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, 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 1-13066
MIKASA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0099676
-------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of 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, 1997, a total of 18,359,195 shares of the Registrant's
Common Stock, $0.01 par value, were outstanding.
Manually Signed Original
Exhibit Index on 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, 1997 and December 31, 1996
Consolidated Statements of Income 4
for the three months ended March 31, 1997
and 1996
Consolidated Statements of Cash Flows
for the three months ended
March 31, 1997 and 1996 5
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,
1997 1996
------------- -----------
(Unaudited)
ASSETS
Cash and cash equivalents $ 14,397 $ 42,287
Accounts receivable trade, net 24,140 24,016
Inventories 133,050 132,206
Prepaid expenses and other current assets 6,675 7,613
---------- ---------
Total current assets 178,262 206,122
Property and equipment, net 84,885 71,893
Notes receivable and other assets 1,049 1,086
Intangible assets, net 4,818 4,880
---------- ---------
Total assets $269,014 $283,981
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 1,354 $ 1,797
Accounts payable 12,037 18,620
Other current liabilities 16,531 23,320
---------- ---------
Total current liabilities 29,922 43,737
Deferred income taxes 1,672 1,672
Notes payable 60,000 60,000
---------- ---------
Total liabilities 91,594 105,409
---------- ---------
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 18,359 shares 49,532 49,532
Cumulative translation adjustment (353) 185
Retained earnings 167,946 168,560
---------- ---------
217,125 218,277
Less treasury stock, 3,921 shares, at cost 39,705 39,705
---------- ---------
Total stockholders' equity 177,420 178,572
---------- ---------
Total liabilities and stockholders' equity $269,014 $283,981
---------- ---------
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,
--------------------------
1997 1996
---------- -----------
Net sales $ 73,108 $ 69,220
Cost of sales 40,336 38,471
---------- ---------
Gross profit 32,772 30,749
Selling, general and
administrative expenses 32,061 28,872
---------- ---------
Income from operations 711 1,877
Interest expense, net 216 212
---------- ---------
Income before income taxes 495 1,665
Income tax provision 191 658
---------- ---------
Net income $ 304 $ 1,007
---------- ---------
Net income per share of
common stock $ 0.02 $ 0.05
---------- ---------
Weighted average number of
shares of common stock and
common stock equivalents
outstanding 18,359 22,280
---------- ---------
Cash dividend per share $ 0.05 $ 0.00
---------- ---------
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,
---------------------------
1997 1996
----------- ----------
Cash flows from operating activities:
Net income $ 304 $ 1,007
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 1,397 1,042
Changes in operating assets and liabilities (14,639) (13,283)
---------- ---------
Net cash used in operating activities (12,938) (11,234)
---------- ---------
Cash flows from investing activities:
Capital expenditures (14,477) (4,331)
Decrease in notes receivable 92 82
---------- ---------
Net cash used in investing activities (14,385) (4,249)
---------- ---------
Cash flows from financing activities:
Net (payments) borrowings of
short-term debt (452) 235
---------- ---------
Net cash (used in) provided by financing
activities (452) 235
---------- ---------
Effect of exchange rate changes on cash
and cash equivalents (115) (81)
---------- ---------
Net decrease in cash, cash equivalents
and short-term investments (27,890) (15,329)
Cash, cash equivalents and short-term
investments, beginning of period 42,287 73,726
---------- ---------
Cash, cash equivalents and short-term
investments, end of period $ 14,397 $ 58,397
---------- ---------
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, 1996. 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, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
2. Income Taxes:
For the three months ended March 31, 1997, income taxes have been provided
at an estimated annual rate of 38.6% of income before 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.
3. Accounts Receivable, Trade:
Receivables are net of allowances for uncollectible accounts of $484 at
March 31, 1997 and $763 at December 31, 1996.
4. Property and Equipment:
Property and equipment, at cost, are net of accumulated depreciation and
amortization of $24,940 at March 31, 1997 and 23,604 at December 31, 1996.
5. Intangible Assets:
Intangible assets are net of accumulated amortization of $2,197 at March
31, 1997 and $2,135 at December 31, 1996.
6. Declaration of Dividend:
During the quarter ended March 31, 1997, the Company declared and accrued
a quarterly dividend of $0.05 per share or $918 on its common stock to
stockholders of record on April 4, 1997 payable on April 18, 1997.
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,
----------------------------
1997 1996
-------- --------
Net Sales by Channel of Distribution:
Direct to consumers $39,062 $33,622
Retail accounts 28,981 29,846
International 5,065 5,752
-------- ---------
Total $73,108 $69,220
------- ---------
Operations Data:
Stores open at beginning of period 134 119
U.S. stores opened during period 5 3
Stores closed during period 2 1
------- ---------
Stores open at end of period (1) 137 121
------- ---------
Percentage decrease in comparable store net sales 2.9% 2.6%
As Of March 31,
----------------------------
1997 1996
-------- --------
Total U. S. store gross square footage 1,291,400 1,123,800
(1) Includes 6 stores planned for closure which were in operation at the end
of March 1997.
Three Months Ended March 31, 1997 Compared to Three Months Ended
March 31, 1996
Net Sales. Net sales for the three months ended March 31, 1997 (the
"current period") were $73.1 million, an increase of $3.9 million or 5.6% from
net sales of $69.2 million for the three months ended March 31, 1996 (the "prior
period"). This increase in net sales was attributable to a combination of
factors. The Company's direct consumer channel of distribution provided an
increase of $5.4 million of sales over the prior period, where sales are
generally consummated at higher price levels than in the retail account channel.
This increase in net sales was primarily attributable to an increase in number
of units sold rather than prices. The Company opened 16 new domestic retail
stores during 1996, which accounted for $4.0 million of the retail sales growth.
These increases were partially offset by a $0.8 million decrease of sales
through the retail account channel of distribution and a $0.7 million decrease
of sales through the international business.
Page 7 of 14
<PAGE>
Gross Profit. Gross profit for the current period was $32.8 million, an
increase of $2.0 million or 6.6% over the prior period's gross profit of $30.7
million. Gross profit as a percentage of net sales increased to 44.8% in the
current period from 44.4% in the prior period. The gross profit increase as a
percentage of net sales was primarily due to improved margins in the current
period from the retail account and international business over the prior period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in the current period were $32.1 million, an increase of
$3.2 million or 11.0% over the prior period selling, general and administrative
expenses of $28.9 million. As a percentage of net sales, such expenses increased
to 43.9% in the current period from 41.7% in the prior period. During the
current period, $1.2 million in expenses were added for ongoing operating
expenses of the five new domestic stores opened in the United States during the
current period and certain preopening expenses for those stores and other stores
expected to open in 1997. This follows the Company's practice to expense all
costs associated with new store openings at the time incurred. In addition, the
first quarter of operations in 1997 for the 16 domestic retail stores opened
during the 12 months ended December 31, 1996, added $2.7 million in expenses in
the current period compared to the prior period, when some of the stores were
only in operation for varying portions of the quarter, or not yet opened.
Income from Operations. Income from operations in the current period was
$0.7 million, a decrease of $1.2 million from the prior period's income from
operations of $1.9 million. This represented a decrease as a percentage of net
sales to 1.0% in the current period from 2.7% in the prior period. This decrease
was primarily attributable to 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. Additionally, the
combined effect of higher anticipated operating expenses associated with the
Company's expanded retail store base and anticipated lower sales in the first
quarter contributed to the decline in income from operations. Sales are expected
to be higher toward the latter half of the year to offset these increased
expenses.
Interest Expense, Net. Net interest expense was $0.2 million in both
the current period and prior period.
Liquidity and Capital Resources
The Company has $60.0 million 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, 1999, 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, 1997, $6.5 million had been used for letters of credit
under the revolving credit facility. The balance of $43.5 million was unused and
available.
The Company had working capital of $148.3 million at March 31, 1997 and
working capital of $162.4 million at December 31, 1996. Net cash used in
Page 8 of 14
<PAGE>
operating activities was $12.9 million and $11.2 million in the three months
ended March 31, 1997 and 1996, respectively. The increase in net cash used in
operating activities in the three months ended March 31, 1997 compared to the
same period of 1996 is primarily attributable to the decrease in accounts
payable and accrued expenses.
Net cash used in investing activities was $14.4 million and $4.2 million
in the three months ended March 31, 1997 and 1996, respectively. The Company
made capital expenditures of $14.5 million in the three months ended March 31,
1997 (consisting primarily of the construction of the new distribution center in
South Carolina, new retail stores' fixtures and leasehold improvements and
distribution facilities' fixtures) and $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 stores).
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 1996 were approximately 26% from
Japanese factories and approximately 29% from Germany and Austria combined. The
significant portion of the inventory purchases in foreign currencies exposes the
Company to foreign currency fluctuations that can affect the Company's gross
profit margin. To hedge against foreign currency swings, the Company has
strategies in place which are intended to minimize the adverse impact of foreign
currency on its business. These strategies are: (i) Currency risk sharing
arrangements with certain of the Company's suppliers; (ii) Forward exchange
contract coverage on part of its German mark related purchases; (iii) Sourcing
of products from currencies other than Japanese and German where feasible; and
(iv) Converting certain purchases from foreign currency to U.S. dollar
denominations. The currency risk sharing arrangements are intended to 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. 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 1999 which includes an extension option for one year. 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. 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. As of March 31, 1997, $36 million of the
estimated $60 million capital commitments associated with this facility had been
Page 9 of 14
<PAGE>
incurred. The Company expects to finance the balance of this capital commitment
principally with cash generated from operations or from long-term borrowings as
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 1997, Company owned stores
increased to 137, including the opening of 5 new retail stores and 2 store
closures. The number of states in which the Company operates stores remained at
41. The Company plans to continue to pursue expansion of its store network.
Present plans include opening between 20 and 25 new retail stores in 1997, of
which 5 stores have been opened through the first quarter, and between 20 and 25
stores in 1998. 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 the Company's expanding retail store
network.
The Company currently estimates that its aggregate capital expenditures in
1997 and 1998 will approximate up to $75 million. This includes the expansion of
the retail store network (including initial investments in inventory), expansion
of its international operations and the $24 million remaining of the estimated
$60 million for the construction of the new distribution facility. In each of
these cases, there can be no assurance that the Company's capital expenditures
will not exceed this estimated amount.
Future Developments
In 1997, the Company will adopt Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing Financial Assets
Extinguishments of Liabilities." Management does not believe that adoption of
this accounting standard will have a material impact on the financial statements
of the Company.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
Statement of Financial Accounting Standard No. 128 specifies the computation,
presentation, and disclosure requirements for earnings per share and is
effective for financial statements issued for periods ending after December 15,
1997. Management has not yet determined the impact that adoption of Statement of
Financial Accounting Standard No. 128 is expected to have on the financial
statements of the Company.
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
Page 10 of 14
<PAGE>
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 similar seasonal
selling pattern, however, 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
anticipated with the Company's store expansion program, can therefore
significantly affect results of operations on a quarter-to-quarter basis. As the
addition of new stores continue, operating income for the first and second
quarters will be more impacted by the combination of seasonally lower sales
volumes during this period and increased operating expenses from an increased
percentage of expenses being fixed that relate to retail stores and the
additional expense layering from new immature stores.
Forward-Looking Information
Certain statements or assumptions in Management's Discussion and Analysis
contain or are based on "forward-looking" information (as defined in the Private
Securities Litigation and Reform Act of 1995) that involves risk and
uncertainties inherent in the Company's business. Actual outcomes are dependent
upon the Company's successful performance of internal plans, its ability to
control inventory levels, customer changes in short range and long range plans,
domestic and international competition in the Company's product areas, whether
the Company will be able to accomplish store closures within the current time
table for closure and within the parameters of the loss provision (which are
based on current estimates of closure costs), successful completion of
construction within current cost estimates, continued acceptance of existing
products and the development and acceptance of new products, performance issues
with key suppliers, changes in government import and export policies, risks
related to international transactions and hedging strategies, as well as general
economic risks and uncertainties.
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
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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 15, 1997 /s/ Raymond B. Dingman
--------------------------
Raymond B. Dingman
President and Chief Executive 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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 14,397
<SECURITIES> 0
<RECEIVABLES> 24,624
<ALLOWANCES> 484
<INVENTORY> 133,050
<CURRENT-ASSETS> 178,262
<PP&E> 109,825
<DEPRECIATION> 24,940
<TOTAL-ASSETS> 269,014
<CURRENT-LIABILITIES> 29,922
<BONDS> 60,000
0
0
<COMMON> 18,359
<OTHER-SE> 127,888
<TOTAL-LIABILITY-AND-EQUITY> 269,014
<SALES> 73,108
<TOTAL-REVENUES> 73,108
<CGS> 40,336
<TOTAL-COSTS> 72,397
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216
<INCOME-PRETAX> 495
<INCOME-TAX> 191
<INCOME-CONTINUING> 304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 304
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
