UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 1-11007 TOASTMASTER INC. (Exact name of registrant as specified in its charter) MISSOURI 43-1204566 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1801 NORTH STADIUM BOULEVARD, COLUMBIA, MISSOURI 65202 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:(573) 445-8666 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of Each Exchange Title of Each Class on Which Registered Common Stock, $.10 par value New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None. INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] AT APRIL 30, 1997, THERE WERE 7,538,250 SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING. TOASTMASTER INC. INDEX PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF OPERATIONS - QUARTERS ENDED MARCH 31, 1997 AND 1996 3 CONSOLIDATED BALANCE SHEETS - MARCH 31, 1997 AND 1996 AND DECEMBER 31, 1996 4 CONSOLIDATED STATEMENTS OF CASH FLOWS - THREE MONTHS ENDED MARCH 31, 1997 AND 1996 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-8 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9 SIGNATURE 10 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TOASTMASTER INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) QUARTER ENDED MAR 31 1997 1996 Net Sales $ 26,315 $ 26,739 Cost of Sales 22,181 23,380 ______ ______ Gross Profit 4,134 3,359 Selling, General and Admin. Expenses 5,054 4,984 _______ _______ Operating Loss (920) (1,625) Other Expense - Interest 862 980 _______ _______ Loss Before Income Taxes (1,782) (2,605) Income Tax Benefit (641) (951) _______ _______ Net Loss $(1,141) $(1,654) ======= ======= Net Loss Per Common and Common Equivalent Shares Outstanding $ (0.15) $ (0.22) ====== ====== Weighted Average Common and Common Equivalent Shares Outstanding 7,538 7,538 ===== ===== SEE ACCOMPANYING NOTES TOASTMASTER INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) 3/31/97 12/31/96 3/31/96 ASSETS Cash $ 92 $ 97 $ 121 Accounts Receivable, less allowances 25,376 42,704 30,514 Inventories Finished Goods 30,140 30,043 32,217 Raw Matl.,WIP 10,808 10,811 11,944 LIFO/Inventory Valuation Reserve (4,472) (6,377) (1,884) ______ ______ ______ Total Inventory 36,476 34,477 42,277 Deferred Income Tax 2,280 2,280 824 Prepaid Expenses 3,711 1,562 2,355 ______ ______ ______ Total Current Assets 67,935 81,120 76,091 ______ ______ ______ Property, Plant and Equipment Land 928 926 921 Buildings 9,057 9,057 9,048 Less: Accumulated Depreciation (5,018) (4,897) (4,540) Machinery & Equipment 43,356 42,717 40,380 Less: Accumulated Depreciation (29,838) (29,278) (26,433) ________ ________ ________ Net Property, Plant & Equipment 18,485 18,525 19,376 ________ _______ _______ Goodwill, net of accumulated amortization 3,350 3,378 3,463 Other Assets 1,898 1,831 1,747 ______ _______ _______ $ 91,668 $ 104,854 $100,677 ====== ======= ======= LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities Current Installments of Long-Term Debt $ 2,135 $ 2,145 $ 2,181 Accounts Payable 5,999 3,755 7,229 Accrued Expenses 12,199 13,600 13,061 ______ ______ ______ Total Current Liabilities 20,333 19,500 22,471 Long Term Debt, Excl. Current Installments 31,884 44,611 33,561 Deferred Income Taxes 579 579 1,036 ______ ______ ______ Total Liabilities 52,796 64,690 57,068 ______ ______ ______ Stockholders' Equity: Common Stock, $.10 par value 760 760 760 Additional Paid-in Capital 25,340 25,340 25,340 Minimum Pension Liability Adjustment (227) (227) (267) Retained Earnings 13,299 14,591 18,080 Equity Adj. - Foreign Currency Translation (12) (12) (16) _______ _______ ______ 39,160 40,452 43,897 Treasury Stock (288) (288) (288) _______ _______ ______ Total Stockholders' Equity 38,872 40,164 43,609 ______ _______ _______ $ 91,668 $104,854 $100,677 ====== ======= ======= SEE ACCOMPANYING NOTES TOASTMASTER INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) QUARTER ENDED MAR 31 1997 1996 Cash flows from operating activities: Net loss $(1,141) $(1,654) _______ _______ Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 938 1,105 Restructuring charge 123 0 Accounts receivable 17,328 33,990 Inventories (1,999) (3,272) Prepaid expenses & other current assets (1,489) (871) Other assets (112) (28) Accounts payable 2,244 1,286 Accrued liabilities (1,401) (2,826) Income taxes (660) (2,237) ______ _______ 14,972 27,147 ______ _______ Net cash flows provided by operating activities 13,831 25,493 ______ ______ Cash flows used in investing activities: Additions to property,plant and equipment (948) (631) _______ _______ Net cash flows used in investing activities (948) (631) _______ _______ Cash flows from financing activities: Proceeds from revolving credit agreement 28,962 33,783 Repayments of revolving credit agreement (41,165) (57,858) Dividends paid (151) (152) Repayment of long-term debt (534) (549) _______ _______ Net cash flows used in financing activities (12,888) (24,776) _______ ________ Foreign currency translation adjustment 0 (7) _______ _______ Net increase (decrease) in cash (5) 79 Cash at beginning of period 97 42 ______ ______ Cash at end of period $92 $121 ===== ===== Cash paid during the period for: Interest $978 $1,170 ===== ===== Income taxes $0 $1,319 ===== ===== SEE ACCOMPANYING NOTES TOASTMASTER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. These financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 1996 and notes thereto contained in the Company's Annual Report to Shareholders incorporated by reference in the Annual Report on Form 10-K for the year ended December 31, 1996. The results of operations for the interim periods shown are not necessarily indicative of the results for the entire fiscal year ending December 31, 1997. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS MADE IN THIS REPORT ON FORM 10-Q ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS, FINANCIAL CONDITION OR BUSINESS COULD DIFFER MATERIALLY FROM ITS HISTORICAL RESULTS, FINANCIAL CONDITION OR BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR BUSINESS" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. The following discussion should be read in conjunction with the attached financial statements and notes thereto, and with the Company's audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 1996. The Company believes that sales of many of its products are seasonal, with significant quantities of its products given as gifts, and therefore sell in larger volumes during the Christmas shopping season. Net sales reflect a reduction from revenues of amounts related to sales discount programs, including absorption of out-bound freight and certain allowances for advertising, the latter of which are accounted for by certain competitors as "advertising" expense. The Company views these amounts as price reductions, thereby reducing net sales and lowering gross profits, as well as selling, general and administrative expense. As used in this Quarterly Report on Form 10-Q, the term "revenues" are recorded net of product returns and are before deduction of items referred to above that are used in computing net sales. During the periods discussed below, net sales averaged approximately 95% of revenues. RESULTS OF OPERATIONS Net sales decreased slightly to $26.3 million for the quarter ended March 31, 1997 from $26.7 million for the quarter ended March 31, 1996. Kitchen appliance revenues were $20.1 million for the first quarter of 1997, a decrease of 6.9% from $21.6 million for the same period in 1996. An anticipated decline in breadmaker shipments and reduced toaster revenues contributed to the decrease. Time products revenues increased to $7.2 million for the quarter ended March 31, 1997, as compared to $6.3 million for the quarter ended March 31, 1996. This 14.3% change was primarily from increased export shipments and new domestic business. Sales to the five largest customers for the quarter ended March 31, 1997 represented approximately 44.3% of revenues. Sales to the five largest customers for the first quarter of 1996 were 42.2% of revenues. For the quarter ended March 31, 1997, gross profit was $4.1 million or 15.6% of net sales, an increase from $3.4 million or 12.7% of net sales for the comparable period in 1996. The change was caused by lower material prices and improved manufacturing efficiencies as a result of the restructuring implemented during the fourth quarter of 1996, as well as increased production levels in 1997. Selling, general and administrative expenses for the quarter ended March 31, 1997 increased slightly to $5.1 million compared to $5.0 million for the first quarter of 1996. Interest expense decreased to $862 thousand in 1997 from $980 thousand in 1996 for the quarter ended March 31, due to decreased borrowings. LIQUIDITY AND CAPITAL RESOURCES The Company's operations require substantial working capital. The Company has used available cash flow from operations and borrowings under its revolving credit agreement to finance additional working capital, to retire long-term debt and to fund capital expenditures. Net cash flows provided by operating activities for the three months ended March 31, 1997 were $13.7 million. A reduction in accounts receivable of $17.3 million, an increase in inventory of $2.0 million and an increase in accounts payable of $2.2 million are the result of normal seasonal patterns. Cash flows used for additions to property, plant and equipment of $948 thousand include the cost of new equipment and tooling for new and existing products, as well as, construction costs for a warehouse addition for the time products division. Net cash flows used in financing activities were $12.9 million for the three months ended March 31, 1997, and were primarily from repayments under the revolving credit agreement. At March 31, 1997, amounts outstanding under the revolving credit agreement were $23 million. The Company could borrow an additional $12 million under the terms of the revolving credit agreement at March 31, 1997. Other long-term debt was $11 million, including the current portion of $2.1 million. The terms of and collateral for the revolving credit agreement and long-term debt are described in Note 3 of the Notes to the Consolidated Financial Statements contained in the Company's 1996 Annual Report to shareholders, which note is incorporated herein by reference. Principal payments on the long-term debt are expected to be funded from internally generated cash flow and future borrowings. The revolving credit agreement expires in November 2001. NEW ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" which revises the calculation and presentation provisions of Accounting Principles Board Opinion 15 and related interpretations. Statement No. 128 is effective for the Company's fiscal year ending December 31, 1997. Retroactive application will be required. The Company believes the adoption of Statement No. 128 will not have a significant effect on its reported earnings per share. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1997. SIGNATURE 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. Dated: TOASTMASTER INC. May 12, 1997 BY: /s/ John E. Thompson John E. Thompson Executive Vice President Chief Financial Officer Signing on behalf of the registrant And as principal financial officer