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 JUNE 30, 1999
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.)
One Mikasa Drive, Secaucus, New Jersey 07096
---------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(201) 867-9210
--------------
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 June 30, 1999, a total of 17,571,295 shares
of the Registrant's Common Stock, $0.01 par
value, were outstanding.
1
Exhibit Index on Page 18
<PAGE>
MIKASA, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of 3
June 30, 1999 and December 31, 1998
Consolidated Statements of Income 4
for the three months ended June 30,
1999 and 1998, and six months ended
June 30, 1999 and 1998
Consolidated Statements of Cash Flows 5
for the six months ended June 30, 1999
and 1998
Notes to Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis 9
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIKASA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
ASSETS
Cash and cash equivalents $ 24,058 $ 39,792
Accounts receivable trade, net 23,953 25,436
Inventories 153,301 156,931
Prepaid expenses and other current assets 9,908 8,008
--------- ---------
Total current assets 211,220 230,167
Property and equipment, net 126,994 129,054
Notes receivable and other assets 1,041 774
Intangible assets, net 4,602 4,747
--------- ---------
Total assets $ 343,857 $ 364,742
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 13,163 $ 11,690
Accounts payable 14,307 11,572
Other current liabilities 27,168 35,710
--------- ---------
Total current liabilities 54,638 58,972
Deferred income taxes 4,397 4,397
Notes payable 90,000 100,000
--------- ---------
Total liabilities 149,035 163,369
--------- ---------
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 17,571 and 17,950
shares at June 1999 and December 1998, respectively 49,729 49,719
Cumulative translation adjustment (583) (745)
Retained earnings 194,433 197,183
--------- ---------
243,579 246,157
Less treasury stock, 4,728 and 4,349 shares at June
1999 and December 1998, respectively, at cost (48,757) (44,784)
--------- ---------
Total stockholders' equity 194,822 201,373
--------- ---------
Total liabilities and stockholders' equity $ 343,857 $ 364,742
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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<TABLE>
MIKASA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<CAPTION>
For The Three Months Ended For The Six Months Ended
June 30, June 30,
---------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 86,819 $ 83,292 $ 167,154 $ 159,502
Cost of sales 46,294 42,779 89,684 84,657
--------- --------- --------- ---------
Gross profit 40,525 40,513 77,470 74,845
Selling, general and
administrative expenses 38,636 39,239 75,941 77,109
Restructuring charge 0 2,400 0 2,400
--------- --------- --------- ---------
Income (loss) from operations 1,889 (1,126) 1,529 (4,664)
Interest expense, net 1,584 1,939 3,151 2,588
--------- --------- --------- ---------
Income (loss) before income
taxes 305 (3,065) (1,622) (7,252)
Income tax provision (benefit) 122 (1,159) (634) (2,803)
--------- --------- --------- ---------
Net income (loss) $ 183 $ (1,906) $ (988) $ (4,449)
========= ========= ========= =========
Basic and diluted net income (loss)
per share of common stock $ 0.01 $ (0.10) $ (0.06) $ (0.24)
========= ========= ========= =========
Weighted average number of
shares of common stock
outstanding and diluted securities 17,655 18,393 17,735 18,453
========= ========= ========= =========
Cash dividend per share of
common stock $ 0.05 $ 0.05 $ 0.10 $ 0.10
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
4
<PAGE>
<TABLE>
MIKASA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
For The Six Months Ended
June 30,
--------------------------
1999 1998
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (988) $ (4,449)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 6,241 4,198
Changes in operating assets and liabilities (2,580) (40,525)
-------- --------
Net cash (used in) provided by operating activities 2,673 (40,776)
-------- --------
Cash flows from investing activities:
Capital expenditures (4,065) (9,808)
Decrease in notes receivable 0 199
-------- --------
Net cash used in investing activities (4,065) (9,609)
-------- --------
Cash flows from financing activities:
Long-term repayments under note
agreements (10,000) (10,000)
Net increases in short-term borrowings 1,470 5,384
Purchase of treasury stock (3,972) (2,170)
Sale of common stock from exercise of stock options 10 135
Dividends paid (1,763) (1,837)
-------- --------
Net cash used in financing activities (14,255) (8,488)
-------- --------
Effect of exchange rate changes on cash
and cash equivalents (87) (317)
-------- --------
Net decrease in cash and cash equivalents (15,734) (59,190)
Cash and cash equivalents, beginning of period 39,792 61,218
-------- --------
Cash and cash equivalents, end of period
$ 24,058 $ 2,028
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
5
<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, 1998. 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 six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
2. Income Taxes:
For the six months ended June 30, 1999, income taxes have been provided at
an estimated annual rate of 39.1% of income before taxes. For the six months
ended June 30, 1998, income taxes have been provided at an estimated annual rate
of 38.7% of income before taxes.
3. Accounts Receivable, Trade:
Receivables are net of allowances for uncollectible accounts of $792 at
June 30, 1999 and $790 at December 31, 1998.
4. Property and Equipment:
Property and equipment, at cost, are net of accumulated depreciation and
amortization of $46,086 at June 30, 1999 and $39,988 at December 31, 1998.
5. Intangible Assets:
Intangible assets are net of accumulated amortization of $2,834 at June
30, 1999 and $2,690 at December 31, 1998.
6. Declaration of Dividend:
On June 23, 1999, the Company declared a quarterly dividend of $0.05 per
share or $879 on its common stock to stockholders of record on July 6, 1999
payable on July 16, 1999.
6
<PAGE>
MIKASA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
7. Segment Information:
The Company's reportable segments are based on channels of distribution
and geographic operations. Certain of the information reported herein is
reported upon the basis of the Company's internal management reporting systems
rather than under generally accepted accounting principles. Specifically, if the
Company were to adjust its accounting to generally accepted accounting
principles, the result would be to increase cost of sales for its Retail
Accounts Group and decrease cost of sales by the identical amount for its Direct
to Consumers Group to adjust for inter-company profits (i.e. for internal
reporting and management purposes, amounts related to all inter-company
inventory profit eliminations result in a higher cost of sales to the Direct to
Consumers Group). Furthermore, since part of the mission of the Company's Direct
to Consumers Group is to liquidate slow moving or out of season products within
the Company's inventories, the allocation of related mark downs for this
activity is inherently subjective and virtually impossible to account for on the
basis of generally accepted accounting principles within segments. The Company
evaluates the performance of its operating segments based on direct operating
income or losses. Each segment reflects direct expenses related and allocable to
its employees and its operations.
7
<PAGE>
Summarized financial information concerning the Company's reportable
segments as of June 30, is shown in the following table:
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales:
Direct to Consumers $ 50,185 $ 47,826 $ 95,852 $ 91,988
Retail Accounts 28,087 27,257 56,039 52,975
-------- -------- -------- --------
Total U.S. 78,272 75,083 151,891 144,963
International 8,547 8,209 15,263 14,539
-------- -------- -------- --------
Consolidated $ 86,819 $ 83,292 $167,154 $159,502
======== ========= ======== ========
Direct operating income:
Direct to Consumers $ 3,375 $ 2,221 $ 6,006 $ 3,637
Retail Accounts 4,681 4,004 8,465 6,508
-------- -------- -------- --------
Total U.S. 8,056 6,225 14,471 10,145
International 968 1,402 1,319 2,077
-------- -------- -------- --------
Consolidated 9,024 7,627 15,790 12,222
U.S. corporate overhead
expenses 7,135 6,353 14,261 14,486
Restructuring charge -0- 2,400 -0- 2,400
-------- -------- -------- --------
Income (loss) from operations 1,889 (1,126) 1,529 (4,664)
Interest expense, net 1,584 1,939 3,151 2,588
-------- -------- -------- --------
Income before income taxes $ 305 $ (3,065) $ (1,622) $ (7,252)
======== ========= ======== ========
</TABLE>
8
<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
June 30,
----------------------------
1999 1998
------------ ------------
(In thousands, except operations data)
Net Sales by Channel of Distribution:
Direct to consumers $50,185 $47,826
Retail accounts 28,087 27,257
International 8,547 8,209
------- -------
Total $86,819 $83,292
======= =======
Operations Data:
Stores open at beginning of period 159 150
U. S. stores opened during period 3 -
Canadian store opened during period 1 1
Stores closed during period (3) (1)
------- -------
Stores open at end of period (1) 160 150
======= =======
Percentage decrease in comparable store net
sales (0.2%) (1.2%)
(1) Stores in Canada open at end of period were 6
in 1999 and 4 in 1998
As Of June 30,
----------------------------
1999 1998
------------ ------------
Total U. S. store gross square footage 1,495,600 1,437,300
- -----------
9
<PAGE>
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net Sales. Net sales for the three months ended June 30, 1999 (the
"current period") were $86.8 million, an increase of $3.5 million or 4.2% over
net sales of $83.3 million for the three months ended June 30, 1998 (the "prior
period"). This increase in net sales in the current period was attributable to a
combination of factors. First, the Company's retail accounts channel of
distribution provided an increase of $0.8 million over the prior period. Second,
the Company's direct to consumers channel of distribution, where sales are
generally consummated at higher price levels than in the retail accounts
channel, provided an increase of $2.4 million of sales over the prior period.
The Company opened four new retail stores during the current period. Sales from
new retail stores open less than twelve months accounted for $2.6 million of the
increase. This sales increase was partially offset by the sales foregone from
stores closed in the last twelve months. Increase in sales through the
international channel of distribution was $0.3 million. The increase in net
sales was primarily attributable to an increase in number of units sold rather
than in prices.
Gross Profit. Gross profit for the current period remained the same at
$40.5 million, compared to the prior period. Gross profit as a percentage of net
sales decreased to 46.7% in the current period from 48.6% in the prior period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, excluding the restructuring charge of $2.4 million in
the prior period were $38.6 million in the current period, a decrease of $0.6
million or a 1.5% decrease from the prior period. As a percentage of net sales,
such expenses decreased to 44.5% in the current period from 47.1% in the prior
period. During the current period, $1.9 million in expenses were added for
ongoing operating expenses of the new stores opened in the United States during
the last twelve months and certain pre-opening expenses for these stores and
other stores expected to open in 1999. It is the Company's practice to expense
all costs associated with new store openings as incurred. During the current
period, savings of $0.8 million in expenses were recognized from stores closed
in the last twelve months. Operating expenses were also offset by decreased
expenses from the Company's Secaucus, New Jersey warehouse as it completed its
distribution function transfer to the Charleston, South Carolina facility during
the current period.
Income (Loss) from Operations. Income from operations in the current
period was $1.9 million, an increase of $3.0 million from the prior period's
loss from operations of ($1.1) million. This represented an increase as a
percentage of net sales to 2.2% in the current period from (1.4%) in the prior
period.
Interest Expense, Net. Net interest expense was $1.6 million in the
current period, a decrease of $0.3 million from the prior period net interest
expense of $1.9 million. The decrease is primarily due to an offset from greater
interest income from higher available cash in the current period as a result of
less inventory purchases in the current period over the prior period.
10
<PAGE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net Sales. Net sales for the six months ended June 30, 1999 (the "current
period") were $167.2 million, an increase of $7.7 million or 4.8% over net sales
of $159.5 million for the six months ended June 30, 1998 (the "prior period").
This increase in net sales in the current period was attributable to a
combination of factors. First, the Company's retail accounts channel of
distribution provided an increase of $3.1 million over the prior period. Second,
the Company's direct to consumers channel of distribution, where sales are
generally consummated at higher price levels than in the retail accounts
channel, provided an increase of $3.9 million of sales over the prior period.
Sales from new retail stores opened for less than twelve months accounted for
$4.8 million of the retail sales growth. This sales increase was partially
offset by the sales foregone from the stores closed in the last twelve months.
Increase in sales through the international channel of distribution was $0.7
million. The increase in net sales was primarily attributable to an increase in
number of units sold rather than in prices.
Gross Profit. Gross profit for the current period was $77.4 million, an
increase of $2.6 million or 3.5% over the prior period's gross profit of $74.8
million. Gross profit as a percentage of net sales decreased to 46.4% in the
current period from 46.9% in the prior period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, excluding the restructuring charge of $2.4 million in
the prior period were $75.9 million in the current period, a decrease of $1.2
million or a 1.6% decrease from the prior period. As a percentage of net sales,
such expenses decreased to 45.4% in the current period from 48.3% in the prior
period. Expenses from retail stores opened for less than twelve months accounted
for $3.3 million of the expense increase. Included in this amount are certain
preopening expenses of $0.4 million for stores opened during the period and
other stores expected to open in 1999. This follows the Company's practice to
expense all costs associated with new store openings at the time incurred.
Operating expenses were also offset by decreased expenses from the Company's
Secaucus, New Jersey warehouse as it completed its distribution function
transfer to the Charleston, South Carolina facility in March 1999.
Income (Loss) from Operations. Income from operations in the current
period was $1.5 million, an increase of $6.2 million from the prior period's
loss from operations of ($4.7) million. This increase was primarily attributable
to gross profits from increased sales, decreased recurring selling, general and
administrative expenses and the prior period's restructuring charge of $2.4
million.
Interest Expense, Net. Net interest expense was $3.1 million in the
current period, an increase of $0.6 million from the prior period net interest
expense of $2.6 million. The increase is primarily due to recognition of
interest expense in the current period which was capitalized in the prior
period.
11
<PAGE>
Liquidity and Capital Resources
Historically, the Company has used cash from operations, an equity
offering and debt financing to fund working capital requirements and capital
expenditures. In June 1997, the Company placed $60 million in unsecured, senior
notes with a group of insurance companies at an interest rate of 7.38% per annum
payable semi-annually that mature on June 4, 2007. Principal payments of $15.0
million per year will be due annually commencing in June 2004. The Company also
has outstanding $40.0 million in unsecured senior notes with a group of
insurance companies which bear interest at the rate of 6.66% per annum payable
semi-annually that mature in May 2003. Principal payments on these notes of
$10.0 million per year are due annually in May of each year until May 2003. The
Company also has a $50.0 million unsecured revolving credit facility provided by
two banks. The maturity date of the revolving credit facility is May 19, 2001.
As of June 30, 1999, $9.1 million had been used for letters of credit under the
revolving credit facility. The balance of $40.9 million was unused and available
at June 30, 1999. The Company's senior note and revolving credit agreements
contain certain financial covenants including restrictions on cash distributions
to stockholders which could limit the Company's future ability to pay cash
dividends.
The Company had working capital of $156.6 million at June 30, 1999 and
working capital of $171.2 million at December 31, 1998. Net cash provided by
(used in) operating activities was $2.7 million and ($40.8) million in the six
months ended June 30, 1999 and 1998, respectively. The increase in net cash from
operating activities in the six months ended June 30, 1999 compared to the same
period of 1998 is primarily attributable to the decrease in net loss in the six
months ended June 30, 1999, a decrease in inventory purchases in 1999 and
increases in accounts payable and accrued expenses partially offset by a
decrease in accounts receivable.
Net cash used in investing activities was $4.1 million and $9.6 million in
the six months ended June 30, 1999 and 1998, respectively. The Company made
capital expenditures of $4.1 million and $9.8 million in the six months ended
June 30, 1999 and 1998, respectively.
Pursuant to the Company's previously announced common stock repurchase
program of up to $20 million of common stock, the Company has purchased 806,900
shares to date at a total cost of $9.1 million.
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 1998 were approximately 23% from
Japanese factories and approximately 24% from factories in Germany and Austria
combined. The significant portion of the inventory purchases in foreign currency
exposes the Company to foreign currency fluctuations which can affect the
Company's gross profit margin. To hedge against foreign currency swings, the
12
<PAGE>
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 in 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 Charleston, South Carolina and Long Beach, California. While the
Charleston facility is owned, the Long Beach facility is leased. The Company
also leases additional off-site warehouse space in separate buildings to augment
the Long Beach facility. The Company has its corporate office facility in
Secaucus, New Jersey which is Company owned. After transfer of the Secaucus
facility's warehouse function to the Company's Charleston distribution facility,
the warehouse portion of the facility was leased to an unrelated third party in
April 1999. The lease term is for 9 years and will provide annually in excess of
$1 million in after-tax income. The Company's 580,000 square foot distribution
facility in Charleston, South Carolina became fully operational during the
latter part of 1998. The Company incurred certain transition costs in 1998 and
1997 that impacted earnings, a portion of which may continue to impact future
operating results in the short-term. The Company began depreciating this
facility in 1998.
During the second quarter of 1999, the Company opened one retail store in
Canada and three retail stores in the United States and closed three retail
stores in the United States to end the quarter with 160 stores. One of the store
closings was due to the Oklahoma tornado in May 1999. The number of states in
which the Company operates stores is 41 and the number of Canadian provinces is
3. The Company plans to continue to pursue expansion of its store network in the
United States and Canada. Present plans include opening up to 10 retail stores
in each of 1999 and 2000. Each store requires a commitment of inventory,
fixtures, equipment and pre-opening store expenses.
The Company currently estimates that its aggregate capital expenditures in
1999 and 2000 will approximate up to $20 million. This includes the expansion of
the retail store network, expansion of its international operations and the
balance of capital expenditures for the new distribution facility in Charleston,
South Carolina. 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 June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. This Statement establishes
accounting and reporting standards for derivatives and hedging activities. In
accordance with this Statement, all derivatives must be recognized as assets or
liabilities and measured at fair value. This Statement will be effective for the
Company's fiscal year 2000. The Company is currently evaluating the requirements
of SFAS No. 133.
13
<PAGE>
Year 2000 Compliance
Like most companies, the Company is affected by Year 2000 issues. The
Company has developed a program to evaluate and respond to these issues. This
program has been designed to minimize risk to the Company's business and its
customers using a standard five phase approach. The five phases include
assessment, planning, remediation, testing and validation.
The Company has completed its assessment of internal systems and has
concluded that its hardware and software are Year 2000 compliant. The Company
has concluded that it will not be necessary to replace its retail point of sale
hardware. As customers convert to new Year 2000 compliant EDI versions, the
Company will convert them to its new EDI software.
The Company has expensed approximately $240,000 in costs related to Year
2000 compliance including the cost of upgrading internally generated software.
Based on information available at this time, management believes that the
remaining costs to implement the program will not be material.
Communication with respect to Year 2000 issues with the Company's
customers and suppliers is ongoing. While not expected, the Company may
experience delays in receipt of product which could adversely affect sales and
earnings. The Company cannot currently estimate to what extent future operating
results might be adversely affected by the possible failure of these third
parties to successfully address their Year 2000 issues. However, the Company's
program includes actions designed to identify and minimize, where possible, any
third party exposures.
The costs to implement the program are based on management's estimates,
which were derived utilizing numerous assumptions related to future events.
There can be no guarantee that additional costs will not be incurred, or that
the objective of the program, will be achieved. However, the Company continues
to monitor activities related to the program designed to insure Year 2000
readiness. Contingency plans have been internally developed with respect to
alternative sources of supply if a given supplier develops an inability to
deliver. The need for additional plans is being reviewed during 1999.
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 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.
14
<PAGE>
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
continues, 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. The increase in operating expenses is expected
to be principally due to an increased percentage of fixed expenses that relate
to retail stores and the additional incremental expense from new developing
stores.
Forward-Looking Information
We believe that certain statements or assumptions contained in
Management's Discussion and Analysis constitute "forward-looking" information
(as defined in the Private Securities Litigation and Reform Act of 1995). These
forward-looking statements involve risks, uncertainties and other factors that
may cause our actual results, performance or achievements to vary materially
from our predicted results, performance or achievements. Our factors include,
among others, the impact on future sales and profitability of the effort in
bringing the Company's new distribution facility on line, foreign exchange and
foreign purchasing risks, planned expansion of the Company's retail store
network, capital expenditure levels associated with planned projects, year 2000
compliance issues, future trends relating to seasonality, competition from the
expansion of retail store networks by our competitors, increased governmental
quotas, tariffs or other restrictions on products the Company imports, and
various other factors referenced in this Quarterly Report on Form 10-Q. We will
not update the forward-looking information to reflect actual results or changes
in factors affecting the forward-looking information. The forward-looking
information referred to above includes, but is not limited to: (a) expectations
regarding the Company's financial condition and liquidity, as well as future
cash flows; (b) expectations regarding capital expenditures; and (c)
expectations regarding sales growth, gross margins, and selling, general and
administrative expenses. In addition to the risks, uncertainties and other
factors referred to above which may cause the actual results, performance or
achievements to vary from predicted results, these estimated amounts are based
on various factors and were derived using numerous important assumptions,
including: 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 unanticipated year 2000 problems will impact the Company's operations;
future performance of the Company's new distribution facility and successful
completion of programs to improve efficiency of the new facility; 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; and general economic risks and uncertainties.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on May 26, 1999, the
following members were re-elected to the Board of Directors:
Raymond B. Dingman
Norman R. Higo
Michael Lax
The following proposal was approved at the Company's Annual Meeting:
Votes Against or
For Withheld Abstentions
----------- ------------ ------------
1. Re-election of three of its
directors to the Board of
Directors
Raymond B. Dingman 16,069,379 41,233
Norman R. Higo 16,069,379 41,233
Michael Lax 16,069,379 41,233
There were no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
16
<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: August 16, 1999 /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)
17
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Page
- --------------------------------------------------------------------------------
27 Financial Data Schedule 19
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 24,058
<SECURITIES> 0
<RECEIVABLES> 24,745
<ALLOWANCES> 792
<INVENTORY> 153,301
<CURRENT-ASSETS> 211,220
<PP&E> 173,080
<DEPRECIATION> 46,086
<TOTAL-ASSETS> 343,857
<CURRENT-LIABILITIES> 54,639
<BONDS> 90,000
0
0
<COMMON> 17,571
<OTHER-SE> 145,093
<TOTAL-LIABILITY-AND-EQUITY> 343,857
<SALES> 167,154
<TOTAL-REVENUES> 167,154
<CGS> 89,684
<TOTAL-COSTS> 165,625
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,151
<INCOME-PRETAX> (1,622)
<INCOME-TAX> (634)
<INCOME-CONTINUING> (988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (988)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
