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FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 2002
Commission file number 1-19254
Lifetime Hoan Corporation
(Exact name of registrant as specified in its charter)
Delaware 11-2682486
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
One Merrick Avenue, 11590
Westbury, NY (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code (516)683-6000
Not applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter 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
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Common Stock, $.01 Par Value 10,498,940 shares
outstanding as of July 31, 2002
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, December
2002 31,
(unaudited) 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 266 $ 5,021
Accounts receivable, less allowances of
$2,827 in 2002 and $3,649 in 2001 15,515 20,742
Merchandise inventories 48,710 42,303
Prepaid expenses 2,777 2,084
Deferred income taxes 49 148
Other current assets 4,229 3,702
TOTAL CURRENT ASSETS 71,546 74,000
PROPERTY AND EQUIPMENT, net 21,894 22,376
EXCESS OF COST OVER NET ASSETS ACQUIRED, net 15,498 15,498
OTHER INTANGIBLES, net 9,195 9,390
OTHER ASSETS 2,045 2,106
TOTAL ASSETS $120,178 $123,370
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $22,094 $22,847
Accounts payable and trade acceptances 7,162 4,955
Accrued expenses 14,385 17,123
TOTAL CURRENT LIABILITIES 43,641 44,925
MINORITY INTEREST 240 384
STOCKHOLDERS' EQUITY
Common Stock, $0.01 par value, authorized
25,000,000 shares; issued and outstanding
10,497,690 in 2002 and 10,491,101 in 2001 105 105
Paid-in capital 61,119 61,087
Retained earnings 15,541 17,660
Notes receivable for shares issued to
stockholders (486) (486)
Accumulated other comprehensive profit(loss) 18 (305)
TOTAL STOCKHOLDERS' EQUITY 76,297 78,061
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $120,178 $123,370
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
2002 2001 2002 2001
Net Sales $29,400 $27,571 $55,798 $58,878
Cost of Sales 15,666 15,213 30,060 32,580
Gross Profit 13,734 12,358 25,738 26,298
Selling, General and
Administrative Expenses 12,935 11,731 26,714 24,423
Interest Expense 281 344 567 548
Other (Income) (233) (148) (374) (234)
Income (Loss) Before Income Taxes 751 431 (1,169) 1,561
Income Taxes 361 227 (362) 718
NET INCOME (LOSS) $390 $204 $(807) $843
EARNINGS PER COMMON SHARE-
BASIC AND DILUTED $0.04 $0.02 $(0.08) $0.08
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
2002 2001
OPERATING ACTIVITIES
Net (loss) income $ (807) $ 843
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 1,766 1,714
Deferred tax (benefit) 99 425
Provision for losses on accounts receivable 11 222
Reserve for sales returns and allowances 3,075 2,734
Minority Interest (145) (186)
Changes in operating assets and liabilities:
Accounts receivable 2,141 2,807
Merchandise inventories (6,407) (7,159)
Prepaid expenses, other current assets
and other assets (1,159) (578)
Accounts payable, trade acceptances
and accrued expenses (530) (2,843)
NET CASH (USED IN) OPERATING ACTIVITIES (1,956) (2,021)
INVESTING ACTIVITIES
Purchase of property and equipment, net (1,089) (7,924)
Acquisition of M. Kamenstein, Inc. - (164)
NET CASH (USED IN) INVESTING ACTIVITIES (1,089) (8,088)
FINANCING ACTIVITIES
(Repayment) Proceeds from short-term
borrowings, net (753) 10,254
Repurchase of Common stock - (88)
Proceeds from the exercise of stock options 31 13
Cash dividends paid (1,312) (1,304)
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (2,034) 8,875
EFFECT OF EXCHANGE RATE ON CASH AND CASH
EQUIVALENTS 324 (75)
(DECREASE) IN CASH AND CASH EQUIVALENTS (4,755) (1,309)
Cash and cash equivalents at beginning of
period 5,021 1,325
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 266 $ 16
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six
month period ended June 30, 2002 are not necessarily indicative
of the results that may be expected for the year ending December
31, 2002. It is suggested that these condensed financial
statements be read in conjunction with the financial statements
and footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001.
Note B - Inventories
Merchandise inventories, principally finished goods, are priced
at the lower of cost (first-in, first-out basis) or market.
Note C - Credit Facilities
As of June 30, 2002, the Company had $1,328,000 of letters of
credit and trade acceptances outstanding and $18,900,000 of
borrowings under its $45 million three-year secured, reducing
revolving credit agreement (the "Agreement"), and as a result,
the availability under the Agreement was $24,772,000. Interest
rates on borrowings at June 30, 2002 ranged from 3.94% to 4.13%.
In addition to the Agreement, the Prestige Companies (the
Company's 51% controlled European subsidiaries) have three lines
of credit with three separate banks providing available credit
facilities totaling approximately $3.4 million. As of June 30,
2002, the Prestige Companies had borrowings of approximately $3.2
million against these lines. Interest rates on these lines of
credits ranged from 5.85% to 8.25%.
Note D - Capital Stock
Cash Dividends: On May 2, 2002, the Board of Directors declared
a quarterly cash dividend of $0.0625 per share to stockholders of
record on May 6, 2002, paid on May 20, 2002. On July 31, 2002,
the Board of Directors of the Company declared a regular
quarterly cash dividend of $0.0625 per share to stockholders of
record on August 5, 2002, to be paid on August 19, 2002.
Earnings Per Share: Basic earnings per share has been computed
by dividing net income by the weighted average number of common
shares outstanding of 10,498,000 for the three months ended June
30, 2002 and 10,488,000 for the three months ended June 30, 2001.
For the six month periods ended June 30, 2002 and June 30, 2001,
the weighted average number of common shares outstanding were
10,495,000 and 10,492,000, respectively. Diluted earnings per
share has been computed by dividing net income by the weighted
average number of common shares outstanding, including the
dilutive effects of stock options, of 10,574,000 for the three
months ended June 30, 2002 and 10,534,000 for the three months
ended June 30, 2001. For the six month periods ended June 30,
2002 and June 30, 2001, the diluted number of common shares
outstanding were 10,495,000 and 10,547,000, respectively.
Note E - New Accounting Pronouncements
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the
purchase method. Under SFAS No. 142, goodwill and intangible
assets with indefinite lives are no longer amortized but are
reviewed at least annually for impairment. Had this standard
been applied for the three months ended June 30, 2001, net income
would have been increased by $82,000 and basic and diluted
earnings per share would have been $0.03 and for the six months
ended June 30, 2001, net income would have been increased by
$164,000 and basic and diluted earnings per share would have been
$0.10.
Effective January 1, 2002, the Company adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets
("SFAS No. 144"), which supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of." The primary objectives of SFAS No. 144 are to
develop one accounting model based on the framework established
in SFAS No. 121 for long-lived assets to be disposed of by sale,
and to address significant implementation issues. The adoption of
this statement did not have an impact on the Company's
consolidated results of operations or financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth income statement data of the
Company as a percentage of net sales for the periods indicated
below.
Three Months Six Months
Ended Ended
June 30, June 30,
2002 2001 2002 2001
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 53.3 55.2 53.9 55.3
Gross profit 46.7 44.8 46.1 44.7
Selling, general and
administrative expenses 44.0 42.5 47.9 41.5
Interest expense 1.0 1.3 1.0 0.9
Other (income) (0.8) (0.5) (0.7) (0.3)
Income before income taxes 2.5 1.5 (2.1) 2.6
Tax provision 1.2 0.8 (0.7) 1.2
Net income (loss) 1.3 % 0.7 % (1.4) % 1.4 %
Three Months Ended June 30, 2002
Compared to Three Months ended June 30, 2001
Net Sales
Net sales for the three months ended June 30, 2002 were $29.4
million, an increase of $1.8 million or 6.6% over the net sales
in the prior year's corresponding period. These results reflect
increases in the Company's cutlery and kitchen gadget product
lines, as well as increased net sales attributable to the
Company's Farberware Outlet stores and the Prestige Companies,
offset by a decrease in net sales of Kamenstein products.
Gross Profit
Gross profit for the three months ended June 30, 2002 was $13.7
million, an increase of 11.1% from the comparable 2001 period.
Gross profit as a percentage of net sales increased to 46.7% from
44.8%. The gross margin improvement reflects generally higher
profit margins attributable to all domestic product categories
and the Company's Farberware Outlet stores. The increase in
gross profit margin is the result of better sourcing of products
from suppliers.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months
ended June 30, 2002 were $12.9 million, an increase of 10.3% from
the comparable 2001 quarter. The increase in selling, general
and administrative expenses was due principally to higher
warehouse costs and an increase in expenses for the outlet
stores. Effective January 1, 2002 the Company assumed
responsibility for 50% of the outlet store space and 50% of the
store operating expenses as compared to 40% in 2001. The higher
warehouse costs were attributable to increased shipments and the
expenses associated with the move to the new warehouse in
Robbinsville, New Jersey.
Interest Expense
Interest expense for the three months ended June 30, 2002 was
$281,000, a decrease of 18.3% from the comparable 2001 quarter.
This decrease is the result of lower interest rates on the
Company's borrowings for the 2002 period as compared to the 2001
period.
Six Months Ended June 30, 2002
Compared to Six Months ended June 30, 2001
Net Sales
Net sales for the six months ended June 30, 2002 were $55.8
million, a decrease of $3.1 million or 5.2% as compared to the
corresponding 2001 period. The lower sales volume was primarily
attributable to the first quarter 2002 sales being lower than the
comparable 2001 quarter due to the January 2002 startup of our
new automated warehouse in Robbinsville, New Jersey, which
negatively affected shipments, and to a lesser extent, lower
sales of the Company's Kamenstein business for the six months
ended June 30, 2002 as compared to the 2001 period.
Gross Profit
Gross profit for the six months ended June 30, 2002 was $25.7
million, a decrease of 2.1% from the comparable 2001 period.
Gross profit as a percentage of net sales increased to 46.1% from
44.7%, due primarily to higher gross margins generated by the
Company's Kamenstein business, the result of better sourcing of
products from suppliers.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months
ended June 30, 2002 were $26.7 million, an increase of 9.4% from
the comparable 2001 period. The increase was primarily
attributable to added expenses, including duplicate rent and
other expenses, associated with the Company's move into its new
New Jersey warehouse.
Forward Looking Statements: This Quarterly Report on Form 10-Q
contains certain forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, including statements concerning the Company's
future products, results of operations and prospects. These
forward-looking statements involve risks and uncertainties,
including risks relating to general economic and business
conditions, including changes which could affect customer payment
practices or consumer spending; industry trends; the loss of
major customers; changes in demand for the Company's products;
the timing of orders received from customers; cost and
availability of raw materials; increases in costs relating to
manufacturing and transportation of products; dependence on
foreign sources of supply and foreign manufacturing; and the
seasonal nature of the business as detailed from time to time in
the Company's filings with the Securities and Exchange
Commission. Such statements are based on management's current
expectations and are subject to a number of factors and
uncertainties which could cause actual results to differ
materially from those described in the forward-looking
statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $45 million three-year secured, reducing
revolving credit facility under an agreement (the "Agreement")
with a group of banks. The facility matures on November 8, 2004.
Borrowings under the Agreement are secured by all of the assets
of the Company and the facility reduces to $40 million at
December 31, 2002 and to $35 million at December 31, 2003. Under
the terms of the Agreement, the Company is required to satisfy
certain financial covenants, including limitations on
indebtedness and sale of assets; a minimum fixed charge ratio;
and net worth maintenance. Borrowings under the Agreement have
different interest rate options that are based on an alternate
base rate, LIBOR rate, or the lender's cost of funds rate. As of
June 30, 2002, the Company had $1,328,000 of letters of credit
and trade acceptances outstanding and $18,900,000 of borrowings
under the agreement and, as a result, the availability under the
Agreement was $24,772,000. Interest rates on borrowings at June
30, 2002 ranged from 3.94% to 4.13%.
In addition to the Agreement, the Prestige Companies (the
Company's 51% controlled European subsidiaries) have three lines
of credit with three separate banks providing available credit
facilities totaling approximately $3.4 million. As of June 30,
2002, the Prestige Companies had borrowings of approximately $3.2
million against these lines. Interest rates on these lines of
credits ranged from 5.85% to 8.25%.
At June 30, 2002, the Company had cash and cash equivalents of
$266,000 versus $5.0 million at December 31, 2001. The cash was
used primarily to fund the increase in merchandise inventories,
capital expenditures and cash dividends paid partially offset by
decreased accounts receivable.
On July 31, 2002 the Board of Directors declared a regular
quarterly cash dividend of $0.0625 per share to shareholders of
record on August 5, 2002 to be paid on August 19, 2002. The
dividend to be paid will be approximately $656,000.
The Company believes that its cash and cash equivalents,
internally generated funds and its existing credit arrangements
will be sufficient to finance its operations for at least the
next 12 months.
The results of operations of the Company for the periods
discussed have not been significantly affected by inflation or
foreign currency fluctuation. The Company negotiates
predominantly all of its purchase orders with its foreign
manufacturers in United States dollars. Thus, notwithstanding any
fluctuation in foreign currencies, the Company's cost for any
purchase order is not subject to change after the time the order
is placed. However, any weakening of the United States dollar
against local currencies could lead certain manufacturers to
increase their United States dollar prices for products. The
Company believes it would be able to compensate for any such
price increase.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Market risk represents the risk of loss that may impact the
consolidated financial position, results of operations or cash
flows of the Company. The Company is exposed to market risk
associated with changes in interest rates. The Company's lines
of credit bear interest at variable rates. The Company is
subject to increases and decreases in interest expense on its
variable rate debt resulting from fluctuations in the interest
rates of such debt. There have been no changes in interest rates
that would have a material impact on the consolidated financial
position, results of operations or cash flows of the Company
during the six month period ended June 30, 2002.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
The Company's annual meeting of stockholders was held on June
12, 2002. At the meeting, all seven director nominees were
elected and the appointment of Ernst & Young LLP as independent
auditors was ratified.
(a) The following directors were elected to hold office until the
next annual meeting of stockholders by the votes indicated:
FOR WITHHOLD
Jeffrey Siegel 7,927,187 1,013,607
Milton L. Cohen 7,901,482 1,039,312
Bruce Cohen 7,927,308 1,013,486
Craig Phillips 7,927,308 1,013,486
Ronald Shiftan 7,933,387 1,007,407
Howard Bernstein 7,903,887 1,036,907
Leonard Florence 7,908,287 1,032,507
(b) The appointment of Ernst & Young as the independent auditors
to audit the Company's financial statements for the fiscal year
ending December 31, 2002 was ratified by the following vote:
FOR WITHHOLD EXCEPTIONS/ABSTAIN
8,939,310 1,121 363
Item 6. Exhibit(s) and Reports on Form 8-K.
(a) Exhibit(s) in the second quarter of 2002:
Exhibit 99.1 Certification by the Chief Executive
Officer and Chief Financial Officer
Relating to a Periodic Report Containing
Financial Statements
(b) Reports on Form 8-K in the second quarter of 2002: NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Lifetime Hoan Corporation
August 14, 2002
/s/ Jeffrey Siegel
__________________________________
Jeffrey Siegel
Chief Executive Officer and President
(Principal Executive Officer)
August 14, 2002
/s/ Robert McNally
__________________________________
Robert McNally
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
EXHIBIT 99.1
Certification by the Chief Executive Officer and Chief Financial Officer
Relating to a Periodic Report Containing Financial Statements
I, Jeffrey Siegel, Chief Executive Officer, and I, Robert McNally,
Chief Financial Officer, of Lifetime Hoan Corporation, a Delaware
corporation (the "Company"), each hereby certifies that:
(1) The Company's periodic report on Form 10-Q for the period
ended June 30, 2002 (the "Form 10-Q") fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of
1934, as amended; and
(2) The information contained in the Form 10-Q fairly presents,
in all material respects, the financial condition and results of
operations of the Company.
/s/ Jeffrey Siegel /s/ Robert McNally
Jeffrey Siegel Robert McNally
Chief Executive Officer Chief Financial Officer
Date: August 14, 2002 Date: August 14, 2002