17 Page 1 of 13 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended September 30, 1996 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. Empl oyer Identification No.) One Merrick Avenue, Westbury, NY 11590 (Address of principal executive offices) (Zip Code) 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 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 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 11,276,194 shares outstanding as of October 31, 1996 INDEX LIFETIME HOAN CORPORATION PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 3 Condensed Consolidated Statements of Income for the Three and Nine months ended September 30, 1996 and 1995 4 Condensed Consolidated Statement of Changes in Stockholders' Equity for the Nine months ended September 30, 1996 5 Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 1996 and 1995 6 Notes to Condensed Consolidated Financial Statements for the Nine months ended September 30, 1996 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION 11 SIGNATURES 13 ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS LIFETIME HOAN CORPORATION September December 30, 31, 1996 1995 (unaudited) (Note) ASSETS CURRENT ASSETS Cash and cash equivalents $56,847 $89,797 Accounts receivable, less allowances of $734,000 (1996) and $663,000 (1995) 14,211,673 12,682,401 Merchandise inventories 43,410,089 43,337,000 Prepaid expenses 5,608,638 4,578,813 Deferred income taxes 1,116,000 1,186,000 Other current assets 1,840,996 695,241 TOTAL CURRENT ASSETS 66,244,243 62,569,252 PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $3,680,959 (1996) and 8,749,752 7,882,166 $2,841,202 (1995) EXCESS OF COST OVER NET ASSETS ACQUIRED, net of accumulated amortization of $757,000 (1996) and 1,922,202 1,971,102 $708,100 (1995) OTHER INTANGIBLES, net of accumulated amortization of $238,294 (1996) and $24,000 (1995) 11,316,071 2,452,748 OTHER ASSETS 938,938 880,766 $89,171,206 $75,756,034 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and trade acceptances $5,387,069 $3,072,401 Accrued expenses 6,401,823 5,931,414 Income taxes 976,518 232,447 Short term borrowings 8,400,000 4,600,000 TOTAL CURRENT LIABILITIES 21,165,410 13,836,262 STOCKHOLDERS' EQUITY Series B Preferred Stock, $1 par value, authorized 2,000,000 shares; none issued Common Stock, $.01 par value, authorized 25,000,000 shares; issued and outstanding 11,276,194 (1996) and 112,762 112,573 11,257,276 (1995) Paid-in capital 61,221,113 61,103,589 Retained earnings 7,661,480 1,845,007 68,995,355 63,061,169 Less: Notes receivable for shares issued to 908,064 1,048,064 stockholders Deferred compensation 81,495 93,333 68,005,796 61,919,772 $89,171,206 $75,756,034 Note: The Balance Sheet at December 31, 1995 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) LIFETIME HOAN CORPORATION Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Net sales $25,116,29 $22,093,672 $65,380,614 $56,327,592 Cost of sales 11,707,992 11,758,701 32,782,813 29,673,714 13,408,304 10,334,971 32,597,801 26,653,878 Selling, general and 8,502,046 6,378,161 22,622,276 18,152,488 administrative expenses INCOME FROM OPERATIONS 4,906,258 3,956,810 9,975,525 8,501,390 Other (income) deductions: Interest expense 193,399 152,198 527,932 217,932 Other (income), net (25,120) (23,980) (78,881) (121,321) INCOME BEFORE INCOME TAXES 4,737,979 3,828,592 9,526,474 8,404,779 Provision for federal, state and local income taxes 1,865,000 1,465,000 3,710,000 3,252,000 NET INCOME $2,872,979 $2,363,592 $5,816,474 $5,152,779 NET INCOME PER SHARE $0.25 $0.20 $0.50 $0.44 WEIGHTED AVERAGE SHARES OUTSTANDING 11,535,483 11,530,253 11,526,207 11,636,283 See notes to condensed consolidated financial statements CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) LIFETIME HOAN CORPORATION <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> Common Stock Paid-in Retained Notes Deferred Receivable Shares Amount Capital Earnings from Compensati Total Stockholders on Balance at Dec. 31, 1995 11,257,276 $112,573 $61,103,589 $1,845,006 ($1,048,064) ($93,333) $61,919,771 Exercise of stock 17,860 178 111,388 111,566 options Exercise of 1,058 11 6,136 6,147 warrants Net income for the nine months ended September 5,816,474 5,816,474 30, 1996 Repayment of note receivable 140,000 140,000 Amortization of deferred 11,838 11,838 compensation Balance at Sept. 30, 1996 11,276,194 $112,762 $61,221,113 $7,661,480 ($908,064) ($81,495) $68,005,796 </TABLE> See notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) LIFETIME HOAN CORPORATION Nine Nine Months Months Ended Ended September September 30, 30, 1996 1995 OPERATING ACTIVITIES Net income $5,816,474 $5,152,779 Adjustments to reconcile net income to net cash provided by / (used in) operating activities: Depreciation and amortization 1,122,484 649,971 Amortization of deferred compensation 11,838 44,909 Deferred tax (benefit) 70,000 (246,000) Provision for losses on accounts 446,256 460,568 receivable Changes in operating assets and liabilities: Accounts receivable (1,975,528) (1,814,681) Merchandise inventories (73,089) (14,753,000) Prepaid expenses, other current assets and other assets (2,233,752) (567,463) Accounts payable and trade acceptances and accrued expenses 2,785,077 819,287 Income taxes payable 744,071 (38,234) NET CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES 6,713,831 (10,291,864) INVESTING ACTIVITIES Purchase of property and equipment, net (1,726,877) (569,068) Purchase of intangibles (9,077,617) (2,000,000) NET CASH (USED IN) INVESTING ACTIVITIES (10,804,494) (2,569,068) FINANCING ACTIVITIES Proceeds from short term borrowings, net 3,800,000 11,700,000 Proceeds from the exercise of warrants 6,147 43,447 Proceeds from the exercise of stock 111,566 247,963 options Repurchase of common stock, net (1,609,352) Repayment of note receivable 140,000 - NET CASH PROVIDED BY FINANCING ACTIVITIES 4,057,713 10,382,058 (DECREASE) IN CASH AND CASH EQUIVALENTS (32,950) (2,478,874) Cash and cash equivalents at beginning of 89,797 2,724,429 period CASH AND CASH EQUIVALENTS AT END OF $56,847 $245,555 PERIOD... See notes to condensed consolidated financial statements. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) LIFETIME HOAN CORPORATION Note A - Basis of PresentationThe accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 nine month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1995. Note B - Inventories Merchandise inventories, principally finished goods, are recorded at the lower of cost (first-in, first-out basis) or market. Note C - Line of Credit Agreement 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 or letters of credit. As of September 30, 1996, the Company had $8,400,000 of borrowings and $9,561,000 of letters of credit and trade accepatances outstanding. The line is cancelable by either party at any time. Borrowings under the Line bear interest payable daily at a negotiated short term borrowing rate (7.00% at September 30, 1996). The Company is charged a nominal fee on the entire Line. Note D - Capital Stock Net Income Per Share: Net income per common share is based on net income divided by the weighted average number of common shares and equivalents outstanding during the periods. As of September 30, 1996, 775,737 shares of Common Stock have been reserved for issuance upon the exercise of options. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth the operating data of the Company as a percentage of net sales for the periods indicated below. Three Months Nine Months Ended Ended September 30, September 30, 1996 1995 1996 1995 Net sales 100. % 100. % 100.0 % 100. % 0 0 0 Cost of sales 46.6 53.2 50.1 52.7 Gross profit 53.4 46.8 49.9 47.3 Selling, general and 33.9 28.9 34.6 32.2 administrative expenses Income from operations 19.5 17.9 15.3 15.1 Other (income), expense 0.8 0.6 0.8 0.2 Income before income taxes 18.8 17.3 14.5 14.9 Income taxes 7.4 6.6 5.7 5.8 Net Income 11.4 % 10.7 % 8.9 % 9.1 % Three Months Ended September 30, 1996 Compared to Three Months Ended September 30, 1995 Net SalesNet sales for the three months ended September 30, 1996 were $25.1 million, an increase of $3.0 million or 13.7% from the comparable 1995 period. The sales growth was primarily due to net sales from the Farberware Outlet Stores acquired in April 1996, increased net sales of Farberware products, Smart Choice lines and net sales from the new Hoffritzr line, partially offset by decreased sales of other Company products. Gross Profit Gross profit for the three months ended September 30, 1996 was $13.4 million, an increase of $3.1 million or 29.7% over the comparable 1995 period. Gross profit as a percentage of net sales was 53.4% as compared to 46.8% for the 1995 period. This increase is primarily due to a reduction of royalty expense due to the Farberware acquisition and changes in product mix. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended September 30, 1996 were $8.5 million, an increase of $2.1 million or 33.3% from the comparable 1995 period. Selling, general and administrative expenses as a percentage of net sales were 33.9% during this three month period in 1996 as compared to 28.9% for the 1995 period. This increase is primarily attributable to the operations of the Farberware Outlet Stores and increased personnel related expenses. Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30, 1995 Net SalesNet sales for the nine months ended September 30, 1996 were $65.4 million, an increase of $9.1 million or 16.1% from the comparable 1995 period. The sales growth was primarily due to net sales from the Farberware Outlet Stores acquired in April 1996, increased net sales of Farberware products, Smart Choice lines and net sales from the new Hoffritzr line, partially offset by decreased sales of other Company products. Gross Profit Gross profit for the nine months ended September 30, 1996 was $32.6 million, an increase of $5.9 million or 22.3% over the comparable 1995 period. Gross profit as a percentage of net sales was 49.9% as compared to 47.3% for the 1995 period. This increase is primarily due to a reduction of royalty expense due to the Farberware acquisition and changes in product mix. Selling, General and Administrative Expenses Selling, general and administrative expenses for the nine months ended September 30, 1996 were $22.6 million, an increase of $4.5 million or 24.6% from the comparable 1995 period. Selling, general and administrative expenses as a percentage of net sales were 34.6% during this nine month period in 1996 as compared to 32.2% for the 1995 period. This percentage increase is primarily attributable to the operations of the Farberware Outlet Stores. LIQUIDITY AND CAPITAL RESOURCES 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 or letters of credit. Borrowings under the Line bear interest payable daily at a negotiated short term borrowing rate (7.0% at September 30, 1996). The Company is charged a nominal fee on the entire Line. As of September 30, 1996, the Company had $8,400,000 of borrowings and $9,561,000 of letters of credit and trade acceptances outstanding under the Line and, as a result, the availability under the Line was $7,039,000. The Line is cancelable by either party at any time. At September 30, 1996, the Company had cash and cash equivalents of $57,000 versus $90,000 at December 31, 1995, a decrease of $33,000. The decrease is primarily attributable to the Company's increased prepaid expenses and other current assets offset by increased accounts payable and trade acceptances. Products are sold to retailers primarily on 30-day credit terms, and to distributors primarily on 60-day credit terms. 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 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 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 long term 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. PART II - OTHER INFORMATION Item 6. Exhibit(s) and Reports on Form 8-K. (a) Exhibit(s) in the third quarter of 1996: Exhibit 27. Financial Data Schedule (b) Reports on Form 8-K in the third quarter of 1996: NONE 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-Q for the nine months ended September 30, 1996. Item Item Description Amount Number 5-02(1) Cash and Cash Items $ 56,847 5-02(2) Marketable Securities $ 0 5- Notes and Accounts Receivable - $ 14,286,673 02(3)(a)( Trade 1) 5-02(4) Allowances for Doubtful $ 75,000 Accounts 5-02(6) Inventory $ 43,410,089 5-02(9) Total Current Assets $ 66,244,243 5-02(13) Property, Plant and Equipment $ 12,430,711 5-02(14) Accumulated Depreciation $ 3,680,959 5-02(18) Total Assets $ 89,171,206 5-02(21) Total Current Liabilities $ 21,165,410 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 $ 112,762 5-02(31) Other Stockholders' Equity $ 67,893,034 5-02(32) Total Liabilities and $ 89,171,206 Stockholders' Equity 5- Net Sales of Tangible Products $ 65,185,081 03(b)1(a) 5-03(b)1 Total Revenues $ 65,380,614 5- Cost of Tangible Goods Sold $ 32,782,813 03(b)2(a) 5-03(b)2 Total Costs and Expenses Applicable to Sales and Revenues $ 32,782,813 5-03(b)3 Other Costs and Expenses $ 0 5-03(b)5 Provision for Doubtful Accounts $ 446,256 and Notes 5- Interest and Amortization of $ 527,932 03(b)(8) Debt Discount 5- Income Before Taxes and Other $ 9,526,474 03(b)(10) Items 5- Income Tax Expense $ 3,710,000 03(b)(11) 5- Income/Loss Continuing $ 5,816,474 03(b)(14) Operations 5- Discontinued Operations $ 0 03(b)(15) 5- Extraordinary Items $ 0 03(b)(17) 5- Cumulative effect - Changes in 03(b)(18) Accounting Principles $ 0 5- Net Income or Loss $ 5,816,474 03(b)(19) 5- Earnings Per Share - Primary $ 0.50 03(b)(20) 5- Earnings Per Share - Fully $ 0.50 03(b)(20) Diluted 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 /s/ Milton L. Cohen November 14, 1996 __________________________________ Milton L. Cohen Chairman of the Board of Directors and President (Principal Executive Officer) /s/ Fred Spivak November 14, 1996 __________________________________ Fred Spivak Vice President - Finance and Treasurer (Principal Financial and Accounting Officer)