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 SEPTEMBER 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 September 30, 1999, a total of 17,482,645 shares of the
Registrant's Common Stock, $0.01 par value, were outstanding.
1
Exhibit Index on Page 19
<PAGE>
MIKASA, INC.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of 3
September 30, 1999 and December 31, 1998
Consolidated Statements of Income 4
for the three months ended September 30,
1999 and 1998, and nine months ended
September 30, 1999 and 1998
Consolidated Statements of Cash Flows 5
for the nine months ended September 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 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIKASA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
September 30, December 31,
1999 1998
----------- -----------
(Unaudited)
ASSETS
Cash and cash equivalents $ 553 $ 39,792
Accounts receivable trade, net 41,605 25,436
Inventories 172,097 156,931
Prepaid expenses and other current assets 8,039 8,008
--------- ---------
Total current assets 222,294 230,167
Property and equipment, net 126,350 129,054
Notes receivable and other assets 508 774
Intangible assets, net 4,530 4,747
--------- ---------
Total assets $ 353,682 $ 364,742
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 11,575 $ 11,690
Accounts payable 19,190 11,572
Other current liabilities 30,030 35,710
--------- ---------
Total current liabilities 60,795 58,972
Deferred income taxes 4,397 4,397
Notes payable 90,000 100,000
--------- ---------
Total liabilities 155,192 163,369
--------- ---------
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 17,483 and 17,950
shares at September 1999 and December 1998, respectively 49,937 49,719
Accumulated other comprehensive loss (129) (745)
Retained earnings 198,792 197,183
--------- ---------
248,600 246,157
Less treasury stock, 4,837 and 4,349 shares at September
1999 and December 1998, respectively, at cost (50,110) (44,784)
--------- ---------
Total stockholders' equity 198,490 201,373
--------- ---------
Total liabilities and stockholders' equity $ 353,682 $ 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 Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 107,594 $ 104,053 $ 274,748 $ 263,555
Cost of sales 57,506 54,121 147,190 138,778
---------- ---------- ---------- ----------
Gross profit 50,088 49,932 127,558 124,777
Selling, general and
administrative expenses 39,769 40,117 115,710 117,226
Restructuring charge --- --- --- 2,400
---------- ---------- ---------- ----------
Income from operations 10,319 9,815 11,848 5,151
Interest expense, net 1,708 2,363 4,859 4,951
---------- ---------- ---------- ----------
Income before income taxes 8,611 7,452 6,989 200
Income tax provision 3,378 2,881 2,744 78
---------- ---------- ---------- ----------
Net income 5,233 4,571 4,245 122
========== ========== ========== ==========
Basic and diluted net income
per share of common stock 0.30 0.25 0.24 0.01
========== ========== ========== ==========
Weighted average number of
shares of common stock
outstanding and diluted shares of
common stock 17,659 18,264 17,713 18,296
========== ========== ========== ==========
Cash dividends per share of
common stock 0.05 0.05 0.15 0.15
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
4
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<TABLE>
MIKASA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
For The Nine Months Ended
September 30,
--------------------------
1999 1998
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,245 $ 122
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 9,366 7,064
Changes in operating assets and liabilities (28,848) (61,801)
-------- --------
Net cash used in operating activities (15,237) (54,615)
-------- --------
Cash flows from investing activities:
Capital expenditures (6,291) (14,403)
Decrease in notes receivable --- 199
-------- --------
Net cash used in investing activities (6,291) (14,204)
-------- --------
Cash flows from financing activities:
Long-term repayments under note
agreements (10,000) (10,000)
Net increases (decreases) in short-term borrowings (119) 24,631
Purchase of treasury stock (5,325) (2,902)
Sale of common stock from exercise of stock options 218 135
Dividends paid (2,637) (2,749)
-------- --------
Net cash (used) provided by financing activities (17,863) 9,115
-------- --------
Effect of exchange rate changes on cash
and cash equivalents 152 (585)
-------- --------
Net decrease in cash and cash equivalents (39,239) (60,289)
Cash and cash equivalents, beginning of period 39,792 61,218
-------- --------
Cash and cash equivalents, end of period $ 553 $ 929
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
5
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MIKASA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
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 nine months ended September 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 nine months ended September 30, 1999, income taxes have been
provided at an estimated annual rate of 39.3% of income before taxes. For the
nine months ended September 30, 1998, income taxes have been provided at an
estimated annual rate of 39.0% of income before taxes.
3. Accounts Receivable, Trade:
Receivables are net of allowances for uncollectible accounts of $774 at
September 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 $49,138 at September 30, 1999 and $39,988 at December 31, 1998.
5. Intangible Assets:
Intangible assets are net of accumulated amortization of $2,907 at
September 30, 1999 and $2,690 at December 31, 1998.
6. Declaration of Dividend:
On September 27, 1999, the Company declared a quarterly dividend of $0.05
per share or $874 on its common stock to stockholders of record on October
8, 1999, payable on October 19, 1999.
6
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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.
Summarized financial information concerning the Company's reportable
segments as of September 30 is shown in the following table:
7
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<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended Ended
September 30, September 30,
------------------------ -------------------------
1999 1998 1999 1998
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net sales:
Direct to Consumers $ 55,513 $ 52,763 $ 151,365 $ 144,751
Retail Accounts 42,211 42,966 98,250 95,941
-------- --------- --------- ----------
Total U.S. 97,724 95,729 249,615 240,692
International 9,870 8,324 25,133 22,863
-------- --------- --------- ----------
Consolidated $107,594 $ 104,053 $ 274,748 $263,555
======== ========= ========= ==========
Direct operating income:
Direct to Consumers $ 6,644 $ 5,370 $ 12,650 $ 9,007
Retail Accounts 9,675 10,008 18,140 16,516
-------- --------- --------- ----------
Total U.S. 16,319 15,378 30,790 25,523
International 791 931 2,110 3,008
-------- --------- --------- ----------
Consolidated 17,110 16,309 32,900 28,531
U.S. corporate overhead
expenses 6,791 6,494 21,052 20,980
Restructuring charge -0- -0- -0- 2,400
-------- --------- --------- ----------
Income (loss) from operations 10,319 9,815 11,848 5,151
Interest expense, net 1,708 2,363 4,859 4,951
-------- --------- --------- ----------
Income before income taxes $ 8,611 $ 7,452 $ 6,989 $ 200
======== ========= ========= ==========
</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
September 30,
--------------------------
1999 1998
----------- ----------
Net Sales by Channel of Distribution:
Direct to consumers $ 55,513 $ 52,763
Retail accounts 42,211 42,966
International 9,870 8,324
---------- ----------
Total $ 107,594 $ 104,053
========== ==========
Operations Data:
Stores open at beginning of period 160 150
U. S. stores opened during period 1 1
Canadian store opened during period 0 1
Store closed during period (1) (1)
---------- ----------
Stores open at end of period (1) 160 151
========== ==========
Percentage increase in comparable store
net sales 0.1% 1.1%
Stores in Canada open at end of period were 6
in 1999 and 4 in 1998
As Of September 30,
--------------------------
1999 1998
------------ ------------
Total U. S. store gross square footage 1,498,700 1,440,600
- -------------
Three Months Ended September 30, 1999 Compared to Three Months
Ended September 30, 1998
Net Sales. Net sales for the three months ended September 30, 1999 (the
"current period") were $107.6 million, an increase of $3.5 million or 3.4% from
net sales of $104.1 million for the three months ended September 30, 1998 (the
"prior period"). Sales through direct to consumers channel of distribution
increased $2.8 million. Sales from new retail stores opened for less than twelve
months accounted for $3.5 million of the direct to consumers sales growth. This
sales increase was partially offset by sales foregone from stores closed in the
last twelve months. Sales through the retail account channel of distribution
decreased $0.8 million and sales through the international channel of
distribution increased $1.5 million. The increase in net sales was primarily
attributable to an increase in number of units sold rather than prices.
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Gross Profit. Gross profit for the current period was $50.1 million, an
increase of $0.2 million or 0.3% over the prior period's gross profit of $49.9
million. Gross profit as a percentage of net sales decreased to 46.6% in the
current period from 48.0% in the prior period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in the current period were $39.8 million, a decrease of
$0.3 million or 0.9% compared to the prior period of $40.1 million. As a
percentage of net sales, such expenses decreased to 37.0% in the current period
from 38.6% in the prior period. During the current period, $1.8 million in
expenses were added for ongoing operating expenses of new retail 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 at
the time incurred. During the current period, the Company's overall expenses
were a decrease from the prior period by expense reductions from various
operating units, which offset new stores' expenses. Among these expense
reductions, one was savings of $1.1 million from stores closed in the last
twelve months. Another is from 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 from Operations. Income from operations in the current period was
$10.3 million, an increase of $0.5 million or 5.1% from the prior period's
income from operations of $9.8 million. This represented an increase as a
percentage of net sales to 9.6% in the current period from 9.4% in the prior
period.
Interest Expense, Net. Net interest expense was $1.7 million in the
current period, a decrease of $0.7 million from the prior period of $2.4
million. The decrease is primarily due to an offset from greater interest income
related to higher available cash and zero interest expense related to short-term
borrowings in the current period as a result of reduced inventory levels in the
current period over the prior period.
Nine Months Ended September 30, 1999 Compared to Nine Months
Ended September 30, 1998
Net Sales. Net sales for the nine months ended September 30, 1999 (the
"current period") were $274.7 million, an increase of $11.2 million or 4.2% over
net sales of $263.5 million for the nine months ended September 30, 1998 (the
"prior period"). Sales through direct to consumers channel of distribution
increased $6.6 million. Sales from new retail stores opened for less than twelve
months accounted for $8.2 million of the direct to consumers sales growth. This
sales increase was partially offset by sales foregone from stores closed in the
last twelve months. Sales through the retail account channel of distribution
increased $2.3 million and sales through the international channel of
distribution increased $2.3 million. The increase in net sales was primarily
attributable to an increase in number of units sold rather than prices.
Gross Profit. Gross profit for the current period was $127.6 million, an
increase of $2.8 million or 2.2% over the prior period's gross profit of $124.8
million. Gross profit as a percentage of net sales decreased to 46.4% in the
current period from 47.3% in the prior period.
10
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, were $115.7 million in the current period, a decrease
of $1.5 million or (1.3%) over the prior period expenses of $117.2 million,
excluding the prior period's restructuring charge. As a percentage of net sales,
such expenses decreased to 42.1% in the current period from 44.5% in the prior
period. During the current period, $5.2 million in expenses were added for
ongoing operating expenses of new retail 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 at the time incurred.
During the current period, the Company's overall expenses were a decrease from
the prior period by expense reductions from various operating units, which
offset new stores' expenses. Among these expense reductions, one was savings of
$3.0 million from stores closed in the last twelve months. Another is from
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 from Operations. Income from operations in the current period was
$11.8 million, an increase of $6.7 million or 130.0% from the prior period's
income from operations of $5.1 million. This represented an increase as a
percentage of net sales to 4.3% in the current period from 2.0% in the prior
period. 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 $4.8 million in the
current period, a decrease of $0.1 million from the prior period's net interest
expense of $4.9 million. The decrease is primarily due to an offset from greater
interest income related to higher available cash and zero interest expense
related to short-term borrowings in the current period as a result of reduced
inventory levels in the current period over the prior period.
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 September 30, 1999, $5.9 million had been used for letters of credit under
the revolving credit facility. The balance of $44.1 million was unused and
available at September 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.
11
<PAGE>
The Company had working capital of $161.5 million at September 30, 1999
and working capital of $171.2 million at December 31, 1998. Net cash used in
operating activities was $15.2 million and $54.6 million for the nine months
ended September 30, 1999 and 1998, respectively. The decrease in net cash used
in operating activities in the nine months ended September 30, 1999 compared to
the same period of 1998 is primarily attributable to increased net income in the
nine months ended September 30, 1999, a decrease in inventory purchases in 1999
and increase in accounts payable partially offset by an increase in accounts
receivable.
Net cash used in investing activities was $6.3 million and $14.2 million
in the nine months ended September 30, 1999 and 1998, respectively,
substantially related to capital expenditures.
Net cash (used in) provided by financing activities was ($17.9) million
and $9.1 million in the nine months ended September 30, 1999 and 1998,
respectively. The Company had no short-term borrowings at September 30, 1999
compared to short-term borrowings of $24.6 million at September 30, 1998.
Pursuant to the Company's previously announced common stock repurchase program
of up to $20 million of common stock, the Company has purchased 915,600 shares
to date at a total cost of $10.4 million.
12
<PAGE>
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
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 1999 and
1998 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 third quarter of 1999, the Company opened one retail store and
closed one retail store in the United States to end the quarter with 160 stores.
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
approximately 10 retail stores in each of 1999 and 2000, including stores
already opened in 1999. Each store requires a commitment of inventory, fixtures,
equipment and pre-opening store expenses.
13
<PAGE>
The Company currently estimates that its aggregate capital expenditures in
1999 and 2000 will approximate up to $20 million. This includes the expansion
and support of the retail store network, expansion of its international
operations and capital expenditures for the Company's distribution and office
facilities, including system and technology enhancements. 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, amended by SFAS 137. 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 2001. The Company is currently
evaluating the requirements of SFAS No. 133.
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 assure 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 the balance of
1999.
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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, although the Company's retail stores experience a similar
seasonal selling pattern, 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
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 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
15
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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; the ability to establish a successful e-commerce function; and
general economic risks and uncertainties.
16
<PAGE>
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.
17
<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: November 15, 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)
18
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
27 Financial Data Schedule 20
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 553
<SECURITIES> 0
<RECEIVABLES> 42,379
<ALLOWANCES> 774
<INVENTORY> 172,097
<CURRENT-ASSETS> 222,294
<PP&E> 175,488
<DEPRECIATION> 49,138
<TOTAL-ASSETS> 353,682
<CURRENT-LIABILITIES> 60,795
<BONDS> 90,000
0
0
<COMMON> 17,466
<OTHER-SE> 148,553
<TOTAL-LIABILITY-AND-EQUITY> 353,682
<SALES> 274,748
<TOTAL-REVENUES> 274,748
<CGS> 147,190
<TOTAL-COSTS> 262,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,859
<INCOME-PRETAX> 6,989
<INCOME-TAX> 2,744
<INCOME-CONTINUING> 4,245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,245
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
</TABLE>
