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 MARCH 31, 1996
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 1-13066
MIKASA, INC.
------------
(Exact name of Registrant as specified in its charter)
Delaware 33-0099676
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20633 South Fordyce Ave., Long Beach, California 90810
------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(310) 886-3700
--------------
Registrant's 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.....
As of March 31, 1996, a total of 22,280,490 shares of the
Registrant's Common Stock, $0.01 par value, were outstanding.
Exhibit Index at Page 13
Page 1 of 14 <PAGE>
MIKASA, INC.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of 3
March 31, 1996 and December 31, 1995
Consolidated Statements of Income 4
for the three months ended March 31,
1996 and 1995
Consolidated Statements of Cash Flows 5
for the three months ended March 31,
1996 and 1995
Notes to Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis 7
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Page 2 of 14 <PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
MIKASA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except per share data)
March 31, December 31,
1996 1995
---------- -----------
(Unaudited)
ASSETS
------
Cash, cash equivalents and short-term
investments $ 58,397 $ 73,726
Accounts receivable trade, net 25,339 23,436
Inventories 156,579 152,679
Prepaid expenses and other current assets 5,630 6,906
--------- ---------
Total current assets 245,945 256,747
Property and equipment, net 39,343 36,076
Notes receivable and other assets 738 769
Intangible assets, net 5,352 5,420
--------- ---------
Total assets $ 291,378 $ 299,012
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts and notes payable $ 14,339 $ 17,824
Other current liabilities 14,695 19,656
--------- ---------
Total current liabilities 29,034 37,480
Deferred income taxes 1,464 1,464
Notes payable 60,000 60,000
--------- ---------
Total liabilities 90,498 98,944
--------- ---------
Preferred stock, undesignated, $0.01
par value; authorized 20,000 shares;
none issued and outstanding -- --
Common stock, $0.01 par value;
authorized 80,000 shares; issued
and outstanding 22,280 shares 49,532 49,532
Cumulative translation adjustment 830 1,026
Retained earnings 150,518 149,510
--------- ---------
Total stockholders' equity 200,880 200,068
--------- ---------
Total liabilities and
stockholders' equity $ 291,378 $ 299,012
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
Page 3 of 14 <PAGE>
MIKASA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
(In thousands, except per share data)
For The Three Months
Ended March 31,
---------------------
1996 1995
---- ----
Net sales $ 69,220 $ 69,819
Cost of sales 38,471 39,259
------- -------
Gross profit 30,749 30,560
Selling, general and administrative
expenses 28,872 24,742
------- -------
Income from operations 1,877 5,818
Interest expense (income), net 212 (247)
------- -------
Income before income taxes 1,665 6,065
Income tax provision 658 2,371
------- -------
Net income $ 1,007 $ 3,694
======= =======
Net income per share of common
stock $ 0.05 $ 0.17
======= =======
Weighted average number of shares
of common stock and common stock
equivalents outstanding 22,280 22,280
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
Page 4 of 14 <PAGE>
MIKASA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(In thousands)
For The Three Months Ended
March 31,
-----------------------
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 1,007 $ 3,694
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 1,042 819
Changes in operating assets and
liabilities (13,283) (15,234)
------- -------
Net cash used in operating
activities (11,234) (10,721)
------- -------
Cash flows from investing activities:
Capital expenditures (4,331) (588)
Decrease in notes receivable 82 1,382
------- -------
Net cash (used in) provided by
investing activities (4,249) 794
------- -------
Cash flows from financing activities:
Net borrowings (payments) of short-
term debt 235 (148)
------- -------
Net cash provided by (used in)
financing activities 235 (148)
------- -------
Effect of exchange rate changes on
cash and cash equivalents (81) 643
------- -------
Net decrease in cash, cash
equivalents and short-term
investments (15,329) (9,432)
Cash, cash equivalents and short-term
investments, beginning of period 73,726 76,885
------- -------
Cash, cash equivalents and short-term
investments, end of period $ 58,397 $ 67,453
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
Page 5 of 14 <PAGE>
MIKASA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
(In thousands)
1. Interim Financial Statements:
----------------------------
The accompanying consolidated financial statements of Mikasa,
Inc. and its wholly-owned and majority-owned subsidiaries (the
"Company") have not been audited by independent accountants,
except for the balance sheet as of December 31, 1995. In the
opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three
months ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31,
1996.
2. Income Taxes:
------------
For the three months ended March 31, 1996, income taxes have
been provided at an estimated annual rate of 39.5% of income
before taxes. For the three months ended March 31, 1995, income
taxes have been provided at an estimated annual rate of 39.1% of
income before taxes.
3. Accounts Receivable, Trade:
--------------------------
Receivables are net of allowances for uncollectible accounts
of $623 at March 31, 1996 and $614 at December 31, 1995.
4. Property and Equipment:
----------------------
Property and equipment, at cost, are net of accumulated
depreciation and amortization of $20,073 at March 31, 1996 and
$19,098 at December 31, 1995.
5. Intangible Assets:
-----------------
Intangible assets are net of accumulated amortization of
$1,956 at March 31, 1996 and $1,888 at December 31, 1995.
Page 6 of 14 <PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
Results of Operations
---------------------
The following table sets forth certain financial and
operations data for the periods indicated:
Three Months Ended
March 31,
------------------------
1996 1995
---------- ----------
Net Sales by Channel of Distribution:
Direct to consumers $ 33,622 $ 28,473
Retail accounts 29,846 36,565
International 5,752 4,781
------- -------
Total $ 69,220 $ 69,819
======= =======
Operations Data:
Stores open at beginning of period 119 100
Stores opened during period 3 1
Stores closed during period (1) -
------- -------
Stores open at end of period 121 101
======= =======
Percentage increase in comparable
store net sales 2.6% 1.6%
As Of March 31,
------------------------
1996 1995
---------- ----------
Total store gross square footage 1,123,800 946,200
Three Months Ended March 31, 1996 Compared to Three Months Ended
March 31, 1995
----------------------------------------------------------------
NET SALES. Net sales for the three months ended March 31,
1996 (the "current period") were $69.2 million, a decrease of
$0.6 million or 0.9% from net sales of $69.8 million for the three
months ended March 31, 1995 (the "prior period"). Net sales
generated from United States operations decreased to $63.4 million
in the current period from $65.0 million in the prior period, a
decrease of $1.6 million or 2.4%. Of the Company's net sales
decline in the United States, a decrease of $6.7 million or 18%
from 1995 was accounted for by the retail account channel of
distribution which was offset by an increase of $5.1 million or
18% over 1995 by the direct consumer channel of distribution. The
Page 7 of 14 <PAGE>
Company's international business contributed $5.8 million in net
sales in the current period, an increase of $1.0 million or 20.3%
over 1995 net sales of $4.8 million. Sales to retail accounts
during the first quarter were below first quarter of 1995 because
of several factors, including reduced orders from the
consolidation of certain major retail accounts and the shift of
certain sales from the first quarter to the second quarter due to
the timing of the retail calendar for 1996. The decrease in net
sales from the domestic operations resulted from a decrease in the
number of units sold partially offset by an increase in prices.
GROSS PROFIT. Gross profit for the current period was
$30.7 million, an increase of $0.2 million or 0.6% over the prior
period's gross profit of $30.5 million. Gross profit as a
percentage of net sales increased to 44.4% in the current period
from 43.8% in the prior period. The gross profit increase as a
percentage of net sales was due to the heavier weighting of more
profitable direct consumer and international business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,
general and administrative expenses in the current period were
$28.8 million, an increase of $4.1 million or 16.7% over prior
period selling, general and administrative expenses of
$24.7 million. As a percentage of net sales, such expenses
increased to 41.7% in the current period from 35.4% in the prior
period. During the current period, expenses associated with
stores opened less than one year and for certain pre-opening
expenses for stores opened during the current period and other
stores expected to open in 1996 accounted for $3.1 million of the
increase in selling, general and administrative expenses. This
follows the Company's practice to expense all costs associated
with new store openings in the period incurred. Pre-opening
expenses were $0.5 million for both the current period and prior
period.
INCOME FROM OPERATIONS. Income from operations in the
current period was $1.9 million, a decrease of $3.9 million or
67.7% from the prior period's income from operations of
$5.8 million. This represented a decrease as a percentage of net
sales to 2.7% in the current period from 8.3% in the prior period.
This decrease was the net result of the increase in selling,
general and administrative expenses as a percentage of net sales,
partially offset by the increase in gross profit as a percentage
of net sales as discussed above. Additionally, the combined
effect of higher anticipated operating expenses associated with
the Company's expanded retail store base and lower than expected
domestic sales contributed to the decline in income from
operations.
INTEREST EXPENSE, NET. Net interest expense was $0.2 million
in the current period, an increase of $0.4 million or 185.8% from
the prior period net interest income of ($0.2) million. The
increase in net interest expense was due to decreased interest
income in the current period which was primarily the result of
less cash available for investment and lower earnings yield in the
current period over the prior period.
Page 8 of 14 <PAGE>
Liquidity and Capital Resources
-------------------------------
Historically, the Company has used cash from operations and
debt financing to fund working capital requirements and capital
expenditures. On June 2, 1994, the Company obtained $23.1 million
in net proceeds from its initial public offering. Also, on
May 19, 1993, the Company obtained $60.0 million in a placement of
unsecured senior notes with a group of insurance companies and a
$50.0 million unsecured revolving credit facility provided by two
banks. The senior notes bear interest at the rate of 6.66% per
annum payable semi-annually and mature on May 19, 2003. Principal
payments of $10.0 million per year will be due annually,
commencing on May 19, 1998. The maturity date of the revolving
credit facility is May 19, 1998, subject to automatic extensions
in one year increments at the end of each commitment year, unless
either bank delivers a notice of intention not to extend the
maturity date. As of March 31, 1996, $4.4 million had been used
for letters of credit under the revolving credit facility, and
$45.6 million was unused and available.
The Company had working capital of $216.9 million at
March 31, 1996 and working capital of $219.3 million at December
31, 1995. Net cash used in operating activities was $11.2 million
and $10.7 million in the three months ended March 31, 1996 and
1995, respectively. The increase in net cash used in operating
activities in the three months ended March 31, 1996 compared to
the same period of 1995 is attributable to the decrease in net
income and other current liabilities in the current period offset
by a lower increase in trade accounts receivable and inventory.
Net cash (used in) provided by investing activities was
($4.2) million and $0.8 million in the three months ended
March 31, 1996 and 1995, respectively. The Company made capital
expenditures of $4.3 million in the three months ended March 31,
1996 (consisting primarily of new retail stores' fixtures and
leasehold improvements, distribution facilities' fixtures and
renovation of existing retail stores) and $0.6 million in the
three months ended March 31, 1995 (consisting primarily of new
retail stores' fixtures and leasehold improvements and
distribution facilities' fixtures).
Certain monetary assets and liabilities of the Company are in
foreign currencies and may be subject to foreign exchange risk.
Foreign currency exchange losses have not in the past had a
material effect on the Company's financial condition since these
assets and liabilities are not material to its consolidated
monetary assets and liabilities. As such, these items have not
been hedged by the Company.
The Company's inventory purchases in 1995 were approximately
31% from Japanese factories and approximately 32% from Germany and
Austria combined. The significant portion of the inventory
purchases in foreign currencies exposes the Company to foreign
currency fluctuations which can affect the Company's gross profit
margin. The U.S. dollar has stabilized recently in relation to
the Japanese yen and German mark from its substantial weakening
early in 1995. To hedge against these foreign currency swings,
the Company has strategies in place which are intended to minimize
Page 9 of 14 <PAGE>
the adverse impact of foreign currency on its business. These
strategies are: (i) Currency risk sharing arrangements with the
Company's Japanese suppliers; (ii) Forward exchange contract
coverage on part of its German mark related purchases;
(iii) Sourcing of products from countries other than Japan and
Germany where feasible; and (iv) Converting certain purchases from
foreign currency to U.S. dollar denominations. The currency risk
sharing arrangements minimize the impact of currency swings by the
equal sharing of currency exposures against inventory purchases
denominated in Japanese yen between the suppliers and the Company.
To further negate the impact from the earlier weakening of the
dollar, the Company implemented selected price increases on many
of its products sourced from Japan and Germany in July 1995.
Future fluctuations of the U.S. dollar in relation to foreign
currencies can impact earnings in future periods.
The Company has two primary distribution centers in the
United States, located in Secaucus, New Jersey and Long Beach,
California. While the Secaucus facility is owned, the Long Beach
facility is leased pursuant to a lease expiring in January 1998
which includes two one-year extension options. The Company also
leases additional off-site warehouse space on a short-term and
mid-term basis in separate buildings to augment each of these
primary facilities. During the third quarter of 1995, the Company
increased its off site warehouse space by utilizing another
facility of approximately 100,000 square feet near the Secaucus
facility. In March 1996, the Company announced plans to construct
a new distribution facility in South Carolina. Construction of
the 580,000 square foot facility commenced in the second quarter
of 1996 and is anticipated to be completed in the latter part of
1997. Capital commitments associated with the facility are
estimated at approximately $60 million, to be financed principally
with existing funds and cash generated from operations. The
Company is also evaluating possible alternative methods of
financing the facility. The new facility should enable the
Company to eliminate the need for offsite facilities in Long Beach
and Secaucus and accommodate substantially increased volume. The
Company believes that the use of state of the art distribution
technology in the new facility and relief from inefficiencies
resulting from overcrowding of existing facilities should provide
long term benefits. The Company anticipates certain transition
costs in the mid-term which may impact earnings at that time.
As of the close of the first quarter of 1996, domestic
Company stores increased to 121 and the number of states in which
the Company operates stores increased to 40. The Company plans to
continue to pursue expansion of its store network. Present plans
include opening between 20 and 30 stores in each of 1996 and 1997,
including the 3 stores already opened during 1996. Each store
requires a commitment of inventory, fixtures, equipment and pre-
opening store expenses. Additional capital will be required in
order to meet the inventory needs of our expanding retail store
network.
The Company currently estimates that its aggregate capital
expenditures in 1996 and 1997 will approximate up to $90 million,
including the $60 million estimated for the construction of a new
distribution facility, expansion of its retail store network
Page 10 of 14 <PAGE>
(including initial investments in inventory) and for expansion of
its international operations. In each of these cases, there can
be no assurance that the Company's capital expenditures will not
exceed this estimated amount.
Seasonality and Quarterly Fluctuations
--------------------------------------
Historically, the Company's operations have been seasonal,
with higher sales and net income occurring in the third and fourth
quarters, reflecting increased demand during the year-end holiday
selling season. Since the biggest retail selling season is the
year-end holiday season, and as more of the Company's principal
department store customers adopt electronic data interchange which
allows them to defer shipments until later in the selling season,
future sales are expected to be more heavily weighted toward the
third and fourth quarters. In addition, the Company's retail
stores experience a seasonal selling pattern similar to that of
department stores although, in the case of the Company, sales are
more heavily weighted toward the fourth quarter. As a result, as
the Company increases the number of stores, the shift of sales
volume toward the latter part of the year is expected to continue.
The Company's results of operations may also fluctuate from
quarter to quarter in the future as a result of the amount and
timing of sales contributed by, and expenses related to the
opening of, new retail stores and the integration of such stores
into the operations of the Company, as well as other factors. The
addition of a significant number of retail stores, as is antici-
pated with the Company's store expansion program, can therefore
significantly affect results of operations on a quarter-to-quarter
basis.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
Page 11 of 14 <PAGE>
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.
MIKASA, INC.
(Registrant)
Date: May 14, 1996 /s/ Raymond B. Dingman
-----------------------------
Raymond B. Dingman
President and Chief Operating
Officer
/s/ Brenda W. Flores
-----------------------------
Brenda W. Flores
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Page 12 of 14 <PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Description Page
---------------------------------------------------------------
27 Financial Data Schedule 14
Page 13 of 14 <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 58,397
<SECURITIES> 0
<RECEIVABLES> 25,962
<ALLOWANCES> 623
<INVENTORY> 156,579
<CURRENT-ASSETS> 245,945
<PP&E> 59,416
<DEPRECIATION> 20,073
<TOTAL-ASSETS> 291,378
<CURRENT-LIABILITIES> 29,034
<BONDS> 60,000
0
0
<COMMON> 22,280
<OTHER-SE> 151,348
<TOTAL-LIABILITY-AND-EQUITY> 291,378
<SALES> 69,220
<TOTAL-REVENUES> 69,220
<CGS> 38,471
<TOTAL-COSTS> 67,343
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212
<INCOME-PRETAX> 1,665
<INCOME-TAX> 658
<INCOME-CONTINUING> 1,007
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,007
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
