L I F E T I M E B R A N D S A N N U A L R E P O R T 2 0 0 7
Financial Highlights
$500,000
$400,000
$300,000
$200,000
$100,000
$0
$1.50
$1.20
$0.90
$0.60
$0.30
$0
$20,000
$15,000
$10,000
$5,000
$0
$200,000
$150,000
$100,000
$50,000
$0
Net iNcome
iN tHouSaNDS
2003
2004
2005
2006
2007
WorkiNg capital
iN tHouSaNDS
2003
2004
2005
2006
2007
Net SaleS
iN tHouSaNDS
2003
2004
2005
2006
2007
DiluteD iNcome
per commoN SHare
2004
2007
2006
2005
2003
Year Ended December 31,
(in thousands, except per share data)
2003
2004
2005
2006
2007
Net SaleS
$160,355
$189,458
$307,897
$457,400
$493,725
Net iNcome
$8,415
$8,472
$14,109
$15,532
$8,892
DiluteD iNcome
per commoN SHare
$0.78
$0.75
$1.23
$1.14
$0.68
WorkiNg capital
$41,554
$50,512
$85,843
$141,906
$156,795
COmPANY PROFILE
Lifetime Brands, Inc., is North America’s leading
designer, developer and marketer of a broad
range of nationally branded consumer products
used in the home, including Kitchenware, Cutlery &
Cutting Boards, Bakeware & Cookware, Pantryware
& Spices, Dinnerware, Flatware, Glassware, Home
Décor, Picture Frames and Bath Accessories.
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Lifetime Brands, Inc. 2007 Annual Report
Jeffrey Siegel
Chairman of the Board
President and Chief Executive Officer
Dear Fellow Shareholders:
Lifetime Brands had a year of great accomplishments in 2007, during which the Company achieved record sales, strengthened
its long-term competitive position and increased its operational efficiency.
Regrettably, these achievements were overshadowed by the weakening U.S. economy, especially in the latter half of the year,
the period in which we do over 60 percent of our business. While sales of our products are not specifically tied to the stock
market, the housing cycle or conditions in the credit markets, our financial performance as a consumer-focused company is
linked to that of our retailer customers. The general economic uncertainty, high gas prices and rapidly rising food costs took its
toll on most retailers, as evidenced by negative-to-flat same-store sales growth, and consequently had a dampening effect on
our business.
Lifetime’s net sales for 2007 rose to $493.7 million, an increase of 7.9 percent over net sales for 2006. Net income for the year
was $8.9 million, or $0.68 per diluted share.
Despite the challenges of a worsening economy, most of our wholesale businesses performed well. At year-end, we
restructured the management of our dinnerware business, and in 2008 we foresee significant improvements in the performance
of that business.
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Lifetime Brands, Inc. 2007 Annual Report
Our Direct-to-Consumer (DTC) retail business did not achieve its goals for 2007. As a result, we initiated a plan to close
almost half of our retail locations and reduce overhead. We also hired new management for the Internet and catalog segments
of that division. We expect substantial improvement in the DTC division’s operating results in 2008 and continue to explore
additional opportunities to ensure that this division does not continue to be a drag on Lifetime’s earnings.
Our principal response to the current retail climate is to elevate innovation to an unprecedented new level. We have
dramatically accelerated our product development, and in 2008 we plan to introduce more new products than ever before. In
the first quarter alone, we launched more than 2,500 new products that will be available for shipment in 2008. This is more than
double the largest number of new introductions we have ever had in a single quarter. In the year as a whole, we will introduce
well over 4,000 new and redesigned products.
As evidence of our leadership position in product development and materials science, we recently introduced a new line of
housewares products using a non-petroleum, plant-based plastic called NexPlast™. This product line represents a revolutionary
approach that provides an innovative solution for the many retailers committed to providing their customers with a choice of
environmentally friendly products. The items look and function the same as those made of traditional plastic materials.
We believe the introduction of the NexPlast line has the potential to be an industry-changing event. In total, we expect to
produce more than 500 SKUs by 2009, and the potential exists for several thousand more. We expect NexPlast products to
begin shipping in the fourth quarter of 2008.
Over the past several years, we have taken many steps to increase Lifetime’s operational efficiency and to integrate the
people, the facilities and the procedures of the various businesses we have acquired. In 2007 we successfully implemented
a new SAP system, which enables us to enhance our financial reporting capabilities and provides a scalable infrastructure to
support our growth.
During the year, we also made good progress in the consolidation of our West Coast warehouses. We merged our operations
from three facilities into two, and are now further integrating these into a single facility.
Finally, our inventory reduction initiative is beginning to show the results we targeted. Year-end acquisition adjusted inventory
levels for 2007 were down by $17 million, a 10 percent reduction from year-end 2006. We believe there is additional room for
lower inventory levels even though we expect sales to increase in 2008.
We are excited about the opportunities of working with our Mexican partner, Ekco S.A.B. We have introduced a broad line
of products under Ekco’s Vasconia® brand targeted to the Hispanic consumer in the United States, and we are helping Ekco
market Lifetime’s products and brands in Mexico.
The economic climate in 2008 is likely to remain challenging. However, from the perspective of my 40-year career in
the housewares industry, I view this as a long-term positive for Lifetime Brands. I firmly believe that our great brands, our
unparalleled commitment to innovation and our strong balance sheet provide us with the opportunity to increase market share
and further strengthen our position as North America’s leading resource for nationally branded kitchenware, tabletop and
home décor products.
I hope that you share my excitement and I am grateful for your support.
Sincerely,
Jeffrey Siegel
Chairman of the Board, President and Chief Executive Officer
Lifetime Brands, Inc. 2007 Annual Report
4
OUR THINKING
Innovation is at the core of our thinking and woven
into the fabric of our culture. State-of-the-art facilities
and equipment coupled with initiatives to procure new
ideas position Lifetime Brands as the industry leader.
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Lifetime Brands, Inc. 2007 Annual Report
Lifetime Brands, Inc. 2007 Annual Report
6
OUR BRANDS AND PRODUCTS
Each year Lifetime Brands has consistently introduced
thousands of quality products under brands that
consumers trust. Through continual improvements
and targeted expansion into new product categories,
we stay at the forefront of the housewares industry.
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Lifetime Brands, Inc. 2007 Annual Report
Cuisinart® Steel Step-On Can
Lifetime Brands, Inc. 2007 Annual Report
8
OUR ENvIRONmENT
We believe that the sustainable commitment made
by Lifetime Brands and its employees in production,
materials and facilities will have a positive impact on our
environment and will lead to a better future for our planet.
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Lifetime Brands, Inc. 2007 Annual Report
Lifetime Brands, Inc. 2007 Annual Report
10
Our Thinking
Lifetime Brands fully supports a culture of innovation, and the Company integrates this thinking into every aspect of its
business. We recognize the continual need for new ideas and make systematic and organizational commitments to innovation
that bring new ideas to fruition. From our Innovation Design Center to our Global Trend and Design Initiative to our “Ideas of a
Lifetime” program, our team at Lifetime Brands continues to improve its performance by taking ideas to a new dimension.
Innovation Design Center
The state-of-the-art 18,000-square-foot Innovation Design Center at our Garden City headquarters cultivates a climate of
creativity for its team of professional engineers, designers and artists. Our 100-person in-house design team — unmatched in
the industry — brings an incredible wealth of new ideas to the Company and greatly enhances our speed to market. In total,
Lifetime operates four design centers worldwide and recently expanded its team to include industrial and graphic designers in
our Chinese offices. Through the consistent development of creative concepts transformed into innovative products, Lifetime
brings to consumers each year thousands of new items that provide improved quality, employ revolutionary materials, create
new markets and offer replacements to outdated goods and technologies.
Global Trend and Design Initiative
Lifetime takes a consumer-centric approach to product development fueled by extensive research. Through our Global
Trend and Design Initiative, our team of experts travels around the globe exploring new trends, materials and technologies.
Additionally, our collaboration with color and trend forecasting services provides information on the key drivers behind
consumer attitudes and trends. Our Global Trend and Design Initiative empowers us to create a comprehensive and actionable
global forecast, which leads to ideation and development in both product and marketing for all of our divisions.
From a competitive standpoint, the insights we gain from this initiative enable us to improve the positioning of our products
at retail through differentiation. The cross-industry reporting lets us integrate recent innovations from industries other than our
own. For example, we recently incorporated safety considerations from the toy industry into our launch of trash receptacles;
this resulted in our introducing an industry-first locking mechanism within a trash can lid.
Internally, we have greatly improved our development synergies by sharing and evaluating all of the team’s data and research
with our divisions and in-house marketing and design teams to create a greater impact in design, product, packaging and
merchandising concepts. This initiative also helps us to identify new market opportunities and to create additional sources of
consumer demand through innovation rather than through competing in existing markets alone.
Our Global Trend and Design Initiative reinforces our market leadership position and reputation with many of our largest retail
customers, who rely on our trend and color forecasting data. We also have forged relationships with the product development
teams at many of our key accounts and begun a process that allows for collaboration with our retail partners much earlier in the
design cycle. This enables us to greatly increase our speed to market, offering us a distinct advantage over our competitors.
Lifetime’s Global Trend and Design Initiative is a conduit for the Company’s strategic thought processes, providing insight
into demographic, psychographic and general social trends that result in forward-thinking products with a tangible benefit to
the consumer.
“Ideas of a Lifetime”
Lifetime’s Innovation Design Center and Global Trend and Design Initiative are the core components of our product
development process; however, these are not the only ways we foster innovation. Our entire staff is engaged in the process of
contributing ideas to improve our products, our processes and our performance.
Our formalized “Ideas of a Lifetime” program offers employees the opportunity to contribute to the success of our Company
by generating ideas. When executed, these ideas save time and money as well as improve customer experiences and our
products, packaging and work environment. Employees are encouraged to find ways to increase efficiency in their everyday
tasks — and no idea is too small. Every month, the employees who generate the best ideas are rewarded for their contributions.
This program strengthens Lifetime’s commitment to being a company of innovation and provides a steady flow of actionable
ideas that stream into every part of the Company.
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Lifetime Brands, Inc. 2007 Annual Report
Cuisinart® Locking Knife Block
Joseph Abboud™ Dinnerware
Pedrini® Studio Ice Cream Scoop
KitchenAid® Cookie Sheet
Lifetime Brands, Inc. 2007 Annual Report
12
Our Brands and Products
Innovation is always at the center of Lifetime’s thinking, and we realize that the current economic climate calls for an elevated
level of performance from our product development team. Our strategy of accelerating product design coupled with numerous
strategic acquisitions and alliances has allowed us to dramatically increase the amount of new products we introduced into the
marketplace in the past year.
Targeting New Markets
In 2007 we identified the U.S. Hispanic consumer as an important and growing segment of the population that is currently
underserved in this country and a prime new business opportunity. In collaboration with Ekco S.A.B., Mexico’s premier
housewares manufacturer and marketer, we developed the right product mix and brought the Vasconia® brand to the U.S.
Lifetime’s comprehensive Vasconia product offering crosses multiple categories of business and provides programs for every
level at every retailer. Our designers created a line of authentic products that consumers of Hispanic descent will recognize
from their heritage and that mainstream consumers can use as cooking solutions for making traditional Hispanic dishes. Our
line of over 150 products includes the most commonly used specialty pieces as well as innovative new items with unique
features that make food preparation easier. Our unique Double Lime Squeezer can quickly squeeze the juice of an entire lime,
and our four-in-one Avocado Knife can open, pit, dice and peel an avocado with ease. These are just two of our many exclusive
items that help consumers make authentic Hispanic cuisine.
Additionally, our investment in Ekco S.A.B. has also created an avenue of expanded distribution in Mexico and in other Latin
American markets for Lifetime’s numerous products and brands, including KitchenAid®, Farberware®, Pfaltzgraff® and more.
This is a completely new business opportunity for the Company that is already paying dividends.
Our acquisition of Pomerantz and Design for Living (DFL), which offer housewares products with advanced technologies,
helped Lifetime to expand its presence in pantryware and to bring more innovative products to market. For example, we are
currently leveraging DFL’s patented Suctionware® technology — which allows consumers to firmly secure such products as
mandoline slicers, salad spinners and wine bottle openers to countertop surfaces for added stability — across several of our
brands, including Stixx®, Farberware® and Hoffritz®.
In addition to our strategic acquisitions and alliances, we used our market research to broaden our reach into new categories.
Universally recognized brands coupled with exclusive design features put Lifetime at the forefront of one of the fastest-growing
housewares categories: waste management. The new details that Lifetime brings to the waste management category offer
significant improvements that will enable us to take market share from our competitors.
Consumers who seek to match the sleek styling of a newly renovated kitchen or add a touch of class to an existing kitchen
will appreciate the product benefits that we have made standard on our Cuisinart® and KitchenAid® Step-On Cans. Child and
pet-friendly locking lids; liner vents that prevent suction between the garbage bag and the liner; and front and back handles
and wheels for easy moving and cleaning are just a few of the improvements we have made upon the step-on cans that are
currently available in the market.
The Kamenstein® Lotus™ Can, another introduction to the waste management category, met with rave reviews from our retail
partners. With its unique botanical design reminiscent of the lotus flower, this trash canister can be used in any room of the
house. An inner waste bin is discreetly hidden by the opening and closing “petals” of the can, adding a bit of drama to an
otherwise utilitarian product.
New Approaches to Existing Businesses
Our acquisition of the Gorham®, Kirk Stieff®, Whiting™ and Durgin™ sterling silver businesses from Lenox Group Inc. expanded
our sterling portfolio and enabled us to leverage Lifetime’s existing manufacturing infrastructure with minimal incremental cost.
With an increased commitment to the category, Lifetime broke from tradition and partnered with a marketing and branding
expert to develop a fresh, young and hip approach to selling sterling: Sterling 365™ — Silver for Real Life.
This groundbreaking multipronged consumer marketing campaign is reinvigorating the category, growing the sterling market
and changing the way consumers and retailers think about sterling silver flatware. Sterling 365™ encourages the use of sterling
silver flatware every day — not just for special occasions — and makes our sterling silver brands relevant to today’s consumer.
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Lifetime Brands, Inc. 2007 Annual Report
We also made tremendous strides in the stainless steel flatware business. This typically pattern-driven category had not
experienced a material innovation in a number of years. Lifetime practiced disruptive technology in this business unit with
the introduction of Wallace® Hotel Luxe, a new line of stainless steel flatware made from a superior formulation of 21 percent
chromium with copper and titanium additives. This unique combination creates premium flatware with an enhanced glossy,
mirror-like sheen. Hotel Luxe is extremely durable and corrosion-resistant to minimize dulling and pitting over time. In a market
where material costs have seen dramatic increases, this new formulation provides an alternative to 18/10 stainless steel that
gives retailers product innovation and value for consumers.
Bringing New Products to Market
With the kitchen at the center of family life and entertaining, and kitchen décor becoming more elaborate, consumers
continue to demand products for food preparation and cooking that improve function and provide an elevated design aesthetic.
We continue to rise to the challenge with a steady flow of new product introductions. In 2007 we introduced over 3,000 new
items; in the first three months of 2008 we have already introduced nearly that amount: an incredible 2,583 new products.
KitchenAid® continues to be one of our top-performing brands. One of our more noteworthy new item introductions is the
space-saving KitchenAid® Bowl / Colander: It features an easy-to-use snap-in silicone insert that lets cooks quickly convert the
colander into a mixing bowl, making it multifunctional for rinsing, serving and storing. The KitchenAid® Cutlery Set with Recipe
Holder is both a counter space-saver and an organizer for favorite recipes. The hideaway recipe-card holder, nested in the base
of the cutlery block, pulls out easily to give home cooks quick access to their favorite recipes.
The KitchenAid® Professional Metal Bakeware Collection takes a solution-based approach to baking by incorporating high-
performance features with ergonomic design for comfortable handling. Baking pans include markings, or “targets”, for cutting
even portions of baked goods and spacing dough consistently on cookie sheets. In addition, our new angel food cake pan
features a removable base and center tube for easy release of cakes, and an extended center tube and feet that let the home
baker achieve professional results effortlessly.
Under our Cuisinart® brand, we are offering a number of new products that have received accolades from our retail
customers and consumers alike. Bringing the latest in design and function to cutlery, we recently introduced the Cuisinart®
Locking Block, which enables consumers to secure knives into an ultra-contemporary storage block. With its innovative
design and unique locking feature, this cutlery set offers consumers advanced technology over any set of knives they currently
have in their kitchen.
Our Rocking Santoku, made from Damascus steel, combines the best features of the chef knife and of the Santoku in one
supreme cutting tool. The deep blade and slightly rounded tip provide a smooth rocking motion while slicing, dicing, mincing
and chopping food. The Cuisinart® superior Damascus blade has a center core crafted from premium VG10 steel that gives the
ultimate cutting edge. The core is surrounded by 32 layers of stainless steel for extraordinary durability. This layering technique
not only adds style and beauty to the knife but also creates air pockets on the blade that form a nonstick surface.
Lifetime Brands, Inc. 2007 Annual Report
14
Sterling 365™ Campaign
Wallace® Palatina Sterling Silver Flatware
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Lifetime Brands, Inc. 2007 Annual Report
Lotus™ Trash Can
KitchenAid® Bowl / Colander
Farberware® Contemporary Handle Chef Knife
Lifetime Brands, Inc. 2007 Annual Report
16
Our Environment
Lifetime Brands realizes that protecting the environment for future generations has become increasingly important to the
American consumer, and thus it has become a focus for the Company. In 2007 we took a number of actions to make our physical
locations “greener” and developed products that use revolutionary technology and cutting-edge materials to decrease our
environmental impact on the planet.
We believe that every contribution made by Lifetime Brands and its employees will have a significant benefit to our
environment and lead to a stronger legacy for our children. We have made considerable strides in recycling paper, plastic and
corrugate in each of our warehouses and corporate office locations. We have vastly reduced the amount of paper we generate
for corporate meetings and presentations and instead communicate electronically whenever possible.
“Greening” Our Facilities
The Company is conscious about energy efficiency in our various office facilities. Our corporate headquarters in Garden City
uses a state-of-the-art HVAC system, which is a highly energy-efficient way to heat and to cool our space. We use primarily
compact fluorescent light bulbs (CFL) that use 65% less energy and emit less carbon than standard incandescent light bulbs
and operate by motion-activated sensors to turn lights off when not in use.
Our York, Pennsylvania, office touts the title “The first green building renovation in York County, PA” and features
environmentally progressive details throughout. During renovation, extensive efforts were made to minimize waste by reusing
building materials and by sorting and recycling unused materials. Eco-friendly aspects of the York facility include use of Forest
Stewardship Council (FSC)-certified wood; cellulose insulation; and ceilings made from recycled lumber. In addition, a unique
shading system on the building facade minimizes the warming effects of the sun on the interior temperature and reduces
energy consumption.
With renovations scheduled for completion in late 2008, our new location in Medford, Massachusetts, will further maximize
efficiencies and reduce the square footage we occupy in the Boston area. Lifetime will enjoy reduced operating costs as well as
reduced energy consumption in this smaller space but still accommodate the needs of our Boston-based divisions.
“Greening” Our Products
Beyond being conscious of our own physical surroundings, Lifetime Brands is committed to producing products that are less
taxing on the planet. Eco-friendly products are one of the fastest-growing, most dynamic sectors of the economy. Recognizing
this shift in consumer behavior and demand, we have placed increased emphasis on product development and — in particular
— material development that offer an alternative to traditional petroleum-based plastics. The result is an industry-changing
collection of environmentally friendly bio-plastic products for the home.
Bio-plastic products are completely safe for use with food, unlike some recycled plastics, and composed primarily of plant
starches. The material’s appearance and key functions are comparable to nearly all plastics, and, in addition, it is biodegradable.
Though it is dishwasher safe and will withstand years of use, at the end of its life cycle the product can be composted and will
leave a much smaller environmental footprint. The significance of this technology is of utmost importance and exemplifies the
Company’s foresight and commitment to material innovation.
In 2008 we will introduce multiple product lines using this proprietary bio-plastic material, called NexPlast™, starting with
kitchenware and cutting boards, and then building on this core assortment by offering products in many of our other categories.
Our “green” product lines will have a multi-brand strategy and be offered to our retail customers in all channels of distribution.
In addition, the packaging for our “green” lines will be environmentally friendly, using a smaller footprint and ultimately less
material, and made from the most sustainable components possible. Maximizing freight efficiencies, use of single materials for
sorting ease in recycling, and proper labeling are all integral parts of the Company’s sustainability efforts.
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Lifetime Brands, Inc. 2007 Annual Report
Pedrini® Eco Measuring Cups
Pedrini® Eco Square Mixing Bowls
Lifetime Brands, Inc. 2007 Annual Report
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Lifetime Brands, Inc. 2007 Annual Report
2
UNITED STATES
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
For the fiscal year ended December 31, 2007
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: 0-19254
LIFETIME BRANDS, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Delaware
11-2682486
1000 Stewart Avenue, Garden City, New York 11530
(Address of principal executive offices, including Zip Code)
(516) 683-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value The NASDAQ Stock Market LLC
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes _ No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act.
Yes _ No X
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
_
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-
accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
(check one): Large accelerated filer _ Accelerated filer X Non-accelerated filer _
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b(2) of the Exchange
Act).
Yes _ No X
The aggregate market value of 11,230,214 shares of the voting stock held by non-affiliates of the registrant as of
June 30, 2007 was approximately $230,000,000. 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 March 14, 2008 was
11,964,388.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s definitive proxy statement for the 2008 Annual Meeting of Stockholders to be filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934 are incorporated by reference in Part III
of this Annual Report.
LIFETIME BRANDS, INC.
FORM 10-K
TABLE OF CONTENTS
PART I
1.
Business............................................................................................................................4
1A. Risk Factors....................................................................................................................10
1B. Unresolved Staff Comments ..........................................................................................19
2.
3.
Properties........................................................................................................................19
Legal Proceedings ..........................................................................................................19
4. Submission of Matters to a Vote of Security Holders ....................................................19
PART II
5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities....................................................................................20
6.
7.
Selected Financial Data ..................................................................................................22
Management’s Discussion and Analysis of Financial Condition and Results of
Operations ....................................................................................................................23
7A. Quantitative and Qualitative Disclosures about Market Risk ........................................33
8.
9.
Financial Statements and Supplementary Data ..............................................................33
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ..............................................................................................33
9A. Controls and Procedures.................................................................................................34
9B. Other Information...........................................................................................................36
PART III
10. Directors and Executive Officers and Corporate Governance .......................................36
11. Executive Compensation................................................................................................36
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters .....................................................................................................36
13. Certain Relationships and Related Transactions, and Director Independence...............36
14. Principal Accounting Fees and Services .......................................................................36
PART IV
15. Exhibits and Financial Statement Schedules ...................................................................37
Signatures ..............................................................................................................................39
1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” as defined by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include information concerning Lifetime Brands,
Inc.’s (the “Company’s”) plans, objectives, goals, strategies, future events, future revenues, performance, capital
expenditures, financing needs and other information that is not historical information. Many of these statements
appear, in particular, under the headings Business and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in Item 1 of Part I and Item 7 of Part II, respectively. When used in
this Annual Report on Form 10-K, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,”
“believes” and variations of such words or similar expressions are intended to identify forward-looking statements.
All forward-looking statements, including, without limitation, the Company’s examination of historical operating
trends, are based upon the Company’s current expectations and various assumptions. The Company believes there is
a reasonable basis for its expectations and assumptions, but there can be no assurance that the Company will realize
its expectations or that the Company’s assumptions will prove correct.
There are a number of risks and uncertainties that could cause the Company’s actual results to differ materially from
the forward-looking statements contained in this Annual Report. Important factors that could cause the Company’s
actual results to differ materially from those expressed as forward-looking statements are set forth in this Annual
Report, including the risk factors discussed in Part I, Item 1A under the heading Risk Factors. Such risks,
uncertainties and other important factors include, among others:
• Changes in demand for the Company’s products and the success of new products;
• The level of competition in the Company’s industry;
• Changes in general economic and business conditions which could affect customer payment practices or
consumer spending;
Industry trends;
Increases in costs relating to manufacturing and transportation of products;
•
• The Company’s dependence on third party foreign sources of supply and foreign manufacturing;
• Fluctuations in costs of raw materials;
•
• Complexities associated with a multi-channel and multi-brand business;
• Limited experience in the tabletop and home décor product categories;
• The Company’s relationship with key licensors;
• Encroachments on the Company’s intellectual property;
• The Company’s relationship with key customers;
• Product liability claims or product recalls;
• The timing of delivery of products to customers;
• The Company’s restructuring of its direct-to-consumer retail business;
• Departure of key personnel;
•
• Noncompliance with applicable regulations including the Sarbanes-Oxley Act of 2002;
• Risks associated with the Company’s Internet operations;
• Future acquisitions and integration of acquired businesses;
• Technological risks;
• Network security risks;
• Risks associated with indebtedness; and
• The seasonal nature of the Company’s business.
Internal development of products by the Company’s customers;
2
There may be other factors that may cause the Company’s actual results to differ materially from the forward-looking
statements. Except as may be required by law, the Company undertakes no obligation to publicly update or revise
forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect
the occurrence of unanticipated events.
OTHER INFORMATION
The Company is required to file its annual reports on Forms 10-K and quarterly reports on Forms 10-Q, and other
reports and documents as required from time to time with the United States Securities and Exchange Commission
(the “SEC”). The public may read and copy any materials that the Company files with the SEC at the SEC’s
Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information may be obtained with respect
to the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an
Internet site that contains reports, proxy and information statements, and other information regarding the
Company’s electronic filings with the SEC at http://www.sec.gov. The Company also maintains a website at
http://www.lifetimebrands.com where users can access the Company’s electronic filings free of charge.
3
PART I
Item 1. Business
OVERVIEW
The Company is one of North America’s leading resources for nationally branded kitchenware, tabletop and home
décor products. The Company markets its products under some of the most well-respected and widely-recognized
brand names in the U.S. housewares industry including three of the four most recognized brands of “Kitchen
Tool, Cutlery and Gadgets” according to the Home Furnishing News Brand Survey for 2007 - KitchenAid®,
Farberware®, and Cuisinart®. The Company primarily targets moderate to premium price points through every
major level of trade and generally markets several lines within each of its product categories, often under more
than one brand. At the heart of the Company is a strong culture of innovation and new product development. The
Company has introduced over 3,600 new or redesigned products in 2007 and expects to introduce approximately
4,000 new or redesigned products in 2008.
The Company’s three main product categories and the products offered within the product categories are as
follows:
Food Preparation
Kitchenware
Cutlery & Cutting Boards
Bakeware & Cookware
Pantryware & Spices
Fondues & Tabletop Entertaining
Functional Glassware
Tabletop
Flatware
Dinnerware
Tabletop Accessories
Giftware
Glassware
Crystal
Serveware
Barware
Home Décor
Non-electric Lighting
Wall Décor
Picture Frames
Seasonal Decorations
Decorative Accessories
Lawn & Garden Décor
The Company markets several product lines within each of the Company’s product categories and under each of the
Company’s brands. The Company’s competitive advantage is based on strong brands, an emphasis on innovation
and new product development, and excellent sourcing capabilities. The Company owns or licenses many of the
leading brands in its industry. Over the last several years, the Company’s sales growth has come from: (i) expanding
product offerings within the Company’s current categories, (ii) developing and acquiring new brands and product
categories and (iii) entering new channels of distribution, primarily in the United States. Key factors in the
Company’s growth strategy have been, and will continue to be, the selective use and management of the Company’s
strong brands and the Company’s ability to provide a steady stream of new products and designs. A significant
element of this strategy is the Company’s in-house design and development team that currently consists of 102
professional designers, artists and engineers. This team creates new products, packaging and merchandising
concepts. Utilizing the latest available design tools, technology and materials, the Company works closely with its
suppliers to enable efficient and timely manufacturing of its products. The Company has been sourcing its products
in Asia for over 45 years and currently sources its products from approximately 430 suppliers located primarily in
China. The Company produces a majority of its sterling silver products at its manufacturing facility in San German,
Puerto Rico.
The Company’s top ten brands and their respective product categories are:
Farberware®
KitchenAid®
Elements®
Pfaltzgraff®
Wallace Silversmiths®
Cuisinart®
Kamenstein®
International® Silver Company
Melannco®
Towle Silversmiths®
Food Preparation and Tabletop
Food Preparation
Home Décor
Tabletop and Food Preparation
Tabletop and Home Décor
Food Preparation and Tabletop
Food Preparation
Tabletop and Home Décor
Home Décor
Tabletop and Home Décor
4
The Company sells its products to a diverse nationwide customer base including mass merchants, specialty stores,
national chains, department stores, warehouse clubs, home centers, supermarkets and off-price retailers, as well as
through other channels of distribution. The Company’s largest retail customers are each serviced by an in-house team
that includes representatives from the Company’s sales, marketing, merchandising and product development
departments. The Company generally collaborates with its retail customers and in many instances produces specific
versions of the Company’s product lines with exclusive designs and packaging for their stores, which are
appropriately priced for their respective customer bases.
The Company also sells its products directly to the consumer through Company-operated factory and outlet stores,
mail order catalogs, and the Internet. At December 31, 2007 the Company operated 78 factory and outlet stores in 32
states under the Farberware® and Pfaltzgraff® names. In December 2007, the Company commenced a plan to close
30 underperforming Farberware® outlet stores and Pfaltzgraff® factory stores by the end of the first quarter of
2008.
The Company’s principal East Coast distribution center is a modern facility located in Robbinsville, New Jersey and
the Company’s new principal West Coast distribution center is a modern facility located in Fontana, California that
the Company began occupying in December 2007. The Company also currently operates distribution centers in Mira
Loma, California; East Boston, Massachusetts; Winchendon, Massachusetts; and York, Pennsylvania and utilizes
one distribution facility in California operated by a third-party logistics provider. The Company utilizes public
warehouses to provide additional capacity as needed. The Company is in the process of consolidating its West
Coast distribution centers. During the third quarter of 2008 the operations of the Company’s Mira Loma, California
distribution center and the facility in California operated by a third-party logistics provider will be consolidated into
the Company’s Fontana, California distribution center.
The Company has assembled a seasoned management team with experience and talent in the housewares and
consumer products industries. The Company’s management team is focused on growing the Company’s business by
capitalizing on the reputation of the Company’s well-respected and widely-recognized brands and the Company’s
strengths in product design and innovation, product sourcing experience and expertise and long-term retail customer
and supplier relationships.
BUSINESS SEGMENTS
The Company operates in two reportable segments—wholesale and direct-to-consumer. The wholesale segment is
the Company’s primary business that designs, markets and distributes household products to retailers and
distributors. The direct-to-consumer segment is comprised of the Company’s business that sells household products
directly to the consumer through the Company’s factory and outlet stores, mail-order catalogs and the Internet. The
Company has segmented its operations in a manner that reflects how management reviews and evaluates the results
of its operations. While both segments distribute similar products, the segments are distinct due to their different
types of customers and the different methods used to sell, market and distribute the products. Additional information
regarding the operating performance of the Company’s segments is discussed in Note J of the Notes to the
Consolidated Financial Statements beginning on page F-7.
5
ACQUISITIONS
Since 1995 the Company has completed the following 13 acquisitions that have expanded the Company’s product
offerings, allowed the Company to enter new product categories and added brands:
Year
1995
Company or assets acquired
Hoffritz®
1998
Roshco, Inc.
2000
M. Kamenstein, Inc.
Product categories
Food Preparation
Food Preparation
Food Preparation
2003
:USE®—Tools for Civilization
Gemco Ware, Inc.
Bath hardware and accessories
Food Preparation
2004
Excel Importing Corp.
Food Preparation and Tabletop
2005
The Pfaltzgraff Co.
Salton, Inc.
Tabletop and Food Preparation
Tabletop
2006
Syratech Corporation
Tabletop and Home Décor
2007
Pomerantz®
Design for Living®
Gorham®
Ekco S.A.B. (29.99%)
RECENT ACQUISITIONS
Food Preparation
Food Preparation
Tabletop
Food Preparation and Tabletop
Pomerantz® and Design for Living®
In April 2007, in two separate, but related, transactions, the Company acquired the Pomerantz® brand and certain
related assets from JP Products, LLC and the Design for Living® brand and certain related assets from Design for
Living, LLC; designers, importers and distributors of pantryware products.
Gorham®
In July 2007, the Company acquired certain assets from Lenox Group Inc. (“Lenox”). Concurrently with the
execution of the agreement, the Company entered into a long-term exclusive licensing agreement with Lenox
under which the Company licensed the Gorham®, Kirk Stieff®, Whiting™ and Durgin™ trademarks in
connection with the manufacture, sale, distribution and marketing of sterling silver products.
Ekco
In December 2007, the Company acquired a 29.99% interest in Ekco S.A.B (“Ekco”). Ekco is one of Mexico’s
leading housewares companies and manufactures and sells cookware, bakeware, kitchenware, cutlery,
dinnerware, flatware and related items. Ekco markets its products in Mexico under the Ekco®, Vasconia®,
Regal®, H. Steele®, Presto® and Thermos® brands.
6
CUSTOMERS
The Company’s products are sold primarily in the United States. The Company sells its products to a diverse
nationwide customer base including mass merchants (such as Wal-Mart and Target), specialty stores (such as Bed
Bath & Beyond and Linens’n Things), national chains (such as JC Penney, Kohl’s, and Sears), department stores
(such as Bloomingdale’s, Macy’s and Saks), warehouse clubs (such as Costco, BJ’s Wholesale Club and Sam’s
Club), home centers (such as Lowe’s and The Home Depot), supermarkets (such as Stop & Shop and Kroger) and
off-price retailers (such as Marshalls, T.J. Maxx and Ross Stores).
During the years ended December 31, 2007, 2006 and 2005, Wal-Mart Stores, Inc. (including Sam’s Club)
accounted for 21%, 17% and 20% of net sales, respectively. No other customer accounted for 10% or more of the
Company’s net sales during 2007, 2006 or 2005. For the years ended December 31, 2007, 2006 and 2005, the
Company’s ten largest customers accounted for 62%, 49% and 51% of net sales, respectively.
At December 31, 2007 the Company also operated 34 outlet stores in 17 states under the Farberware® name and 44
factory stores in 25 states under the Pfaltzgraff® name, as well as, catalog and Internet operations.
DISTRIBUTION
The Company operates the following distribution centers:
Location
Fontana, California
Robbinsville, New Jersey
York, Pennsylvania
Mira Loma, California
Winchendon, Massachusetts
East Boston, Massachusetts
Size
(square feet)
753,000
700,000
473,000
426,000
210,000
11,000
The Company’s principal East Coast distribution center is the Robbinsville, New Jersey facility and the Company’s
principal West Coast distribution center is the Fontana, California facility.
In addition to the above distribution centers, the Company currently utilizes a 216,000 square foot distribution center
in California operated by a third-party logistics provider and five public warehouses, two of which are located in
New Jersey, two of which are located in Massachusetts and one of which is located in Pennsylvania that provide
additional capacity as needed.
In December 2007, the Company began the process of consolidating its West Coast distribution centers. During the
third quarter of 2008, the operations of the Mira Loma, California distribution center and the 216,000 square foot
facility in California operated by a third-party logistics provider will be consolidated into the Fontana, California
distribution facility.
7
SALES AND MARKETING
The Company maintains separate sales forces for its product categories so as to provide the specialized expertise
and attention necessary to service its customer base. The Company’s sales and marketing staff coordinates with
individual retailers to devise marketing strategies and merchandising concepts and to furnish advice on
advertising and product promotion. The Company has developed several promotional programs for use in the
ordinary course of business to promote sales throughout the year.
The Company’s various sales and marketing efforts are supported from its principal office and showroom in
Garden City, New York. The Company also maintains showrooms in New York, New York; Boston,
Massachusetts; Atlanta, Georgia; Bentonville, Arkansas; and Menomonee Falls, Wisconsin. The Company’s sales
and marketing staff at December 31, 2007, consisted of 192 employees who are salaried, paid commissions based
on sales or, in some instances, paid a base salary plus commissions. The Company also distributes certain of its
products through independent sales representatives who work on a commission basis only.
The Company’s largest retail customers are each serviced by an in-house team that includes representatives from the
Company’s sales, marketing, merchandising and product development departments. The Company generally
collaborates with its retail customers and in many instances produces specific versions of the Company’s product
lines with exclusive designs and packaging for their stores.
SOURCES OF SUPPLY AND MANUFACTURING
The Company primarily sources its products from approximately 430 suppliers located mainly in the People’s
Republic of China, and to a lesser extent in Hong Kong, the United States, Taiwan, Japan, India, Thailand, Italy,
Indonesia, Korea, Vietnam, Germany, Czech Republic, Malaysia, Portugal, Colombia, Lithuania, Turkey, and
Mexico. The Company’s policy is to maintain several months of supply of inventory and, accordingly, the Company
orders products substantially in advance of the anticipated time of their sale to the Company’s customers. While the
Company does not have any long-term formal arrangements with any of its suppliers, in certain instances,
particularly with respect to the manufacture of cutlery, the Company places purchase orders for products several
months in advance of receipt of orders from its customers. The Company’s arrangements with most manufacturers
allow for some flexibility in modifying the quantity, composition and delivery dates of orders. All purchase orders
are in United States dollars and are cancelable.
The Company produces a majority of its sterling silver products at its manufacturing facility in San German,
Puerto Rico and operates a spice packing line within its Winchendon, Massachusetts facility where it assembles
spices and spice racks.
COMPETITION
The markets for Food Preparation, Tabletop and Home Décor products 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, aesthetic appeal to consumers,
packaging, breadth of product line, distribution capability, prompt delivery and selling price.
PATENTS
The Company owns 131 design and utility patents on the overall design of some of its products. The Company
believes that the expiration of any of its patents would not have a material adverse effect on the Company’s business.
BACKLOG
Backlog is not material to the Company’s business because actual confirmed orders are typically not received until
close to the required shipment dates.
EMPLOYEES
As of December 31, 2007, the Company had a total of 1,469 employees, 184 of whom are located in China. In
addition, the Company employed 554 people on a part-time basis, predominately in its direct-to-consumer
8
businesses. None of the Company’s employees are represented by a labor union. The Company considers its
employee relations to be good.
REGULATORY MATTERS
Certain of the products the Company manufactures are subject to the jurisdiction of the U.S. Consumer Product
Safety Commission. The Company’s spice container filling operation in Winchendon, Massachusetts is regulated
by the Food and Drug Administration. The Company’s products are also subject to regulation under certain state
laws pertaining to product safety and liability.
9
Item 1A. Risk Factors
The Company’s business, operations, and financial condition are subject to various risks. Some of these risks are
described below. This section does not describe all risks that may be applicable to the Company, the Company’s
industry, or the Company’s business, and it is intended only as a summary of certain material risk factors.
The Company must successfully anticipate changing consumer preferences and buying trends and manage its
product line and inventory commensurate with customer demand.
The Company’s success depends upon its ability to anticipate and respond to changing merchandise trends and
customer demands in a timely manner. Consumer preferences cannot be predicted with certainty and may change
between selling seasons. The Company must make decisions as to design, development, expansion and production of
new and existing product lines. If the Company misjudges either the market for its products, the purchasing patterns
of the end consumer, or the appeal of the design, functionality or variety of its product lines, the Company’s sales
may decline significantly, and it may be required to mark down certain products to sell the resulting excess inventory
or sell such inventory through the Company’s factory and outlet stores, or other liquidation channels, at prices which
can be significantly lower than the Company’s normal wholesale prices, each of which would harm its business and
operating results.
In addition, the Company must manage its inventory effectively and commensurate with customer demand. A
substantial portion of the Company’s inventory is sourced from vendors located outside the United States. The
Company generally commits to purchasing products before it receives firm orders from its retail customers and
frequently before trends are known. The extended lead times for many of the Company’s purchases, as well as the
development time for design and deployment of new products, may make it difficult for the Company to respond
rapidly to new or changing trends. In addition, the seasonal nature of the Company’s business requires it to carry a
significant amount of inventory prior to the year-end holiday selling season. As a result, the Company is vulnerable
to demand and pricing shifts and to misjudgments in the selection and timing of product purchases. If the Company
does not accurately predict its customers’ preferences and acceptance levels of its products, the Company’s inventory
levels may not be appropriate, and its business and operating results may be adversely impacted.
The Company faces intense competition from companies with similar brands or products and from companies
in the retail industry.
The markets for Food Preparation, Tabletop, and Home Décor products are highly competitive and include numerous
domestic and foreign competitors, some of which are larger than the Company, have greater financial and other
resources than the Company, and may have more established brand names in some or all of the markets the Company
serves. 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 in response to retail customers’
order requirements, and ultimate price to the consumer.
The competitive challenges facing the Company include:
•
anticipating and quickly responding to changing consumer demands better than the Company’s
competitors;
• maintaining favorable brand recognition and achieving end consumer perception of value;
•
effectively marketing and competitively pricing the Company’s products to consumers in diverse
market segments and price levels; and
• developing innovative, high-quality products in designs and styles that appeal to consumers of varying
groups, tastes and price level preferences, and in ways that favorably distinguishes the Company from its
competitors.
10
In addition, the Company operates its factory and outlet store, catalog and Internet businesses under highly
competitive conditions. The Company has numerous and varied competitors at the national and local levels,
including conventional and specialty department stores, other specialty stores, mass merchants, value retailers,
discounters, and Internet and mail order retailers. Competition is characterized by many factors, including product
assortment, advertising, price, quality, service, location, reputation and credit availability. If the Company does not
compete effectively with regard to these factors, its results of operations could be materially and adversely affected.
In light of the many competitive challenges facing the Company, the Company may not be able to compete
successfully. Increased competition could adversely affect the Company’s sales, operating results and business, by
forcing the Company to lower its prices or sell fewer units, which could reduce the Company’s gross profit and net
income.
The Company’s business depends, in part, on factors affecting consumer spending that are out of the
Company’s control.
The Company’s business depends on consumer demand for its products and, consequently, is sensitive to a number
of factors that influence consumer spending, including general economic conditions, disposable consumer income,
recession and inflation, incidents and fears relating to national security, terrorism and war, hurricanes, floods and
other natural disasters, inclement weather, consumer debt, unemployment rates, interest rates, sales tax rates, fuel and
energy prices, consumer confidence in future economic conditions and political conditions, and consumer
perceptions of personal well-being and security, generally. Adverse changes in factors affecting discretionary
consumer spending could reduce consumer demand for the Company’s products, change the mix of products the
Company sells to a different mix with a lower average gross margin, slow inventory turnover and result in greater
markdowns on inventory, thus reducing the Company’s sales and harming its business and operating results.
The Company depends on key vendors for timely and effective sourcing of its products, and the Company is
subject to various risks and uncertainties that may affect its vendors’ ability to produce quality merchandise.
The Company sources a significant majority of its products from third-party suppliers with which the Company may
have in many cases established long-term relationships. The Company’s performance depends on its ability to have
its products manufactured to the Company’s designs and specifications in sufficient quantities at competitive prices.
The Company has no contractual assurances of continued supply, pricing or access to products, and in general,
vendors may discontinue selling to the Company at any time. The Company may not be able to acquire its products
in sufficient quantities, with the quality assurance that the Company requires, and on terms acceptable to the
Company.
The Company primarily sources its products from approximately 430 suppliers located mainly in the People’s
Republic of China, and to a lesser extent in Hong Kong, the United States, Taiwan, Japan, India, Thailand, Italy,
Indonesia, Korea, Vietnam, Germany, Czech Republic, Malaysia, Portugal, Colombia, Lithuania, Turkey, and
Mexico. The Company’s three largest suppliers in China provided the Company with approximately 40% of the
products it distributed in 2007 and 2006. This concentration of sourcing is a risk to the Company’s business.
Furthermore, because the Company’s product lines cover thousands of products, many products are produced for the
Company by only one or two manufacturers. An interruption of supply from any of these manufacturers could also
have an adverse impact on the Company’s ability to fill orders on a timely basis.
11
As a result, an interruption of supply from any of the Company’s suppliers, or the loss of one or more key vendors,
could have a negative effect on the Company’s business and operating results because the Company would be
missing products that could be important to its assortment or to coordinated branded product lines, unless and until
alternative supply arrangements are secured. The Company may not be able to develop relationships with new
vendors, and products from alternative sources, if any, may be of a lesser quality and/or more expensive than those
the Company currently purchases. Replacement of manufacturing sources would require long lead-times to assure the
vendors’ capability to manufacture to the Company’s designs and specifications, maintain quality control and
achieve the production levels the Company requires. In addition, some of the Company’s customers demand a certain
standard of shipping fulfillment (usually as a percentage of orders placed) and any disruption in the manufacturing of
its products could result in the Company’s failure to meet such standards.
The Company is also subject to certain risks, including risks relating to the availability of raw materials, labor
disputes, union organizing activity, inclement weather, natural disasters, and general economic and political
conditions, that might limit the Company’s vendors ability to provide it with quality merchandise on a timely basis.
For these or other reasons, one or more of the Company’s vendors might not adhere to the Company’s quality control
standards, and the Company might not identify the deficiency before products are shipped to its retail customers. The
Company’s vendors failure to manufacture or ship quality merchandise in a timely and efficient manner could
damage its reputation and that of brands offered by the Company, and could lead to a loss or reduction in orders by
the Company’s retail customers and an increase in product liability claims or litigation.
Because most of the Company’s vendors are located in foreign countries, the Company is subject to a variety
of additional risks and uncertainties.
The Company’s dependence on foreign vendors means, in part, that the Company may be affected by declines in the
relative value of the U.S. dollar to other foreign currencies. Although substantially all of the Company’s foreign
purchases of products are negotiated and paid for in U.S. dollars, changes in currency exchange rates might
negatively affect the profitability and business prospects of the Company’s foreign vendors. This, in turn, might
cause such foreign vendors to demand higher prices for products, hold up shipments to the Company, or discontinue
selling to the Company, any of which could ultimately reduce the Company’s sales or increase its costs.
The Company is also subject to other risks and uncertainties associated with changing economic and political
conditions in foreign countries. These risks and uncertainties include import duties and quotas, concerns over anti-
dumping, work stoppages, economic uncertainties (including inflation), foreign government regulations, incidents
and fears involving security, terrorism and wars, political unrest and other trade restrictions. The Company cannot
predict whether any of the countries in which its products are currently manufactured or may be manufactured in the
future will be subject to trade restrictions imposed by the U.S. or foreign governments or the likelihood, type or
effect of any such restrictions. Any event causing a disruption or delay of imports from foreign vendors, including
the imposition of additional import restrictions, restrictions on the transfer of funds and/or increased tariffs or quotas,
or both, with respect to products for the home could increase the cost or reduce the supply of products available to
the Company and adversely affect the Company’s business, financial condition and operating results. Furthermore,
some or all of the Company’s foreign vendors’ operations may be adversely affected by political and financial
instability resulting in the disruption of trade from exporting countries, restrictions on the transfer of funds and/or
other trade disruptions.
In addition, there is a risk that one or more of the Company’s foreign vendors will not adhere to its compliance
standards such as fair labor practices and prohibitions on child labor. Such circumstances might create an
unfavorable impression of the Company’s sourcing practices or the practices of some of its vendors that could harm
the Company’s image. Additionally, certain of the Company’s major retail customers, including Wal-Mart
Stores, Inc., routinely inspect its suppliers’ facilities to determine their compliance with applicable labor laws. A
determination by such customers that one or more of the Company’s suppliers violate such standards could
jeopardize the Company’s sales to such customers if the Company or the suppliers cannot effectively remedy any
such violation in a timely manner. If any of these occur, the Company could lose sales, customer goodwill and
favorable brand recognition, which could negatively affect the Company’s business and operating results.
12
High costs of raw materials and energy may result in increased operating expenses and adversely affect the
Company’s results of operations and cash flow.
Significant variations in the costs and availability of raw materials and energy may negatively affect the Company’s
results of operations. The Company’s vendors purchase significant amounts of metals and plastics to manufacture the
Company’s products. They also purchase significant amounts of electricity to supply the energy required in their
production processes. The rising cost of fuel may also increase the Company’s transportation costs. The cost of these
raw materials and energy, in the aggregate, represents a significant portion of the Company’s operating expenses.
The Company’s results of operations have been and could in the future be significantly affected by increases in these
costs. Price increases increase the Company’s working capital needs and, accordingly, can adversely affect the
Company’s liquidity and cash flow. Additionally, higher fuel prices may decrease the number of consumer shopping
trips and lower demand for merchandise sold through the Company’s factory and outlet stores.
The Company must successfully manage the complexities associated with a multi-channel and multi-brand
business.
The Company’s business requires the development, marketing and production of a wide variety of products in its
three product categories: Food Preparation, Tabletop and Home Décor. Within each of these categories, it is
necessary to market several full lines of branded products targeting different price and prestige levels, and each of
these branded lines must contain an assortment of products and accessories with matched designs and packaging
which are often sold as sets. The Company’s different product lines are sold under a variety of brand names, some of
which are owned and some of which are licensed. Many of the Company’s products are inherently of the type that
consumers prefer to purchase as part of a branded, matched line. Accordingly, both for marketing reasons and the
requirements of the Company’s license agreements, the Company must maintain breadth of product lines and it must
devote significant resources to developing and marketing new designs for the Company’s product lines. The inability
to maintain the breadth of the Company’s product lines—whether due to vendor difficulties, design issues, retail
orders for less than all of the products in a line, or other problems—could result in competitive disadvantages as well
as the potential loss of valuable license arrangements.
In addition, the Company sells its products through several different distribution channels (mass merchants, specialty
stores, national chains, department stores, warehouse clubs, home centers, supermarkets, off-price retailers, factory
and outlet stores, catalogs and over the Internet) and the Company must manage the selective deployment of branded
lines within these channels so as to achieve maximum revenue and profitability. Failure to properly align brands and
product lines to the price and prestige levels associated with particular channels of distribution could result in product
line failures, damage to the Company’s reputation, and lost sales and profits.
The Company has limited experience operating in the Tabletop category, which is the Company’s second
largest product category, and limited experience in the Home Décor product category.
The Company acquired from Pfaltzgraff, Salton, Syratech and Lenox certain brands and product lines in the Tabletop
and Home Décor product categories in which the Company has limited experience. The Company may encounter
delays or difficulties in transitioning these product lines and the related brands and may not achieve the expected
growth or cost savings. In particular, sales in the Tabletop and Home Décor product categories tend to rely
significantly more on the appeal to consumers of the aesthetic design of the products than the Company’s other
products lines, the sales of which tend to depend more upon the product’s functionality. Additionally, under their
previous ownership, the Pfaltzgraff, Salton, Syratech and Lenox businesses suffered material operating losses. The
Company cannot assure that these product categories will be profitable.
Many of the Company’s leading product lines are manufactured under licensed trademarks and any failure to
retain such licenses on acceptable terms may have an adverse effect on the Company’s business.
The Company promotes and markets some of its most successful product lines under trademarks the Company
licenses from third-parties. Several of these license agreements are subject to termination by the licensor.
13
The Company’s license agreement with Whirlpool Corporation allows it to design, manufacture and market an
extensive range of food preparation products under the KitchenAid® brand name. Whirlpool Corporation may
terminate this license for cause if the Company is in default or upon the occurrence of a change of control of the
Company. In addition, Whirlpool Corporation may terminate the agreement if, based on certain statistical parameters,
a customer survey conducted by it shows that customers are dissatisfied with the products the Company markets
under the license. Products marketed under the KitchenAid® name accounted for a substantial portion of the
Company’s revenues in 2007. The Company may not be successful in maintaining or renewing the KitchenAid®
license, which has significant commercial value to the Company, on terms that are acceptable to the Company or at
all. The loss of the KitchenAid® license, or an increase in the royalties the Company pays under such license upon
renewal, could have a material adverse affect on the Company’s results of operations.
In addition, any of the licensors of the Company’s trade names may encounter problems that would potentially
diminish the prestige of the licensed trade names. In turn, this could negatively reflect on the Company’s line of
products that are marketed under the applicable trade name. In the event that this occurs with respect to one of the
Company’s leading product lines, the Company’s sales and financial results may be adversely affected. In addition,
certain of the Company’s licenses have minimum sales requirements. If the Company is unable to achieve the
minimum sales requirements under these licenses, the Company may incur a loss related to these licenses.
If the Company fails to adequately protect or enforce its intellectual property rights, competitors may produce
and market products similar to the Company’s. In addition, the Company may be subject to intellectual
property litigation and infringement claims by third parties.
The success of the Company’s products is inherently dependent on new and original designs that appeal to consumer
tastes and trends at various price and prestige levels. The Company’s trademarks, service marks, patents, trade dress
rights, trade secrets and other intellectual property are valuable assets that are critical to the Company’s success.
Although the Company attempts to protect its proprietary properties through a combination of trademark, patent and
trade secret laws and non-disclosure agreements, these laws and agreements may be insufficient. Although the
Company has trademarks and certain patents issued or licensed to it for its products, the Company may not always be
able to successfully protect or enforce its trademarks and patents against competitors or against challenges by others.
The Company sources substantially all of its products from foreign vendors, and the ability to protect the Company’s
intellectual property rights in foreign countries may be far more difficult than in the United States. Many foreign
jurisdictions provide less legal protection of intellectual property rights than the United States and it is difficult to
even detect infringing products in such jurisdictions until they are already in widespread distribution. The costs of
enforcing the Company’s intellectual property may adversely affect its operating results.
In addition, the Company may be subject to intellectual property litigation and infringement claims, which could
cause it to incur significant expenses or prevent the Company from selling its products. A successful claim of
trademark, patent or other intellectual property infringement against the Company could adversely affect the
Company’s growth and profitability, in some cases materially. Others may claim that the Company’s proprietary or
licensed products are infringing their intellectual property rights, and the Company’s products may infringe those
intellectual property rights. The Company may be unaware of intellectual property rights of others that may cover
some of its products. If someone claims that the Company’s products infringe their intellectual property rights, any
resulting litigation could be costly and time consuming and would divert the attention of management and key
personnel from other business issues. The Company also may be subject to significant damages or injunctions
preventing it from manufacturing, selling or using some aspect of the Company’s products in the event of a
successful claim of patent or other intellectual property infringement. Any of these adverse consequences could have
a material adverse effect on the Company’s business and profitability.
14
The Company has a single customer that accounted for 21% of its net sales in 2007.
The Company distributes its products through a diverse nationwide base of retail customers including mass
merchants, specialty stores, national chains, department stores, warehouse clubs, home centers, supermarkets and off-
price retailers, as well as through other channels of distribution, including its factory and outlet store, catalog and
Internet businesses. During the years ended December 31, 2007, 2006 and 2005, Wal-Mart Stores, Inc. (including
Sam’s Club) accounted for 21%, 17% and 20% of the Company’s net sales, respectively. Any material reduction of
product orders by Wal-Mart Stores, Inc. could have significant adverse effects on the Company’s business and
operating results, including the loss of predictability and volume production efficiencies associated with such a large
customer. In addition, any pressure by Wal-Mart Stores, Inc. to reduce the price of the Company’s products could
result in the reduction of the Company’s operating margin.
If the Company’s products are found to be defective, the Company’s credibility and that of its brands may be
harmed, market acceptance of the Company’s products may decrease and the Company may be exposed to
liability in excess of its product liability insurance coverage.
The marketing of certain of the Company’s consumer products, such as tabletop cookware, involve an inherent risk
of product liability claims or recalls or other regulatory or enforcement actions initiated by the U.S. Consumer
Product Safety Commission, by state regulatory authorities or through private causes of action. Any defects in
products the Company markets could harm the Company’s credibility, adversely affect its relationship with its
customers and decrease market acceptance of the Company’s products and the strength of the brand names under
which the Company markets such products. In addition, potential product liability claims may exceed the amount of
the Company’s insurance coverage under the terms of the Company’s policies. In the event that the Company is held
liable for a product liability claim for which it is not insured, or for damages exceeding the limits of the Company’s
insurance coverage, such claim could materially damage the Company’s business and its financial condition.
The Company’s ability to deliver products to its customers in a timely manner and to satisfy its customers’
fulfillment standards is subject to several factors, some of which are beyond the Company’s control.
Retailers place great emphasis on timely delivery of the Company’s products for specific selling seasons and to fulfill
consumer demand throughout the year. The Company cannot control all of the various factors that might affect
product delivery to retailers. Vendor production delays, difficulties encountered in shipping from overseas as well as
customs clearance are on-going risks of the Company’s business. The Company also relies upon third-party carriers
for its product shipments from the Company’s warehouse facilities to customers, and it relies on the shipping
arrangements the Company’s suppliers have made in the case of products shipped directly to retailers from the
supplier. Accordingly, the Company is subject to risks, including labor disputes such as the West Coast port strike of
2002, union organizing activity, inclement weather, natural disasters, possible acts of terrorism, availability of
shipping containers and increased security restrictions, associated with such carriers’ ability to provide delivery
services to meet the Company’s shipping needs. Failure to deliver products in a timely and effective manner to
retailers could damage the Company’s reputation and brands and result in a loss of customers or reduced orders. In
addition, fuel costs have increased substantially, which will likely result in increased shipping expenses. Increased
transportation costs and any disruption in the Company’s distribution process, especially during the second half of
the year, which is the Company’s busiest selling period, could adversely affect the Company’s business and
operating results.
The restructuring of the Company’s direct-to-consumer segment may not be successful.
The Company’s direct-to-consumer segment has not been profitable in recent years. In 2006, the Company
restructured the management of its direct-to-consumer segment and in December 2007, the Company commenced
a plan to close 27 underperforming Farberware® outlet stores and 3 underperforming Pfaltzgraff® factory stores.
The Company continues to evaluate its factory and outlet store operations and will continue to close
underperforming stores and may introduce new store formats. There can be no assurance that the Company’s efforts
will result in the profitability of the direct-to-consumer segment.
15
Loss of key employees may negatively impact the Company’s success.
The Company’s success depends on its ability to identify, hire and retain skilled personnel. The Company’s industry
is characterized by a high level of employee mobility and aggressive recruiting among competitors for personnel
with successful track records. The Company may not be able to attract and retain skilled personnel or may incur
significant costs in order to do so. If Jeffrey Siegel, the Company’s Chairman, President and Chief Executive Officer,
were to leave the Company, it would have a material adverse effect on the Company.
The Company’s customers’ internal efforts to design and manufacture products may compete with similar
products of the Company.
Some of the Company’s existing and potential customers continuously evaluate whether to design and manufacture
their own products or purchase them directly from outside vendors and distribute them under their own brand names.
Although, based on the Company’s past experience, such products usually target the lower price point portion of the
market, if any of the Company’s customers or potential customers pursue such options it may adversely affect the
Company’s business.
The Company’s corporate compliance program cannot assure that it will be in complete compliance with all
potentially applicable regulations, including the Sarbanes-Oxley Act of 2002.
As a publicly traded company, the Company is subject to significant regulations, including the Sarbanes-Oxley Act
of 2002. In connection with the Company’s and the Company’s independent registered public accounting firm’s
assessment of the effectiveness of its internal control over financial reporting as of December 31, 2007, neither the
Company nor its independent registered public accounting firm identified any deficiencies in the Company’s internal
control over financial reporting that constituted a “material weakness” as defined by the Public Company Accounting
Oversight Board. The Company cannot assure that it will not find material weaknesses in the future or that the
Company’s independent registered public accounting firm will then conclude that the Company’s internal control
over financial reporting is operating effectively.
The Company experiences business risks as a result of the Company’s Internet business.
The Company competes with Internet businesses that handle similar lines of merchandise. These competitors have
certain advantages, including the inapplicability of sales tax and the absence of retail real estate and related costs. As
a result, increased Internet sales by the Company’s competitors could result in increased price competition and
decreased margins adversely affecting the Company’s factory and outlet stores, catalog and Internet businesses as
well as the Company’s wholesale business. The Company’s Internet operations are subject to numerous risks,
including reliance on third-party hosting and computer software and hardware providers and online security breaches
and/or credit card fraud. The Company’s inability to effectively address these risks and any other risks that it faces
in connection with its Internet business could adversely affect the profitability of the Company’s Internet business.
The Company may not be able to successfully identify, manage or integrate future acquisitions.
Since 1995 the Company has completed thirteen acquisitions. Although the Company has grown significantly
through acquisitions and intends to continue to pursue additional acquisitions in the future, the Company may not be
able to identify appropriate acquisition candidates or, if it does, it may not be able to successfully negotiate the terms
of an acquisition, finance the acquisition or integrate the acquired business effectively and profitably into the
Company’s existing operations. Integration of an acquired business could disrupt the Company’s business by
diverting management away from day-to-day operations. Furthermore, failure to successfully integrate any
acquisition may cause significant operating inefficiencies and could adversely affect the Company’s profitability.
The Company may not be able to adapt quickly enough to changing customer requirements and e-commerce
industry standards.
Technology in the e-commerce industry changes rapidly. The Company may not be able to adapt quickly enough to
changing customer requirements and preferences and e-commerce industry standards. These changes and the
emergence of new e-commerce industry standards and practices could render the Company’s existing websites
obsolete.
16
Government regulation of the Internet and e-commerce is evolving and unfavorable changes could harm the
Company’s business.
The Company is subject to general business regulations and laws, as well as regulations and laws specifically
governing the Internet and e-commerce. Such existing and future laws and regulations may impede the growth of the
Internet or other online services. These regulations and laws may cover taxation, user privacy, data protection,
pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the
provision of online payment services, broadband residential Internet access, and the characteristics and quality of
products and services. It is not clear how existing laws governing issues such as property ownership, sales and other
taxes, and personal privacy apply to the Internet and e-commerce. Unfavorable resolutions of these issues would
harm the Company’s business. This could, in turn, diminish the demand for the Company’s products on the Internet
and increase the Company’s cost of doing business.
The Company’s business is subject to technological risks.
The Company relies on several different information technology systems for the operation of its principal business
functions, including the Company’s enterprise, warehouse management, inventory and re-ordering, point of sale and
call center systems. In the case of the Company’s inventory forecast and re-ordering system, most of the Company’s
orders are received directly through electronic connections with the Company’s largest customers. The failure of any
one of these systems or the integration of any one of these systems could have a material adverse effect on the
Company’s business and results of operations.
The Company’s business may be adversely affected if the Company’s network security is compromised.
The Company has made significant efforts to secure its computer network. However, the Company’s computer
network could be compromised and confidential information such as customer credit card information could be
misappropriated. This could lead to adverse publicity, loss of sales and profits, or cause the Company to incur
significant costs to reimburse third parties for damages which could impact profits. Although, the Company has
upgraded its systems and procedures to meet the Payment Card Industry (“PCI”) data security standards, failure
by the Company to maintain compliance with the PCI security requirements or rectify a security issue may result
in fines and the imposition of restrictions on the Company’s ability to accept payment cards.
Risks associated with indebtedness.
The Company has substantial indebtedness. As of December 31, 2007, the Company’s total indebtedness was
$143.7 million, including $68.7 million under its $150 million secured credit facility, with an accordion feature
for an additional $50 million, which expires in April 2011 (the “Credit Facility”) and $75 million of 4.75%
Convertible Notes due 2011 (the “Notes”). Borrowings under the Credit Facility are secured by all of the assets
of the Company. Under the terms of the Credit Facility, the Company is required to satisfy certain financial
covenants, including covenants providing limitations on indebtedness, sale of assets and capital expenditures, a
maximum leverage ratio and a minimum interest coverage ratio. Increased financial leverage resulting from
borrowings under the Credit Facility or a decline in earnings could have certain material adverse effects on the
Company, including, but not limited to the following: (i) the Company’s ability to obtain additional financing in
the future for acquisitions, working capital, capital expenditures, and general corporate or other purposes could be
impaired, or any such financing may not be available on terms favorable to the Company; (ii) a substantial portion
of the Company’s cash flows could be required for debt service and, as a result, might not be available for its
operations or other purposes; (iii) any substantial decrease in net operating cash flows could make it difficult for
the Company to meet its debt service requirements or force the Company to modify its operations or sell assets;
(iv) the Company’s ability to withstand competitive pressures may be decreased; and (v) the Company’s level of
indebtedness may make the Company more vulnerable to economic downturns, and reduce its flexibility in
responding to changing business, regulatory and economic conditions. The Company’s ability to repay expected
borrowings under its Credit Facility and the Notes, and to meet its other debt or contractual obligations (including
compliance with applicable financial covenants) will depend upon the Company’s future performance and its cash
flows from operations, both of which are subject to prevailing economic conditions and financial, business, and
other known and unknown risks and uncertainties, certain of which are beyond the Company’s control.
17
The Company’s quarterly results of operations might fluctuate due to a variety of factors, including ordering
patterns of the Company’s customers and the seasonality of the Company’s business.
The Company’s quarterly results have fluctuated in the past and may fluctuate in the future, depending upon a
variety of factors, including, but not limited to the ordering patterns and timing of promotions of the Company’s
major retail customers, which may differ significantly from period to period or from the Company’s original
forecasts. A significant portion of the Company’s revenues and net earnings are realized during the second half of
the calendar year, as order volume from the Company’s retail customer base reaches its peak as the Company’s
customers increase their inventories for the end of year holiday season. If, for any reason, the Company were to
realize significantly lower-than-expected sales during the September through December selling season, the
Company’s business and results of operations would be materially adversely affected.
18
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
The following table describes the principal properties at which the Company operated its business at December 31,
2007:
Description
Main West Coast warehouse and distribution facility
Main East Coast warehouse and distribution facility
Warehouse and distribution facility
Warehouse and distribution facility (1)
Location
Fontana, California
Robbinsville, New Jersey
York, Pennsylvania
Mira Loma, California
Winchendon, Massachusetts Warehouse and distribution facility
East Boston, Massachusetts Office, showroom, warehouse and distribution facility (2)
Garden City, New York
York, Pennsylvania
San German, Puerto Rico
New York, New York
Guangdong, China
Atlanta, Georgia
Shanghai, China
Bentonville, Arkansas
Corporate headquarters/main showroom
Offices
Sterling silver manufacturing facility
Showroom
Offices
Showroom
Offices
Showroom
Size
(square feet)
753,000
700,000
473,000
426,000
210,000
118,000
114,000
60,000
55,000
26,000
18,000
11,000
11,000
10,000
Owned/
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Notes:
(1) The Company is in the process of consolidating its West Coast distribution centers and the operations of the Mira Loma, California distribution center
will be consolidated into the Fontana, California facility in the third quarter of 2008.
(2) In January 2008, the Company entered into a lease agreement for 69,000 square feet of office, showroom and warehouse space located in
Medford, Massachusetts that will replace the East Boston, Massachusetts facility. The Company plans to occupy this new space in October 2008.
In addition to the properties listed above, at December 31, 2007 the Company’s direct-to-consumer segment leased
78 stores located in 32 states throughout the United States. The square footage of the stores range from 2,000 square
feet to 18,600 square feet. The terms of these leases ranged from month-to-month to 10 years. The Company plans
to close 30 of these stores by the end of the first quarter of 2008.
Item 3. Legal Proceedings
The Company has, from time to time, been involved in various legal proceedings. The Company believes that all
current litigation is routine in nature and incidental to the conduct of its business, and that none of this litigation,
if determined adversely to it, would have a material adverse effect on the Company’s consolidated financial
position, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
None
19
PART II
Item 5. Market For The Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
(a)
The Company’s common stock is traded under the symbol “LCUT” on The NASDAQ Global Select
Market (“NASDAQ”).
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.
2007
2006
High
Low
High
Low
First quarter
$20.94
$16.41
$28.19
$20.97
Second quarter
23.43
20.00
Third quarter
Fourth quarter
21.27
21.15
17.77
11.95
30.00
22.11
20.49
20.98
18.52
15.83
At December 31, 2007, the Company estimates that there were approximately 3,550 registered holders of
the common stock of the Company.
The Company is authorized to issue 100 shares of Series A Preferred stock and 2,000,000 shares of Series
B Preferred stock, none of which is issued or outstanding.
The Company paid quarterly cash dividends of $0.0625 per share, or a total annual cash dividend of $0.25
per share, on its common stock during 2007 and 2006. The Board of Directors currently intends to
continue to pay quarterly cash dividends of $0.0625 per share of common stock for the foreseeable future,
although the Board of Directors may in its discretion determine to modify or eliminate such dividends at
any time.
The following table summarizes the Company’s equity compensation plans as of December 31, 2007
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of
shares of
common stock
to be issued
upon exercise
of outstanding
options
1,808,900
―
1,808,900
Weighted-
average
exercise
price of
outstanding
options
$22.69
―
$22.69
Number of
shares of
common
stock
remaining
available for
future
issuance
241,231
―
241,231
20
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Company’s common stock with
NASDAQ and the Housewares Index. The comparisons in this table are required by the SEC and are not
intended to forecast or be indicative of the possible future performance of the Company’s common stock.
Cumulative total stockholder return for the periods December 31, 2002 through December 31, 2007 (1)
LIFETIME BRANDS, INC.
S
R
A
L
L
O
D
50
45
40
35
30
25
20
15
10
5
0
200
200
200
200
200
200
LIFETIME BRANDS, INC.
NASDA
HOUSEWARES INDEX
Date
Lifetime
Brands, Inc.
Housewares
Index
NASDAQ
12/31/2002
12/31/2003
12/31/2004
12/31/2005
12/31/2006
12/31/2007
$100.00
366.32
350.43
461.43
370.86
296.84
$100.00
86.40
90.30
88.79
110.25
95.67
$100.00
150.36
163.00
166.58
183.68
201.91
Note:
(1) Assumes $100 invested on December 31, 2002 and assumes dividends reinvested. Measurement points are at the last trading day of each
of the fiscal years ended December 2007, 2006, 2005, 2004 and 2003. The material in this chart is not soliciting material, is not deemed
filed with the Securities and Exchange Commission and is not incorporated by reference in any filing of the Company under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether or not made before or after the date of
this Annual Report on Form 10-K and irrespective of any general incorporation language in such filing. A list of the companies included
in the Housewares Index will be furnished by the Company to any stockholder upon written request to the Chief Financial Officer of the
Company.
(c)
The Board of Directors of the Company has authorized a program to repurchase up to $40.0 million of the
Company’s common stock through open market purchases or privately-negotiated transactions. As of
December 31, 2007 the Company had purchased in the open market and retired a total of 1,362,505
shares of its common stock for a total cost of $22.7 million under the program.
The following table summarizes the Company’s stock repurchase activity for the quarter ended December
31, 2007 and the approximate dollar value of shares that may yet be purchased under the program:
Period
November 2007
Total number
of shares
purchased
598,940
Average
price paid
per share
$12.70
Total number of
shares purchased
as part of publicly
announced
program
Approximate dollar
value of shares that
may yet be purchased
under the program
598,940
$17,369,466
21
Item 6. Selected Financial Data
The selected consolidated statement of income data for the years ended December 31, 2007, 2006 and 2005, and
the selected consolidated balance sheet data as of December 31, 2007 and 2006, have been derived from the
Company’s audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
The selected consolidated statement of income data for the years ended December 31, 2004 and 2003, and the
selected consolidated balance sheet data at December 31, 2005, 2004 and 2003, have been derived from the
Company’s audited consolidated financial statements included in the Company’s Annual Reports on Form 10-K
for those respective years, which are not included in this Annual Report on Form 10-K.
This information should be read together with the discussion in Management’s Discussion and Analysis of Financial
Condition and Results of Operations and the Company’s consolidated financial statements and notes to those
statements included elsewhere in this Annual Report on Form 10-K.
Statement of income data (1)
Net sales
2007
Year ended December 31,
2006
2004
2005
(in thousands -except per share data)
2003
$493,725
$457,400
$307,897
$189,458
$160,355
Cost of sales
Distribution expenses
Selling, general and administrative expenses
Asset impairment and restructuring expenses
Income from operations
Interest expense
Other income, net
288,997
53,493
128,527
1,924
20,784
8,397
(3,935)
265,749
49,729
112,122
―
29,800
4,576
(31)
178,295
34,539
69,891
111,497
22,830
40,282
92,918
21,030
31,762
―
25,172
2,489
(73)
―
―
14,849
835
(60)
14,645
724
(68)
Income before income taxes
Income tax provision
Net income
Basic income per common share
Weighted-average shares outstanding – basic
Diluted income per common share
Weighted -average shares outstanding – diluted
16,322
7,430
$ 8,892
$ 0.69
12,969
$ 0.68
13,099
25,255
9,723
$ 15,532
$ 1.18
13,171
$ 1.14
14,716
22,756
8,647
$ 14,109
$ 1.25
11,283
$ 1.23
11,506
14,074
5,602
$ 8,472
$ 0.77
10,982
$ 0.75
11,226
13,989
5,574
$ 8,415
$ 0.79
10,628
$ 0.78
10,754
Cash dividends per common share
$ 0.25
$ 0.25
$ 0.25
$ 0.25
$ 0.25
December 31,
Balance sheet data (1)
Current assets
Current liabilities
Working capital
Total assets
Short-term borrowings
Long-term debt
Convertible Notes
Stockholders’ equity
Note:
2007
2006
$228,078
71,283
156,795
371,415
13,500
55,200
75,000
147,240
$231,633
89,727
141,906
343,064
21,500
5,000
75,000
161,611
2005
(in thousands)
$155,750
69,907
85,843
222,648
14,500
5,000
2004
2003
$103,425
52,913
50,512
157,217
19,400
5,000
$ 88,528
46,974
41,554
136,980
16,800
―
―
―
―
140,487
92,938
86,081
(1) The Company acquired the business and certain assets of: :USE in October 2003, Gemco Ware, Inc. in November 2003, Excel Importing Corp. in
July 2004, Pfaltzgraff Co. in July 2005, Salton, Inc. in September 2005 and Syratech Corporation in April 2006.
22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements for the
Company and notes thereto set forth in Item 8. This discussion contains forward-looking statements relating to
future events and the future performance of the Company based on the Company’s current expectations,
assumptions, estimates and projections about it and the Company’s industry. These forward-looking statements
involve risks and uncertainties. The Company’s actual results and timing of various events could differ materially
from those anticipated in such forward-looking statements as a result of a variety of factors, as more fully
described in this section and elsewhere in this Annual Report. The Company undertakes no obligation to update
publicly any forward-looking statements for any reason, even if new information becomes available or other
events occur in the future.
ABOUT THE COMPANY
The Company is one of North America’s leading resources for nationally branded kitchenware, tabletop and home
décor products. The Company’s three major product categories are Food Preparation, Tabletop and Home Décor.
The Company markets several product lines within each of these product categories and under each of the
Company’s brands, primarily targeting moderate to premium price points, through every major level of trade. The
Company’s competitive advantage is based on strong brands, an emphasis on innovation and new product
development and excellent sourcing capabilities. The Company owns or licenses many of the leading brands in its
industries including Farberware®, KitchenAid® and Cuisinart®. Over the last several years, the Company’s sales
growth has come from expanding product offerings within the Company’s current categories by developing existing
brands, and acquiring new brands and product categories. Key factors in the Company’s growth strategy have been,
and will continue to be, the selective use and management of the Company’s strong brands, and the Company’s
ability to provide a steady stream of new products and designs. A significant element of this strategy is the
Company’s in-house design and development team that creates new products, packaging and merchandising
concepts.
BUSINESS SEGMENTS
The Company operates in two reportable business segments — wholesale and direct-to-consumer. The wholesale
segment is the Company’s primary business that designs, markets and distributes household products to retailers and
distributors. The direct-to-consumer segment is comprised of the Company’s business that sells household products
directly to the consumer through 78 Company-operated factory and outlet stores operated under the Pfaltzgraff® and
Farberware® names, and its catalog and Internet operations.
In December 2007, the Company commenced a plan to close 27 underperforming Farberware® outlet stores and 3
underperforming Pfaltzgraff® factory stores. The closings are expected to be completed by the end of the first
quarter of 2008. The Company has recognized $1.9 million in pre-tax charges related to these store closings as of
December 31, 2007 representing primarily non-cash write-downs of the stores’ fixed assets. The Company
estimates it will record pre-tax charges related to these store closings of up to $5.0 million in 2008 consisting of
store lease obligations, retention bonuses, severance payments and other expenses without taking into account the
results of inventory clearance sales or any mitigation of its store lease obligations.
RECENT ACQUISITIONS
Ekco
In December 2007, the Company acquired a 29.99% interest in Ekco S.A.B (“Ekco”). Ekco is one of Mexico’s
leading housewares companies and manufactures and sells cookware, bakeware, kitchenware, cutlery,
dinnerware, flatware and related items. Ekco markets its products in Mexico under the Ekco®, Vasconia®,
Regal®, H. Steele®, Presto® and Thermos® brands. Due to the timing of the investment, the Company’s
proportionate share of Ekco’s result of operations for the year ended December 31, 2007 was not material to the
Company’s 2007 consolidated financial statements.
23
Gorham®
In July 2007, the Company acquired certain assets from Lenox Group, Inc. (“Lenox”). Concurrently with the
execution of the agreement, the Company entered into a long-term exclusive licensing agreement with Lenox
under which the Company licensed the Gorham®, Kirk Stieff®, Whiting™ and Durgin™ trademarks in
connection with the manufacture, sale, distribution and marketing of sterling silver products.
Pomerantz® and Design for Living®
In April 2007, in two separate, but related transactions, the Company acquired the Pomerantz® brand and certain
related assets from JP Products, LLC and the Design for Living® brand and certain related assets from Design for
Living, LLC; designers, importers and distributors of pantryware products.
SEASONALITY
The Company’s business and working capital needs are highly seasonal, with a majority of sales occurring in the
third and fourth quarters. In 2007, 2006 and 2005, net sales for the third and fourth quarters accounted for 61%,
65% and 71% of total annual net sales, respectively. Operating profits earned in the third and fourth quarters of
2007, 2006 and 2005 accounted for 111%, 99% and 83% of total annual operating profits, respectively. In
anticipation of the pre-holiday shipping season, inventory levels increase primarily in the June through October
time period.
RESULTS OF OPERATIONS
The following table sets forth statement of income data of the Company as a percentage of net sales for the
periods indicated below.
Year Ended December 31,
2007
2006
2005
Net sales
Cost of sales
Distribution expenses
Selling, general and administrative expenses
Asset impairment and restructuring expenses
Income from operations
Interest expense
Other income, net
Income before income taxes
Income tax provision
Net income
100.0 %
58.5
10.8
26.0
0.4
4.3
1.7
(0.8)
3.4
1.6
1.8 %
100.0 %
58.1
10.9
24.5
―
6.5
1.0
―
5.5
2.1
3.4 %
100.0 %
57.9
11.2
22.7
―
8.2
0.8
―
7.4
2.8
4.6 %
24
MANAGEMENT’S DISCUSSION AND ANALYSIS
2007 COMPARED TO 2006
Net Sales
Net sales for the year were $493.7 million, an increase of 7.9% over net sales of $457.4 million in 2006.
Net sales for the wholesale segment in 2007 were $416.9 million, an increase of $42.8 million or 11.4% over net
sales of $374.1 million for 2006. The increase was primarily due to the 2007 full year inclusion of Syratech
which was acquired in April 2006. Excluding Syratech, net sales were $289.2 million in 2007 and $280.8 million
in 2006, an increase of 3.0%. The increase was attributable to growth in the Food Preparation product category,
particularly with respect to Farberware® brand products and new retail programs.
Net sales for the direct-to-consumer segment in 2007 were $76.8 million compared to $83.3 million for 2006.
The decrease was primarily due to a decline in outlet store sales, slightly offset by a modest improvement in
catalog and Internet volume. The decrease in outlet stores sales was due to the planned reductions in promotional
events that occurred in 2006 and a reduction in the number of stores from 83 stores at year end 2006 to 78 stores
at year end 2007.
Cost of sales
Cost of sales for 2007 was $289.0 million compared to $265.7 million for 2006. Cost of sales as a percentage of
net sales was 58.5% for 2007 compared to 58.1% for 2006.
Cost of sales as a percentage of net sales for the wholesale segment was 62.1% for 2007 compared to 61.4% for
2006. The wholesale segment’s cost of sales, excluding Syratech, was 59.0% for 2007 compared to 58.3% for
2006. The increase in cost of sales as a percentage of net sales was primarily attributable to changes in product
mix and distribution strategy.
Cost of sales as a percentage of net sales for the direct-to-consumer segment decreased to 39.1% in 2007 from
43.7% in 2006. The decrease was primarily due to the planned reductions in promotional events that occurred in
2006.
Distribution expenses
Distribution expenses for 2007 were $53.5 million compared to $49.7 million for 2006. Distribution expenses as
a percentage of net sales were 10.8% in 2007 and 10.9% for 2006.
Distribution expenses as a percentage of net sales for the wholesale segment improved to 9.5% in 2007 from
10.2% for 2006. The improvement resulted, in part, from the full year inclusion of Syratech which had a higher
proportion of its sales shipped directly from overseas suppliers than the Company’s other major product lines. The
improvement also came from improved labor management and an improved warehouse management system.
Distribution expenses for the direct-to-consumer segment were approximately $13.7 million for the year ended
December 31, 2007 compared to $11.7 million for 2006. The increase in distribution expenses was primarily
attributable to the higher receiving and storage costs associated with higher inventory levels.
25
Selling, general and administrative expenses
Selling, general and administrative expenses for 2007 were $128.5 million, an increase of 14.6% over the $112.1
million in 2006.
Selling, general and administrative expenses for 2007 for the wholesale segment were $75.2 million, an increase
of $15.3 million or 25.5% over the $59.9 million in 2006. As a percentage of net sales, selling, general and
administrative expenses were 18.0% for 2007 compared to 16.0% for 2006. The increase resulted from the
inclusion of Syratech for a full year in 2007, occupancy costs for the new leased headquarters and showroom in
Garden City, consulting and depreciation expense for the new SAP business enterprise system, the costs of
maintaining the Company’s former headquarters until its sale in November 2007, compensation expense and
additional selling expenses.
Selling, general and administrative expenses for 2007 for the direct-to-consumer segment were $41.2 million
compared to $43.3 million for 2006. The decrease is primarily due to Farberware® store closings during 2007 and
reductions in divisional staffing. Selling, general and administrative expenses as a percentage of net sales was
53.6% for 2007 compared to 52.0% for 2006. The increased percentage results from the decline in net sales.
Unallocated corporate expenses for 2007 and 2006 were $12.2 million and $8.9 million, respectively. The
increase was primarily due to a one-time charge related to the termination of a licensing agreement, higher stock
option expense and professional expenses.
Restructuring
In December 2007, the Company commenced a plan to close 30 underperforming outlet stores by the end of the
first quarter of 2008. In connection with this plan, the Company recorded an asset impairment charge of $1.6
million for fixed assets in the stores to be closed and a restructuring charge of $289,000 for liquidation expenses.
The Company expects to record up to $5.0 million of additional charges in the first quarter of 2008 primarily
related to the remaining lease obligations.
Interest expense
Interest expense for 2007 was $8.4 million compared to $4.6 million for 2006. The increase in interest expense
was primarily attributable to an increase in the amount outstanding under the Company’s Credit Facility in 2007
compared to 2006 and interest on the Company’s convertible notes issued in June 2006. The additional
borrowings under the Company’s Credit Facility were in support of capital expenditures- net, repurchases of the
Company’s common stock and business acquisitions. The Company used the proceeds from the convertible notes
to repay outstanding borrowings under the Company’s Credit Facility.
Other income, net
Other income, net for 2007 was $3.9 million compared to $31,000 for 2006. The increase in other income, net
was primarily attributable to the gain that the Company recognized on the sale of its former corporate
headquarters and to a lesser extent the gain on the sale of a foreign currency forward during 2007.
Income tax provision
The income tax provision for 2007 was $7.4 million, compared to $9.7 million for 2006. The Company’s
effective income tax rate was 45.5% for 2007 and 38.5% for 2006. The increase is attributable principally to stock
option expense that is not deductible for income tax purposes.
26
Net sales
Net sales for 2006 were $457.4 million, an increase of 48.6% over net sales of $307.9 million in 2005.
2006 COMPARED TO 2005
Net sales for the Company’s wholesale segment were $374.1 million, an increase of $132.5 million or 54.8% over
net sales of $241.6 million for 2005. Year-over-year sales comparisons for the wholesale segment were impacted
by acquisitions in 2005 and 2006. Net sales for the Pfaltzgraff and Salton businesses that were acquired in the
third quarter of 2005 were $33.2 million in 2006 compared to $24.2 million in 2005. Net sales in 2006 for the
Syratech business acquired in April 2006 were $93.3 million. Excluding net sales for these acquired businesses,
wholesale net sales were $247.6 million in 2006, 13.9% higher than net sales of $217.4 million in 2005. The
13.9% increase in net sales was primarily attributable to sales growth in the Company’s Food Preparation product
category, particularly Farberware® and KitchenAid® branded kitchenware and Cuisinart® and KitchenAid®
branded cutlery & cutting boards.
Net sales for the direct-to-consumer segment for 2006 were $83.3 million compared to net sales of $66.3 million
for 2005. The increase was attributable to a full year of net sales in 2006 from the Pfaltzgraff® factory store,
catalog and Internet operations that were acquired in the third quarter of 2005. Net sales in the Company’s
Pfaltzgraff® factory stores and Farberware® outlet stores were lower in the second half of 2006 than in the
comparable period in 2005 primarily because of shortages and misalignment of retail inventories and because
promotional sales events that occurred in 2005 were not repeated in 2006.
Cost of sales
Cost of sales for 2006 was $265.7 million, compared to $178.3 million for 2005. Cost of sales as a percentage of
net sales was slightly higher at 58.1% for 2006 compared to 57.9% for 2005.
Cost of sales as a percentage of net sales in the wholesale segment was 61.4% for 2006 compared to 59.9% for
2005. The decrease in gross profit margin was primarily attributable to the impact of the Syratech business
acquired in April 2006, as Syratech’s products generally are sold at lower gross profit margins than the average
margin of the Company’s other major product categories. Excluding Syratech, cost of sales as a percentage of net
sales for the wholesale business improved to 58.3% in 2006 compared to 59.9% in 2005. This improvement in
gross margin was attributable to product mix.
Cost of sales as a percentage of net sales in the direct-to-consumer segment decreased to 43.7% for 2006
compared to 50.4% for 2005. The increase in gross profit margin was due primarily to the impact of planned
reductions of the aggressive sale promotions that occurred in 2005 and to the higher gross profit margins
generated by the Pfaltzgraff® catalog and Internet operations that were acquired in the third quarter of 2005.
Distribution expenses
Distribution expenses for 2006 were $49.7 million, an increase of $15.2 million or 44.1% over distribution
expenses of $34.5 million in 2005. Distribution expenses as a percentage of net sales were 10.9% for 2006
compared to 11.2% for 2005.
Distribution expenses as a percentage of net sales in the Company’s wholesale segment improved to 10.2% in
2006 compared to 12.1% in 2005. This improvement was due principally to the impact of the Syratech business
acquired in April 2006, which has a much higher proportion of their sales shipped direct to retailers from overseas
suppliers than the Company’s other major product lines, and to a lesser extent, the continued benefits of labor
savings and efficiencies generated by the Company’s main distribution center in Robbinsville, New Jersey.
Distribution expenses for the direct-to-consumer business were $11.7 million for 2006 compared to $5.4 million
for 2005. The increase was attributable to the acquisition of the Pfaltzgraff® factory store, catalog and Internet
operations in the third quarter of 2005 which significantly expanded the Company’s direct-to-consumer
operations.
27
Selling, general and administrative expenses
Selling, general and administrative expenses for 2006 were $112.1 million, an increase of $42.2 million or 60.4%
over the $69.9 million of expenses in 2005.
The Company measures operating income by segment excluding certain unallocated corporate expenses that are
included in selling, general and administrative expenses. Unallocated corporate expenses for 2006 and 2005 were
$8.9 million and $7.5 million, respectively. Unallocated corporate expenses for 2006 included $1.2 million of
stock option expense.
Selling, general and administrative expenses for 2006 in the Company’s wholesale segment were $59.9 million,
an increase of $25.4 million or 73.6% over the $34.5 million of expenses for 2005 and as a percentage of net sales
was 16.0% in 2006 compared to 14.3% in 2005. The increase in selling, general and administrative expenses
reflects the added personnel related costs in establishing the Company’s internal infrastructure to support future
growth, in particular for the Pfaltzgraff and Salton businesses that were acquired in 2005 and the Syratech
business that was acquired in 2006 and, to a lesser extent, the higher selling costs associated with increased sales
volume.
Selling, general and administrative expenses in the Company’s direct-to-consumer segment increased by $15.4
million in 2006 to $43.3 million and as a percentage of net sales was 52.0% in 2006 compared to 42.1% in 2005.
The increase in expenses was due to the acquisition of the Pfaltzgraff® factory store, catalog and Internet
operations in 2005, which significantly expanded the Company’s direct-to-consumer operations.
Interest expense
Interest expense for 2006 was $4.6 million compared with $2.5 million for 2005. The increase in interest expense
was due primarily to an increase in debt levels in 2006.
Income tax provision
The income tax provision for 2006 was $9.7 million, compared to $8.6 million in 2005. The Company’s effective
income tax rate was 38.5% for 2006 and 38.0% for 2005. The increase in the effective tax rate was due to income
taxes related to stock option expense and a change in the state tax allocations.
28
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the
Company’s consolidated financial statements which have been prepared in accordance with U.S. generally
accepted accounting principles and with the instructions to Form 10-K and Article 10 of Regulation S-X. The
preparation of these financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-
going basis, management evaluates its estimates and judgments based on historical experience and on various
other factors that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. The Company evaluates these estimates including those related to revenue recognition, allowances for
doubtful accounts, reserves for sales returns and allowances and customer chargebacks, inventory mark-down
provisions, impairment of tangible and intangible assets, including goodwill, stock option expense and accruals
related to the Company’s tax positions. Actual results may differ from these estimates using different
assumptions and under different conditions. The Company’s significant accounting policies are more fully
described in Note A to the consolidated financial statements. The Company believes that the following discussion
addresses its most critical accounting policies, which are those that are most important to the portrayal of the
Company’s consolidated financial condition and results of operations and require management’s most difficult,
subjective and complex judgments.
Inventory
Inventory consists principally of finished goods sourced from third-party suppliers. Inventory also includes
finished goods, work in process and raw materials related to the Company’s manufacture of sterling silver
products. Inventory is priced by the lower of cost (first-in, first-out basis) or market method. Consistent with the
seasonality of the Company’s business, inventory generally increases, beginning late in the first quarter of the
year, and reaches a peak at the end of the third quarter or early in the fourth quarter, and declines thereafter. The
Company periodically reviews and analyzes inventory based on a number of factors including, but not limited to,
future product demand for items and estimated profitability of merchandise. When appropriate, the Company
writes down inventory to net realizable value.
Revenue recognition
The Company sells products wholesale to retailers and distributors and retail, direct to the consumer through the
Company’s factory and outlet store, catalog and Internet operations. Wholesale sales are recognized when title
passes to and the risks and rewards of ownership have transferred to the customer. Factory and outlet store sales
are recognized at the time of sale while catalog and Internet sales are recognized upon receipt by the customer.
Shipping and handling fees that are billed to customers in sales transactions are recorded in net sales. Net sales
exclude taxes that are collected from customers and remitted to the taxing authorities.
Receivables
The Company periodically reviews the collectibility of its accounts receivable and establishes allowances for
estimated losses that could result from the inability of its customers to make required payments. A considerable
amount of judgment is required to assess the ultimate realization of these receivables including assessing the
credit-worthiness of each wholesale customer. The Company also maintains an allowance for sales returns and
customer chargebacks. To evaluate the adequacy of the sales returns and customer chargeback allowances the
Company analyzes currently available information and historical trends. If the financial conditions of the
Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, or the
Company’s estimate of sales returns was determined to be inadequate, additional allowances may be required.
29
Goodwill and intangible assets
Goodwill and intangible assets deemed to have indefinite lives are not amortized but instead are subject to annual
impairment tests in accordance with the provisions of Statement of Financial Accounting Standard ("SFAS")
No.142, Goodwill and Other Intangible Assets. Long-lived assets are reviewed for impairment in accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. Other intangible assets are
amortized over their respective useful lives and reviewed for impairment whenever events or changes in
circumstances indicate that such amounts may have been impaired. Impairment indicators include among other
conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit or material adverse
changes in the business climate that indicate that the carrying amount of an asset may be impaired. When
impairment indicators are present, the Company compares the carrying value of the asset to the estimated
undiscounted future cash flows expected to be generated by the assets. If the assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets.
Employee stock options
Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment. SFAS 123(R) requires
that the expense resulting from all share-based payment transactions be recognized in the financial statements.
SFAS 123(R) also requires that excess tax benefits associated with share-based payments be classified as a
financing activity in the statement of cash flows, rather than as operating cash flows as required by previous
accounting standards. The Company adopted SFAS 123(R) using the modified-prospective transition method. The
Company values stock options using the Black-Scholes option valuation model. However, the Black-Scholes
option valuation model, as well as other available models, were developed for use in estimating the 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 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 provide a reliable measure of the fair value of its stock options.
Income taxes
In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes.
FIN No. 48 provides detailed guidance for the financial statement recognition, measurement and disclosure of
uncertain tax positions recognized in an enterprise’s financial statements in accordance with FASB Statement No.
109, Accounting for Income Taxes. Tax positions must meet a more-likely-than-not recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken upon the
adoption of FIN No. 48 or in subsequent periods. The Company adopted FIN No. 48 on January 1, 2007.
30
LIQUIDITY AND CAPITAL RESOURCES
The Company’s principal sources of cash to fund liquidity needs are: (i) cash provided by operating activities and
(ii) borrowings available under its Credit Facility. The Company’s primary uses of funds consist of working
capital requirements, capital expenditures, payment of principal and interest on its debt, payment of cash
dividends and business acquisitions. In addition, in 2007 the Company expended $22.7 million to purchase
1,362,505 shares of its common stock.
At December 31, 2007, the Company had cash and cash equivalents of $4.2 million, compared to $150,000 at
December 31, 2006, working capital was $156.8 million at December 31, 2007 compared to $141.9 million at
December 31, 2006 and the current ratio was 3.20 to 1 at December 31, 2007 compared to 2.58 to 1 at December
31, 2006.
Borrowings under the Company’s Credit Facility increased to $68.7 million at December 31, 2007 compared to
$26.5 million at December 31, 2006. The increase was primarily due to the Company’s investment in Ekco S.A.B
in December 2007, the share repurchases during 2007, the Gorham®, Pomerantz® and Design for Living®
acquisitions and capital expenditures related to the Company’s new corporate headquarters, Robbinsville, New
Jersey distribution center and new Fontana, California distribution center. 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 twelve months.
Share repurchase program
The Board of Directors of the Company has authorized a program to repurchase up to $40.0 million of the
Company’s common stock through open market purchases or privately-negotiated transactions. As of December
31, 2007 the Company had purchased in the open market and retired a total of 1,362,505 shares of its common
stock for a total cost of $22.7 million under the program.
Credit facility
The Company has a $150 million secured credit facility, with an accordion feature for an additional $50 million,
that expires in April 2011 (the “Credit Facility”). Borrowings under the Credit Facility are secured by all assets of
the Company. Under the terms of the Credit Facility, the Company is required to satisfy certain financial
covenants, including covenants providing limitations on indebtedness, sale of assets and capital expenditures, a
maximum leverage ratio and a minimum interest coverage ratio. At December 31, 2007, the Company was in
compliance with these covenants. Borrowings under the Credit Facility have different interest rate options that are
based either on (i) an alternate base rate, (ii) the Libor rate, or (iii) the lender’s cost of funds rate, plus in each case
a margin based on a leverage ratio. At December 31, 2007, the Company had $2.7 million of open letters of credit
and $68.7 million of borrowings outstanding under its Credit Facility. The availability under the Credit Facility at
December 31, 2007 was $73.6 million. Interest rates on outstanding borrowings at December 31, 2007 ranged
from 5.50% to 6.12%. The Company has entered into interest rate swap and collar agreements with aggregate
notional amounts of $55.2 million at December 31, 2007. The Company entered into these agreements to
effectively fix the interest rate on a portion of its borrowings under the Credit Facility. The agreements have
maturity dates that exceed one year as the Company does not intend to repay an equivalent amount of debt within
one year. Accordingly, $55.2 million of debt outstanding under the Credit Facility at December 31, 2007 has been
classified as long-term debt.
Convertible Notes
The Company has outstanding $75 million aggregate principal amount of 4.75% Convertible Senior Notes due
2011 (the “Notes”). The Notes are convertible into shares of the Company’s common stock at a conversion price
of $28.00 per share, subject to adjustment in certain events. The Notes bear interest at 4.75% per annum, payable
semiannually in arrears on January 15th and July 15th of each year and are unsubordinated except with respect to
the Company’s debt to the extent secured by the Company’s assets. The Notes mature on July 15, 2011.
31
Operating activities
Cash provided by operating activities was $31.6 million in 2007 compared to a use of cash of $11.5 million in
2006. The change was due to a reduction in 2007 of $9.6 million in working capital invested primarily through
management’s inventory reduction initiative compared to an increase in working capital in 2006 of $37.0 million
primarily due to growth in inventory levels. The improvement in cash provided from operating activities in 2007
was partially offset by lower net income.
Investing activities
Cash used in investing activities was $43.7 million in 2007 compared to $64.9 million in 2006. The 2007
reduction results from lower expenditures used for business acquisitions and investments and the proceeds
received from the Company’s sale of its former corporate headquarters. In 2007, business acquisitions and
investments included $1.9 million paid in the connection with the acquisitions of Pomerantz® and Design for
Living®, $8.3 million paid in connection with the acquisition of Gorham® and $23.0 million paid in connection
with the Company’s acquisition of a 29.99% interest in Ekco S.A.B. In 2006, the Company paid cash of $43.8
million to acquire Syratech Corporation. Capital expenditures in 2007 were $19.0 million compared to $21.1
million in 2006. The decrease is primarily the result of a decrease in the amount of capital expenditures related to
the Company’s new corporate headquarters in Garden City, New York, most of which occurred in 2006. The
Company’s 2008 planned capital expenditures are estimated at $7.0 million. These expenditures are expected to be
funded from current operations and, if necessary, borrowings under the Company’s Credit Facility.
Financing activities
Cash provided by financing activities was $16.1 million in 2007 compared to $75.7 million in 2006. In 2007, the
Company received net cash proceeds from borrowings under the Company’s Credit Facility of $42.2 million
which were offset by cash of $22.7 million the Company paid to repurchase its common stock. In 2006, the
Company received proceeds of $75 million from the sale of its 4.75% Convertible Notes.
Contractual obligations
As of December 31, 2007, the Company’s contractual obligations were as follows (in thousands):
Operating leases
Long-term debt
Minimum royalty payments
Interest on long-term debt
Post retirement benefits
Capitalized leases
Total
Payment due by period
Less
than
1 year
$20,955
―
9,591
10,234
148
413
$41,341
Total
$149,640
130,200
24,878
33,939
3,400
909
$342,966
1-3 years
$ 31,159
55,200
11,883
20,143
296
412
$119,093
3-5 years
$ 24,430
75,000
1,240
3,563
296
84
$104,613
More
than
5 years
$73,096
―
2,164
―
2,660
―
$77,920
32
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact the consolidated financial position, results of operations or
cash flows of the Company. The Company is exposed to market risk associated with changes in interest rates.
The Company’s Credit Facility bears interest at variable rates and, therefore, the Company is subject to increases
and decreases in interest expense resulting from fluctuations in interest rates. The Company has entered into
interest rate swap agreements with an aggregate notional amount of $50 million and interest rate collar agreements
with an aggregate notional amount of $40.2 million to manage interest rate exposure in connection with these
variable interest rate borrowings. There have been no changes in interest rates that would have a material impact
on the consolidated financial position, results of operations or cash flows of the Company for the year ended
December 31, 2007.
Item 8. Financial Statements and Supplementary Data
The Company’s Consolidated Financial Statements as of and for the year ended December 31, 2007 commencing
on page F-1 are incorporated herein by reference.
The following table sets forth certain unaudited consolidated quarterly statement of income data for the eight
quarters ended December 31, 2007. This information is unaudited, but in the opinion of management, it has been
prepared substantially on the same basis as the audited consolidated financial statements appearing elsewhere in
this Annual Report on Form 10-K and all necessary adjustments, consisting only of normal recurring adjustments,
have been included in the amounts stated below to present fairly the unaudited consolidated quarterly results of
operations. The consolidated quarterly data should be read in conjunction with the Company’s audited
consolidated financial statements and the notes to such statements appearing elsewhere in this Annual Report. The
results of operations for any quarter are not necessarily indicative of the results of operations for any future
period:
Year ended December 31, 2007
First
quarter
Second
quarter
Third
quarter
Fourth
quarter
(in thousands-except per share data)
Net sales
Gross profit
Income (loss) from operations
Net income (loss)
Basic income (loss) per common share
Diluted income (loss) per common share
$103,787
42,690
(552)
(1,283)
$ (0.10)
$ (0.10)
$91,371
39,465
(1,750)
(2,026)
$ (0.15)
$ (0.15)
$143,470
58,936
13,752
6,795
$ 0.52
$ 0.47
$155,097
63,637
9,334
5,406
$ 0.44
$ 0.40
Year ended December 31, 2006
First
quarter
Second
quarter
Third
quarter
Fourth
quarter
(in thousands-except per share data)
Net sales
Gross profit
Income (loss) from operations
Net income (loss)
Basic income (loss) per common share
Diluted income (loss) per common share
$74,421
32,551
1,752
896
$ 0.07
$ 0.07
$84,051
35,850
(1,591)
(1,507)
$ (0.11)
$ (0.11)
$141,654
57,393
12,392
6,684
$ 0.50
$ 0.45
$157,274
65,857
17,247
9,459
$ 0.71
$ 0.63
Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure
None
33
Item 9A. Controls and Procedures
(a)
(b)
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive
officer and principal financial and accounting officer, respectively) have concluded, based on their
evaluation as of December 31, 2007, that the Company’s controls and procedures are effective to ensure
that information required to be disclosed by the Company in the reports filed by it under the Securities
and Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commission’s rules and forms,
and include controls and procedures designed to ensure that information required to be disclosed by the
Company in such reports is accumulated and communicated to the Company’s management, including the
Chief Executive Officer and Chief Financial Officer of the Company, as appropriate to allow timely
decisions regarding required disclosure.
Changes in Internal Controls
In April 2007, the Company implemented a new SAP business enterprise system which involved changes
in internal controls inherent in the Company’s systems and other data processing controls. There were no
other changes in the Company’s internal control over financial reporting that occurred during the
Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining effective internal control over
financial reporting, and for performing an assessment of the effectiveness of internal control over financial
reporting as of December 31, 2007. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-
15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s
principle executive and principal financial officers and effected by the Company’s Board of Directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with U.S. generally accepted
accounting principles.
Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit the
preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of management
and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the
financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Because of the inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Management performed an assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2007 using the criteria set forth in the Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management has determined that the Company’s internal control over financial reporting as of December 31,
2007 is effective.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 has been
audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report.
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
34
To the Board of Directors and Stockholders of
Lifetime Brands, Inc.
We have audited Lifetime Brands, Inc.’s internal control over financial reporting as of December 31, 2007, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Lifetime Brands, Inc.’s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Lifetime Brands, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Lifetime Brands, Inc. as of December 31, 2007 and 2006, and
the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2007 and our report dated March 14, 2008 expressed an unqualified opinion
thereon.
/s/ ERNST & YOUNG LLP
Melville, New York
March 14, 2008
35
Item 9B. Other Information
Not applicable
PART III
Items 10,11,12,13 and 14
The information required under these items is contained in the Company’s 2008 Proxy Statement, which will be
filed with the Securities and Exchange Commission within 120 days after the close of the Company’s fiscal year
covered by this Annual Report on Form 10-K and is herein incorporated by reference.
36
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) See list of Financial Statements and Financial Statement Schedule on page F-1.
(b)
Exhibits*:
Exhibit
No. Description
3.1
Second Restated Certificate of Incorporation of the Company (incorporated by reference to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005)**
3.2
4.1
10.1
10.2
10.3
Amended and Restated By-Laws of the Company ( incorporated by reference to the Registrant’s Form
8-K dated November 1, 2007)**
Indenture dated as of June 27, 2006, Lifetime Brands, Inc. as issuer, and HSBC Bank USA, National
Association as trustee, $75,000,000 4.75% convertible senior notes due 2011 (incorporated by reference
to the Registrant’s registration statement No. 333-137575 on Form S-3)**
License agreement dated December 14, 1989 between the Company and Farberware, Inc. (incorporated
by reference to the Registrant’s registration statement No. 33-40154 on Form S-1)**
Evan Miller employment agreement dated July 1, 2003 (incorporated by reference to the Registrant’s
Form 10-Q dated September 30, 2003)**
Employment agreement dated October 17, 2005 between Lifetime Brands, Inc. and Ronald Shiftan
(incorporated by reference to the Registrant’s Form 8-K dated October 17, 2005)**
10.4 Asset Purchase Agreement dated as of March 8, 2006 among Syratech Corporation, Wallace International
de P.R., Inc., Chi International, Inc. and Syratech (H.K.) Limited, as the sellers, and Syratech Acquisition
Corporation, as the purchaser, and Lifetime Brands, Inc. (incorporated by reference to the Registrant’s
Form 8-K dated March 8, 2006)**
10.5
10.6
10.7
Employment agreement dated May 2, 2006 between Lifetime Brands, Inc. and Jeffrey Siegel
(incorporated by reference to the Registrant’s Form 8-K dated May 2, 2006)**
Employment agreement dated April 18, 2006 between Lifetime Brands, Inc. and Alan Kanter
(incorporated by reference to the Registrant’s Form 8-K dated May 2, 2006)**
Lease agreement dated as of May 10, 2006 between AG Metropolitan Endo, L.L.C and Lifetime Brands,
Inc. for the property located at 1000 Stewart Avenue in Garden City, New York (incorporated by
reference to the Registrant’s Form 8-K dated May 10, 2006)**
10.8 Amended 2000 Long-Term Incentive Plan (incorporated by reference to the Registrant’s Form 8-K dated
June 8, 2006)**
10.9 Amended 2000 Incentive Bonus Compensation Plan (incorporated by reference to the Registrant’s Form
8-K dated June 8, 2006)**
10.10 Second Amended and Restated Credit Agreement among Lifetime Brands, Inc., Lenders party thereto,
Citibank, N.A. and Wachovia Bank, National Association, as Co-Documentation Agents, JP Morgan
Chase Bank, N.A., as Syndication Agent, and HSBC Bank USA, National Association, as Administrative
Agent. (incorporated by reference to the Registrant’s Form 8-K dated October 31, 2006)**
10.11 First Amendement to the Lease Agreement dated as of May 10, 2006 between AG Metropolitan Endo,
L.L.C and Lifetime Brands, Inc. for the property located at 1000 Stewart Avenue in Garden City, New
York (incorporated by reference to the Registrant’s Form 10-Q dated September 30, 2006)**
37
10.12 Amendment of Employment Agreement dated June 7, 2007 by and between Lifetime Brands, Inc. and
Ronald Shiftan (incorporated by reference to the Registrant’s Form 8-K dated June 7, 2007)**
10.13 Robert McNally Employment Agreement, dated June 7, 2007 (incorporated by reference to the
Registrant’s Form 8-K dated June 7, 2007)**
10.14 Employment agreement dated June 28, 2007 between Lifetime Brands, Inc. and Laurence Winoker
(incorporated by reference to the Registrant’s Form 8-K dated July 3, 2007)**
10.15 Shares Subscription Agreement by and among Lifetime Brands, Inc., Ekco, S.A.B. and Mr. José Ramón
Elizondo Anaya and Mr. Miguel Ángel Huerta Pando, dated as of June 8, 2007 (incorporated by reference
to the Registrant’s Form 8-K dated June 11, 2007)**
10.16 Lease Agreement between Granite Sierra Park LP and Lifetime Brands, Inc. dated June 29, 2007
(incorporated by reference to the Registrant’s Form 8-K dated June 29, 2007) **
10.17 Evan Miller Amendment of Employment Agreement dated June 29, 2007 (incorporated by reference to
the Registrant’s Form 8-K dated June 29, 2007)**
10.18 Robert McNally Amendment of Employment Agreement dated July 2, 2007 (incorporated by reference to
the Registrant’s Form 8-K dated June 29, 2007)**
10.19 Amendment to the Lifetime Brands, Inc. 2000 Long-Term Incentive Plan dated November 1, 2007
(incorporated by reference to the Registrant’s Form 8-K dated November 1, 2007)**
14.1 Code of Conduct dated March 25, 2004, as amended on June 7, 2007 (incorporated by reference to the
Registrant’s Form 8-K dated June 7, 2007)**
21.1
Subsidiaries of the registrant ***
23.1 Consent of Ernst & Young LLP***
31.1 Certification by Jeffrey Siegel, Chief Executive Officer and President, pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.***
31.2 Certification by Laurence Winoker, Senior Vice President – Finance, Treasurer and Chief Financial
Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002***
32.1 Certification by Jeffrey Siegel, Chief Executive Officer and President, and Laurence Winoker, Senior
Vice President – Finance, Treasurer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002****
Notes:
*
**
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 exhibit.
Incorporated by reference.
*** Filed herewith.
**** This exhibit is being “furnished” pursuant to Item 601(b)(32) of SEC Regulation S-K and is not deemed
“filed” with the Securities and Exchange Commission and is not incorporated by reference in any filing of
the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934.
(c) Financial Statement Schedules — the response to this portion of Item 15 is submitted as a separate section
of this report.
38
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.
SIGNATURES
Lifetime Brands, Inc.
/s/ Jeffrey Siegel
Jeffrey Siegel
Chairman of the Board of Directors,
Chief Executive Officer, President
and Director
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/ Jeffrey Siegel
Jeffrey Siegel
Chairman of the Board of Directors,
Chief Executive Officer, President
and Director
March 14, 2008
/s/ Ronald Shiftan
Ronald Shiftan Chief Operating Officer and Director
Vice Chairman of the Board of Directors,
March 14, 2008
/s/ Laurence Winoker
Laurence Winoker
Senior Vice President – Finance,
Treasurer and Chief Financial Officer
(Principal Financial and
Accounting Officer)
March 14, 2008
/s/ Craig Phillips
Craig Phillips
Senior Vice-President – Distribution,
Secretary, and a Director
March 14, 2008
s/ David Dangoor
David Dangoor
/s/ Michael Jeary
Michael Jeary
/s/ Sheldon Misher
Sheldon Misher
/s/ Cherrie Nanninga
Cherrie Nanninga
/s/ William Westerfield
William Westerfield
Director
Director
Director
Director
March 14, 2008
March 14, 2008
March 14, 2008
March 14, 2008
Director March 14, 2008
39
Item 15
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
LIFETIME BRANDS, INC.
The following consolidated financial statements of Lifetime Brands, Inc. are filed as part of this report
under Item 8 – Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2007 and 2006
F-3
Consolidated Statements of Income for the Years ended
December 31, 2007, 2006 and 2005
Consolidated Statements of Stockholders’ Equity for the Years ended
December 31, 2007, 2006 and 2005
Consolidated Statements of Cash Flows for the Years ended
December 31, 2007, 2006 and 2005
Notes to Consolidated Financial Statements
F-2
F-4
F-5
F-6
F-7
The following consolidated financial statement schedule of Lifetime Brands, Inc. required pursuant to
Item 15(a) is submitted herewith:
Schedule II – Valuation and Qualifying Accounts S-1
All other financial schedules are not required under the related instructions or are inapplicable, and
therefore have been omitted.
The unaudited supplementary data regarding quarterly results of operations are incorporated by
reference to the information set forth in Item 8, Financial Statements and Supplementary Data.
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Lifetime Brands, Inc.
We have audited the accompanying consolidated balance sheets of Lifetime Brands, Inc. (the
“Company”) as of December 31, 2007 and 2006 and the related consolidated statements of income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007.
Our audits also included the financial statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). 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 Brands, Inc. at December 31, 2007 and 2006, and the
consolidated results of its operations and its cash flows for each of the three years in the period ended
December 31, 2007, in conformity with U. S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note A to the consolidated financial statements, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, effective January 1,
2006.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Lifetime Brands, Inc.’s internal control over financial reporting as of December
31, 2007, based on the criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 14, 2008, expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Melville, New York
March 14, 2008
F-2
December 31,
2007
2006
$ 4,172
$ 150
LIFETIME BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands-except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, less allowances of $16,400 at 2007
and $12,097 at 2006
Inventory
Deferred income taxes
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT, net
GOODWILL
OTHER INTANGIBLES, net
INVESTMENT IN EKCO
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term borrowings
Accounts payable
Accrued expenses
Income taxes payable
TOTAL CURRENT LIABILITIES
DEFERRED RENT & OTHER LONG-TERM LIABILITIES
DEFERRED INCOME TAXES
LONG-TERM DEBT
CONVERTIBLE NOTES
65,030
143,684
7,925
7,267
228,078
54,332
27,432
35,383
22,950
3,240
$371,415
$ 13,500
21,759
31,504
4,520
71,283
14,481
8,211
55,200
75,000
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, shares authorized: 25,000,000; shares
issued and outstanding: 11,964,388 in 2007 and 13,283,313 in 2006
Paid-in capital
Retained earnings
Accumulated other comprehensive income
TOTAL STOCKHOLDERS’ EQUITY
120
113,995
33,250
(125)
147,240
60,516
155,350
8,519
7,098
231,633
42,722
20,951
42,391
―
5,367
$343,064
$ 21,500
15,585
45,743
6,899
89,727
5,522
6,204
5,000
75,000
133
111,165
50,235
78
161,611
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$371,415
$343,064
See notes to consolidated financial statements.
F-3
LIFETIME BRANDS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands – except per share data)
Net sales
Cost of sales
Distribution expenses
Selling, general and administrative expenses
Asset impairment and restructuring expenses
Income from operations
Interest expense
Other income, net
Income before income taxes
Income tax provision
NET INCOME
BASIC INCOME PER COMMON SHARE
DILUTED INCOME PER COMMON SHARE
Year ended December 31,
2006
2007
2005
$493,725
$457,400
$307,897
288,997
53,493
128,527
1,924
20,784
8,397
(3,935)
16,322
7,430
$ 8,892
$ 0.69
$ 0.68
265,749
49,729
112,122
―
29,800
4,576
(31)
25,255
9,723
$ 15,532
$ 1.18
$ 1.14
178,295
34,539
69,891
―
25,172
2,489
(73)
22,756
8,647
$ 14,109
$ 1.25
$ 1.23
See notes to consolidated financial statements.
F-4
LIFETIME BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Common stock
Shares Amount
Paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income
Notes
receivable
from
stockholders
Total
BALANCE AT DECEMBER 31, 2004
11,050
$111
$65,229
$ 28,077
$ ―
$(479)
$92,938
Net income for 2005
Net proceeds from public offering
Tax benefit on exercise of stock options
Exercise of stock options
Shares issued to directors
Repayment of notes receivable from
stockholders
Dividends
1,733
139
17
1
34,402
735
1,052
50
14,109
(409)
(2,887)
14,109
34,419
735
644
50
479
479
(2,887)
BALANCE AT DECEMBER 31, 2005
12,922
129
101,468
38,890
―
―
140,487
Comprehensive income:
Net income for 2006
Foreign currency translation
adjustment
Total comprehensive income
Tax benefit on exercise of stock options
Stock option expense
Costs of public offering
Exercise of stock options
Stock issued for acquisition
Shares issued to directors
Dividends
15,532
78
725
1,155
(131)
1,014
6,819
115
2
2
(820)
(3,367)
116
240
5
15,532
78
15,610
725
1,155
(131)
196
6,821
115
(3,367)
BALANCE AT DECEMBER 31, 2006
13,283
133
111,165
50,235
78
―
161,611
Comprehensive income:
Net income for 2007
Derivative fair value adjustment, net
of taxes of $170,000
Total comprehensive income
Tax benefit on exercise of stock options
Stock option expense
Purchase and retirement of common stock
Exercise of stock options
Stock issued for acquisition
Shares issued to directors
Dividends
8,892
(203)
(14)
1
(1,363)
32
5
7
161
2,197
244
133
95
(22,658)
(3,219)
8,892
(203)
8,689
161
2,197
(22,672)
245
133
95
(3,219)
BALANCE AT DECEMBER 31, 2007
11,964
$120 $113,995
$ 33,250
$(125)
$ ―
$147,240
See notes to consolidated financial statements.
F-5
LIFETIME BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for doubtful accounts
Depreciation and amortization
Deferred income taxes
Provision for losses on accounts receivable
Stock option expense
Director stock compensation
Unrealized loss on derivatives
Gain on sale of property
Asset impairment
Year ended December 31,
2007
2006
2005
$ 8,892
$ 15,532
$ 14,109
79
9,659
2,771
―
2,197
95
358
(3,760)
1,635
81
8,380
421
(81)
1,155
115
―
―
―
Changes in operating assets and liabilities (excluding the effects of
business acquisitions)
Accounts receivable
Inventory
Prepaid expenses, other current assets and other assets
Accounts payable, accrued expenses and other liabilities
Income taxes payable
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(4,593)
19,925
1,220
(4,568)
(2,343)
5,417
(36,410)
251
(3,982)
(2,330)
31,567
(11,451)
INVESTING ACTIVITIES
Purchases of property and equipment, net
Business acquisitions
Investment in Ekco
Net proceeds from sale of property
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Proceeds (repayments) of short-term borrowings, net
Bank financing costs
Net proceeds from public offering
Proceeds from issuance of convertible notes
Convertible notes issuance costs
Proceeds from the exercise of stock options
Repayment of note receivable
Payment of capital lease obligations
Excess tax benefits from stock option expense
Purchases of common stock
Cash dividends paid
NET CASH PROVIDED BY FINANCING ACTIVITIES
(19,023)
(10,543)
(22,950)
8,832
(43,684)
42,200
―
―
―
―
245
―
(456)
125
(22,672)
(3,303)
16,139
(21,144)
(43,763)
―
―
(64,907)
7,000
(200)
(131)
75,000
(3,062)
196
―
(387)
638
―
(3,332)
75,722
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year
4,022
150
(636)
786
132
5,641
(2,726)
132
―
50
―
―
―
(12,715)
4,942
(86)
14,610
4,574
28,663
(4,781)
(52,154)
―
―
(56,935)
(4,900)
(235)
34,419
―
―
644
479
(320)
―
―
(2,770)
27,317
(955)
1,741
CASH AND CASH EQUIVALENTS AT END OF YEAR
$ 4,172
$ 150
$ 786
See notes to consolidated financial statements.
F-6
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE A — SIGNIFICANT ACCOUNTING POLICIES
Organization and business
Lifetime Brands, Inc. (the “Company”) designs, markets and distributes a broad range of consumer products
used in the home, including food preparation, tabletop and home décor products and markets its products under
a number of brand names and trademarks, that are either owned or licensed. The Company sells its products
wholesale to retailers throughout North America and directly to the consumer through 78 Company-operated
factory and outlet stores, mail order catalogs, and the Internet.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of Lifetime Brands, Inc. and its
wholly-owned subsidiaries (collectively, the “Company”). All intercompany accounts and transactions have
been eliminated in consolidation.
The Company operates in two reportable business segments — wholesale and direct-to-consumer. The
wholesale segment is the Company’s primary business that designs, markets and distributes household products
to retailers and distributors. The direct-to-consumer segment is comprised of the Company’s business that sells
household products directly to the consumer through Company-operated factory and outlet stores, and catalog
and Internet operations.
Revenue recognition
Wholesale sales are recognized when title passes and the risks and rewards of ownership have transferred to the
customer. Factory and outlet store sales are recognized at the time of sale, while catalog and Internet sales are
recognized upon receipt by the customer. Shipping and handling fees that are billed to customers in sales
transactions are included in net sales and amounted to $4.8 million, $4.8 million and $3.2 million for the years
ended December 31, 2007, 2006 and 2005, respectively. Net sales exclude taxes that are collected from
customers and remitted to the taxing authorities.
Distribution expenses
Distribution expenses consist primarily of warehousing expenses, handling costs of products sold and freight-
out expenses. Freight-out costs included in distribution expenses amounted to $8.4 million, $8.9 million and
$6.6 million for the years ended December 31, 2007, 2006 and 2005, respectively.
Advertising expenses
Advertising expenses are expensed as incurred and are included in selling, general and administrative expenses.
Advertising expenses were $1.6 million, $2.0 million and $1.0 million for the years ended December 31, 2007,
2006 and 2005, respectively.
Accounts receivable
The Company periodically reviews the collectibility of its accounts receivable and establishes allowances for
estimated losses that could result from the inability of its customers to make required payments. A
considerable amount of judgment is required to assess the ultimate realization of these receivables including
assessing the credit-worthiness of each wholesale customer. The Company also establishes allowances for sales
returns and customer chargebacks. To evaluate the adequacy of the sales returns and customer chargeback
allowances the Company analyzes currently available information and historical trends. If the financial
conditions of the customers were to deteriorate, resulting in an impairment of their ability to make payments, or
the Company’s estimate of returns is determined to be inadequate, additional allowances may be required.
F-7
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory
Inventory consists principally of finished goods sourced from third-party suppliers. Inventory also includes
finished goods, work in process and raw materials related to the Company’s manufacture of sterling silver
products. Inventory is priced by the lower of cost (first-in, first-out basis) or market method. Consistent with
the seasonality of the Company’s business, inventory generally increases, beginning late in the first quarter of
the year, and reaches a peak at the end of the third quarter or early in the fourth quarter, and declines thereafter.
The Company periodically reviews and analyzes inventory based on a number of factors including, but not
limited to, future product demand for items and estimated profitability of merchandise. When appropriate, the
Company writes down inventory to net realizable value.
Property and equipment
Property and equipment is stated at cost. Property and equipment, other than leasehold improvements, is
depreciated using 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 periods
ranging from 3 to 10 years. Leasehold improvements are amortized over the term of the lease or the estimated
useful lives of the improvements, whichever is shorter. Advances paid towards the acquisition of property and
equipment and the cost of property and equipment not ready for use before the end of the period are classified
as construction in progress.
Cash equivalents
The Company considers all highly liquid instruments with a maturity of three months or less when purchased to
be cash equivalents.
Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those estimates.
Concentration of credit risk
The Company maintains cash 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 North America.
During the years ended December 31, 2007, 2006 and 2005, Wal-Mart Stores, Inc. (including Sam’s Clubs)
accounted for 21%, 17% and 20% of net sales, respectively. No other customer accounted for 10% or more of
the Company’s net sales during the years ended December 31, 2007, 2006 or 2005. For the years ended
December 31, 2007, 2006 and 2005, the Company’s ten largest customers accounted for 62%, 49% and 51% of
net sales, respectively.
F-8
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value of financial instruments
The Company estimated that the carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable are a reasonable estimate of their fair value because of their short-term nature. The Company
estimated that the carrying amounts of borrowings outstanding under its revolving Credit Facility approximate
fair value since such borrowings bear interest at variable market rates. At December 31, 2007, the fair value of
the Company’s $75 million 4.75% Convertible Senior Notes was $66.1 million based on the quoted price of the
notes on December 31, 2007.
Derivatives
The Company accounts for derivative instruments in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, and subsequent
amendments (“SFAS 133”). SFAS No. 133 requires that all derivative instruments be recognized on the balance
sheet at fair value as either an asset or a liability. Accounting for changes in the fair value of a derivative
depends on whether it qualifies and has been designated as part of a hedging relationship. For derivatives that
qualify and have been designated as hedges for accounting purposes, changes in fair value have no net impact
on earnings to the extent the derivative is considered perfectly effective in achieving offsetting changes in fair
value or cash flows attributable to the risk being hedged until the hedged item is recognized in earnings. For
derivatives that do not qualify or are not designated as hedging instruments for accounting purposes, changes in
fair value are recorded in current period earnings.
Goodwill, other intangible assets and long-lived assets
Goodwill, and intangible assets deemed to have indefinite lives, are not amortized but instead are subject to
annual impairment tests in accordance with the provisions of SFAS No.142, Goodwill and Other Intangible
Assets.
Long-lived assets are reviewed for impairment in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets. Other intangible assets are amortized over their respective useful
lives and reviewed for impairment whenever events or changes in circumstances indicate that such amounts may
have been impaired. Impairment indicators include among other conditions, cash flow deficits, historic or
anticipated declines in revenue or operating profit or material adverse changes in the business climate that
indicate that the carrying amount of an asset may be impaired. When impairment indicators are present, the
Company compares the carrying value of the asset to the estimated undiscounted future cash flows expected to
be generated by the assets. If the assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Other
than described in Note M, as of December 31, 2007, no impairment has occurred.
F-9
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax
assets and liabilities are determined based on differences between financial reporting and tax bases of assets
and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse.
In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 48,
Accounting for Uncertainty in Income Taxes. FIN No. 48 provides guidance for the financial statement
recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial
statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. Tax positions must
meet a more-likely-than-not recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken upon the adoption of FIN No. 48 or in subsequent
periods. The Company adopted FIN No. 48 on January 1, 2007.
Stock options
Effective January 1, 2006, the Company adopted SFAS No. 123(R) Share-Based Payment, as amended. SFAS
No.123(R) requires the measurement of compensation expense for all share-based compensation granted to
employees and non-employee directors at fair value on the date of grant and recognition of compensation expense
over the related service period for awards expected to vest. SFAS No. 123(R) also requires that excess tax
benefits associated with share-based payments be classified as a financing activity in the statement of cash
flows, rather than as operating cash flows as required by previous accounting pronouncements. The Company
adopted SFAS No. 123(R) using the modified-prospective transition method. Accordingly, the Company has not
restated prior period amounts. The fair value of stock options granted under SFAS No. 123(R) is determined by
the Company using the Black-Scholes valuation model.
Prior to January 1, 2006, the Company accounted for stock-based compensation using the intrinsic value based
method in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations, and the Company complied with the disclosure
requirements of SFAS No. 123, Accounting of Stock-Based Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation, Transition and Disclosure. Accordingly, the Company was only
required to record compensation expense if stock options were granted with an exercise price that was less than the
fair market value of the underlying stock at the date of grant. In 2005, the Company accelerated the vesting of all
unvested outstanding stock options in order to reduce the non-cash compensation expense that otherwise would
have been required to be recorded under SFAS No. 123(R).
F-10
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)
New accounting pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides enhanced
guidance for using fair value to measure assets and liabilities. SFAS No. 157 establishes a common definition
of fair value, provides a framework for measuring fair value under U.S. generally accepted accounting
principles and expands disclosure requirements about fair value measurements. SFAS No. 157 is effective for
financial statements issued in fiscal years beginning after November 15, 2007, and interim periods within those
fiscal years. In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-1, Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value
Measurements for Purposes of Lease Classification or Measurement under Statement 13 and FSP 157-2,
Effective Date of FASB Statement No. 157. FSP 157-1 amends SFAS No. 157 to remove certain leasing
transactions from its scope. FSP 157-2, Effective Date of FASB Statement No. 157 delays the effective date of
SFAS No. 157 for all nonfinancial assets and liabilities except those that are recognized or disclosed at fair
value in the financial statements on at least an annual basis until January 1, 2009. The Company will adopt
SFAS No. 157 except as it applies to nonfinancial assets and liabilities as noted in FSP 157-2 effective January
1, 2008. The Company does not expect the partial adoption of SFAS No. 157 to have a significant impact on its
consolidated financial statements. The Company has not determined the effect that the adoption of SFAS
No. 157, as it relates to nonfinancial assets and liabilities, will have on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (R), Business Combinations, which establishes the
principles and requirements for how an acquirer: (1) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree;
(2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain
purchase; and (3) determines what information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS No. 141(R) replaces SFAS No. 141,
Business Combinations. SFAS No. 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008, and will only have an impact on transactions recorded by the Company beginning January
1, 2009.
Reclassifications
Certain amounts in 2006 were reclassified to conform to the presentation in 2007. These reclassifications had
no effect on the Company’s previously reported consolidated financial position or results of operations.
F-11
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE B — INVESTMENT IN EKCO AND BUSINESS ACQUISITIONS
The following acquisitions were accounted for by the Company under the purchase method of accounting in
accordance with SFAS No. 141, Business Combinations. Accordingly, the results of operations of the
acquisitions have been included in the Company’s consolidated statements of income from the respective dates
of the acquisitions. The fair value of identifiable intangible assets has been determined based on standard
valuation techniques. The cash purchase prices were funded by borrowings under the Company’s Credit
Facility. The acquisitions in 2007 were not deemed material; accordingly, summary pro forma financial
information has not been presented.
Ekco
On December 19, 2007 the Company acquired a 29.99% interest in Ekco S.A.B. (“Ekco”) for $23.0 million,
consisting of cash paid at closing of $22.3 million and acquisition related costs of $619,000. Ekco is one of
Mexico’s leading housewares companies and manufactures and sells cookware and distributes bakeware,
kitchenware, cutlery, dinnerware, flatware and related items. Ekco markets its products in Mexico under the
Ekco®, Vasconia®, Regal®, H. Steele®, Presto® and Thermos® brands. Shares of Ekco’s capital stock are
traded on the Bolsa Mexicana de Valores, S.A. de C.V., (the Mexican Stock Exchange), under the symbol
BMV: EKCO. The agreement provides the Company the right, for a period of 30 days beginning on the first
anniversary of the closing date, to require Ekco to acquire its 29.99% interest for an amount equal to the
original purchase price. The agreement also provides the Company with the option, after the second year
following the closing date, for a period of three years, to (i) require Ekco to purchase the Company’s 29.99%
interest for an amount equal to the fair market value at the time as determined by an independent appraisal, or
(ii) require the primary shareholders who control a majority of the outstanding shares of Ekco, to tender their
shares in the event the Company makes a public tender offer for 100% of the outstanding shares of Ekco not
owned by the Company. The Company has accounted for its investment in Ekco using the equity method of
accounting. The allocation of the purchase price of Ekco has not been finalized at December 31, 2007 and is
pending the completion of a third party valuation. The effect, if any, of the step-up in value of the Company’s
proportionate share of Ekco’s tangible and identifiable intangible assets that may result from the third party
valuation is not likely to be material to the Company’s consolidated financial statements for the year ended
December 31, 2007. Due to the timing of the acquisition, the Company’s proportionate share of Ekco’s results
of operations for the year ended December 31, 2007 was not material to the Company’s 2007 consolidated
financial statements.
Gorham®
On July 20, 2007 the Company acquired certain assets from Lenox Group Inc. (“Lenox) for $8.3 million,
consisting of cash paid at closing of $8.2 million and acquisition related costs of $119,000. As part of the
transaction the Company also entered into a long-term licensing agreement with Lenox under which it
exclusively licensed the Gorham®, Kirk Stieff®, Whiting™ and Durgin™ trademarks in connection with the
manufacture, sale, distribution and marketing of sterling silver products.
The following summarizes the estimated fair values of the assets acquired at the date of acquisition (in
thousands):
Inventory
Property and equipment
Total assets acquired
$7,289
965
$8,254
LIFETIME BRANDS, INC.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE B — INVESTMENT IN EKCO AND BUSINESS ACQUISITIONS (continued)
Pomerantz® and Design for Living®
On April 25, 2007, in two separate, but related transactions, the Company acquired the Pomerantz® brand and
certain related assets from JP Products, LLC and the Design for Living® brand and certain related assets from
Design for Living, LLC; designers, importers and distributors of pantryware products. The combined purchase
was $1.9 million, consisting of cash paid at closing of $1.7 million and acquisition related costs of $199,000.
The following summarizes the estimated fair values of the assets acquired at the date of acquisition (in
thousands):
Inventory
Other intangibles
Goodwill
Total assets acquired
$ 975
584
318
$1,877
Other intangibles consist of patents that have an estimated life of 17 years.
Syratech
In April 2006, the Company acquired the business and certain assets of Syratech Corporation (“Syratech”), a
designer, importer, manufacturer and distributor of a diverse portfolio of tabletop, home décor and picture frame
products. The assets acquired included Syratech’s registered trademarks, including Wallace Silversmiths®,
Towle Silversmiths®, International® Silver Company, Melannco® and Elements® and a license to market
Cuisinart® branded tabletop products. The total purchase price was $52.1 million, of which $7.0 million was
paid in the Company’s common stock.
During the quarter ended March 31, 2007, the Company finalized the valuation of the identifiable intangible
assets and goodwill related to Syratech and recorded an increase in goodwill of $6.2 million and a
corresponding decrease of $6.2 million in intangible assets. See Note C.
NOTE C — GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill, all of which is included as an asset in the wholesale segment, consists of the following (in
thousands):
Balance December 31, 2006
Syratech
Pomerantz® and Design for Living®
Balance December 31, 2007
$20,951
6,163
318
$27,432
The Company completed its annual goodwill impairment test as of December 31, 2007. The test primarily
involved the assessment of the fair market value of the Company as a single reporting unit. No impairment of
goodwill was indicated. All existing and future goodwill is subject to a goodwill impairment test on at least an
annual basis or more frequently if indicators of impairment exist. There can be no assurance that future
goodwill impairment tests will not result in a charge to income.
All goodwill is expected to be deductible for tax purposes since the acquisitions were asset purchases.
F-13
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE C — GOODWILL AND INTANGIBLE ASSETS (continued)
Intangibles assets
Intangible assets consist of the following (in thousands):
Year Ended December 31,
2007
Accumulated
Amortization
Gross
Net
Gross
2006
Accumulated
Amortization
Net
$21,443
$ ―
$21,443
$27,979
$ ―
$27,979
15,847
2,477
886
460
584
$41,697
4,490
1,020
11,357
1,457
15,885
2,477
3,872
937
12,013
1,540
451
330
23
$6,314
435
130
561
$35,383
460
949
―
$47,750
261
289
―
$5,359
199
660
―
$42,391
Indefinite-lived
intangible assets:
Trade names
Finite-lived
intangible assets:
Licenses
Trade names
Customer
relationship
s
Designs
Patents
Total
The weighted-average amortization periods for the Company’s finite-lived intangible assets as of
December 31, 2007 are as follows:
Trade names
Licenses
Designs
Customer relationships
Patents
Years
30
33
7
4
17
Estimated amortization expense for each of the five succeeding fiscal years is as follows (in thousands):
Year ending December 31
2008
2009
2010
2011
2012
$982
965
840
752
674
Amortization expense for the years ended December 31, 2007, 2006 and 2005 was $915,000, $855,000, and
$814,000 respectively.
F-14
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE D —CREDIT FACILITY
The Company has a $150 million secured credit facility, with an accordion feature for an additional $50
million, that expires in April 2011 (the “Credit Facility”). Borrowings under the Credit Facility are secured by
all assets of the Company. Under the terms of the Credit Facility, the Company is required to satisfy certain
financial covenants, including covenants providing limitations on indebtedness, sale of assets and capital
expenditures, a maximum leverage ratio and a minimum interest coverage ratio. At December 31, 2007, the
Company was in compliance with these covenants. Borrowings under the Credit Facility have different
interest rate options that are based either on, (i) an alternate base rate, (ii) the Libor rate, or (iii) the lender’s
cost of funds rate, plus in each case a margin based on a leverage ratio. At December 31, 2007, the Company
had $2.7 million of open letters of credit and $68.7 million of borrowings outstanding under its Credit Facility.
The availability under the Credit Facility at December 31, 2007 was $73.6 million. Interest rates on
outstanding borrowings at December 31, 2007 ranged from 5.50% to 6.12%. The Company has entered into
interest rate swap and collar agreements (see Note F) with aggregate notional amounts of $55.2 million and
$5.0 million, at December 31, 2007 and 2006, respectively. The Company entered into these agreements to
effectively fix the interest rate on a portion of its borrowings under the Credit Facility. The agreements have
maturity dates that exceed one year as the Company does not intend to repay an equivalent amount of debt
within one year. Accordingly, $55.2 million and $5.0 million of debt outstanding under the Credit Facility at
December 31, 2007 and 2006, respectively, has been classified as long-term debt in the accompanying
consolidated balance sheets.
NOTE E — CONVERTIBLE NOTES
The Company has outstanding $75 million aggregate principal amount of 4.75% Convertible Senior Notes due
2011 (the “Notes”). The Notes are convertible into shares of the Company’s common stock at a conversion
price of $28.00 per share, subject to adjustment in certain events. The Notes bear interest at 4.75% per annum,
payable semiannually in arrears on January 15th and July 15th of each year and are unsubordinated except with
respect to the Company’s debt to the extent secured by the Company’s assets. The Notes mature on July 15,
2011. The Company may not redeem the Notes at any time prior to maturity.
The Notes are convertible at the option of the holder anytime prior to the close of business on the business day
prior to the maturity date. Upon conversion, the Company may elect to deliver either shares of the Company’s
common stock, cash or a combination of cash and shares of the Company’s common stock in satisfaction of the
Company’s obligations upon conversion of the Notes. At any time prior to the 26th trading day preceding the
maturity date, the Company may irrevocably elect to satisfy in cash the Company’s conversion obligation with
respect to the principal amount of the Notes to be converted after the date of such election, with any remaining
amount to be satisfied in shares of the Company’s common stock. The election would be in the Company’s
sole discretion without the consent of the holders of the Notes. The conversion rate of the Notes may be
adjusted upon the occurrence of certain events that would dilute the Company’s common stock. In addition,
holders that convert their Notes in connection with certain fundamental changes, such as a change in control,
may be entitled to a make whole premium in the form of an increase in the conversion rate.
The Company has reserved 2,678,571 shares of common stock for issuance upon conversion of the Notes. Such
shares have been registered and the Notes include a registration rights agreement that would require the
Company to pay liquidating damages to the holders of the Notes if the Company fails to keep the registration
statement effective.
As part of the issuance of the Notes, the Company incurred $3.1 million in underwriter’s discounts and other
offering expenses. The offering costs are being amortized to interest expense over the term of the Notes. At
December 31, 2007 the unamortized balance of these costs is $2.1 million and is included in other assets in the
consolidated balance sheet.
F-15
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE F – DERIVATIVES
The Company has entered into interest rate swap agreements with an aggregate notional amount of $50 million
and interest rate collar agreements with an aggregate notional amount of $40.2 million to manage interest rate
exposure in connection with its variable interest rate borrowings. All agreements expire in 2010. Certain
interest rate swap agreements with an aggregate notional amount of $35 million were not designated as hedges
under SFAS 133 and the fair value gains or losses from these swap agreements are recognized currently in
earnings. The effect of recording these interest rate swap agreements at fair value resulted in an unrealized loss
of $358,000 for the year ended December 31, 2007, which is included in interest expense. An interest rate swap
agreement with a notional amount of $15 million and the interest rate collar agreements were designated as cash
flow hedges under SFAS 133. The effective portion of the fair value gains or losses on these agreements is
recorded in other comprehensive income. The effect of recording these agreements at fair value resulted in an
unrealized loss of $373,000 for the year ended December 31, 2007. No amount of this loss is expected to be
reclassified to interest expense in the next twelve months. The aggregate fair value of the Company’s derivative
instruments at December 31, 2007 was a liability of $731,000, which is included in deferred rent and other
long-term liabilities.
NOTE G — CAPITAL STOCK
Public offering
In 2005, the Company completed a public offering pursuant to which it sold 1,733,000 shares of the
Company’s stock at an offering price of $21.50. The net proceeds of the sale were $34.4 million.
Cash dividends
The Company paid regular quarterly cash dividends of $0.0625 per share on its common stock, or a total annual
cash dividend of $0.25 per share, in 2007, 2006 and 2005. The Company’s Board of Directors currently intends
to maintain a quarterly cash dividend of $0.0625 per share of common stock for the foreseeable future,
however, the Board of Directors may in its discretion determine to modify or eliminate such dividend at any
time.
Share repurchase program
The Board of Directors of the Company has authorized a program to repurchase up to $40.0 million of the
Company’s common stock through open market purchases or privately-negotiated transactions. As of
December 31, 2007 the Company had purchased in the open market and retired a total of 1,362,505 shares of
its common stock for a total cost of $22.7 million under the program.
Preferred stock
The Company is authorized to issue 100 shares of Series A Preferred Stock and 2,000,000 shares of Series B
Preferred Stock, none of which is outstanding at December 31, 2007.
F-16
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE G — CAPITAL STOCK (continued)
Long-term incentive plan
The Company maintains the 2000 Long-Term Incentive Plan (the “Plan”), whereby up to 2,500,000 shares of
the Company’s common stock may be subject to outstanding awards granted to directors, officers, employees,
consultants and service providers and affiliates in the form of stock options or other equity-based awards. The
Plan authorizes the Board of Directors of the Company, or a duly appointed committee thereof, to issue
incentive stock options, non-qualified options, and other stock-based awards. Options that have been granted
under the Plan expire over a range of five to ten years from the date of the grant and vest over a range of up to
five years from the date of grant. As of December 31, 2007, the shares available for grant under the Plan were
241,231. All stock options granted through December 31, 2007 under the Plan have exercise prices equal to the
market values of the Company’s stock on the dates of grant.
Stock options
A summary of the Company’s stock option activity and related information for the three years ended
December 31, 2007 is as follows:
Options outstanding, December 31, 2004
Grants
Exercises
Cancellations
Options outstanding, December 31, 2005
Grants
Exercises
Cancellations
Options
694,807
362,000
(150,650)
(31,000)
875,157
695,500
(146,157)
(13,600)
Options outstanding, December 31, 2006
1,410,900
Grants
Exercises
Cancellations
516,500
(32,000)
(86,500)
Options outstanding, December 31, 2007
1,808,900
Options exercisable, December 31, 2007
927,316
Weighted-
average
exercise
price
Weighted -
average
remaining
contractual
life
(years)
Aggregate
intrinsic
value
$ 7.59
24.12
7.00
8.25
14.51
29.96
6.95
28.12
22.78
21.65
7.64
23.48
22.69
20.28
5.95
5.11
$1,818,000
$1,810,000
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that would have been
received by the option holders had all option holders exercised their stock options on December 31, 2007. The
intrinsic value is calculated for each in-the-money stock option as the difference between the closing price of
the Company’s common stock on December 31, 2007 and the exercise price.
F-17
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE G — CAPITAL STOCK (continued)
Stock options (continued)
The total intrinsic value of stock options exercised for the years ended December 31, 2007, 2006 and 2005 was
$417,000, $2.7 million and $2.3 million, respectively. The intrinsic value of a stock option that is exercised is
calculated as the difference between the quoted market price of the Company’s common stock at the date of
exercise and the exercise price of the stock option multiplied by the number of shares exercised.
The Company recognized stock option expense of $2.2 million and $1.2 million for the years ended December
31, 2007 and 2006, respectively. Total unrecognized compensation cost related to unvested stock options at
December 31, 2007, before the effect of income taxes, was $7.2 million and is expected to be recognized over a
weighted-average period of 3.3 years.
The Company values stock options using the Black-Scholes option valuation model. However, the Black-
Scholes option valuation model, as well as other available models, were developed for use in estimating the 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 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 provide a reliable measure of the fair value of its
stock options.
The weighted-average per share grant date fair value of stock options granted during the years ended
December 31, 2007, 2006 and 2005 was $8.26, $12.11 and $7.45, respectively.
The fair value for these stock options was estimated at the date of grant using the following weighted-average
assumptions:
Volatility
Expected term (years)
Risk-free interest rate
Expected dividend yield
2007
2006
2005
40%
5.2
4.56%
1.18%
41%
5.2
5.02%
0.834%
42%
3.1
4.26%
1.04%
F-18
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE G— CAPITAL STOCK (continued)
Stock options (continued)
Prior to the adoption of SFAS No. 123(R), Share-Based Payment, as amended, the Company accounted for
stock options under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. Accordingly, for the periods prior to the adoption of SFAS
No. 123(R), no stock-based employee compensation cost was reflected in net income as all stock options
granted under the plan had exercise prices equal to the market values of the underlying common stock of the
Company on the dates of grant. Pro forma information regarding the impact of stock-based compensation on
net income and income per share for prior periods is required by SFAS No. 123(R).
The following table illustrates what would have been the effect on net income and net income per common
share if the Company had accounted for its stock options using the fair value method during the year ended
December 31, 2005 (in thousands-except per share data):
Net income as reported
Deduct: Total stock option employee compensation expense determined
under fair value based method for all awards, net of related
tax effects
Pro forma net income
$14,109
(2,109)
$12,000
Income per common share:
Basic income per common share – as reported
Basic income per common share – pro forma
Diluted income per common share – as reported
Diluted income per common share – pro forma
$ 1.25
$ 1.06
$ 1.23
$ 1.04
Restricted stock
In 2007, 2006 and 2005, the Company issued 7,280, 5,254 and 2,950 restricted shares, respectively, of the
Company’s common stock to its Board of Directors representing payment of a portion of their annual retainer.
The total fair value of the restricted shares, based on the number of shares granted and the quoted market price
of the Company’s common stock on the date of grant, was $150,000, $115,000 and $50,000, respectively. The
shares granted in 2007 vest one year from the date of grant. The shares granted in 2006 and 2005, vested in
quarterly installments over a period of one year.
F-19
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE H— INCOME PER COMMON SHARE
Basic income per common share has been computed by dividing net income by the weighted-average number
of shares of the Company’s common stock outstanding. Diluted income per common share adjusts net income
and basic income per common share for the effect of all potentially dilutive shares of the Company’s common
stock. The calculations of basic and diluted income per common share for the years ended December 31, 2007,
2006 and 2005 are as follows:
Net income- Basic
Interest expense 4.75% Convertible Notes, net of tax
Net income- Diluted
Weighted- average shares outstanding – Basic
Effect of dilutive securities:
Stock options
4.75% Convertible Notes
Weighted- average shares outstanding – Diluted
Basic income per common share
Diluted income per common share
2007
2006
2005
(in thousands - except per share amounts)
$ 8,892
―
$ 8,892
12,969
130
―
13,099
$ 0.69
$ 0.68
$15,532
1,312
$16,844
13,171
183
1,362
14,716
$ 1.18
$ 1.14
$14,109
―
$14,109
11,283
223
―
11,506
$ 1.25
$ 1.23
The computation of diluted income per common share for the years ended December 31, 2007, 2006 and 2005
excludes options to purchase 1,544,000, 974,000 and 350,000 shares of the Company’s common stock,
respectively, due to their antidilutive effect. The computation of diluted income per common share for the year
ended December 31, 2007 also excludes 2,678,571 shares of the Company’s common stock issuable upon the
conversion of the Company’s 4.75% Convertible Notes and related interest expense, due to its antidilutive
effect.
F-20
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE I— INCOME TAXES
The provision for income taxes consists of (in thousands):
Year Ended December 31,
2006
2005
2007
Current:
Federal
State and local
Deferred
Income tax provision
$3,891
768
2,771
$7,430
$7,442
1,860
421
$9,723
$9,755
1,618
(2,726)
$8,647
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 income tax asset (liability) are as follows (in thousands):
Deferred income tax assets:
Merchandise inventories
Accounts receivable allowances
Deferred rent expense
Accrued bonuses
Stock options
Other
Total deferred income tax asset
December 31,
2007
2006
$4,347
1,603
1,055
469
390
61
$7,925
$3,740
3,062
753
732
232
―
$8,519
Deferred income tax liability:
Depreciation and amortization
$(8,211)
$(6,204)
The provision for income taxes differs from the amounts computed by applying the applicable federal statutory
rates as follows:
Year Ended December 31,
2006
2005
2007
Provision for Federal income taxes at
the statutory rate
Increases (decreases):
State and local income taxes, net of
Federal income tax benefit
Non-deductible stock options
Other
Provision for income taxes
35.0%
35.0%
35.0%
5.6
2.9
2.0
45.5%
4.8
―
(1.3)
38.5%
4.6
―
(1.6)
38.0%
F-21
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE I— INCOME TAXES (continued)
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file
income tax returns, as well as all open tax years in these jurisdictions. As a result of this review, the Company
determined that no adjustments to the estimated value of its tax positions were necessary upon adoption of FIN
No. 48. Accordingly, no charge to retained earnings was required. The estimated value of the Company’s tax
positions at December 31, 2007 is a liability of $1.4 million (including interest of $308,000) and consisted of
the following (in thousands):
Balance as of January 1, 2007
Increases – tax positions in prior years
Decreases – tax positions in prior years
Increases – tax positions in current year
Balance as of December 31, 2007
$1,704
9
(312)
36
$1,437
The liability for these tax positions is included in income taxes payable. If the Company’s tax positions are
sustained by the taxing authorities in favor of the Company, the Company’s income tax provision would be
reduced by $1.4 million. The Company continues on a quarterly basis to evaluate FIN No. 48 tax positions and
revises its estimates accordingly. The Company recorded a net reduction to the estimates of approximately
$267,000 during the year ended December 31, 2007.
If certain settlements are effected in accordance with the Company’s expectations, the estimated value of the
Company’s tax positions could decrease by approximately $1.3 million within the next twelve months.
The Company has identified federal, New York and New Jersey as “major” tax jurisdictions. The periods
subject to examination for the Company’s federal return are years 2002 through 2006. The periods subject to
examination for the Company’s New York return are years 2003 through 2006. The periods subject to
examination for the Company’s New Jersey return are years 2001 through 2006.
The Company’s policy for recording interest and penalties is to record such items as a component of income
taxes. Interest and penalties were not material to the Company’s financial position, results of operations or
cash flows as of and for each of the years ended December 31, 2007 and 2006.
NOTE J – BUSINESS SEGMENTS
Segment information
The Company operates in two reportable business segments — wholesale and direct-to-consumer. The
wholesale segment is the Company’s primary business that designs, markets and distributes household products
to retailers and distributors. The direct-to-consumer segment is comprised of the Company’s business that sells
household products directly to the consumer through Company-operated factory and outlet stores, and catalog
and Internet operations. At December 31, 2007, the Company operated 34 stores under the Farberware® brand
name and 44 factory stores under the Pfaltzgraff® brand name. As described in Note M, in December 2007,
management of the Company commenced a plan to close 27 underperforming Farberware® outlet stores and 3
underperforming Pfaltzgraff® factory stores. The Company has segmented its operations in a manner that
reflects how management reviews and evaluates the results of its operations. While both segments distribute
similar products, the segments are distinct due to their different types of customers and the different methods
used to sell, market and distribute the products.
F-22
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE J – BUSINESS SEGMENTS (continued)
Segment information (continued)
Management evaluates the performance of the wholesale and direct-to-consumer segments based on Net sales
and Income (loss) from operations. Such measures give recognition to specifically identifiable operating costs
such as cost of sales, distribution expenses and selling, general and administrative expenses. Certain general
and administrative expenses such as executive salaries and benefits, stock compensation, director fees and
accounting, legal and consulting fees are not allocated to the specific segments and are reflected as unallocated
corporate expenses. Assets in each segment consist of assets used in its operations, acquired intangible assets
and goodwill. Assets in the unallocated corporate category consist of cash and tax related assets that are not
allocated to the segments.
2007
Year Ended December 31,
2006
(in thousands)
2005
Net sales:
Wholesale
Direct-to-consumer
Total net sales
Income (loss) from operations:
Wholesale
Direct-to-consumer (1)
Unallocated corporate expenses
Total income from operations
Depreciation and amortization:
Wholesale
Direct-to-consumer
Total depreciation and
amortization
Assets:
Wholesale
Direct-to-consumer
Unallocated/ corporate/other
Total assets
Capital expenditures:
Wholesale
Direct-to-consumer
Total capital expenditures
$416,890
76,835
$493,725
$374,081
83,319
$457,400
$241,618
66,279
$307,897
$ 42,968
(10,010)
(12,174)
$ 20,784
$ 46,824
(8,129)
(8,895)
$ 29,800
$ 33,150
(444)
(7,534)
$ 25,172
$ 8,178
1,481
$ 7,078
1,302
$ 4,558
1,083
$ 9,659
$ 8,380
$ 5,641
$337,156
22,163
12,096
$371,415
$310,260
24,136
8,668
$343,064
$ 17,412
1,611
$ 19,023
$ 17,719
3,425
$ 21,144
$190,967
23,191
8,490
$222,648
$ 3,555
1,226
$ 4,781
Note:
(1) In 2007, loss from operations for the Direct-to-consumer segment includes $1.9 million of asset impairment and
restructuring expenses. See Note M.
F-23
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE J – BUSINESS SEGMENTS (continued)
Product category information – net sales
The following table sets forth the net sales by the major product categories included within the Company’s
wholesale operating segment:
Food Preparation
Tabletop
Home Décor
Other
Total net sales
2007
Year ended December 31,
2006
(in thousands)
2005
$247,336
97,995
68,856
2,703
$416,890
$239,200
88,466
44,040
2,375
$374,081
$210,551
29,162
―
1,905
$241,618
NOTE K— COMMITMENTS AND CONTINGENCIES
Operating leases
The Company has lease agreements for its corporate headquarters, distribution centers, direct-to-consumer
offices, showrooms, sales offices and factory and outlet stores that expire through 2022. These leases generally
provide for, among other things, annual base rent escalations, and additional rent for real estate taxes and other
costs. Leases for certain factory and outlet stores require rent to be paid based upon a percentage of monthly
gross sales.
In January 2008, the Company entered into a 12-year lease agreement for 69,000 square feet of office,
showroom and warehouse space located in Medford, Massachusetts. The lease includes a renewal option for
two additional five-year periods. The location will serve as the headquarters for the Syratech business
operations. Annual rent is $991,000 and will increase over the initial term of the lease to $1.3 million. The
Company expects to take occupancy in October 2008. The new office space will replace 118,000 square feet of
office space that the Company leases in the Boston, Massachusetts area.
In June 2007, the Company entered into a lease agreement for 753,000 square feet of warehouse and
distribution space in Fontana, California. The Company began occupying the space in December 2007, when
fully operational in the third quarter of 2008, the facility will serve as the Company’s main West Coast
distribution center. The term of the lease is 10-years and annual rent is $3.3 million and will increase over the
term of the lease to $4.5 million. The lease contains two renewal options for five years each.
Future minimum payments under non-cancelable operating leases are as follows (in thousands):
Year ending December 31
2008
2009
2010
2011
2012
Thereafter
$ 20,955
17,015
14,144
12,248
12,182
73,096
$149,640
F-24
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE K— COMMITMENTS AND CONTINGENCIES (continued)
Operating leases (continued)
During the years ended December 31, 2006 and 2005, the Company had an agreement with Meyer Corporation
whereby Meyer Corporation occupied 30% of the space in each of the Company’s Farberware® outlet stores and
was responsible for merchandising and stocking Farberware® cookware products in these stores. Pursuant to the
agreement Meyer Corporation received all revenue from the sale of the Farberware® cookware in the Company’s
Farberware® outlet stores and in turn reimbursed the Company for 30% of the operating expenses of the stores,
including rent. The agreement was terminated in June 2006. During the years ended December 31, 2006 and
2005, Meyer Corporation reimbursed the Company $2.0 million and $4.2 million, respectively.
Rental and related expenses under operating leases were $18.3 million, $16.5 million and $13.0 million for the
years ended December 31, 2007, 2006 and 2005, respectively. The amounts for 2006 and 2005 are prior to the
Meyer reimbursements described above.
Capital leases
The Company has entered into various capital lease arrangements for the leasing of equipment that is primarily
utilized in its distribution centers. These leases expire through 2011 and the future minimum lease payments
due under the leases are as follows (in thousands):
Year ending December 31
2008
2009
2010
2011
Total minimum lease payments
Less: amounts representing interest
Present value of minimum lease payments
$413
251
161
84
909
(82)
$827
The current and non-current portions of the Company’s capital lease obligations at December 31, 2007 of
$369,000 and $457,000, respectively, and at December 31, 2006 of $367,000 and $835,000, respectively, are
included in accrued expenses, and deferred rent and other long-term liabilities, respectively.
Royalties
The Company has license agreements that require payments of royalties on sales of licensed products, which
expire through 2023. Future minimum royalties payable under these agreements are as follows (in thousands):
Year ending December 31
2008
2009
2010
2011
2012
Thereafter
$ 9,591
10,758
1,125
1,030
210
2,164
$24,878
F-25
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE K— COMMITMENTS AND CONTINGENCIES (continued)
Legal proceedings
The Company is a defendant in various lawsuits arising in the ordinary course of its business. Management does
not expect the outcome of any of these matters, individually or collectively, to have a material adverse effect on
the Company’s financial condition.
In addition to the matters referred to in the foregoing paragraph, in April 2007, a complaint was filed against
the Company in the United States District Court for the Eastern District of Pennsylvania, in which Plaintiff
alleges that the Company violated the Fair and Accurate Credit Transaction Act of 2003. The Company is in
the process of negotiating a settlement with the Plaintiff which will be subject to final court approval. The
proposed settlement is expected to be immaterial to the Company’s consolidated financial statements.
NOTE L— RETIREMENT PLANS
401(k) plan
The Company maintains a defined contribution retirement plan for eligible employees under Section 401(k) of
the Internal Revenue Code. Participants can make voluntary contributions up to a maximum of 15% of their
respective salaries. The Company matches 50% of employee contributions up to 4% of an employee’s eligible
compensation. The Company made matching contributions to the 401(k) plan of $778,000, $809,000 and
$372,000 in 2007, 2006 and 2005, respectively.
Retirement benefit obligations
As part of the acquisition of the business and certain assets of Syratech in April 2006, the Company assumed
certain obligations for retirement benefits to be payable to certain former executives of Syratech. The
obligations under these agreements are unfunded. At December 31, 2007 and 2006, the total unfunded
retirement benefit obligation was $3.0 million and $2.9 million, respectively, and is included in accrued
expenses, and deferred rent and other long-term liabilities. During the years ended December 31, 2007 and
2006, the Company paid retirement benefits related to these obligations of $148,000. The Company expects to
pay a total of $148,000 in retirement benefits related to these obligations during the year ending December 31,
2008.
NOTE M— OTHER
Inventory
The components of inventory are as follows:
Finished goods
Work in process
Raw materials
Total
December 31,
2007
December 31,
2006
(in thousands)
$139,042
2,412
2,230
$143,684
$151,480
1,592
2,278
$155,350
F-26
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE M— OTHER (continued)
Store closings
In December 2007, management of the Company commenced a plan to close 27 underperforming Farberware®
outlet stores and 3 underperforming Pfaltzgraff® factory stores (the “Plan”). The store closures began in
December 2007 and are expected to be completed by the end of the first quarter of 2008. In connection with the
store closings, the Company expects to incur certain restructuring related costs for stay bonuses, severance,
store lease obligations, and other incremental costs. During the year ended December 31, 2007, the Company
recognized $289,000 of such costs, consisting primarily of fees paid to consultants who are assisting the
Company with the Plan, which are included in asset impairment and restructuring expenses.
Furthermore, due to the change in circumstances with respect to the stores that will be closed, the Company
reviewed the related fixed assets of these stores for impairment and determined that the net book value of the
fixed assets would not be recoverable. Accordingly, the Company has recorded an impairment charge of $1.6
million at December 31, 2007 for these fixed assets which is included in asset impairment and restructuring
expenses.
Property and equipment
Property and equipment consist of (in thousands):
Machinery, furniture and equipment
Leasehold improvements
Building and improvements
Construction in progress
Land
Less: accumulated depreciation and amortization
December 31,
2007
$63,223
24,878
1,708
176
115
90,100
35,768
$54,332
2006
$53,667
3,683
7,300
9,826
947
75,423
32,701
$42,722
Depreciation and amortization expense on property and equipment for the years ended December 31, 2007,
2006 and 2005 was $8.7 million, $7.5 million and $4.8 million, respectively.
Included in machinery, furniture and equipment and accumulated depreciation at December 31, 2007 are $2.1
million and $1.2 million, respectively, related to assets recorded under capital leases. Included in machinery,
furniture and equipment and accumulated depreciation at December 31, 2006 are $2.1 million and $911,000,
respectively, related to assets recorded under capital leases.
In November 2007, the Company sold its former corporate headquarters in Westbury, New York, for net
proceeds of $8.8 million. The Company recognized a gain of $3.7 million on the sale which is included in
other income, net.
F-27
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE M— OTHER (continued)
Accrued Expenses
Accrued expenses consist of (in thousands):
Accrued vendor invoices
Accrued salaries, vacation and temporary labor billings
Officer and employee bonuses
Accrued customer allowances and rebates
Accrued royalties
Accrued interest
Accrued contract settlement
Accrued freight
Dividends payable
Commissions
Other
Supplemental cash flow information
December 31,
2007
$ 6,572
3,517
3,098
3,339
2,387
2,062
1,612
992
748
686
6,491
$31,504
2006
$10,815
3,360
3,287
4,835
4,743
1,892
―
2,939
843
1,600
11,429
$45,743
2007
Year Ended December 31,
2006
(in thousands)
2005
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for taxes
Non-cash investing activities:
Common stock issued in connection with Syratech
acquisition
Capitalized tenant improvement allowances
Equipment acquired under capital lease obligations
$6,167
6,392
$ 2,500
10,994
$2,400
6,800
$ 133
7,039
34
$ 6,821
―
521
$ ―
―
317
F-28
LIFETIME BRANDS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
COL. A
Description
COL. B
Balance at
beginning
of period
COL. C
Additions
charged to
costs and
expenses
COL. D
COL. E
Deduction
s
(describe)
Balance
at end of
period
Year ended December 31, 2007
Deducted from asset accounts:
Allowance for doubtful
accounts
Reserve for sales
returns and allowances
Year ended December 31, 2006
Deducted from asset accounts:
Allowance for doubtful
accounts
Reserve for sales
returns and allowances
Year ended December 31, 2005
Deducted from asset accounts:
Allowance for doubtful
accounts
Reserve for sales
returns and allowances
$ 395
$ (79)
$ (79)
(a)
$ 395
11,702
$12,097
19,970
$19,891
(c)
15,667
$15,588
(b)
16,005
$16,400
$ 195
$ (81)
$ (281)
(a)
$ 395
7,718
$7,913
18,996
$18,915
(c)
15,012
$14,731
(b)
11,702
$12,097
$ 195
$ 132
$ 132
(a)
$ 195
3,282
$3,477
13,662
$13,794
(c)
9,226
$ 9,358
(b)
7,718
$ 7,913
(a) Uncollectible accounts written off, net of recoveries.
(b) Allowances granted.
(c) Charged to net sales.
S-1
Subsidiaries of the Registrant
Name of subsidiary
Outlet Retail Stores, Inc.
Pfaltzgraff Factory Stores, Inc.
Syratech Acquisition Corp.
Wallace Silversmiths de Puerto Rico Ltd.
Lifetime Brands, Inc. (HK) Limited
Exhibit 21.1
State/Country of
Incorporation
Ownership
Delaware
Delaware
Delaware
Cayman Islands
Hong Kong
100%
100%
100%
100%
100%
100%
Lifetime Brands Global Sourcing (Shanghai) Consultancy Limited
China
LTB de Mexico, S.A. de C.V.
Mexico
99.99%
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-
105382 and 333-146017) and the Registration Statement on Form S-3 (No. 333-137575) of Lifetime
Brands, Inc. of our reports dated March 14, 2008, with respect to the consolidated financial statements
and schedule of Lifetime Brands, Inc., and the effectiveness of internal control over financial reporting
of Lifetime Brands, Inc. included in this Annual Report (Form 10-K) for the year ended December 31,
2007.
Melville, New York
March 14, 2008
/s/ ERNST & YOUNG LLP
I, Jeffrey Siegel, certify that:
CERTIFICATION
Exhibit 31.1
1. I have reviewed this Annual Report on Form 10-K of Lifetime Brands, Inc. (“the registrant”);
2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this Annual
Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Annual
Report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this Annual Report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-14 and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Annual Report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected or is
reasonably likely to materially affect the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s
Board of Directors (or persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 14, 2008
/s/ Jeffrey Siegel
Jeffrey Siegel
Chief Executive Officer and President
I, Laurence Winoker, certify that:
CERTIFICATION
Exhibit 31.2
1. I have reviewed this Annual Report on Form 10-K of Lifetime Brands, Inc. (“the registrant”);
2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this Annual Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Annual
Report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this Annual Report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-14 and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Annual Report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected or is
reasonably likely to materially affect the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s
Board of Directors (or persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 14, 2008
/s/ Laurence Winoker
Laurence Winoker
Senior Vice President – Finance, Treasurer and Chief Financial Officer
Exhibit 32.1
Certification by Jeffrey Siegel, Chief Executive Officer and President, and Laurence Winoker,
Senior Vice President – Finance, Treasurer and Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
I, Jeffrey Siegel, Chief Executive Officer and President, and I, Laurence Winoker, Senior Vice President
– Finance, Treasurer and Chief Financial Officer, of Lifetime Brands, Inc., a Delaware corporation (the
“Company”), each hereby certifies that:
(1)
(2)
The Company’s Annual report on Form 10-K for the year ended December 31, 2007
(the “Form 10-K”) fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
The information contained in the Form 10-K fairly presents, in all material respects, the
financial condition and results of operations of the Company.
/s/ Jeffrey Siegel /s/ Laurence Winoker
Jeffrey Siegel
Laurence Winoker
Chief Executive Officer and President Senior Vice President- Finance, Treasurer
and Chief Financial Officer
Date: March 14, 2008
Date: March 14, 2008
A signed original of this written statement required by Section 1350 has been provided to Lifetime Brands,
Inc. and will be retained by Lifetime Brands, Inc. and furnished to the Securities and Exchange Commission
or its staff, upon request.
officers and Directors
offices
corporate HeaDquarterS
1000 Stewart Avenue
Garden City, NY 11530
(516) 683-6000
corporate information
corporate couNSel
Samuel B. Fortenbaugh III
New York, NY
iNDepeNDeNt auDitorS
Ernst & Young LLP
Melville, NY
traNSFer ageNt & regiStrar
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
Form 10-k
Shareholders may obtain, without charge,
a copy of the Company’s annual report on
Form 10-K for the year ended December 31, 2007
as filed with the Securities and Exchange Commission.
Request should be sent to:
iNveStor relatioNS
Lifetime Brands, Inc.
1000 Stewart Avenue
Garden City, NY 11530
aNNual meetiNg
The Annual Meeting of Shareholders will
be held at 10:30 am on Thursday, June 5, 2008
at the Corporate Headquarters.
JeFFrey Siegel
Chairman of the Board of Directors
Chief Executive Officer and President
roNalD SHiFtaN
Vice Chairman of the Board of Directors and
Chief Operating Officer
alaN kaNter
Group President of the Flatware and Home Décor
Divisions and Executive Vice-President
evaN miller
President of Sales and Executive Vice-President
robert reicHeNbacH
President of the Cutlery, Cutting Boards,
Bakeware and At-Home Entertaining Divisions
and Executive Vice-President
larry Sklute
President of the Kitchenware Division
and Executive Vice-President
craig pHillipS
Senior Vice-President – Distribution
Secretary and Director
laureNce WiNoker
Senior Vice-President – Finance, Treasurer
and Chief Financial Officer
Sara SHiNDel
Associate General Counsel and Assistant Secretary
DaviD DaNgoor
Director
micHael Jeary
Director
SHelDoN miSHer
Director
cHerrie NaNNiNga
Director
William WeSterFielD
Director
The trademarks ® and TM and logos appearing herein are the property
of Lifetime Brands, Inc and/or their respective owners. © 2008. All rights reserved.
Lifetime Brands, Inc.
1000 Stewart Avenue, Garden City, New York 11530