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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
[No Fee Required]
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
[No Fee Required]
For the transition period from to
Commission file number 1-19254
Lifetime Hoan Corporation
(Exact name of registrant as specified in its charter)
Delaware 11-2682486
(State or other jurisdiction of incorporation or
organization) (I.R.S. Employer Identification No.)
One Merrick Avenue, Westbury, New York 11590
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(516) 683-6000
Securities registered pursuant to Section 12(b) of the
Act: None
Securities registered pursuant to Section (g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
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
periods 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___
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to
this Form 10-K [ ].
The aggregate market value of 6,361,000 shares of the
voting stock held by non-affiliates of the registrant
as of February 28, 1998 was approximately
$64,803,000. Directors, executive officers, and
trusts controlled by said individuals are considered
affiliates for the purpose of this calculation, and
should not necessarily be considered affiliates for
any other purpose.
The number of shares of Common Stock, par value $.01
per share, outstanding as of February 28, 1998 was
12,549,109.
DOCUMENTS INCORPORATED BY REFERENCE
See Part III hereof with respect to incorporation by
reference from the registrant's definitive proxy
statement to be filed pursuant to Regulation 14A
under the Securities & Exchange Act of 1934 and the
Exhibit Index hereto.
LIFETIME HOAN CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART 1
1. Business 3
2. Properties 8
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders
8
PART II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters 9
6. Selected Financial Data 10
7. Management's Discussion and Analysis of Financial
Condition
and Results of Operations 11
8. Financial Statements and Supplementary Data 14
9. Changes in and Disagreements with Accountants on
Accounting
and Financial Disclosure 14
PART III
10. Directors and Executive Officers of the Registrant15
11. Executive Compensation 16
12. Security Ownership of Certain Beneficial Owners and
Management 16
13. Certain Relationships and Related Transactions 16
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 16
Exhibit Index 16
Index to Financial Statements and Financial Statement
Schedule F-1
Signatures
2
PART I
ITEM 1. BUSINESS
General
Forward Looking Statements: This Annual Report on Form
10-K 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
elsewhere in this Annual Report on Form 10-K and 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.
Lifetime Hoan Corporation designs, markets and
distributes household cutlery, kitchenware, cutting
boards and other houseware products. Items are sold under
both owned and licensed tradenames. Owned tradenames
include Hoffritzr, Tristarr, Old Homesteadr and Hoanr.
Licensed tradenames include Farberwarer and various names
under licenses from The Pillsbury Company and The Walt
Disney Company, Inc. The Farberwarer tradename is used
pursuant to a 200 year royalty-free license. The
Company, incorporated in Delaware in 1983, is the
successor to Lifetime Cutlery Corporation, which was
founded in 1945. As used herein, unless the context
requires otherwise, the terms "Company" and "Lifetime"
mean Lifetime Hoan Corporation and its subsidiaries.
Sales growth is stimulated by expanding product offerings
and penetrating various channels of distribution.
Lifetime has developed a strong consumer franchise by
promoting and marketing innovative products under Company
trade names and through licensing agreements. In
addition, the following acquisitions and agreements have
been made which have had a favorable impact on the
Company's business:
Hoffritzr
In September 1995, the Company acquired the Hoffritzr
trademarks and brand name. The Company uses the name on
various products including cutlery, scissors, personal
care implements and kitchen tools. The Company believes
that Hoffritzr is a respected name with a history of
quality. The acquisition has enabled the Company to sell
products at higher price points than the rest of the
Company's products. The Company shipped over 275 types of
items under the Hoffritz brandname during 1997, with the
total line expected to exceed 300 items. In addition, the
products are marketed through a "shop within a store"
concept in department and specialty stores
3
Farberwarer
In April 1996, the Company entered into an agreement to
acquire certain assets of Farberware, Inc. ("Farberware")
for $12.7 million in cash. Under the terms of the
acquisition agreement, and a joint venture agreed to by
the Company and Syratech Corporation in connection
therewith, the Company acquired a 200 year, royalty-free,
exclusive right to use the Farberwarer name in connection
with the product lines covered by its then existing
license agreement, which included kitchen cutlery
products (excluding flatware) and kitchen tools such as
spatulas, barbecue forks and "gadgets" (but excluding
appliances), plus certain limited additional products.
This agreement enables the Company to market products
under the Farberwarer name without paying additional
royalties. The Company also acquired 50 Farberware
outlet stores. In addition, rights to license the
Farberwarer name for use by third parties in certain
product categories are held by a joint venture, owned
equally by the Company and a wholly owned subsidiary of
Syratech Corporation
Microban
In April 1997, the Company entered into an agreement with
the Microban Products Company whereby the Company secured
exclusive rights to incorporate Microban antibacterial
protection into plastic components of cutting boards,
kitchen tools, kitchen gadgets, and cutlery. Shipments
of products incorporating the Microban technology began
in September 1997.
Meyer Agreement
In July 1997, the Company entered into an agreement with
the Meyer Corporation, regarding the operation of the
Company's Farberware retail outlet stores. Pursuant to
the agreement, the Company continues to own and operate
the Farberware retail outlet stores, which the Company
acquired in 1996 and Meyer Corporation, the licensed
manufacturer of Farberware branded cookware products,
assumes responsibility for merchandising and stocking
cookware products in the stores. Meyer Corporation
receives all revenue from sales of Farberware cookware,
and reimburses the Company for 62.5% of the operating
expenses, as defined, attributable to the stores. Also,
Meyer acquired all cookware inventory from the Company at
its carrying value of approximately $3.1 million.
Products
The Company designs, markets and distributes a broad
range of household cutlery, kitchenware items and cutting
boards, marketing its products under various trade names
including Farberware and Hoffritz.
Cutlery
The Company markets and distributes household cutlery
under a variety of tradenames including Farberwarer,
Hoffritzr and Tristarr. Cutlery is sold individually in
blister packages, boxed sets and in sets fitted into
wooden counter blocks, resin carousels and stainless
carousels.
Cutlery is generally shipped as individual pieces from
overseas manufacturers to the Company's warehouse
facilities in central New Jersey. This permits the
Company to configure the quantity, style and contents of
cutlery sets to meet customer requirements as to product
mix and pricing. The sets are then assembled and
packaged for shipment to customers.
4
Kitchenware
The Company sells over 2,750 kitchenware items under
various tradenames including Farberwarer, Hoffritzr,
Hoanr, Smart Choice, HealthWorksT, Pillsbury and cDisney.
The kitchenware items are manufactured to the Company's
specifications outside the United States and are
generally shipped fully assembled. These items are
typically packaged on a card which can be mounted for
sale on racks at the retailers' premises for maximum
display visibility. Products include the following:
Kitchen Tools and Gadgets
Food preparation and serving tools such as metal,
plastic and wooden spoons, spatulas, serving forks,
graters, strainers, ladles, shears, vegetable and fruit
knives, juicers, pizza cutters, pie servers, and slicers;
Baking, measuring, and rangetop products such as
cookie sheets, muffin, cake and pie pans, drip pans,
bake, roast and loaf pans, scraper sets, whisks, cutters,
spatulas, rolling pins, baking shells, baking cups,
measuring devices, thermometers, timers and burner
covers;
Barbecue accessories, in sets and individual pieces,
featuring such items as spatulas, tongs, forks, skewers,
hamburger and fish grills, brushes, corn holders, food
umbrellas, nut and lobster crackers and clam knives;
Mickey Unlimited and Mickey Stuff for Kids, child-
oriented products featuring Mickey and Minnie Mouse on
such items as bag clips, magnetic note holders, party
goods, magnetic picture frames, can covers, bottle
stoppers and flatware;
Pillsbury, one of America's best known brands of
baking accessories featuring the Poppin-FreshT logo on
such items as pastry brushes, spatulas, whisks, spoon and
cup sets, cookie cutters, mixing spoons and magnets;
Green Giantr, vegetable-related kitchen accessories
incorporating the Green Giantr character, including items
such as peelers, can openers, kitchen hooks, magnets,
spoons, steamers and strainers.
Impulse Purchase Products
J-Hook and Clip Strip merchandising systems which
enable the Company to expand its product offering and
create additional selling space in the stores. The line
consists of a variety of quality, novelty items designed
to trigger impulse buying. This line is targeted towards
supermarkets and mass merchants.
Cutting Boards
The Company designs, markets and distributes a full
range of cutting boards made of polyethylene, wood, glass
and acrylic. All cutting boards except for glass are
imported. Glass cutting board blanks are purchased
domestically and are finished and packaged in the
Company's warehouse facilities in central New Jersey.
Boards are also packaged with cutlery items and kitchen
gadgets.
5
New Products
The Company has a design department consisting of 12
employees who create new products, packaging and
merchandising concepts. In excess of 300 items were
developed or remodeled in 1997, including the following :
Hoffritz: The Company introduced approximately 125
Hoffritzr branded items in 1997 including barbecue
accessories, colanders and bowls, various caddies and
expansion of the pepper mills, cutting boards and
personal care lines.
Cutlery: Introduction of stainless steel knife caddies
with Ultrapro knives.
Gadgets: Introduction of various softgrip kitchen tools
and gadgets.
Cutting Boards: Continued expansion of the value added
approach, packaging boards with Farberwarer cutlery and
kitchen gadgets.
Sources of Supply
The Company sources its products from approximately 45
manufacturers located primarily in the Far East,
including the People's Republic of China, Indonesia,
Taiwan, Thailand, Malaysia, Korea and to a smaller extent
in the United States, India and Italy. In 1997, the
majority of cutlery was purchased from four suppliers,
who individually accounted for 30%, 21%, 18% and 18% of
the total purchases. An interruption of supply from any
of these manufacturers could have an adverse impact on
the Company's ability to fill orders on a timely basis.
However, the Company believes other manufacturers with
whom the Company does business would be able to increase
production to fulfill the Company's requirements.
The Company's policy is to maintain a large inventory
base and, accordingly, it orders products substantially
in advance of anticipated time of sale to its customers.
While the Company does not have any long-term formal
arrangements with any of its suppliers, in certain
instances, particularly in the manufacture of cutlery,
the Company places firm commitments for products up to
twelve months in advance of receipt of firm orders from
customers. Lifetime's arrangements with most
manufacturers allow for flexibility in modifying the
quantity, composition and delivery dates of each order.
All purchase orders are in United States dollars.
Marketing
The Company markets its product lines directly through
its own sales force and through a network of independent
sales representatives. The Company's products are
primarily sold in the United States to approximately
1,800 customers including national retailers, department
store chains, mass merchant retail and discount stores,
supermarket chains, warehouse clubs, direct marketing
companies, specialty chains and through other channels of
distribution. During the year ended December 31, 1997,
Walmart accounted for approximately 17% of net sales. No
other customer accounted for 10% or more of the Company's
net sales.
Competition
The markets for household cutlery, kitchenware and
cutting boards are highly competitive and include
numerous domestic and foreign competitors, some of which
are larger than the Company. The primary competitive
factors in selling such products to retailers are
consumer brand name recognition, quality, packaging,
breadth of product line, distribution capability, prompt
delivery and price to the consumer.
6
Patents and Trademarks
The Company uses a number of owned trademarks, primarily
Hoffritzr, Tristarr and Hoanr, as well as Farberwarer
which is licensed under a 200 year royalty-free
agreement, which the Company considers significant to its
competitive position. Some of these trademarks are
registered in the United States and others have become
distinctive marks as to which the Company has acquired
common law rights. The Company also has licensed several
other trademarks from The Walt Disney Company and The
Pillsbury Company which it uses in its business. The
Company also owns several design and utility patents
expiring from 2000 to 2013 on the overall design of some
of its products. The Company also acquired patents,
trademarks and copyrights as part of the Hoffritzr
purchase, expiring from 1999 to 2022. The Company
believes that the expiration of any of its patents would
not have a material adverse effect on its business.
Seasonality
Although the Company sells its products throughout the
year, the Company has traditionally had higher net sales
during its third and fourth quarters. The following
table sets forth the quarterly net sales for the years
ended December 31, 1997, 1996 and 1995:
Net Sales (in thousands)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1997 $21,100 $22,100 $24,500 $32,300
1996 19,300 21,000 25,100 33,000
1995 18,700 15,600 22,100 24,200
Backlog
Lifetime receives projections on a seasonal basis from
its principal customers; however, firm purchase orders
are most frequently placed on an as needed basis. The
Company's experience has been that while there may be
some modifications of customers' projections, the Company
is able, with some degree of certainty, to predict its
product needs.
Lifetime's backlog at December 31, 1997 and 1996 was
$6,048,000 and $3,714,000, respectively. The Company
expects to fill the 1997 backlog during 1998. The Company
does not believe that backlog is indicative of its future
results of operations or prospects. Although the Company
seeks commitments from customers well in advance of
shipment dates, actual confirmed orders are typically not
received until close to the required shipment dates.
Employees
As of December 31, 1997, the Company had 527 full-time
employees, of whom 4 were employed in an executive
capacity, 50 in sales, marketing, design and product
development, 59 in financial, administrative or clerical
capacities, 228 in warehouse or distribution capacities
and 186 were outlet store personnel. None of the
Company's employees are represented by a labor union. The
Company considers its employee relations to be good.
7
ITEM 2. PROPERTIES
The Company conducts its operations from four facilities,
exclusive of the Outlet Store subsidiary. The Company's
corporate headquarters located in Westbury, New York,
occupy approximately 42,000 square feet and was acquired
in October 1994 at an approximate cost of $6,850,000,
inclusive of building, furniture, fixtures and equipment.
The Company's primary warehouse and distribution facility
located in central New Jersey occupies approximately
305,000 square feet. The facility is leased pursuant to a
net lease subject to annual automatic renewals through
January 31, 1999. The annual rent is approximately
$1,084,000.
The Company leased approximately 136,000 square feet of
additional warehouse and distribution space in 1995. The
additional warehouse facility is leased through January
31, 1999 with an option to renew for an additional three
years. The annual rent is approximately $429,000.
The Company also leases an approximately 2,000 square
foot showroom in New York City. The annual rental is
approximately $43,000 and the lease expires on June 30,
1999.
The Company is designing a new, more modern distribution
center, which it expects to commence leasing in the
beginning of 1999.
The Company's Outlet Store subsidiary leases
approximately 50 stores in retail outlet centers located
in 25 states throughout the United States. The square
footage of the stores range from approximately 2,000
square feet to 4,500 square feet. The terms of these
leases range from three to five years with expiration
dates beginning in January 1998 and extending through
December 2002.
ITEM 3. LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation
arising in the normal course of its business. The
Company believes that there are currently no material
legal proceedings the outcome of which would have a
material adverse effect on the Company's financial
position or its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
Not applicable.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded under the symbol
"LCUT" on The Nasdaq National Market ("Nasdaq") and has
been since its initial public offering in June 1991. On
February 5, 1997, the Board of Directors of the Company
declared a 10% stock dividend payable to shareholders of
record on February 18, 1997. All share and per share
data included in this report have been retroactively
adjusted to reflect the declaration and payment of stock
dividends. See Note A to the consolidated financial
statements included elsewhere herein.
The following table sets forth the high and low sales
prices for the Common Stock of the Company for the fiscal
periods indicated as reported by Nasdaq.
1997 1996
High Low High Low
First Quarter $12.25 $8.38 $9.32 $7.27
Second Quarter $8.75 $7.13 $10.23 $7.27
Third Quarter $9.63 $7.75 $10.00 $8.30
Fourth Quarter $11.00 $8.38 $10.68 $7.84
At December 31, 1997, the Company estimates that there
were approximately 1,100 beneficial holders of the Common
Stock of the Company.
The Company paid quarterly cash dividends of $0.0625 per
share on its Common Stock in November 1997 and February
1998. The Board of Directors currently intends to
maintain a quarterly cash dividend of $0.0625 per share
of Common Stock in the foreseeable future, although the
Board may in its discretion determine to modify or
eliminate such dividend at any time.
Currently the Board of Directors of the Company has no
plans to declare future stock dividends.
9
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below for the five
years in the period ended December 31, 1997 have been
derived from the audited financial statements of the
Company. The data for 1995 through 1997 should be read in
conjunction with "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of
Operations" and the audited financial statements and
related notes thereto included elsewhere herein.
(in thousands
except per share data)
Year Ended December 31,
1997 1996 1995 1994 1993
INCOME STATEMENT DATA:
Net sales $100,021 $98,426 $80,495 $77,449 $64,740
Cost of sales 51,419 50,528 43,531 41,726 34,991
Gross profit 48,602 47,898 36,964 35,723 29,749
Selling, general and 33,114 31,915 25,397 21,636 18,600
Income from operations 15,488 15,983 11,567 14,087 11,149
Interest expense 76 671 401 124 124
Other income (net) (149) (100) (148) (165) (357)
Income before income taxes 15,561 15,412 11,314 14,128 11,382
Income tax provision 6,000 6,060 4,387 5,498 4,377
Net income $9,561 $9,352 $6,927 $8,630 $7,005
Net income per share - basic $0.77 $0.75 $0.56 $0.71 $0.58
Weighted average shares 12,459 12,395 12,465 12,216 12,131
outstanding - basic
Net income per share - diluted $0.75 $0.74 $0.54 $0.68 $0.56
Weighted average shares 12,720 12,675 12,753 12,618 12,452
outstanding - diluted
The earnings per share amounts prior to 1997 have been restated as
required to comply with the Statement of Financial Accounting
Standards No. 128, Earnings Per Share. For further discussion of
earnings per share and the impact of Statement No. 128, see the
notes to the consolidated financial statements beginning on page F-7.
December 31,
1997 1996 1995 1994 1993
BALANCE SHEET DATA:
Current assets $69,709 $61,884 $62,569 $53,885 $49,412
Current liabilities 12,051 13,213 13,836 8,916 8,435
Working capital 57,658 48,671 48,733 44,969 40,977
Total assets 92,957 84,772 75,756 64,696 53,610
Current debt - 1,000 4,600 - -
Stockholders' equity $80,906 $71,559 $61,920 $55,780 $45,175
10
ITEM 7. 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.
Year Ended December 31,
1997 1996 1995
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 51.4 51.3 54.1
Gross profit 48.6 48.7 45.9
Selling, general and adm. 33.1 32.4 31.5
expenses
Income from operations 15.5 16.3 14.4
Interest expense 0.1 0.8 0.5
Other income (net) (0.1) (0.1) (0.2)
Income before income taxes 15.5 15.6 14.1
Income tax provision 6.0 6.2 5.5
Net income 9.5 % 9.4 % 8.6 %
1997 COMPARED TO 1996
Net Sales
Net sales for the Company in 1997 were $100.0 million, an
increase of $1.6 million or 1.6% over 1996. Excluding net
sales from the Company's Faberware outlet stores, net
sales increased by approximately 4% in 1997. The sales
growth was due principally to increased shipments of
Hoffritz and Farberware branded products, partially
offset by decreased sales of impulse purchase items and
to a lesser extent, lower volume in non-branded products.
Net sales of Farberware outlet stores were $8.6 million
in 1997 as compared to $10.4 million in 1996, reflecting
the restructuring of the operations of the outlet stores,
which became effective in the third quarter of 1997
pursuant to an agreement with the Meyer Corporation. In
conjunction with the agreement, the Company continues to
own and operate the Farberware retail outlet stores, and
Meyer Corporation, the licensed manufacturer of
Farberware branded cookware products, assumed
responsibility for merchandising and stocking cookware
products in the stores. As a result, Meyer Corporation
receives all revenue from sales of cookware and is
responsible for 62.5% of the operating expenses, as
defined, attributable to the stores.
Gross Profit
Gross profit for 1997 was $48.6 million, an increase of
$0.7 million or 1.5% over 1996. Gross profit as a
percentage of net sales remained relatively constant at
48.6% in 1997 as compared to 48.7% in 1996. The slight
decrease in gross profit as a percentage of sales is
attributable to the change in sales product mix.
11
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1997
were $33.1 million, an increase of $1.2 million or 3.8%
from 1996. This increase is primarily attributable to
increased bad debt expense and warehouse expenses
partially offset by reduced insurance expenses and lower
operating expenses for the outlet stores. Bad debt
expense in 1997 increased by $900,000 for the Chapter 11
bankruptcy filing of a large customer. The lower
operating expenses for the outlet stores resulted from
the restructuring of the stores operations whereby the
Meyer Corporation assumed responsibility for 62.5% of the
expenses effective July 1, 1997.
Interest Expense
Interest expense for 1997 was $76,000, a decrease of
$595,000 from 1996. This decrease is due to decreased
borrowings under the Company's line of credit in 1997 as
compared to 1996. In 1996, the Company borrowed
approximately $9.0 million under its line of credit to
finance the Farberware acquisition and all but $1.0
million was repaid by 1996 year end.
1996 COMPARED TO 1995
Net Sales
Net sales for all products in 1996 were $98.4 million, an
increase of $17.9 million or 22.3% over 1995. The sales
growth was due principally to net sales from the
Farberware Outlet Stores which were acquired in April
1996 and the Hoffritz line, plus increased net sales of
cutting boards, the Smart Choice line, and Farberware
gadgets, partially offset by reduced sales of other
Company products.
Gross Profit
Gross profit for 1996 was $47.9 million, an increase of
$10.9 million or 29.6% over 1995. Gross profit as a
percentage of net sales was 48.7% in 1996 and 45.9% in
1995. The increase in gross profit as a percentage of
sales was attributable to reduced royalty expense in
connection with the Farberware acquisition as well as
change in product mix.
Selling, General and Administrative Expenses
As a percentage of net sales, selling, general and
administrative expenses were 32.4% for 1996, as compared
to 31.5% for 1995. Selling, general and administrative
expenses for 1996 were $31.9 million, an increase of $6.5
million or 25.7% from 1995. This increase was primarily
attributable to the operations of the Farberware Outlet
Stores, investments in additional personnel and new
facilities and increased freight out expenses directly
related to the increased sales.
Interest Expense
Interest expense for 1996 was $671,000, an increase of
$270,000 over 1995. This increase was due to increased
average borrowings under the Company's line of credit
used to finance the Farberware acquisition.
12
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had cash and cash
equivalents of $7.8 million, an increase of $6.7 million
from the prior year, working capital was $57.7 million,
an increase of $9.0 million from 1996, and the current
ratio improved to 5.8 to 1.0.
Cash provided by operating activities was approximately
$7.1 million, consisting primarily of net income and
increased accounts payable and trade acceptances,
partially offset by increased merchandise inventories and
accounts receivable. The increased merchandise inventory
was primarily attributable to new products. Cash provided
by investing activities was $845,000, consisting of the
sale of inventory to Meyer Corporation offset by the
purchases of property and equipment. In connection with
the outlet store agreement, the Meyer Corporation
acquired all cookware inventory from the Company for $3.1
million. Cash used in financing activities was $1.2
million, which included the repayment of $1.0 million of
short term borrowings, the payment of dividends of
$781,000 and the exercise of stock options of $551,000.
Capital expenditures were $2.3 million in 1997 and $2.0
million in 1996. Capital expenditures for 1997 consisted
primarily of assets purchased for machinery and equipment
for use in the warehouse, and fixtures for the Farberware
outlet stores. Total planned capital expenditures for
1998 are estimated at $8.0 million. These expenditures
are primarily for the equipment and a management system
to be used in a new, more modern leased warehouse and
distribution facility and the implementation of a new
financial reporting system. These expenditures will be
funded from current operations cash and cash equivalents
and, if needed, short term borrowings.
The Company has available an unsecured $25,000,000 line
of credit with a bank (the "Line") which may be used for
revolving credit loans or letters of credit. Borrowings
made under the Line bear interest payable daily at a
negotiated short term borrowing rate. As of December 31,
1997, the Company had no outstanding borrowings and
$11,790,000 of letters of credit and trade acceptances
were outstanding under the Line and, as a result, the
availability under the Line was $13,210,000. The Line is
cancelable by either party at any time.
Products are sold to retailers primarily on 30-day credit
terms, and to distributors primarily on 60-day credit
terms. As of December 31, 1997, the Company had an
aggregate of $465,000 of accounts receivable outstanding
in excess of 60 days or approximately 3.3% of gross
receivables, and had inventory of $42.8 million.
The Company is in the process of installing a new
financial/accounting system and separate warehouse
management system which the Company believes will
significantly enhance capabilities. These systems are
expected to be fully operational by early 1999 and
function properly with respect to dates in the Year 2000
and beyond. The Company also has initiated discussions
with its significant suppliers, large customers and
financial institutions to ensure that those parties have
appropriate plans to remediate Year 2000 issues where
their systems interface with the Company's systems or
otherwise impact its operations. The Company will assess
the extent to which its operations are vulnerable should
those organizations fail to remediate properly their
computer systems. While the Company believes its
planning efforts are adequate to address its Year 2000
concerns, there can be no guarantee that the systems of
other companies on which the Company's systems and
operations rely will be converted on a timely basis and
will not have a material effect on the Company.
The Company believes that its cash and cash equivalents
plus internally generated funds and its credit
arrangements will be sufficient to finance its operations
for the next 12 months.
13
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 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,
the 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are included herein commencing
on page F-1.
The first three quarters of 1997 and the 1996 earnings
per share amounts have been restated to comply with
Statement of Financial Accounting Standards No. 128,
Earnings Per Share.
The following is a summary of the quarterly results of
operations for the years ended December 31, 1997 and
1996.
Three Months Ended
3/31 6/30 9/30 12/31
(Thousands of dollars, except per share data)
1997
Net sales $21,108 $22,133 $24,516 $32,264
Cost of sales 11,133 11,203 12,105 16,978
Net income 1,363 1,538 3,054 3,606
Net income per
share - basic $0.11 $0.12 $0.24 $0.29
Net income per
share - diluted $0.11 $0.12 $0.24 $0.28
1996
Net sales $19,273 $20,990 $25,116 $33,046
Cost of sales 10,179 10,895 11,708 17,746
Net income 1,673 1,270 2,873 3,536
Net income per
share - basic $0.14 $0.10 $0.23 $0.28
Net income per
share - diluted $0.13 $0.10 $0.23 $0.28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The following table sets forth certain information
concerning the Executive Officers and Directors of the
Company:
Director or
Executive
Officer of
Company or
Name Age Position its Predecessor
Since
Milton L. 69 Chairman of the 1958
Cohen Board of Directors
and President
Jeffrey 55 Executive Vice 1967
Siegel President
and Director
Craig 48 Vice-President - 1973
Phillips Distribution,
Secretary and
Director
Robert 51 Vice-President - 1997
McNally Finance,
Treasurer
Ronald 53 Director 1991
Shiftan
Howard 77 Director 1992
Bernstein
Mr. Cohen has been continuously employed by the Company
in his present capacity since 1958.
Mr. Siegel has been continuously employed by the
Company in his present capacity since 1967.
Mr. Phillips has been continuously employed by the
Company in his present capacity since 1981.
Mr. McNally has been continuously employed by the
Company in his present capacity since October 1997. Mr.
McNally, was formerly Senior Vice President - Finance for
Cybex International, Inc., (formerly Lumex, Inc.), a
manufacturer and distributor of healthcare products and
fitness equipment. Mr. McNally held that position for 15
years prior to joining the Company.
Mr. Shiftan has been Managing Director of Patriot
Group, LLC, a financial advisory firm since 1996. From
1992 to 1996 Mr. Shiftan was Vice Chairman of HealthCare
Investment Corporation, a manager of private venture
capital partnerships. Prior thereto he was Managing
Director of Sphere Capital Partners, a financial advisory
firm which acted as financial advisor to the Company in
connection with its initial public offering in 1991.
Mr. Bernstein has been a member of the Certified Public
Accounting firm, Cole, Samsel & Bernstein LLC (and its
predecessors) for approximately forty-seven years.
Jeffrey Siegel and Craig Phillips are cousins.
The Board of Directors has established an audit
committee, both of whose members are independent
directors.
15
The directors and officers of the Company are elected
annually by the stockholders and Board of Directors of
the Company, respectively. They serve until the next
annual meeting of the stockholders or until their
successors have been elected and qualified or until their
earlier resignation or removal.
Directors who are not employees of the Company will
receive $5,000 per year, an additional fee of $1,000 for
each Board meeting attended, plus reimbursement of
reasonable out-of-pocket expenses. Directors who are
employees of the Company do not receive compensation for
serving as directors or attending meetings. The Company
has entered into indemnification agreements with the
directors and officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information
to appear under the caption "Executive Compensation" in
the Company's definitive Proxy Statement for its 1998
Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information
to appear under the caption "Principal Stockholders" in
the Company's definitive Proxy Statement for its 1998
Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information
to appear under the caption "Certain Transactions" in the
Company's definitive Proxy Statement for its 1998 Annual
Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) (1) and (2) - see list of Financial Statements and
Financial Statement Schedule on F-1.
(b) Reports on Form 8-K in the fourth quarter of 1997.
None.
(c) Exhibits*:
Exhibit
No. Description
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3[a] to
Form S-1 [No. 33-40154] of Lifetime Hoan
Corporation).
3.2 Amendment dated June 9, 1994 to the Restated
Certificate of Incorporation of the Company
(incorporated herein by reference to the December
31, 1994 Form 10-K [No. 1-19254] of Lifetime Hoan
Corporation).
16
3.3 By-Laws of the Company (incorporated herein by
reference to Exhibit 3[b] to Form S-1 [No. 33-40154]
of Lifetime Hoan Corporation).
10.1 Loan Agreement dated as of May 11, 1988 with Bank of
New York, as amended (incorporated by Reference to
Exhibit 10[d] to Form S-1 [No. 33-40154] of Lifetime
Hoan Corporation).
10.2 Amendment No. 6 dated as of March 5, 1992 between
Lifetime Hoan Corporation and The Bank of New York
(incorporated by reference to the December 31, 1991
Form 10-K [No. 1-19254] of Lifetime Hoan
Corporation).
10.3 Stock Option Plan for key employees of Lifetime Hoan
Corporation, as amended June 9, 1994 (incorporated
by reference to the December 31, 1994 Form 10-K [No.
1-19254] of Lifetime Hoan Corporation).
10.4 Promissory notes dated December 17, 1985 of Milton
L. Cohen, Jeffrey Siegel, Craig Phillips and Robert
Phillips, as amended (incorporated by reference to
Exhibit 10[f] to Form S-1 [No. 33-40154] of Lifetime
Hoan Corporation).
10.5 Lease to Dayton, New Jersey premises dated August
20, 1987 and amendment between the Company and
Isaac Heller (incorporated by reference to Exhibit
10[h] to Form S-1 [No. 33-40154] of Lifetime Hoan
Corporation).
10.6 License Agreement dated December 14, 1989 between
the Company and Farberware, Inc. (incorporated by
reference to Exhibit 10[j] to Form S-1 [No. 33-
40154] of Lifetime Hoan Corporation).
10.7 License Agreement dated as of April 19, 1991 between
the Company and The Pillsbury Company (incorporated
by reference to Exhibit 10[m] to Form S-1 [No. 33-
40154] of Lifetime Hoan Corporation).
10.8 Real Estate Sales Agreement dated October 28, 1993
between the Company and The Olsten Corporation
(incorporated by reference to the December 31, 1993
Form 10-K [No. 1-19254] of Lifetime Hoan
Corporation).
10.9 Amendment to the Real Estate Sales Agreement dated
September 26, 1994 between the Company and The
Olsten Corporation. (incorporated by reference to
the December 31, 1995 Form 10-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.10 Lease to additional Dayton, New Jersey premises
dated December 7, 1994. (incorporated by reference
to the December 31, 1995 Form 10-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.11 License Agreement dated December 21, 1995
between the Company and The Walt Disney Company.
10.12 Memorandum of purchase dated September 18, 1995
between the Company and Alco Capital Group, Inc.
(incorporated by reference to the September 30, 1995
Form 10-Q [No. 1-19254] of Lifetime Hoan
Corporation).
17
10.13 Registration Rights Agreement dated September
18, 1995 between the Company and Alco Capital Group,
Inc. (incorporated by reference to the September 30,
1995 Form 10-Q [No. 1-19254] of Lifetime Hoan
Corporation).
10.14 Amendment No. 1 dated September 26, 1995 to the
Lease for the additional Dayton, New Jersey
premises. (incorporated by reference to the
September 30, 1995 Form 10-Q [No. 1-19254] of
Lifetime Hoan Corporation).
10.15 Form of Extension Agreement dated as of
December 15, 1995 between Milton L. Cohen and
Lifetime Hoan Corporation (incorporated by reference
to the January 8, 1996 Form 8-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.16 Form of Extension Agreement dated as of
December 15, 1995 between Jeffrey Siegel and
Lifetime Hoan Corporation (incorporated by reference
to the January 8, 1996 Form 8-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.17 Form of Extension Agreement dated as of
December 15, 1995 between Craig Phillips and
Lifetime Hoan Corporation (incorporated by reference
to the January 8, 1996 Form 8-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.18 Asset Purchase Agreement by and between
Farberware, Inc., Far-b Acquisition Corp., Syratech
Corporation and Lifetime Hoan Corporation, dated
February 2, 1996.
10.19 Joint Venture Agreement by and among Syratech
Corporation, Lifetime Hoan Corporation and Far-b
Acquisition Corp., dated February 2, 1996.
10.20 Employment Agreement dated April 7, 1996 with
Milton L. Cohen (incorporated by reference to the
March 31, 1996 10-Q).
10.21 Employment Agreement dated April 7, 1996 with
Jeffrey Siegel (incorporated by reference to the
March 31, 1996 10-Q).
.
10.22 Employment Agreement dated April 7, 1996 with
Craig Phillips (incorporated by reference to the
March 31, 1996 10-Q).
10.23 Lifetime Hoan 1996 Incentive Stock Option Plan
(incorporated by reference to the March 31, 1996 10-
Q).
10.24 Lifetime Hoan 1996 Incentive Bonus Compensation
Plan (incorporated by reference to the March 31,
1996 10-Q).
10.25 Meyer Operating Agreement dated July 1, 1997
between Lifetime Hoan Corporation and Meyer
Corporation.
10.26 Jeffrey Siegel Employment Agreement Amendment
No. 1, dated June 6, 1997
10.27 Milton L. Cohen Employment Agreement Amendment
No. 1, dated June 6, 1997
21 Subsidiaries of the registrant
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
*The Company will furnish a copy of any of the exhibits
listed above upon payment of $5.00 per exhibit to cover
the cost of the Company furnishing the exhibits.
(d) Financial Statement Schedules - the response to this
portion of Item 14 is submitted as a separate
section of this report.
18
FORM 10-K -- ITEM 14(a)(1) and (2)
LIFETIME HOAN CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE
The following Financial Statements and Schedule of
Lifetime Hoan Corporation are included in Item 8.
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Income for the
Years ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the
Years ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
The following financial statement schedule of Lifetime Hoan Corporation is included
in Item 14 (d);
Schedule II - Valuation and qualifying accounts S-1
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-1
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Lifetime Hoan Corporation
We have audited the accompanying consolidated balance
sheets of Lifetime Hoan Corporation as of December 31,
1997 and 1996 and the related consolidated statements of
income, changes in stockholders' equity, and cash flows
for each of the three years in the period ended December
31, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14(a).
These consolidated financial statements and schedule are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Lifetime Hoan
Corporation at December 31, 1997 and 1996 and the
consolidated results of its operations and its cash flows
for each of the three years in the period ended December
31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Melville, New York
February 18, 1998
F-2
CONSOLIDATED BALANCE SHEETS
LIFETIME HOAN CORPORATION
(in thousands, except share data)
December 31,
ASSETS 1997 1996
CURRENT ASSETS
Cash and cash equivalents $7,773 $1,093
Accounts receivable, less allowances of $851 -
1997 13,274 14,000
and $791 - 1996
Merchandise inventories 42,763 39,917
Prepaid expenses 3,290 4,931
Deferred income taxes 439 1,018
Other current assets 2,170 925
TOTAL CURRENT ASSETS 69,709 61,884
PROPERTY AND EQUIPMENT 9,434 8,697
EXCESS OF COST OVER NET ASSETS ACQUIRED, net 1,841 1,906
OTHER INTANGIBLES, net 10,950 11,341
OTHER ASSETS 1,023 944
TOTAL ASSETS $92,957 $84,772
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and trade acceptances $5,360 $4,012
Accrued expenses 6,152 6,882
Income taxes 539 1,319
Short term borrowings - 1,000
TOTAL CURRENT LIABILITIES 12,051 13,213
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, authorized 25,000,000
shares; issued and
outstanding 12,522,246 shares in 1997 and
12,406,509 shares in 1996 125 124
Paid-in capital 75,307 74,757
Retained earnings (deficit) 6,443 (2,337)
81,875 72,544
Less:
Notes receivable for shares issued to
stockholders 908 908
Deferred compensation 61 77
TOTAL STOCKHOLDERS' EQUITY 80,906 71,559
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $92,957 $84,772
See notes to consolidated financial statements.
F-3
CONSOLIDATED STATEMENTS OF INCOME
LIFETIME HOAN CORPORATION
(in thousands - except per share data)
Year Ended December 31,
1997 1996 1995
Net sales $100,021 $98,426 $80,495
Cost of sales 51,419 50,528 43,531
48,602 47,898 36,964
Selling, general and 33,114 31,915 25,397
administrative expenses
INCOME FROM OPERATIONS 15,488 15,983 11,567
Interest expense 76 671 401
Other income, net (149) (100) (148)
INCOME BEFORE INCOME TAXES 15,561 15,412 11,314
Provision for federal, state and
local
income taxes 6,000 6,060 4,387
NET INCOME $9,561 $9,352 $6,927
NET INCOME PER SHARE - BASIC $0.77 $0.75 $0.56
NET INCOME PER SHARE - DILUTED $0.75 $0.74 $0.54
See notes to consolidated financial statements
F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
LIFETIME HOAN CORPORATION
(in thousands)
Common Stock Paid-in Retained Notes Deferred
Shares Amount Capital Earning Receivable Compensation Total
(Deficits) from
Stockholders
Balance at December 31, 10,340 $104 $52,138 $4,864 ($1,184) ($142) $55,780
1994
Net income for 1995 6,927 6,927
Exercise of stock 40 252 252
options
Exercise of warrants 6 43 43
Stock issued in exchange 47 1 476 477
for intangibles
Repurchase and
retirement of common (199) (2) (1,006) (736) 136 (1,608)
Stock
Amortization of deferred 49 49
compensation
Stock dividend 1,023 10 9,200 (9,210) -
Balance at December 31, 11,257 113 61,103 1,845 (1,048) (93) 61,920
1995
Net income for 1996 9,352 9,352
Exercise of stock 21 125 125
options
Exercise of warrants 1 6 6
Repayment of note 140 140
receivable
Amortization of deferred 16 16
compensation
Stock dividend 1,128 11 13,52 (13,534) -
Balance at December 31, 12,407 124 74,757 (2,337) (908) (77) 71,559
1996
Net income for 1997 9,561 9,561
Exercise of stock 115 1 550 551
options
Amortization of deferred 16 16
compensation
Cash dividend (781) (781)
Balance at December 31, 12,522 $125 $75,307 $6,443 ($908) ($61) $80,906
1997
See notes to consolidated financial statements
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
LIFETIME HOAN CORPORATION
(in thousands)
1997 1996 1995
OPERATING ACTIVITIES
Net income $9,561 $9,352 $6,927
Adjustments to reconcile net income to
net cash
provided by (used in) operating
activities:
Depreciation and amortization 1,974 1,572 906
Deferred taxes 579 168 (357)
Amortization of deferred compensation 16 16 49
Provision for losses on accounts 2,112 500 534
receivable
Reserve for sales returns and 3,533 3,589 3,686
allowances.........
Changes in operating assets and
liabilities, excluding
Acquisitions and dispositions:
Accounts receivable (4,919) (5,407) (2,836)
Merchandise inventories (5,946) 6,920 (12,330)
Prepaid expenses, other current assets
And other assets 317 (645) (104)
Accounts payable and trade acceptances
And accrued expenses 618 1,891 989
Income taxes payable (780) 1,086 (668)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 7,065 19,042 (3,204)
INVESTING ACTIVITIES
Purchases of property and equipment, net (2,255) (2,010) (717)
Sale of inventory to Meyer 3,100 - -
Corporation...........
Purchase of intangibles and outlet - (12,700) (2,000)
store inventory
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 845 (14,710) (2,717)
FINANCING ACTIVITIES
(Payments of) proceeds from short term (1,000) (3,600) 4,600
borrowings, net
Proceeds from the exercise of warrants - 6 43
Proceeds from the exercise of stock 551 125 253
options
Payment of cash dividends (781) - -
Repayment of note receivable from - 140 -
stockholder
Repurchase of common stock, net - - (1,609)
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (1,230) (3,329) 3,287
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 6,680 1,003 (2,634)
Cash and cash equivalents at beginning of 1,093 90 2,724
year
CASH AND CASH EQUIVALENTS AT END OF YEAR $7,773 $1,093 $90
See notes to consolidated financial statements
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIFETIME HOAN CORPORATION
DECEMBER 31, 1997
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Business: The accompanying consolidated financial
statements include the accounts of Lifetime Hoan Corporation
("Lifetime") and Outlet Retail Stores, Inc., ("Outlets")
Lifetime's wholly-owned subsidiary, collectively the
"Company".
The Company is engaged in the design, marketing and
distribution of household cutlery, kitchenware and cutting
boards, sold under a number of widely recognized tradenames
and through licensing agreements. The Company sells its
products primarily to retailers throughout the United States
and to consumers through its Outlets subsidiary.
Revenue Recognition: Revenue is recognized upon the
shipment of merchandise.
Inventories: Merchandise inventories, principally finished
goods, are recorded at the lower of cost (first-in, first-out
basis) or market.
Property and Equipment: Property and equipment are recorded
at cost. Fixed assets other than leasehold improvements are
being depreciated on the straight-line method over the
estimated useful lives of the assets. Building and
improvements are being depreciated over 30 years and
machinery, furniture, and equipment over 5 to 7 years.
Leasehold improvements are being amortized over the term of
the lease or the estimated useful lives of the improvements,
whichever is shorter.
Cash Equivalents: The Company considers highly liquid debt
instruments, with a maturity of three months or less when
purchased, to be cash equivalents.
Accounting Estimates: The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Excess of Cost Over Net Assets Acquired and Other
Intangibles: Excess of cost over net assets acquired is being
amortized on a straight-line basis over 40 years. Accumulated
amortization at December 31, 1997 and 1996 was $839,000 and
$773,000, respectively.
Other intangibles consist of a royalty-free license,
trademark and brandname acquired pursuant to two acquisitions
(see Note J) and are being amortized on a straight-line basis
over 30 years. Accumulated amortization at December 31, 1997
and 1996 was $726,000 and $335,000 respectively.
Long-Lived Assets: If there are indicators of
impairment, the Company reviews the carrying value of its long-
lived assets in determining the ultimate recoverability of
their unamortized values using future undiscounted cash flow
analyses.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
LIFETIME HOAN CORPORATION
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings Per Share: In 1997, the Financial
Accounting Standards Board issued Statement No. 128, Earnings
per share. Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excluded any dilutive effects
of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported
fully diluted earnings per share. All earnings per share
amounts have been presented, and where appropriate, restated
to conform to Statement No. 128 requirements.
The following table sets forth the computation of basic and
diluted earnings per share:
Year Ended December 31,
(in thousands,
except per share
data)
1997 1996 1995
Numerator for basic and
diluted earnings per
share - net income
$9,561 $9,352 $6,927
Denominator:
Denominator for basic
earnings per share -
weighed average shares 12,459 12,395 12,465
Effect of dilutive
securities:
Employee stock options 261 281 288
Denominator for diluted
earnings per share -
Adjusted weighted-
average shares and
Assumed conversions 12,720 12,676 12,753
Net income per share - basic $0.77 $0.75 $0.56
Net income per share -
diluted $0.75 $0.74 $0.54
Recent Accounting Pronouncements: In June 1997, the
Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income. Statement No. 130 requires
disclosure of all components of comprehensive income on an
annual and interim basis. Comprehensive income is defined as
the change in equity of a business enterprise during a period
from transactions and other events and circumstances from
nonowner sources. Statement No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company will
adopt this statement for 1998 and such adoption is not
expected to have a material effect on the financial
statements.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
LIFETIME HOAN CORPORATION
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands)
December 31,
1997 1996
Land......................... $832 $832
Building and
improvements................ 4,649 4,616
Machinery, furniture and
equipment............. 9,439 7,237
Leasehold
improvements................. 28 28
14,948 12,713
Less accumulated depreciation and
amortization...... 5,514 4,016
$9,434 $8,697
NOTE C - ACCRUED EXPENSES
Accrued expenses consist of (in thousands):
December 31,
1997 1996
Royalties........................ $67 $466
Commissions...................... 489 557
Contract costs..................... 2,087 3,267
Obligation to Meyer Corporation (See
Note L)........ 860 -
Other........................... 2,649 2,592
$6,152 $6,882
NOTE D - LINE OF CREDIT
The Company has available an unsecured $25,000,000 line
of credit with a bank (the "Line") which may be used for short
term borrowings, letters of credit or trade acceptances. As of
December 31, 1997, the Company had letters of credit and trade
acceptances of $11,790,000 outstanding and no outstanding
borrowings. The Line is cancelable by either party at any
time.
Borrowings made under the Line bear interest payable daily
at a negotiated short term borrowing rate. The Company is
charged a nominal fee on the entire Line.
The Company paid interest of approximately $76,000,
$671,000 and $401,000 during the years ended December 31,
1997, 1996 and 1995, respectively.
NOTE E - CAPITAL STOCK
Stock Dividends: In 1995, the Board of Directors of the
Company declared a 10% stock dividend which was recorded at
its market value of $9.00 per share. On February 5, 1997, the
Board of Directors of the Company declared a 10% stock
dividend to shareholders of record on February 18, 1997,
payable February 26, 1997. The stock dividend was recorded at
its market value, $12.00 per share and was reflected in the
1996 financial statements. All common stock data in the
consolidated financial statements give retroactive effect to
the stock dividends.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
LIFETIME HOAN CORPORATION
NOTE E - CAPITAL STOCK (continued)
Cash Dividends: On October 22, 1997, the Board of
Directors of the Company declared a $0.0625 quarterly cash
dividend per share, payable on November 5, 1997, and on
January 28, 1998, the Board of Directors of the Company
declared an additional $0.0625 quarterly cash dividend per
share, payable on February 19, 1998.
Warrants: During the years ended December 31, 1996 and
1995, 1,058 and 6,810 of warrants were exercised,
respectively. The net proceeds from the exercises in 1996 and
1995 were $6,147 and $43,447, respectively. There were no
outstanding warrants.
Stock Option Plans: The Company has a Stock Option Plan
(the "Plan") pursuant to which options may be granted to key
employees of the Company, including directors and officers. On
June 9, 1994, the shareholders of the Company approved an
amendment to the Plan to increase the shares available for
issuance from 500,000 to 1,500,000 shares of Common Stock. The
Plan authorizes the Board of Directors of the Company to issue
incentive stock options as defined in Section 422A (b) of the
Internal Revenue Code and stock options that do not conform to
the requirements of that Section of the Code. All options
expire on the tenth anniversary of the date of grant and vest
over a range of one to five years, from the date of grant.
In June 1996, the stockholders of the Company approved
the adoption of the Lifetime Hoan Corporation 1996 Incentive
Stock Option Plan (the "ISO Plan"). The ISO Plan authorizes
the granting of 250,000 options to purchase common stock to
officers of the Company and its subsidiary. No individual
officer may be granted more than 175,000 options to purchase
common stock. The ISO Plan authorizes the issuance of
incentive stock options as defined in Section 422 of the
Internal Revenue Code. All options expire on the fifth
anniversary of the date of grant and vest in one year from the
date of grant.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
LIFETIME HOAN CORPORATION
NOTE E - CAPITAL STOCK (continued)
The Company has elected to continue to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25") and related Interpretations in
accounting for its employee stock options because, as
discussed below, the alternative fair value accounting
provided for under Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation" ("Statement
123"), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and net income
per share is required by Statement 123, and has been
determined as if the Company has accounted for its employee
stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of
grant using a Black-Scholes option valuation model with the
following weighted average assumptions: risk free interest
rates of 5.75%, 6.34% and 6.43% for years 1997, 1996 and 1995,
respectively; 2.50% dividend yield in 1997 and no dividend
yields in 1996 and 1995; volatility factor of the expected
market price of the Company's common stock of 0.54 in 1997 and
0.35 in 1996 and 1995; and a weighted-average expected life of
the options of 5.1, 4.8 and 6.0 years in 1997, 1996 and 1995,
respectively.
The Black-Scholes option valuation model was developed
for use in estimating fair value of traded options which have
no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the
estimated fair value of the option is amortized to expense
over the options' vesting period. The Company's pro forma
information is as follows:
s>
Year Ended
December 31,
1997 1996 1995
Pro forma net income (in $9,300 $9,237 $6,922
thousands)
Pro forma net income per $0.75 $0.75 $0.56
share - basic
Pro forma net income per $0.73 $0.73 $0.54
share - diluted
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
LIFETIME HOAN CORPORATION
NOTE E - CAPITAL STOCK (continued)
The following summarizes stock option activity:
1997 1996 1995
Shares Weighted- Shares Weighted- Shares Weighted-
Under Average Under Average Under Average
Option Exercise Option Exercise Option Exercise
Price Price Price
Balance - 868,963 $6.19 625,633 $5.43 614,209 $5.40
Jan 1,
Grants 184,370 $9.26 202,750 $8.45 14,600 $9.37
Exercise (114,737) $5.10 (20,356) $5.57 (40,046) $5.19
Canceled (31,654) $6.12 (18,061) $6.30 (20,005) $5.93
Stock - 78,997 56,875
Dividends
Balance - 906,942 $6.95 868,963 $6.19 625,633 $5.43
Dec 31,
The weighted average fair value of options
granted during the years ended December 31, 1997, 1996 and
1995 were $3.98, $3.85 and $5.19, respectively.
The following table summarizes information about
employees stock options outstanding at December 31, 1997:
Weighted- Weighted- Weighted-
Average Average Average
Remaining Exercise Exercise
Contractual Price- Price-
Exercise Options Options Life - Options Options
Price Outstanding Exercisable In Years Outstanding Exercisable
ding
$4.14 - $5.51 268,817 268,817 4.3 $4.59 $4.59
$6.39 - $8.41 365,586 166,337 6.6 $6.81 $6.44
$8.83 - $10.87 272,539 95,328 7.6 $9.47 $9.68
906,942 530,482 6.2 $6.95 $6.09
In connection with the grant of certain options,
the Company recorded, and is amortizing, deferred
compensation.
In connection with the exercise of options under
a stock option plan which has since expired, the Company
received cash of $255,968 and notes in the amount of $903,712.
The notes bear interest at 9% and are due no later than
December 31, 2000.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
LIFETIME HOAN CORPORATION
NOTE F - INCOME TAXES
The Company uses the liability method, under which,
deferred tax assets and liabilities are determined based on
the differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse.
The provision (benefit) for income taxes consist of (in
thousands):
Year Ended
December 31,
1997 1996 1995
Current:
Federal $4,443 $4,813 $3,875
State and local 978 1,079 869
Deferred 579 168 (357)
Income tax provision $6,000 $6,060 $4,387
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components
of the Company's net deferred tax assets are as follows (in
thousands):
December 31,
1997 1996
Merchandise inventories $1,078 $1,054
Accounts receivable 289 313
allowances
Depreciation and amortization (687) (311)
Other (241) (38)
$439 $1,018
The provision for income taxes differs from the amounts
computed by applying the applicable federal statutory rates as
follows (in thousands):
Year Ended December 31,
1997 1996 1995
Provision for Federal income
taxes at
the statutory rate $5,291 $5,240 $3,847
Increases (decreases):
State and local income taxes net of
Federal income tax benefit 645 712 574
Other 64 108 (34)
PROVISION FOR INCOME TAXES $6,000 $6,060 $4,387
The Company paid income taxes (net of refunds) of
approximately $6,258,000, $4,830,000 and $5,428,000 during the
years ended December 1997, 1996, and 1995, respectively.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
LIFETIME HOAN CORPORATION
NOTE G - COMMITMENTS
Operating Leases: The Company has lease agreements for its
warehouse, showroom facilities and outlet stores which expire
through December 31, 2002. These leases provide for, among
other matters, annual base rent escalations and additional
rent for real estate taxes and other costs.
Aggregate minimum rentals on operating leases are as
follows (in thousands):
Year ended December 31:
1998 $3,035
1999 1,371
2000 784
2001 598
2002 362
$6,150
Meyer Corporation reimburses the Company 62.5% of the
operating lease expense of the outlet stores, which is not a
sublease commitment (See Note L). In 1997, Meyer reimbursed
approximately $861,000 for operating lease expense to the
Company.
Rental and related expenses on the operating leases were
approximately $4,281,000, $3,570,000 and $1,315,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Amounts for 1997 are prior to the reimbursement described
above.
The Company has issued a letter of credit of approximately
$279,000 which is held by the landlord as security for its
warehouse leases.
Royalties: The company has royalty licensing agreements
which expire through December 31, 2002. Aggregate minimum
royalties are as follows (in thousands):
Year ended December 31:
1998 $535
1999 400
2000 480
2001 640
2002 800
$2,855
Employment Agreements: In April 1996, as amended in June
1997, the Company entered into employment agreements with its
President and Executive Vice President, providing for annual
salaries of $700,000 and $400,000 respectively, and for the
payment of bonuses pursuant to the Company's 1996 Incentive
Bonus Compensation Plan (the "Bonus Plan") (see below). The
employment agreements continue through April 1999, thereafter
for additional periods of one year unless terminated by either
the Company or the executive.
In April 1997, the Company entered into an employment
agreement with its Vice President- Distribution, providing for
an annual salary of $175,000 through April 6, 2000.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
LIFETIME HOAN CORPORATION
NOTE G - COMMITMENTS (continued)
Incentive Bonus Compensation Plan: In April 1996, the
Board of Directors adopted and in June 1996, the stockholders
approved the Bonus Plan. The Bonus Plan provides the award of
a bonus, with respect to each of the ten fiscal years of the
Company beginning with the 1996 fiscal year, to the President
and the Executive Vice President of the Company. The bonus
payable to each executive is an amount equal to 3.5% of pretax
income, before any provision for executive compensation, stock
options exercised during the year under the Company's 1991
Stock Option Plan and extraordinary items. During each of
the years ended December 31, 1997 and 1996, the Company
recorded annual compensation expense of approximately $1.2
million pursuant to the Bonus Plan.
NOTE H - RELATED PARTY TRANSACTION
In May 1993, the Company loaned $140,000 to a director of
the Company for the exercise of stock options. The loan had
an interest rate of 9%, payable quarterly. The loan and
accrued interest was repaid in May 1996.
In connection with the Farberware acquisition (see note
J), a director of the Company was paid $292,000 for a
financial advisory fee.
NOTE I - RETIREMENT PLAN
The Company established a defined contribution retirement
plan ("the Plan") for eligible employees under Section 401(k)
of the Internal Revenue Code effective January 1, 1994.
Participants can make voluntary contributions up to a maximum
of 15% of their salary. The Company made no contributions to
the Plan in 1997, 1996 and 1995.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
LIFETIME HOAN CORPORATION
NOTE J - ACQUISITIONS
Farberware Acquisition: In April, 1996, the Company
together with an unrelated third party, Syratech Corporation,
acquired certain assets of Farberware, Inc. ("Farberware")
including the assignment to the Company of a 200 year, royalty-
free, exclusive right to use the Farberwarer name in
connection with the product lines covered by its previous
license agreement with Farberware. The Company also acquired
all of the Farberware outlet stores, including inventory.
Rights to license the Farberwarer name for use by third
parties are held by a joint venture, owned equally by the
Company and Syratech Corporation. The Company's portion of
the purchase price was $12.7 million, of which $9.2 million
was attributed to the royalty-free exclusive right to use the
Farberwarer name. The Company is jointly and severally liable
for the obligations of Syratech Corporation under the terms of
the agreement. The Company will be indemnified by Syratech
Corporation for any losses it may incur as a result of its
failure to perform such obligations.
Hoffritz Acquisition: In September 1995, the Company
acquired the Hoffritzr trademarks and brand name. The
purchase price consisted of cash and the issuance of 46,512
shares of Common Stock, valued at $10.25, the market price at
the date of the issuance for a total consideration of $2.5
million.
NOTE K - CONCENTRATIONS OF CREDIT
Financial instruments which potentially subject the Company
to significant concentrations of credit risk consist
principally of cash and cash equivalents and trade accounts
receivable.
The Company maintains cash and cash equivalents with
various financial institutions.
Concentrations of credit risk with respect to trade
accounts receivable are limited due to the large number of
entities comprising the Company's customer base and their
dispersion across the United States. The Company's accounts
receivable are not collateralized. The Company periodically
reviews the status of its accounts receivable and accordingly
establishes an allowance for doubtful accounts.
During the year ended December 31, 1997, one customer
accounted for approximately 17% of net sales.
The Company sources its products from approximately 45
manufacturers located primarily in the Far East, including the
People's Republic of China, Indonesia, Taiwan, Thailand,
Malaysia, Korea and to a smaller extent in the United States,
India and Italy. In 1997, the majority of cutlery was
purchased from four suppliers, who individually accounted for
30%, 21%, 18% and 18% of the total purchases. An interruption
of supply from any of these manufacturers could have an
adverse impact on the Company's ability to fill orders on a
timely basis. However, the Company believes other
manufacturers with whom the Company does business would be
able to increase production to fulfill the Company's
requirements.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
LIFETIME HOAN CORPORATION
NOTE L - OTHER TRANSACTIONS
Meyer Agreement: On July 1, 1997, the Company
entered into an agreement with Meyer Corporation,
("Meyer"), regarding the operation of the Company's
Farberware retail outlet stores. Pursuant to the
agreement, the Company continues to own and operate the
Farberware retail outlet stores, which the Company
acquired in 1996 (see Note J) and Meyer, the licensed
manufacturer of Farberware branded cookware products,
assumes responsibility for merchandising and stocking
cookware products in the stores. Meyer receives all
revenue from sales of Farberware cookware, and reimburses
the Company for 62.5% of the operating expenses, as
defined, attributable to the stores. Also, Meyer
acquired all cookware inventory from the Company at its
carrying value of approximately $3.1 million.
F-17
LIFETIME HOAN CORPORATION
Schedule II - Valuation and Qualifying Accounts
Lifetime Hoan Corporation
(in thousands)
COL. A COL. B COL. C COL. D COL. E
Additions
Balance Charged to
Beginning of Costs and Deductions Balance at
Description Period Expenses (Describe) end of period
Year ended December 31, 1997
Deducted from asset accounts:
Allowance for
doubtful
accounts $75 $2,112 $2,112 (a) $75
Reserve for sales returns
and allowances 716 3,533 (c) 3,473 (b) 776
$791 $5,645 $5,585 $851
Year ended December 31, 1996
Deducted from asset accounts:
Allowance for
doubtful
accounts $75 $500 $500 (a) $75
Reserve for sales returns
and allowances 588 3,589 (c) 3,461 (b) 716
$663 $4,089 $3,961 $791
Year ended December 31, 1995
Deducted from asset accounts:
Allowance for
doubtful
accounts $75 $534 $534 (a) $75
Reserve for sales returns
and allowances 485 3,686 (c) 3,583 (b) 588
$560 $4,220 $4,117 $663
(a) Uncollectible accounts written off, net of
recoveries.
(b) Allowances granted.
(c) Charged to net sales.
S-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ Milton Cohen
Milton L. Cohen
Chairman of the Board
of Directors and
President
(Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ Milton Cohen
Milton L. Cohen Chairman of the Board of
March 30, 1998
Directors and President
(Principal Executive Officer)
/s/ Jeffrey Siegel
Jeffrey Siegel Executive Vice-President
March 30, 1998
and Director
/s/ Craig Phillips
Craig Phillips Vice-President - Distribution,
March 30, 1998
Secretary and Director
/s/ Robert McNally
Robert McNally Vice-President - Finance
March 30, 1998
and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Ronald Shiftan
Ronald Shiftan Director
March 30, 1998
/s/ Howard Bernstien
Howard Bernstein Director
March 30, 1998
Exhibit 21. Subsidiaries of the Registrant
Outlet Retail Stores, Inc.
Incorporated in the state of Delaware
Exhibit 23. Consent of Ernst & Young LLP
We consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-51774) of
Lifetime Hoan Corporation pertaining to the 1991 Stock
Option Plan, of our report dated February 18, 1998, with
respect to the consolidated financial statements and
schedule of Lifetime Hoan Corporation included in the
Annual Report (Form 10-K) for the year ended December 31,
1997.
Ernst & Young LLP
Melville, New York
March 30, 1998
Exhibit 27. Financial Data Schedule
Lifetime Hoan Corporation
Financial Data Schedule
Pursuant to Item 601(c) of Regulation S-K
This schedule contains summary financial information
extracted
from the financial statements included in the form 10-K
for the twelve months ended December 31, 1997.
(in thousands)
Item Item Description Amount
Number
5-02(1) Cash and Cash Items $ 7,773
5-02(2) Marketable Securities $ 0
5- Notes and Accounts Receivable - $ 13,349
02(3)(a)(1 Trade
)
5-02(4) Allowances for Doubtful $ 75
Accounts
5-02(6) Inventory $ 42,763
5-02(9) Total Current Assets $ 69,709
5-02(13) Property, Plant and Equipment $ 14,948
5-02(14) Accumulated Depreciation $ 5,514
5-02(18) Total Assets $ 92,957
5-02(21) Total Current Liabilities $ 12,051
5-02(22) Bonds, Mortgages and Similar $ 0
Debt
5-02(28) Preferred Stock - Mandatory $ 0
Redemption
5-02(29) Preferred Stock - No Mandatory $ 0
Redemption
5-02(30) Common Stock $ 125
5-02(31) Other Stockholders' Equity $ 80,781
5-02(32) Total Liabilities and $ 92,957
Stockholders' Equity
5- Net Sales of Tangible Products $ 99,356
03(b)1(a)
5-03(b)1 Total Revenues $ 100,021
5- Cost of Tangible Goods Sold $ 51,419
03(b)2(a)
5-03(b)2 Total Costs and Expenses
Applicable
to Sales and Revenues $ 51,419
5-03(b)3 Other Costs and Expenses $ 0
5-03(b)5 Provision for Doubtful Accounts $ 2,112
and Notes
5-03(b)(8) Interest and Amortization of $ 76
Debt Discount
5- Income Before Taxes and Other $ 15,561
03(b)(10) Items
5- Income Tax Expense $ 6,000
03(b)(11)
5- Income/Loss Continuing $ 9,561
03(b)(14) Operations
5- Discontinued Operations $ 0
03(b)(15)
5- Extraordinary Items $ 0
03(b)(17)
5- Cumulative effect - Changes in $ 0
03(b)(18) Accounting
Principles $ 0
5- Net Income or Loss $ 9,561
03(b)(19)
5- Earnings Per Share - Primary $ 0.77
03(b)(20)
5- Earnings Per Share - Fully $ 0.75
03(b)(20) Diluted
_______________________________
1