FORM 10-Q
U.S. 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 June 30, 1998
Commission file number 1-19254
Lifetime Hoan Corporation
(Exact name of registrant as specified in its charter)
Delaware 11-2682486
(State or other jurisdiction (I.R.S.Identification No.)
Employer of incorporation or
organization)
11590
One Merrick Avenue, (Zip Code)
Westbury, NY
(Address of principal
executive offices)
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
periods that the registrant wasrequired 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 12,586,589 shares outstanding
as of July 31, 1998
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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June 30,
1998 December 31,
(unaudited) 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,374 $7,773
Accounts receivable, less allowances of
$1,104 in 1998 and $851 in 1997 11,532 13,274
Merchandise inventories 51,004 42,763
Prepaid expenses 2,975 3,290
Deferred income taxes 987 439
Other current assets 2,244 2,170
TOTAL CURRENT ASSETS 71,116 69,709
PROPERTY AND EQUIPMENT, net 9,633 9,434
EXCESS OF COST OVER NET ASSETS ACQUIRED, net 1,808 1,841
OTHER INTANGIBLES, net 10,755 10,950
OTHER ASSETS 1,033 1,023
TOTAL ASSETS $94,345 $92,957
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and trade acceptances $3,404 $5,360
Accrued expenses 6,080 6,152
Income taxes 987 539
TOTAL CURRENT LIABILITIES 10,471 12,051
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, authorized
25,000,000 shares;
issued and outstanding 12,581,589 in 1998
and 12,522,246 in 1997 126 125
Paid-in capital 75,606 75,307
Retained earnings 9,104 6,443
Notes receivable for shares issued to (908) (908)
stockholders
Deferred compensation (54) (61)
TOTAL STOCKHOLDERS' EQUITY 83,874 80,906
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $94,345 $92,957
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
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Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Net Sales $24,184 $22,133 $46,052 $43,241
Cost of sales 12,171 11,203 23,643 22,336
Gross profit 12,013 10,930 22,409 20,905
Selling, general and
administrative expenses 8,122 8,352 15,492 16,089
Other (income) expense (27) 5 (112) (12)
INCOME BEFORE INCOME TAXES 3,918 2,573 7,029 4,828
Provision for federal, state
and local income taxes 1,600 1,035 2,800 1,927
NET INCOME $2,318 $1,538 $4,229 $2,901
BASIC EARNINGS PER SHARE $0.18 $0.12 $0.33 $0.23
Weighted average shares 12,571 12,447 12,554 12,432
DILUTED EARNINGS PER SHARE $0.18 $0.12 $0.33 $0.23
Weighted average shares 12,891 12,655 12,858 12,640
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
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Six Months Ended June 30,
1998 1997
OPERATING ACTIVITIES
Net income $4,229 $2,901
Adjustments to reconcile net income to net
cash provided by / (used in) operating
activities:
Depreciation and amortization 1,250 850
Deferred tax (benefit) (548) (223)
Provision for losses on accounts receivable 61 206
Reserve for sales returns and allowances 276 891
Changes in operating assets and liabilities:
Accounts receivable 1,405 1,935
Merchandise inventories (8,241) (5,730)
Prepaid expenses, other current assets
and other assets 231 (306)
Accounts payable and trade acceptances
and accrued expenses (2,028) (949)
Income taxes payable 448 (852)
NET CASH (USED IN) / PROVIDED BY
OPERATING ACTIVITIES (2,917) (1,277)
INVESTING ACTIVITIES
Purchase of property and equipment, net (1,214) (870)
NET CASH (USED IN) INVESTING ACTIVITIES (1,214) (870)
FINANCING ACTIVITIES
Proceeds from short term borrowings, net - 1,100
Proceeds from the exercise of stock options 300 271
Cash dividends paid (1,568) -
NET CASH (USED IN) / PROVIDED BY
FINANCING ACTIVITIES (1,268) 1,371
(DECREASE) IN CASH AND CASH EQUIVALENTS (5,399) (776)
Cash and cash equivalents at beginning of
period 7,773 1,093
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,374 $317
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles 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 generally accepted
accounting principles 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 six month period
ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998. 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, 1997.
Note B - Inventories
Merchandise inventories, principally finished goods, are recorded
at the lower of cost (first-in, first-out basis) or market.
Note C - Line of Credit Agreement
The Company has available an unsecured $25,000,000 line of credit
with a bank (the "Line") which may be used for short-term
borrowings or letters of credit. As of June 30, 1998, the
Company had $12,228,000 of letters of credit and trade
acceptances outstanding and no borrowings. The Line is cancelable
by either party at any time. Borrowings under the Line
bear interest payabledaily at a negotiated short term borrowing
rate. The Company is charged a nominal fee on the entire Line.
Note D - Capital Stock
Cash Dividends: On April 22, 1998 the Board of Directors
declared a regular quarterly cash dividend of $0.0625 per share
to shareholders of record on May 5, 1998 paid on May 19, 1998
and on July 22, 1998, the Board of Directors of the Company
declared another regular quarterly cash dividend of $0.0625
per share to shareholders of record on August 5, 1998, payable
on August 19, 1998.
Earnings Per Share: In February 1997, the Financial Accounting
Standards Board issued Statement No.128, Earnings Per Share.
Statement No. 128 replaced the calculation of primary earnings
per share and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Diluted earnings
per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts
have been presented, and where appropriate, restated to conform
to Statement No. 128 requirements.
Note D - Capital Stock (continued)
The following tables set forth the computation of basic and
diluted earnings per share for the three month and six month
periods ended June 30, 1998:
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Three Months Ended June 30,
(in thousands, except per share data)
1998 1997
Numerator for basic and diluted earnings
per share - net income $2,318 $1,538
Denominator:
Denominator for basic earnings per share
- weighted average shares 12,571 12,447
Effect of dilutive securities:
Employee stock options 320 208
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 12,891 12,655
Net income per share - basic $0.18 $0.12
Net income per share - diluted $0.18 $0.12
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Six Months Ended June 30,
(in thousands, except per share data)
1998 1997
Numerator for basic and diluted earnings $4,229 $2,901
per share - net income
Denominator:
Denominator for basic earnings per share
- weighted average shares 12,554 12,432
Effect of dilutive securities:
Employee stock options 304 208
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 12,858 12,640
Net income per share - basic $0.33 $0.23
Net income per share - diluted $0.33 $0.23
Note E - Subsequent Event - Roshco Acquisition
On August 10, 1998, the Company acquired Roshco, Inc. ("Roshco"),
a privately held bakeware and baking-related products distributor,
located in Chicago, Illinois. Roshco distributes bakeware and
baking-related products under the trade names of Roshco and
Baker's Advantage, and its revenues were approximately $10 million
in 1997. The purchase price consisted of an initial cash payment
of $5.0 million and three-year notes payable totalling $1.5
million. The Company is obligated to make additional contingent
payments based on annual sales volume for bakeware and baking-
related products. The Company also assumed bank debt of $2.6
million which was paid at the closing.
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.
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Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 50.3 50.6 51.3 51.6
Gross profit 49.7 49.4 48.7 48.4
Selling, general and 33.6 37.7 33.7 37.2
administrative expenses
Other (income), expense (0.1) 0.1 (0.2) -
Income before income taxes 16.2 11.6 15.2 11.2
Tax provision 6.6 4.7 6.0 4.5
Net Income 9.6% 6.9% 9.2% 6.7%
Three Months Ended June 30, 1998
Compared to Three Months ended June 30, 1997
Net Sales
Net sales for the three months ended June 30, 1998 were $24.2
million, an increase of $2.1 million or 9.3% over the comparable
1997 quarter. Excluding sales from the Company's Farberwarer
outlet stores, net sales, reflecting the Company's core business,
increased by 15.6% in 1998. The sales growth was due principally
to increased shipments of Hoffritz and Farberware branded
products, partially offset by lower sales in non-branded products.
Net sales from the Farberwarer outlet stores were $1.5 million in
1998, as compared to $2.5 million for the comparable period in
1997. The lower sales in the 1998 period resulted from the
restructuring of the operations of the outlet stores pursuant
to an agreement with Meyer Corporation which became effective in
the third quarter of 1997. Under the terms of the agreement
Meyer Corporation receives all revenue from sales of cookware
products in the Farberware outlet stores and is responsible for
62.5% of the operating expenses.
Gross Profit
Gross profit for the three months ended June 30, 1998 was $12.0
million, an increase of 9.9% from the comparable 1997 period.
Gross profit as a percentage of net sales improved to 49.7% from
49.4% in the comparable 1997 period, due primarily to a favorable
change in the overall sales product mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months
ended June 30, 1998 were $8.1 million, a decrease of 2.8% from
the comparable 1997 quarter. Excluding the expenses related to
the outlet stores, S,G&A expenses increased in the 1998 quarter
by 8.9%, but as a percent of net sales, S,G&A decreased to 32.2%
as compared to 34.2% for the 1997 quarter. The higher expenses
were primarily attributable to increased selling, warehousing
and distribution expenses related to the higher sales levels in
the core business. Selling, general and administrative expenses
for the Farberware outlet stores decreased by $826,000 in the
1998 quarter as compared to 1997, reflecting the restructuring
of the operations of the outlet stores.
Six Months Ended June 30, 1998
Compared to Six Months ended June 30, 1997
Net Sales
Net sales for the six months ended June 30, 1998 were $46.1
million, an increase of $2.8 million or 6.5% over the comparable
1997 period. Excluding sales from the Company's Farberware
outlet stores, net sales, reflecting the Company's core business,
increased by 13.6% in 1998. The sales growth was due principally
to increased shipments of Hoffritz and Farberware branded
products, partially offset by lower sales in non-branded products.
Net sales from the Farberware outlet stores were $2.6 million in
1998, as compared to $5.0 million for the comparable period in
1997. The lower sales in the 1998 period resulted from the July
1997 restructuring of the operations of the outlet stores.
Gross Profit
Gross profit for the six months ended June 30, 1998 was $22.4
million, an increase of 7.2% from the comparable 1997 period.
Gross profit as a percentage of net sales improved to 48.7% from
48.4% in the comparable 1997 period, due primarily to a favorable
change in the overall sales product mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months
ended June 30, 1998 were $15.5 million, a decrease of 3.7% from
the comparable 1997 period. Excluding the expenses related to
the outlet stores, S,G&A expenses increased in the 1998 period
by 8.8%, but as a percent of net sales, S,G&A decreased to 32.2%
as compared to 33.6% for the comparable 1997 period. The higher
expenses were primarily attributable to increased selling,
warehousing and distribution expenses related to higher sales
in the core business. Selling, general and administrative
expenses for the Farberware outlet stores decreased by $1.7
million in 1998 as compared to the comparable period in 1997,
reflecting the restructuring of the operations of the outlet
stores.
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 elsewhere in this
Quarterly Report on Form 10-Q and 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 $25,000,000 unsecured line of credit with a
bank (the "Line") which may be used for short term borrowings
or letters of credit and trade acceptances. Borrowings under
the Line bear interest payable daily at a negotiated short term
borrowing rate. The Company is charged a nominal fee on the
entire Line. As of June 30, 1998, the Company had $12,228,000
of letters of credit and trade acceptances outstanding under
the Line and no borrowings and, as a result, the availability
under the Line was $12,772,000. The Line is cancelable by either
party at any time.
At June 30, 1998, the Company had cash and cash equivalents of
$2.4 million versus $7.8 million at December 31, 1997. The
decrease is primarily attributable to the Company's increased
inventory levels.
On July 22, 1998 the Board of Directors declared another regular
quarterly cash dividend of $0.0625 per share to shareholders of
record on August 5, 1998, to be paid on August 19, 1998. The
dividend to be paid will be $787,000.
The Company estimates that approximately $4.5 million of capital
expenditures will be incurred in 1998. These expenditures are
primarily for equipment and a management system to be used in a
new, more modern, leased distribution facility, and the
installation of a new financial reporting system.
On August 10, 1998, the Company acquired Roshco, Inc. ("Roshco"),
a privately held bakeware and baking-related products distributor,
located in Chicago, Illinois. The purchase price consisted of an
initial cash payment of $5.0 million and three year notes payable
totalling $1.5 million. The Company is obligated to make
additional contingent payments based on annual sales volume for
bakeware and baking-related products. The Company also assumed
bank debt of $2.6 million which was paid at the closing.
The Company believes that its cash and cash equivalents,
internally generated funds and its existing credit arrangements
will be sufficient to finance its operations, planned capital
expenditures, and the Roshco acquisition for the next 12 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 its purchase orders
with its foreign manufacturers in United States dollars. Thus,
notwithstanding any fluctuation in foreign currencies, the
Company's cost for any purchase order is 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.
The Company is in the process of installing a new financial/
accounting system and a separate warehouse management system
which the Company believes will significantly enhance
capabilities. These systems are expected to be fully operational
by the middle of 1999 and be Year 2000 compliant. The Company
also has initiated discussions with its significant suppliers,
large customers and financial institutions to ensure that those
parties have appropriate plans to remedy Year 2000 issues where
their systems interface with the Company's systems or otherwise
impact its operations. The Company will assess the extent to
which its operations are vulnerable should those organizations
fail to remedy properly their computer systems. While the
Company believes its planning efforts are adequate to address
its Year 2000 concerns, there can be no guarantee that the
systems of other companies on which the Company's systems
and operations rely will be converted on a timely basis and will
not have a material effect on the Company.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
The Company's annual meeting of stockholders was held on June
9, 1998. At the meeting, all sixdirector nominees were elected
and the appointment of Ernst & Young, LLP as independent auditors
was ratified.
(a) Bruce Cohen was elected as a first time director of the
Company. Milton L. Cohen, Jeffrey Siegel, Craig
Phillips, Ronald Shiftan, and Howard Bernstein were
re-elected as directors of the Company.
(b) Ernst & Young LLP was re-appointed as independent
auditors to audit the Company's financial statements
for the fiscal year ending December 31, 1998.
Item 6. Exhibit(s) and Reports on Form 8-K.
(a) Exhibit(s) in the second quarter of 1998:
Exhibit Description
No. 27 Financial Data Schedule
(b) Reports on Form 8-K in the second quarter of 1998:
NONE
Exhibit 27. Financial Data Schedule
Lifetime Hoan Corporation
Financial Data Schedule
Pursuant to Item 601(c) of Regulation S-K
This schedule contains summary financial information extracted from the
financial statements included in the form 10-Q and is qualified in its
entirety by reference to such financial statements for the six months
ended June 30, 1998.
(in thousands, except per share data)
Item Number Item Description Amount
5-02(1) Cash and Cash Items $ 2,374
5-02(2) Marketable Securities $ 0
5-02(3)(a)(1) Notes and Accounts Receivable -
Trade $ 11,607
5-02(4) Allowances for Doubtful Accounts $ 75
5-02(6) Inventory $ 51,004
5-02(9) Total Current Assets $ 71,116
5-02(13) Property, Plant and Equipment $ 16,097
5-02(14) Accumulated Depreciation $ 6,464
5-02(18) Total Assets $ 94,345
5-02(21) Total Current Liabilities $ 10,471
5-02(22) Bonds, Mortgages and Similar
Debt $ 0
5-02(28) Preferred Stock - Mandatory
Redemption $ 0
5-02(29) Preferred Stock - No Mandatory
Redemption $ 0
5-02(30) Common Stock $ 126
5-02(31) Other Stockholders' Equity $ 83,748
5-02(32) Total Liabilities and
Stockholders' Equity $ 94,345
5-03(b)1(a) Net Sales of Tangible Products $ 45,811
5-03(b)1 Total Revenues $ 46,052
5-03(b)2(a) Cost of Tangible Goods Sold $ 23,643
5-03(b)2 Total Costs and Expenses
Applicable to Sales and Revenues $ 23,643
5-03(b)3 Other Costs and Expenses $ 0
5-03(b)5 Provision for Doubtful Accounts
and Notes $ 61
5-03(b)(8) Interest and Amortization of
Debt Discount $ 0
5-03(b)(10) Income Before Taxes and Other
Items $ 7,029
5-03(b)(11) Income Tax Expense $ 2,800
5-03(b)(14) Income/Loss Continuing Operations $ 4,229
5-03(b)(15) Discontinued Operations $ 0
5-03(b)(17) Extraordinary Items $ 0
5-03(b)(18) Cumulative effect - Changes in
Accounting Principles $ 0
5-03(b)(19) Net Income or Loss $ 4,229
5-03(b)(20) Earnings Per Share - Primary $ 0.33
5-03(b)(20) Earnings Per Share - Fully
Diluted $ 0.33
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
August 14, 1998
/s/ Milton L. Cohen
_______________________________
Chairman of the Board of
Directors and President
(Principal Executive Officer)
August 14, 1998
/s/ Robert McNally
_______________________________
Vice President - Finance and
Treasurer (Principal Financial
and Accounting Officer)
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