997. Revenues from kitchen appliances for the
nine months ended September 30, 1998 decreased 4% to $74.8
million from $77.9 million for the nine months ended September
30, 1997. A decline in breadmaker, toaster and countertop oven
revenues in both the third quarter and the nine months was
primarily responsible for this decrease.
Time products revenues were $8.5 million for the quarter ended
September 30, 1998, a decrease of 17.5% from $10.3 million for
the quarter ended September 30, 1997. For the nine months ended
September 30, 1998, revenues from time products were $23 million,
a decrease of 3% from $23.7 million for the same period in 1997.
The decrease in both periods was due to a decline in timer
shipments.
Revenues from the discontinued environmental products were $58
thousand and $349 thousand for the quarter ended September 30,
1998 and 1997, respectively. Revenues for the nine months ended
September 30, 1998 were $51 thousand compared to $1.3 million for
the same period in 1997.
Revenues from the five largest customers for the third quarter of
1998 represented approximately 41.9% of revenues. The five
largest customers accounted for 46.2% of revenues for the third
quarter of 1997. For the nine months ended September 30, 1998,
revenues from the five largest customers were 43.9%. The five
largest customers accounted for 46.5% of revenues for the nine
months ended September 30, 1997.
Gross profit was $4.3 million, 11.2% of net sales, for the
quarter ended September 30, 1998, a decrease from $8.6 million,
or 19.5% of net sales, for the comparable period in 1997. Gross
profit also decreased for the nine months ended September 30,
1998 to $12.8 million, or 13.8% of net sales, from $17.7 million,
or 18.1% of net sales, for the same period in 1997. The decrease
as a percentage of net sales was primarily due to lower product
margins, increased health care and workers' compensation costs
and less absorption of overhead costs due to lower production.
Selling, general and administrative expenses for the quarter
ended September 30, 1998 increased slightly to $5.6 million
compared to $5.5 million for the third quarter of 1997. A
decrease in selling and advertising expenses due to the lower
sales levels was more than offset by the exchange rate loss from
Mexico and Canada of $441 thousand for the quarter ended
September 30, 1998, as compared to $19 thousand for the same
period in 1997. For the nine months ended September 30, 1998,
selling, general and administrative expenses were $15.4 million,
a decrease from $16.1 million for the same period in 1997. Cost
controls initiated earlier in the year contributed to the
reduction in expense. The decline in the value of the peso and
the Canadian dollar negatively affected the nine months ended
September 30, 1998 by $822 thousand compared to $73 thousand for
the same period of 1997. Interest expense was up slightly at
$1.059 million for the quarter ended September 30, 1998 from
$1.044 million for the same period in 1997. Interest expense for
the nine months ended September 30, 1998 increased slightly to
$2.821 million as compared to $2.775 million for the same period
in 1997.
<PAGE>
The Company's Board of Directors decided not to authorize the
declaration or payment of a cash dividend in the fourth quarter
of 1998. No determination was made by the Board as to when or
whether dividends would be declared in the future. The payment
and amount of any future dividends will be determined by the
Board of Directors, from time to time, after taking into account
various factors such as the Company's financial condition,
results of operations, and current and anticipated cash needs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require substantial working capital.
The Company has used available cash flow from operations and
borrowings under its revolving credit agreement to finance
additional working capital, to retire long-term debt and to fund
capital expenditures.
Net cash flows used by operating activities for the nine months
ended September 30, 1998 were $6.1 million. Since December 31,
1997, there was a reduction in accounts receivable of $7.5
million, an increase in inventory of $14.3 million and an
increase in accounts payable of $3.4 million as a result of
seasonal patterns. The increase in inventory and the decrease in
accounts receivable were impacted by the lower sales levels.
Cash flows used for additions to property, plant and equipment of
$1.3 million include the cost of new equipment and tooling for
new and existing products. Proceeds from the sale of property,
plant and equipment were from the closure of the Boonville
manufacturing facility. All equipment not relocated to other
facilities was sold for approximately net book value. Net cash
flows provided by financing activities were $7.1 million for the
nine months ended September 30, 1998, and were primarily from
additional borrowings under the revolving credit agreement.
At September 30, 1998, amounts outstanding under the revolving
credit agreement were $44.4 million. The Company could borrow an
additional $5.6 million under the terms of the revolving credit
agreement at September 30, 1998. Other long-term debt was $7.8
million, including the current portion of $2.1 million. The
terms of and collateral for the revolving credit agreement and
long-term debt are described in Note 3 of the Notes to the
Consolidated Financial Statements contained in the Company's 1997
Annual Report to shareholders, which note is incorporated herein
by reference.
Principal payments on the long-term debt are expected to be
funded from internally generated cash flows and future
borrowings. The revolving credit agreement expires in November
2001.
YEAR 2000 ISSUES
The Company has completed testing of all operation and financial
information systems for Year 2000 compliance during the first
nine months of 1998, with the exception of the human
resources/payroll(HR/PR) system. The HR/PR software testing will
be completed in the fourth quarter of 1998. The systems which
were tested proved to be Year 2000 ready. The Company's EDI
system has passed the National Retail Federation's "Year2000
Translator Test," a plan developed in conjunction with retailers
and manufacturers to test EDI once rather than testing with each
retailer. All existing workstations and network servers are
scheduled to be replaced by the end of the first quarter of 1999
with Year 2000 compliant technology. Non-information <PAGE> technology
systems, such as communication systems and manufacturing
equipment are being updated or have no date implications. The
Company expects all systems to be Year 2000 compliant by mid-1999.
The Company realizes that problems could exist with third party
suppliers who may not be Year 2000 compliant. Therefore, the
Company has sent questionnaires to suppliers with whom there is a
material relationship. To date, 70% of those polled have
responded, with 33% claiming to be Year 2000 ready. The Company
will follow-up with additional questionnaires in the first
quarter of 1999. The Company has received and responded to 51
requests from its customers. The Company has not polled its
customers.
To date the funds which have been spent on specific Year 2000
issues have not been material to the Company and based upon
issues which have been identified to date, future costs
associated with the matter are not expected to have a material
impact on the business. While the Company is confident that the
Year 2000 issues are manageable and will be dealt with in a
timely fashion, this conclusion is forward looking and involves
uncertainty and risks. The ultimate result may be impacted by a
variety of factors such as, but not limited to, the failure to
identify problems associated with non-IT systems which could
materially impact the Company's ability to transact its business
and problems associated with supplier or customer information
systems which could have a similar impact. To date, the Company
has not established a contingency plan for possible Year 2000
issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company has transactions denominated in foreign currencies as
discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1997 Annual
Report. At September 30, 1998, accounts receivable included $1.3
million denominated in Canadian dollars and $1.3 million
denominated in Mexican pesos. The Company does not purchase or
sell foreign currency futures or forwards.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
<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.
Dated: TOASTMASTER INC.
November 11, 1998 BY:/s/ John E. Thompson
John E. Thompson
Executive Vice President
Chief Financial Officer
Signing on behalf of the registrant
And as principal financial officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 356
<SECURITIES> 0
<RECEIVABLES> 37,587
<ALLOWANCES> 2,684
<INVENTORY> 46,110
<CURRENT-ASSETS> 89,091
<PP&E> 17,075
<DEPRECIATION> 34,214
<TOTAL-ASSETS> 112,476
<CURRENT-LIABILITIES> 75,201
<BONDS> 0
0
0
<COMMON> 760
<OTHER-SE> 36,515
<TOTAL-LIABILITY-AND-EQUITY> 112,476
<SALES> 92,923
<TOTAL-REVENUES> 92,923
<CGS> 80,094
<TOTAL-COSTS> 80,094
<OTHER-EXPENSES> 15,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,821
<INCOME-PRETAX> (5,422)
<INCOME-TAX> (1,905)
<INCOME-CONTINUING> (3,517)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,517)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> (.46)
</TABLE>
