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, 1999
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 periods 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 12,598,264 shares outstanding as of
April 30, 1999
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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March 31,
1999 December 31,
(unaudited) 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $3,047 $9,438
Accounts receivable, less allowances of
$1,130 in 1999 and
$1,527 in 1998 11,924 13,306
Merchandise inventories 53,688 44,938
Prepaid expenses 2,730 2,956
Deferred income taxes 445 397
Other current assets 1,195 1,230
TOTAL CURRENT ASSETS 73,029 72,265
PROPERTY AND EQUIPMENT, net 11,639 11,823
EXCESS OF COST OVER NET ASSETS ACQUIRED, 9,257 9,316
net
OTHER INTANGIBLES, net 10,462 10,560
OTHER ASSETS 1,430 1,108
TOTAL ASSETS $105,817 $105,072
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and trade acceptances $2,895 $2,706
Accrued expenses 12,006 10,263
Income taxes 232 956
TOTAL CURRENT LIABILITIES 15,133 13,925
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, shares
authorized 25,000,000; shares
issued and outstanding 12,598,264 in 1999
and 12,588,264 in 1998 126 126
Paid-in capital 76,179 76,115
Retained earnings 15,329 15,859
Notes receivable for shares issued to
stockholders (908) (908)
Deferred compensation (42) (45)
TOTAL STOCKHOLDERS' EQUITY 90,684 91,147
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $105,817 $105,072
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 March 31,
1999 1998
Net Sales $17,817 $21,868
Cost of Sales 9,164 11,472
Gross Profit 8,653 10,396
Selling, General and Administrative Expenses 8,225 7,285
Income Before Income Taxes 428 3,111
Income Taxes 171 1,200
NET INCOME $257 $1,911
EARNINGS PER COMMON SHARE-BASIC AND DILUTED $0.02 $0.15
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Three Months Ended
March 31,
1999 1998
OPERATING ACTIVITIES
Net income $257 $1,911
Adjustments to reconcile net income to
net cash provided by / (used in) operating
activities:
Depreciation and amortization 695 527
Deferred tax (benefit) (48) (152)
Provision for losses on accounts
receivable 331 61
Reserve for sales returns and allowances (107) 84
Changes in operating assets and
liabilities:
Accounts receivable 1,157 1,059
Merchandise inventories (8,750) (3,702)
Prepaid expenses, other current assets
and other assets (60) (248)
Accounts payable and trade acceptances
and accrued expenses 1,912 (1,383)
Income taxes payable (725) 880
NET CASH (USED IN)
OPERATING ACTIVITIES (5,338) (963)
INVESTING ACTIVITIES
Purchase of property and equipment, net (330) (647)
NET CASH (USED IN)
INVESTING ACTIVITIES (330) (647)
FINANCING ACTIVITIES
Proceeds from the exercise of stock
options 64 216
Cash dividends paid (787) (783)
NET CASH (USED IN)
FINANCING ACTIVITIES (723) (567)
(DECREASE) IN CASH AND CASH
EQUIVALENTS (6,391) (2,177)
Cash and cash equivalents at beginning of
period 9,438 7,773
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $3,047 $5,596
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 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 three
month period ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the year ending December
31, 1999. 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, 1998.
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 - 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, letters of credit, or trade acceptances. As of March
31, 1999, the Company had letters of credit and trade acceptances
of $9,515,000 outstanding and no outstanding borrowings. The line
is cancelable by either party at any time. 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.
Note D - Capital Stock
Cash Dividends: On January 20, 1999, the Board of Directors of
the Company declared a quarterly cash dividend of $0.0625 per
share to shareholders of record on February 5, 1999, paid on
February 19, 1999. On May 3, 1999, the Board of Directors
declared another regular quarterly cash dividend of $0.0625 per
share to shareholders of record on May 5, 1999, to be paid on May
19, 1999.
Earnings Per Share: Basic earnings per share has been computed by
dividing net income by the weighted average number of common
shares outstanding of 12,591,000 for the three months ended March
31, 1999 and 12,537,000 for the three months ended March 31, 1998.
Diluted earnings per share has been computed by dividing net
income by the weighted average number of common shares
outstanding, including the dilutive effects of stock options, of
12,821,000 for the three months ended March 31, 1999 and
12,825,000 for the three months ended March 31, 1998.
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
March 31,
1999 1998
Net Sales 100.0 % 100.0 %
Cost of sales 51.4 52.5
Gross profit 48.6 47.5
Selling, general and administrative
expenses 46.2 33.3
Income before income taxes 2.4 14.2
Income taxes 1.0 5.5
Net Income 1.4 % 8.7 %
Three Months Ended March 31, 1999
Compared to Three Months ended March 31, 1998
Net Sales
Net sales for the three months ended March 31, 1999 were $17.8
million, a decrease of $4.1 million or 18.5% from the comparable
1998 period. The decrease in sales was attributable to
significant problems which arose from the installation of the new
warehouse management system. These problems resulted in an
inability to ship customer orders. As a consequence, net sales
during the quarter declined sharply as compared to the
corresponding quarter in the prior year. The Company believes it
has solved all of the significant issues relating to the
installation of the new warehouse management system.
Gross Profit
Gross profit for the three months ended March 31, 1999 was $8.7
million, a decrease of 16.8% from the comparable 1998 period.
Gross profit as a percentage of net sales improved to 48.6% from
47.5% 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 March 31, 1999 were $8.2 million, an increase of 12.9% from
the comparable 1998 period. The increase was attributable to the
added expenses of operating the warehouse and office facility
related to the August 1998 acquisition of Roshco, Inc., increased
personnel and personnel related costs, and increased bad debt
expense.
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; risks relating to Year 2000
issues; 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 an unsecured $25,000,000 line of credit with a
bank (the "Line") which may be used for short term borrowings,
letters of credit or 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 March 31, 1999, the Company had $9,515,000 of letters of credit
and trade acceptances outstanding under the Line and no borrowings
and, as a result, the availability under the Line was $15,485,000.
The Line is cancelable by either party at any time.
At March 31, 1999, the Company had cash and cash equivalents of
$3.0 million versus $9.4 million at December 31, 1998. The
decrease is primarily attributable to the Company's increased
inventory levels, the result of lower sales during the first
quarter of 1999 due to problems in installing a new warehouse
management system, and the cash dividend paid in February 1999,
partially offset by decreased accounts receivable and the
increased combined balances of accounts payable, trade
acceptances, and accrued expenses.
On May 3, 1999 the Board of Directors declared another regular
quarterly cash dividend of $0.0625 per share to shareholders of
record on May 5, 1999, to be paid on May 19, 1999. The dividend
to be paid will be approximately $787,000.
The Company expects that all capital expenditures expected to be
incurred in 1999 will be financed from current operations, cash
and cash equivalents and, if needed, short term borrowings.
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
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.
Year 2000
The Company is in the process of investigating issues that could
affect its operations regarding Year 2000 compliance issues. The
Year 2000 compliance issues revolve around the fact that most
computer systems do not recognize a year by its traditional four
digit format. Instead, computer systems recognize the last two
digits for a specified year. If not properly addressed, these
issues could potentially have an adverse material impact on the
Company's operations.
The Company is in the process of installing new
financial/accounting systems and a separate new warehouse
management system to address the financial and operational needs
of its business. These systems are expected to be fully
operational by the end of the first half of 1999 and be Year 2000
compliant. Testing of these systems to determine that they are in
fact Year 2000 compliant has begun and should be fully completed
by the end of the second quarter in 1999. As results of this
testing process become available over the next three months, the
Company will make contingency plans where it deems necessary.
The Company relies on third parties for inventory, supplies,
financial products and other key services. Third party entities
that could have a potential material impact on the operations of
the Company's business have been contacted to determine the
progress that each has made in connection with Year 2000
compliance issues. Despite the Company's efforts, there can be no
guarantee that the systems of other companies which the Company
relies on to conduct its day-to-day business will be compliant.
In such event, the Company may, among other things, experience
difficulties in obtaining inventory and supplies. The Company
will make contingency plans for any entity it feels has not made
satisfactory progress towards being Year 2000 compliant.
Contingency plans may include increasing inventory levels,
securing alternate supply sources and taking other appropriate
measures.
The Company is also dependent upon its customers for sales and
cash flow. Interruption in our customers' operations due to Year
2000 issues could result in reduced sales and cash flow for the
Company, and higher inventories. The Company is monitoring the
status of its customers to determine potential risks and develop
possible alternatives.
Although the Company believes that the implementation of the new
financial/accounting and warehouse management systems, along with
the evaluation process of significant third party entities, the
possibility of significant interruptions of normal operations
should be reduced, there can be no assurance that failure of the
Company, third party vendors or customers, to be Year 2000
compliant could have an adverse material impact on the operations
of the Company's business.
Notwithstanding Year 2000 issues, the Company decided to install
the new financial/accounting systems and a separate new warehouse
management system to accommodate the Company's growth. Therefore,
at this time, the costs relating to Year 2000 compliance
activities have not been significant and, based on management's
best estimates, are not expected to be significant. However, due
to the complexity and pervasiveness of Year 2000 issues, in
particular the uncertainty regarding the compliance programs of
third parties, no assurance can be given that costs will not
exceed those currently anticipated by the Company.
PART II - OTHER INFORMATION
Item 6. Exhibit(s) and Reports on Form 8-K.
(a) Exhibit(s) in the first quarter of 1999:
Exhibit Description
No.
27 Financial Data Schedule
(b) Reports on Form 8-K in the first quarter of 1999: 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 three months ended March 31, 1999.
(in thousands, except per share data)
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Item
Number Item Description Amount
5-02(1) Cash and Cash Items $ 3,047
5-02(2) Marketable Securities $ 0
5-02(3)(a)(1) Notes and Accounts Receivable -
Trade $ 12,009
5-02(4) Allowances for Doubtful
Accounts $ 85
5-02(6) Inventory $ 53,688
5-02(9) Total Current Assets $ 73,029
5-02(13) Property, Plant and Equipment $ 18,204
5-02(14) Accumulated Depreciation $ 6,565
5-02(18) Total Assets $ 105,817
5-02(21) Total Current Liabilities $ 15,133
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 $ 90,558
5-02(32) Total Liabilities and
Stockholders' Equity $ 105,817
5-03(b)1(a) Net Sales of Tangible Products $ 17,674
5-03(b)1 Total Revenues $ 17,817
5-03(b)2(a) Cost of Tangible Goods Sold $ 9,164
5-03(b)2 Total Costs and Expenses
Applicable to Sales and Revenue $ 9,164
5-03(b)3 Other Costs and Expenses $ 0
5-03(b)5 Provision for Doubtful Accounts
and Notes $ 331
5-03(b)(8) Interest and Amortization of
Debt Discount $ 0
5-03(b)(10) Income Before Taxes and Other
Items $ 428
5-03(b)(11) Income Tax Expense $ 171
5-03(b)(14) Income/Loss Continuing
Operations $ 257
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 $ 257
5-03(b)(20) Earnings Per Share - Primary $ 0.02
5-03(b)(20) Earnings Per Share - Fully
Diluted $ 0.02
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, 1999
/s/ Milton Cohen
__________________________________
Milton L. Cohen
Chairman of the Board of Directors
and President
(Principal Executive Officer)
May 14, 1999
/s/ Robert McNally
__________________________________
Robert McNally
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
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