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
8
Company Profi le
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, in such categories as Kitchenware, Cutlery & Cutting Boards, Bakeware
& Cookware, Pantryware & Spices, Dinnerware, Flatware, Glassware, Home
Décor, Picture Frames and Bath Accessories.
Kamenstein® 360° Pepper Grinder
KitchenAid® 20 Piece Side–Tang Cutlery Set
Mikasa® Modernist Place Setting
Dear Fellow Shareholders:
The past year was the most difficult period that I have experienced in the over 40 years I have been involved in the
household products industry. The relentless drumbeat of bad economic news accelerated during the year, dampening
consumer spending to the point of paralysis and taking a severe toll on most retailers. This punishing clamor reached
epic proportions following the collapse of the credit and stock markets during the second half of the year, the period
in which Lifetime does the majority of its business. As a result, Lifetime’s financial results fell far short of expectations.
• Net sales for 2008 reached $487.9 million, a decrease of 1.2% from 2007.
• Net sales for our wholesale segment in 2008 were $403.6 million, a decrease of 3.2% from 2007.
• Excluding net sales of $32.8 million attributable to our purchase of the Mikasa® brand in June 2008,
net wholesale sales were $370.8 million, a decrease of 11.1% from 2007.
• Net sales for the direct–to–consumer segment in 2008 were $84.3 million compared to $76.8 million for
2007; however, the increase was primarily due to the going–out–of business sales at the Company’s retail
stores and, to a lesser extent, to an increase in Internet sales.
In 2008, Lifetime recorded the first net loss in its history. The loss was $49 million (net of tax benefit of $10.5 million) or
$4.09 per diluted share, compared to net income of $8.9 million, or $0.68 per diluted share in 2007. The Company’s net
loss for 2008 included pre–tax charges of $57.3 million for the following special items:
• $29.4 million in non–cash charges attributable to the write–off of goodwill and certain intangible assets
• $18 million of restructuring charges, of which $3.9 million was non–cash, primarily attributable to the
closing of the Company’s retail stores
• $6.9 million of operating losses attributable to the retail stores
• $3 million in non–recurring transition expenses related to our acquisition of Mikasa.
Excluding these items, the Company would have reported a net loss for 2008 of $2 million, or $0.17 per diluted share.
For a detailed discussion of the Company’s 2008 financial results, please see the Management’s Discussion and Analysis
section in our Form 10–K, which is included in this Annual Report.
While our overall results for the year were a disappointment, we did achieve some notable successes.
• We restructured our dinnerware and glassware businesses under a new management team. With the addition
of the Mikasa® brand, we now are a leader in this segment of the tabletop industry.
• The acquisition of Mikasa provided us with opportunities to strengthen Lifetime’s existing placement at a
number of retailers and to open new doors. We believe that the Mikasa® brand is especially well positioned
for the current economic climate.
• We reduced inventory levels and rationalized SKU count without negatively affecting service levels.
• We consolidated our West Coast distribution centers, which reduced costs and increased efficiency.
• We aligned our operations to fit current market conditions by reducing head count, freezing salaries,
trimming employee benefits and taking other strenuous measures to cut overhead throughout the Company.
• Closing our retail stores removed a significant burden from Lifetime’s financial results. We will exit our
remaining York, Pennsylvania, distribution center by mid–year 2009, which will enable us further to improve
our operating efficiency.
While we expect economic conditions to remain challenging during all of 2009, we believe this environment presents us
with opportunities to expand market share in each of our product classifications.
• We are working closely with our retail partners to create individualized programs that are tailored for today’s
business climate while remaining trend–right.
• Our commitment to innovation and design sets us apart from our competition. We introduced approximately
1,500 new products at the International Home + Housewares Show in Chicago this March, including several
that we believe have the potential to be very important to the Company, such as the One Handed Mandoline
Slicer and the Odor–Absorbing Splatter Screen.
• We have created brand extensions–including Gourmet Basics by Mikasa™, M by Mikasa™ and
Pfaltzgraff Everyday®–that offer trusted brands and outstanding design at significant values.
We thank our employees for their unstinting commitment during these difficult times, and we are grateful for the
continued support of our customers and shareholders.
Jeffrey Siegel
Chairman of the Board, President and Chief Executive Officer
Non–GAAP Financial Measures
This letter contains non–GAAP financial measures within the meaning of Regulation G promulgated by the U.S. Securities and
Exchange Commission. Included on the following page is a reconciliation of these non–GAAP financial measures to the comparable
financial measures calculated in accordance with GAAP.
Reconciliation of GAAP to Non–GAAP Operating Results
(In millions, except per share data)
Reconciliation of net loss as reported to net loss as adjusted:
Net loss as reported
Add (net of taxes):
Non–cash goodwill and intangible write–off
Store restructuring expenses
Store operating losses
Mikasa non–recurring transition expenses
Net loss as adjusted
Reconciliation of diluted loss per common share as reported
to diluted loss per common share as adjusted:
Diluted loss per common share as reported
Add:
Non–cash goodwill and intangible write–off
Store restructuring expenses
Store operating losses
Mikasa non–recurring transition expenses
Diluted loss per common share as adjusted
Year ended
December 31, 2008
(unaudited)
$(49.0)
24.1
14.8
5.6
2.5
$ (2.0)
$(4.09)
2.01
1.23
0.47
0.21
$(0.17)
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, 2008
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 (cid:2) No (cid:3)
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 (cid:2) No (cid:3)
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 (cid:3) No (cid:2)
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.
(cid:3)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and
“smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer (cid:2) Accelerated filer (cid:3)
Non-accelerated filer (do not check if a smaller reporting company) (cid:2) Smaller reporting company (cid:2)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes (cid:2)
No (cid:3)
The aggregate market value of 9,861,790 shares of the voting stock held by non-affiliates of the registrant as of
June 30, 2008 was approximately $80,000,000. 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 30, 2009 was
11,989,724.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s definitive proxy statement for the 2009 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.......................................................................................................................................................8
1B. Unresolved Staff Comments ...........................................................................................................................16
2.
Properties.........................................................................................................................................................16
3.
Legal Proceedings ...........................................................................................................................................16
4. Submission of Matters to a Vote of Security Holders .....................................................................................16
PART II
5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ...........................................................................................................................................17
6.
7.
Selected Financial Data ...................................................................................................................................19
Management’s Discussion and Analysis of Financial Condition and Results of Operations ........................ 20
7A. Quantitative and Qualitative Disclosures about Market Risk .........................................................................31
8.
Financial Statements and Supplementary Data ...............................................................................................31
9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................32
9A. Controls and Procedures..................................................................................................................................32
9B. Other Information............................................................................................................................................34
PART III
10. Directors and Executive Officers and Corporate Governance ........................................................................34
11. Executive Compensation.................................................................................................................................34
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ......34
13. Certain Relationships and Related Transactions, and Director Independence................................................34
14. Principal Accounting Fees and Services ........................................................................................................34
PART IV
15. Exhibits and Financial Statement Schedules ....................................................................................................35
Signatures ...............................................................................................................................................................38
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:
(cid:2) Risks associated with indebtedness;
(cid:2) 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;
(cid:2) Customer risks;
(cid:2) The Company’s dependence on third-party foreign sources of supply and foreign manufacturing;
(cid:2) Changes in demand for the Company’s products and the success of new products;
(cid:2) The level of competition in the Company’s industry;
(cid:2)
(cid:2) Fluctuations in costs of raw materials;
(cid:2)
(cid:2) Complexities associated with a multi-channel and multi-brand business;
(cid:2) The Company’s relationship with key licensors;
(cid:2) Encroachments on the Company’s intellectual property;
(cid:2) The Company’s relationship with key customers;
(cid:2) Product liability claims or product recalls;
(cid:2) The timing of delivery of products to customers;
(cid:2) Departure of key personnel;
(cid:2)
(cid:2) Noncompliance with applicable regulations including the Sarbanes-Oxley Act of 2002;
(cid:2) Risks associated with the Company’s Internet operations;
(cid:2) Future acquisitions and integration of acquired businesses;
(cid:2) Technological risks;
(cid:2) Network security risks; and
(cid:2) 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 Food Preparation, 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 under
more than one brand. At the heart of the Company is a strong culture of innovation and new product development.
The Company introduced over 4,600 new or redesigned products in 2008 and expects to introduce approximately
5,000 new or redesigned products in 2009.
The Company’s three main product categories and the products offered within the product categories are as
follows:
Food Preparation
Kitchenware
Cutlery & Cutting Boards
Pantryware & Spices
Bakeware & Cookware
Fondues & Tabletop Entertaining
Functional Glassware
Tabletop
Flatware
Dinnerware
Giftware
Glassware
Tabletop Accessories
Crystal
Serveware
Barware
Home Décor
Picture Frames
Wall Décor
Non-electric Lighting
Decorative Accessories
Seasonal Decorations
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 sources a majority of its products from approximately 475 suppliers located
primarily in the People’s Republic of China. The Company produces a majority of its sterling silver products at a
leased manufacturing facility in San German, Puerto Rico and fills spices and assembles spice racks at its owned
Winchendon, Massachusetts distribution facility.
The Company’s top ten brands and their respective product categories are:
Farberware®
KitchenAid®
Elements®
Mikasa®
Melannco®
Cuisinart®
Pfaltzgraff®
Kamenstein®
Wallace Silversmiths®
International® Silver Company
Food Preparation and Tabletop
Food Preparation
Home Décor
Tabletop and Home Décor
Home Décor
Food Preparation and Tabletop
Tabletop and Home Décor
Food Preparation
Tabletop and Home Décor
Tabletop and Home Décor
The Company sells its products to a diverse customer base including mass merchants, specialty stores, national
chains, department stores, warehouse clubs, home centers, supermarkets and off-price retailers.
4
BUSINESS SEGMENTS
The Company has two reportable segments; the wholesale segment which is the Company’s primary business that
designs, markets and distributes its products to retailers and distributors, and the direct-to-consumer segment, through
its Pfaltzgraff® and Mikasa® Internet websites and the Company’s Pfaltzgraff® mail-order catalogs. During 2008,
the Company also operated retail stores that were included in the direct-to-consumer segment, but the operations of
these stores were ceased by December 31, 2008. 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 Company’s reportable segments is included in Note L of the Notes to the
Consolidated Financial Statements.
ACQUISITIONS
Since 1995 the Company has completed the following 14 acquisitions that have expanded the Company’s product
offerings, allowed the Company to enter new product categories, and added brands:
Year
Company or assets acquired
Product categories
2008
2007
Mikasa®
Pomerantz®
Design for Living®
Gorham®
Grupo Vasconia, S.A.B (formerly,
Ekco S.A.B.) (29.99%)
2006
Syratech
2005
2004
2003
Pfaltzgraff®
Salton
Excel Importing Corp.
:USE®—Tools for Civilization
Gemco®
2000
M. Kamenstein, Inc.
1998
Roshco, Inc.
1995
Hoffritz®
RECENT ACQUISITION
Tabletop and Home Décor
Food Preparation
Food Preparation
Tabletop
Food Preparation and Tabletop
Tabletop and Home Décor
Tabletop and Food Preparation
Tabletop
Food Preparation and Tabletop
Bath hardware and accessories
Food Preparation
Food Preparation
Food Preparation
Food Preparation
Mikasa®
In June 2008, the Company acquired the business and certain assets of Mikasa, Inc. (“Mikasa®”) from Arc
International SA. Mikasa® is a leading provider of dinnerware, crystal stemware, barware, flatware and
decorative accessories. Mikasa® products are distributed through department stores, specialty stores and big box
chains, as well as through the Internet.
5
CUSTOMERS
The Company’s products are sold in North America to a diverse customer base including mass merchants (such as
Wal-Mart and Target), specialty stores (such as Bed Bath & Beyond), national chains (such as JC Penney, Kohl’s,
and Sears), department stores (such as Macy’s), warehouse clubs (such as Costco, BJ’s Wholesale Club and Sam’s
Club), home centers (such as Lowe’s), supermarkets (such as Stop & Shop and Kroger) and off-price retailers (such
as TJX and Ross Stores).
The Company also operates Internet and catalog operations that sell the Company’s products directly to the
consumer.
During the years ended December 31, 2008, 2007 and 2006, Wal-Mart Stores, Inc. (including Sam’s Club)
accounted for 20%, 21% and 17% of net sales, respectively. No other customer accounted for 10% or more of the
Company’s net sales during these periods. For the years ended December 31, 2008, 2007 and 2006, the Company’s
ten largest customers accounted for 60%, 62% and 49% of net sales, respectively.
DISTRIBUTION
The Company operates the following distribution centers:
Location
Fontana, California
Robbinsville, New Jersey
York, Pennsylvania
Winchendon, Massachusetts
Medford, Massachusetts
Size
(square feet)
753,000
700,000
473,000
210,000
5,590
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 2008, the Company consolidated two
former West Coast distribution centers into the Fontana, California facility. The Company plans to vacate its York,
Pennsylvania distribution center during 2009 and transfer the distribution to the Robbinsville, New Jersey facility
and Fontana, California facility.
SALES AND MARKETING
The Company’s sales and marketing staff coordinate directly with the 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 sales and marketing efforts are supported from its principal offices and showroom in Garden
City, New York as well as showrooms in New York, New York; Medford, Massachusetts; Atlanta, Georgia;
Bentonville, Arkansas; and Menomonee Falls, Wisconsin. The Company’s sales and marketing staff at December
31, 2008 consisted of 235 salaried employees. The Company also distributes certain products through
independent sales representatives who work on a commission basis.
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 largest retail customers and in many instances produces specific versions of the Company’s
product lines with exclusive designs and packaging for their stores.
6
SOURCES OF SUPPLY
The Company sources its products from approximately 475 suppliers located primarily in the People’s Republic of
China. The Company also sources products from suppliers in Hong Kong, the United States, Taiwan, Japan, India,
Thailand, Italy, Indonesia, Korea, Vietnam, Germany, Czech Republic, Malaysia, Portugal, Colombia, Poland,
Turkey, and Mexico. The Company’s policy is to maintain several months of supply of inventory. Accordingly, the
Company orders products substantially in advance of the anticipated time of their sale. While the Company does not
have any formal long-term arrangements with any of its suppliers, in certain instances 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 flexibility in modifying the quantity, composition and delivery dates of orders. All
purchase orders issued by the Company are cancelable.
MANUFACTURING
The Company produces a majority of its sterling silver products at its leased manufacturing facility in San
German, Puerto Rico and fills spices and assembles spice racks at its owned Winchendon, Massachusetts
distribution facility.
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 from the Company’s customers
are typically not received until close to the required shipment dates.
EMPLOYEES
At December 31, 2008, the Company had a total of 1,168 employees, 156 of whom are located in China. In addition,
the Company employed 414 people on a part-time basis, predominately in its distribution centers. 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.
7
Item 1A. Risk Factors
The Company’s business, operations, and financial condition are subject to various risks. Some of these risks are
described below in no particular order. 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.
Risks associated with indebtedness.
The Company has substantial indebtedness. As of December 31, 2008, the Company’s total indebtedness was
$164.3 million, including $89.3 million under its $150 million secured credit facility which expires in April 2011
(the “Credit Facility”) and $75 million of 4.75% Convertible Senior 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. In March 2008 and September 2008, the Company
amended the Credit Facility in anticipation of its declining financial performance. At December 31, 2008, the
Company was not in compliance with the financial covenants required by its Credit Facility. On each of February
12, 2009 and March 6, 2009, the Company entered into a forbearance agreement and amendment to the Credit
Facility. On March 31, 2009, the Company entered into a waiver and amendment to the Credit Facility.
Increased financial leverage resulting from borrowings under the Credit Facility or a decline in the Company’s
financial performance could have a material adverse effect on the Company, including, but not limited to the
following: (i) the Company’s ability to obtain additional financing, 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.
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 such as those that occurred during 2008, has had a significant adverse effect on, and could
continue to 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.
Customer risks.
During the past several years, various retailers, including some of the Company’s customers, have experienced
significant changes and difficulties, including consolidation of ownership, restructurings, bankruptcies and
liquidations. Consolidation of retailers or other events that eliminate the Company’s customers could result in
fewer stores selling the Company’s products and could increase the Company’s reliance on a smaller group of
customers. In addition, if the Company’s retailer customers experience significant problems in the future,
8
including as a result of general weakness in the retail environment, the Company’s sales may be reduced and the
risk of extending credit to these retailers may increase. A significant adverse change in a customer relationship or
in a customer’s financial position could cause the Company to limit or discontinue business with that customer,
require the Company to assume greater credit risk relating to that customer’s receivables or limit the Company’s
ability to collect amounts related to previous purchases by that customer. These or other events related to the
Company’s significant customers could have an adverse effect on the Company’s business, results of operations
or financial condition.
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, increases in value
added taxes, 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. Moreover, since the Company’s vendors are
typically small privately-owned businesses, the Company does not have access to its vendors’ financial information
to assess its vendors’ liquidity. Accordingly, in light of recent economic events in the U.S. and the resulting impact
on foreign economies, particularly in China, the Company is subject to the risk that the Company’s vendors may
become bankrupt or shut-down operations prior to fulfilling the Company’s purchase requirements.
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.
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
9
through 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:
(cid:2)
anticipating and quickly responding to changing consumer demands better than the Company’s
competitors;
(cid:2) maintaining favorable brand recognition and achieving end consumer perception of value;
(cid:2)
effectively marketing and competitively pricing the Company’s products to consumers in diverse market
segments and price levels; and
(cid:2) 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 distinguish the Company from its
competitors.
In addition, the Company operates its catalog and Internet businesses under highly competitive conditions. The
Company has numerous and varied competitors at the national and local levels. 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 profitability.
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 most 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.
10
The Company sources its products from approximately 475 suppliers located primarily in the People’s Republic of
China. The Company’s three largest suppliers in China provided the Company with approximately 23% of the
products it distributed in 2008. 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.
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.
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. Rising cost of fuel may also increase transportation costs. 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.
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.
11
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, catalogs
and 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.
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.
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 2008. 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 could be determined to
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
12
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.
The Company has a single customer that accounted for 20% of its net sales in 2008.
During the years ended December 31, 2008, 2007 and 2006, Wal-Mart Stores, Inc. (including Sam’s Club)
accounted for 20%, 21% and 17% 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 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 such as earthquakes, particularly with respect to
the Company’s West Coast distribution center; 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, any substantial
increase in fuel costs would 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.
13
The Company’s inability to attract and retain skilled personnel 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 the Company’s internal control over financial reporting as of December 31, 2008,
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 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. 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
Internet business as well as the Company’s wholesale business. The Company’s Internet operations are subject to
numerous risks, including reliance on third-party 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 fourteen acquisitions. Although the Company has grown significantly
through acquisitions and intends to continue to pursue additional selective 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.
14
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 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 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 data 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.
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 historically have been 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.
15
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,
2008:
Description
Principal West Coast warehouse and distribution facility
Principal East Coast warehouse and distribution facility
Warehouse and distribution facility
Location
Fontana, California
Robbinsville, New Jersey
York, Pennsylvania (1)
Winchendon, Massachusetts Warehouse and distribution facility, and spice packing line
Garden City, New York
Medford, Massachusetts
York, Pennsylvania
San German, Puerto Rico
New York, New York (2)
Guangdong, China
Atlanta, Georgia
Shanghai, China
Bentonville, Arkansas
Corporate headquarters/main showroom
Offices, showroom, warehouse and distribution facility
Offices
Sterling silver manufacturing facility
Showrooms
Offices
Showrooms
Offices
Showroom & offices
Size
(square feet)
753,000
700,000
473,000
210,000
114,000
69,000
60,000
55,000
37,000
18,000
11,000
11,000
7,000
Owned/
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Note:
(1) The Company plans to vacate this facility in 2009.
(2)
In early 2009, the Company vacated a New York showroom consisting of 26,000 square feet.
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
16
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.
2008
2007
High
Low
High
Low
First quarter
$13.37
Second quarter
9.95
Third quarter
10.86
Fourth quarter
10.02
$ 8.51
6.70
6.94
3.00
$20.94
$16.41
23.43
21.27
21.15
20.00
17.77
11.95
At December 31, 2008, the Company estimates that there were approximately 2,290 beneficial holders of
the Company’s common 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 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 2008 and 2007. In February 2009, in light of current economic
conditions, the Company suspended paying a cash dividend on its outstanding common shares. The
Company will review this decision as circumstances may warrant.
The following table summarizes the Company’s equity compensation plan as of December 31, 2008:
Plan category
Equity compensation plan approved by security holders
Equity compensation plan not approved by security holders
Total
Number of
shares of
common stock
to be issued
upon exercise
of outstanding
options
2,036,650
(cid:2)
2,036,650
Weighted-
average
exercise
price of
outstanding
options
$20.41
(cid:2)
$20.41
Number of
shares of
common
stock
remaining
available for
future
issuance
11,031
(cid:2)
11,031
17
PERFORMANCE GRAPH
The following chart compares the cumulative total return on the Company’s common stock with the
NASDAQ Market Index and the Hemscott Group Index for Housewares & Accessories. The comparisons
in this chart 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.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG LIFETIME BRANDS, INC.,
NASDAQ MARKET INDEX AND HEMSCOTT GROUP INDEX (1)
S
R
A
L
L
O
D
175
150
125
100
75
50
25
0
2003
2004
2005
2006
2007
2008
LIFETIME BRANDS, INC.
HEMSCOTT GROUP
NASDAQ MARKET INDEX
Date
12/31/2003
12/31/2004
12/31/2005
12/31/2006
12/31/2007
12/31/2008
Lifetime
Brands, Inc.
$100.00
95.66
125.96
101.24
81.03
22.88
Hemscott
Group Index
$100.00
104.52
102.77
127.61
110.73
47.21
NASDAQ
Market
Index
$100.00
108.41
110.79
122.16
134.29
79.25
Note:
(1) The chart assumes $100 was invested on December 31, 2003 and dividends were reinvested. Measurement points are at
the last trading day of each of the fiscal years ended December 2008, 2007, 2006, 2005 and 2004. 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 Hemscott Group Index will
be furnished by the Company to any stockholder upon written request to the Chief Financial Officer of the Company.
(c)
In 2007, the Board of Directors of the Company 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, 2008, 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. There were no purchases
during 2008. In March 2009, the Board of Directors of the Company terminated the program.
18
Item 6. Selected Financial Data
The selected consolidated statement of operations data for the years ended December 31, 2008, 2007 and 2006,
and the selected consolidated balance sheet data as of December 31, 2008 and 2007, 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, 2005 and 2004, and the
selected consolidated balance sheet data at December 31, 2006, 2005 and 2004, 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 OPERATIONS DATA (1)
2008
Year ended December 31,
2007
2006
(in thousands, except per share data)
2005
2004
Net sales
$487,935
$493,725
$457,400
$307,897
$189,458
Cost of sales
Distribution expenses
Selling, general and administrative expenses
Goodwill and intangible asset impairment
Restructuring expenses
Income (loss) from operations
303,535
57,695
131,226
29,400
17,992
(51,913)
288,997
53,493
128,527
(cid:2)
1,924
20,784
265,749
49,729
112,122
(cid:2)
(cid:2)
29,800
178,295
34,539
69,891
(cid:2)
(cid:2)
25,172
111,497
22,830
40,282
(cid:2)
(cid:2)
14,849
Interest expense
Other income, net
(9,142)
(cid:2)
(8,397)
3,935
(4,576)
31
(2,489)
73
(835)
60
Income (loss) before income taxes and equity in
earnings of Grupo Vasconia, S.A.B.
Income tax benefit (provision)
Equity in earnings of Grupo Vasconia, S.A.B.,
net of taxes
Net income (loss)
(61,055)
10,540
16,322
(7,430)
25,255
(9,723)
22,756
(8,647)
14,074
(5,602)
1,486
(cid:2)
(cid:2)
(cid:2)
(cid:2)
$(49,029)
$ 8,892
$ 15,532
$ 14,109
$ 8,472
Basic income (loss) per common share
Weighted-average shares outstanding – basic
$ (4.09)
11,976
$ 0.69
12,969
$ 1.18
13,171
$ 1.25
11,283
$ 0.77
10,982
Diluted income (loss) per common share
Weighted-average shares outstanding – diluted
$ (4.09)
11,976
$ 0.68
13,099
$ 1.14
14,716
$ 1.23
11,506
$ 0.75
11,226
Cash dividends per common share
$ 0.25
$ 0.25
$ 0.25
$ 0.25
$ 0.25
19
BALANCE SHEET DATA (1)
Current assets
Current liabilities
Working capital
Total assets
Short-term borrowings
Long-term debt
Convertible notes
Stockholders’ equity
Note:
December 31,
2008
2007
2006
2005
2004
$232,678
149,981
82,697
341,781
89,300
(cid:2)
75,000
90,373
$228,078
71,283
156,795
371,415
13,500
55,200
75,000
147,240
(in thousands)
$231,633
89,727
141,906
343,064
21,500
5,000
75,000
161,611
$155,750
69,907
85,843
222,648
14,500
5,000
(cid:2)
140,487
$103,425
52,913
50,512
157,217
19,400
5,000
(cid:2)
92,938
(1) The Company acquired the business and certain assets of the following in the respective years noted which affects the comparability of the periods:
Excel Importing Corp. in July 2004, Pfaltzgraff® in July 2005, Salton in September 2005, Syratech in April 2006, Pomerantz® and Design for
Living® in April 2007, Gorham® in July 2007, 29.99% interest in Grupo Vasconia, S.A.B. in December 2007 and Mikasa® in June 2008.
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 food preparation, 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 a number of the leading brands in
its industry including Farberware®, KitchenAid®, Cuisinart®, Pfaltzgraff® and Mikasa®. Historically, 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.
EFFECTS OF THE CURRENT ECONOMIC ENVIRONMENT
The Company’s financial performance in 2008 was negatively affected by unfavorable global economic
conditions. Continued or further deteriorating economic conditions would likely have an adverse impact on the
Company’s sales volumes, pricing levels and profitability in 2009. As economic conditions change, trends in
discretionary consumer spending also become unpredictable and subject to reductions due to uncertainties about
the future. If consumers reduce discretionary spending, purchases of the Company’s products may also decline. A
general reduction in consumer discretionary spending due to the recession or uncertainties regarding future
economic prospects could continue to have a material adverse effect on the Company’s financial condition and
results of operations.
20
BUSINESS SEGMENTS
The Company operates in two reportable business segments; the wholesale segment which is the Company’s primary
business that designs, markets and distributes its products to retailers and distributors, and the direct-to-consumer
segment, through its Pfaltzgraff® and Mikasa® Internet websites and the Company’s Pfaltzgraff® mail-order
catalogs. During 2008, the Company also operated retail stores utilizing the Pfaltzgraff® and Farberware® names
that were included in the direct-to-consumer segment. However, the Company ceased operating these retail stores by
December 31, 2008.
RESTRUCTURING ACTIVITIES
In 2008, the Company recognized $18.0 million in pre-tax charges in connection with the retail store closings and
other restructuring activities consisting of non-cash fixed asset impairment charges, store lease obligations,
employee related expenses and other related costs.
GOODWILL AND INTANGIBLE ASSET IMPAIRMENT
The Company recognized a non-cash goodwill impairment charge of $27.4 million and a non-cash impairment
charge related to certain intangible assets of $2.0 million at December 31, 2008 in accordance with Statement of
Financial Accounting Standard ("SFAS") No.142, Goodwill and Other Intangible Assets.
MIKASA® ACQUISITION
In June 2008, the Company acquired the business and certain assets of Mikasa, Inc. (“Mikasa®”) from Arc
International SA. Mikasa® is a leading provider of dinnerware, crystal stemware, barware, flatware and
decorative accessories. Mikasa® products are distributed through department stores, specialty stores and big box
chains, as well as through the Internet. Net sales from Mikasa® in 2008 were $35.0 million.
DEBT COVENANTS
At December 31, 2008, the Company was not in compliance with the financial covenants required by the Credit
Facility. On each of February 12, 2009 and March 6, 2009, the Company entered into a forbearance agreement
and amendment to the Credit Facility whereby the lenders agreed to forbear from taking actions they would
otherwise have been permitted to take as a result of the non-compliance. In consideration thereof, the Company
agreed to further restrictions on its borrowings and an increase in the applicable margin rates.
On March 31, 2009, the Company entered into a waiver and amendment to the Credit Facility (the
“Amendment”). Pursuant to the Amendment, the Company’s lenders waived the Company’s non-compliance
with the financial covenants required by the Credit Facility at December 31, 2008. The Amendment modifies the
Credit Facility in certain ways including, as follows: (i) changes the maturity date to January 31, 2011, (ii) adds
certain asset categories to the borrowing base, (iii) increases the applicable margin rates (including a minimum
LIBOR of 1.75%), (iv) revises the minimum EBITDA and fixed charge coverage covenants and adds both a
minimum net sales and maximum capital expenditures covenant, (v) eliminates the requirement of maximum
leverage and minimum interest coverage ratios, (vi) eliminates the $50 million accordion feature, (vii) revises the
minimum excess availability rates and (viii) places restrictions on dividends and acquisitions.
The Company believes that availability under the Credit Facility will be sufficient to fund the Company’s
operations for fiscal 2009. However, if circumstances were to change, the Company may need to refinance the
Credit Facility or otherwise amend the terms of the Credit Facility. In addition, the Company would seek to
engage in further activities, including efforts to lower its inventory and to reduce expenses. However, there can be
no assurance that any such actions would be successful or that the results of any such actions would be adequate.
21
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 2008, 2007 and 2006, net sales for the third and fourth quarters accounted for 61%,
61% and 65% of total annual net sales, 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 operations data of the Company as a percentage of net sales for the
periods indicated below.
Year Ended December 31,
2008
2007
2006
Net sales
Cost of sales
Distribution expenses
Selling, general and administrative expenses
Goodwill and intangible asset impairment
Restructuring expenses
Income (loss) from operations
Interest expense
Other income, net
100.0 %
62.2
11.8
26.9
6.0
3.7
(10.6)
(1.9)
(cid:2)
Income (loss) before income taxes and equity
in earnings for Grupo Vasconia, S.A.B.
(12.5)
Income tax benefit (provision)
Equity in earnings for Grupo Vasconia, S.A.B.,
net of taxes
Net income (loss)
2.2
0.3
100.0 %
58.5
10.8
26.0
(cid:2)
0.4
100.0 %
58.1
10.9
24.5
(cid:2)
(cid:2)
4.3
6.5
(1.7)
0.8
3.4
(1.6)
(cid:2)
(1.0)
(cid:2)
5.5
(2.1)
(cid:2)
(10.0) %
1.8 %
3.4 %
MANAGEMENT’S DISCUSSION AND ANALYSIS
2008 COMPARED TO 2007
Net Sales
Net sales for the year were $487.9 million, a decrease of 1.2% over net sales of $493.7 million in 2007.
Net sales for the wholesale segment in 2008 were $403.6 million, a decrease of $13.3 million or 3.2% over net
sales of $416.9 million for 2007. Excluding Mikasa® net sales of $32.8 million, net sales for the wholesale
segment were $370.8 million for the year ended December 31, 2008, a decrease of $46.1 million or 11.1%
compared to the 2007 period. The decrease is the result of volume declines in most of the Company’s product
categories. Management attributes these declines primarily to the economic slowdown’s effect on consumer
spending.
Net sales for the direct-to-consumer segment in 2008 were $84.3 million compared to $76.8 million for 2007.
The increase was primarily due to the going-out-of-business sales at the Company’s retail stores that were all
closed by December 31, 2008 and to a lesser extent, an increase in Internet sales as a result of the acquisition of
Mikasa®.
22
Cost of sales
Cost of sales for 2008 was $303.5 million compared to $289.0 million for 2007. Cost of sales as a percentage of
net sales was 62.2% for 2008 compared to 58.5% for 2007.
Cost of sales as a percentage of net sales for the wholesale segment was 64.0% for 2008 compared to 62.1% for
2007. The reduction in gross margin was due primarily to the Company’s continued effort to reduce inventory
levels.
Cost of sales as a percentage of net sales for the direct-to-consumer segment increased to 53.4% in 2008 from
39.1% in 2007. The increase was due to lower margins as a result of the going-out-of-business sales at the
Company’s retail stores.
Distribution expenses
Distribution expenses for 2008 were $57.7 million compared to $53.5 million for 2007. Distribution expenses as
a percentage of net sales were 11.8% in 2008 and 10.8% for 2007.
Distribution expenses as a percentage of net sales for the wholesale segment increased to 11.0% in 2008 from
9.5% for 2007. The increase in distribution expenses as a percentage of net sales was due primarily to transitional
service expenses related to Mikasa® acquired in June 2008, duplicative expenses related to the consolidation of
the Company’s West Coast distribution centers and lower sales volume, partially offset by improved labor
efficiency.
Distribution expenses as a percentage of net sales for the direct-to-consumer segment were 15.9% for the year
ended December 31, 2008 compared to 17.8% for 2007. The decrease was due primarily to reduced third-party
warehouse costs as a result of planned decreases in inventory levels, improved labor efficiency and the effects of
higher sales volume.
Selling, general and administrative expenses
Selling, general and administrative expenses for 2008 were $131.2 million, an increase of 2.1% over the $128.5
million in 2007.
Selling, general and administrative expenses for 2008 for the wholesale segment were $83.0 million, an increase
of $7.8 million or 10.4% over the $75.2 million in 2007. As a percentage of net sales, selling, general and
administrative expenses were 20.6% for 2008 compared to 18.0% for 2007. The increase was primarily due to
transitional services and an increase in compensation as a result of the Mikasa® acquisition, the full-year effect of
depreciation expense on 2007 capital expenditures and higher provisions for doubtful accounts.
Selling, general and administrative expenses for 2008 for the direct-to-consumer segment were $37.3 million
compared to $41.2 million for 2007. The decrease was due to operating fewer stores during 2008 compared to
2007.
Unallocated corporate expenses for 2008 and 2007 were $10.9 million and $12.2 million, respectively. Higher
expenses in 2007 were primarily due to a charge related to the termination of a licensing agreement.
23
Goodwill and intangible asset impairment
In 2008, the Company recorded a non-cash goodwill impairment charge of $27.4 million and a non-cash
impairment charge related to certain of its other intangible assets of $2.0 million in accordance with SFAS No.
142, Goodwill and Other Intangible Assets.
Restructuring expenses
In 2008, in connection with the cessation of its retail store operations and the plans to vacate its distribution
facility in York, Pennsylvania, the Company recorded a $3.9 million non-cash fixed asset impairment charge and
$14.1 million in restructuring related expenses consisting of lease obligations, consulting fees, employee related
expenses, and other incremental costs.
Interest expense
Interest expense for 2008 was $9.1 million compared to $8.4 million for 2007. The increase in interest expense
was attributable to higher average borrowings outstanding under the Company’s Credit Facility during 2008. The
increase was offset in part by lower average interest rates in 2008.
Other income, net
Other income, net was zero in 2008 and $3.9 million in 2007. In 2007, the Company recognized a gain on the
sale of its former corporate headquarters and a gain on a foreign currency forward contract.
Income tax benefit (provision)
The income tax benefit for 2008 was $10.5 million, compared to a provision of $7.4 million for 2007. The
Company’s effective income tax rate was 17.3% for 2008 and 45.5% for 2007. The decrease in the effective tax
rate in 2008 was due to valuation allowances the Company recorded against certain deferred tax assets.
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.
24
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.
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.
25
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 4.75% Convertible Senior Notes issued in June 2006. The
additional borrowings under the Company’s Credit Facility were in support of capital expenditures, repurchases
of the Company’s common stock and business acquisitions. The Company used the proceeds from the 4.75%
Convertible Senior 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.
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 second 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.
26
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 and the risks and rewards of ownership have transferred to the customer. Store sales are recognized at the
time of sale. 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.
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, including intangible assets deemed to have finite lives are reviewed for impairment in
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, whenever
events or changes in circumstances indicate that such assets 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 assets 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
The Company accounts for its stock options in accordance with SFAS No. 123(R), Share-Based Payment. SFAS
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. The Company uses the Black-Scholes option valuation model to
estimate the fair value of its stock options. The Black-Scholes option valuation model requires the input of highly
subjective assumptions including the expected stock price volatility of the Company’s common stock. Changes in
these subjective input assumptions can materially affect the fair value estimate of the Company’s stock options.
Income taxes
The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”)
No. 48, Accounting for Uncertainty in Income Taxes, for the financial statement recognition, measurement and
disclosure of uncertain tax positions recognized in the Company’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.
27
Derivatives
The Company accounts for derivative instruments in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and subsequent amendments. SFAS No. 133 requires that all derivative
instruments be recognized on the balance sheet at fair value as either an asset or a liability. Changes in the fair
value of derivatives that qualify as hedges and have been designated as part of a hedging relationship for
accounting purposes 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.
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.
At December 31, 2008, the Company had cash and cash equivalents of $3.5 million, compared to $4.2 million at
December 31, 2007, working capital was $82.7 million at December 31, 2008 compared to $156.8 million at
December 31, 2007 and the current ratio was 1.55 to 1 at December 31, 2008 compared to 3.20 to 1 at December
31, 2007.
Borrowings under the Company’s Credit Facility increased to $89.3 million at December 31, 2008 compared to
$68.7 million at December 31, 2007. The increase was primarily due to the acquisition of Mikasa®. The
Company believes that its cash and cash equivalents plus internally generated funds and its new credit
arrangement will be sufficient to finance its operations for the next twelve months.
Share repurchase program
In 2007, the Board of Directors of the Company 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, 2008, 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. There were no purchases during 2008. In March 2009,
the Board of Directors of the Company terminated the program.
Credit facility
The Company has a $150 million secured credit facility, which until March 31, 2009, had an accordion feature for
an additional $50 million and matures 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 (until March 31, 2009), the
Company was required to satisfy certain financial covenants, including maximum leverage and capital
expenditures and a minimum interest coverage ratio. Borrowings under the Credit Facility have different interest
rate options that are based either on, (i) an alternate base rate, (ii) LIBOR, or (iii) the lender’s cost of funds rate,
plus in each case a margin based on the applicable leverage ratio.
In March 2008, the Credit Facility was amended to: (i) establish a borrowing base (comprised of a percentage of
each of eligible accounts receivable, inventory and trademarks) calculation to determine availability under the
Credit Facility, (ii) increase the applicable margin rates and (iii) revised certain financial covenants. In September
2008, the Credit Facility was further amended to: (i) establish a minimum excess availability amount, (ii) include
a minimum fixed charge ratio and a minimum EBITDA covenants, (iii) revise the leverage and interest coverage
covenants and (iv) increased the applicable margin rates.
28
At December 31, 2008, the Company was not in compliance with the financial covenants required by the Credit
Facility. On each of February 12, 2009 and March 6, 2009, the Company entered into a forbearance agreement
and amendment to the Credit Facility whereby the lenders agreed to forbear from taking actions they would
otherwise have been permitted to take as a result of the non-compliance. In consideration thereof, the Company
agreed to further restrictions on its borrowings and an increase in the applicable margin rates. At December 31,
2008, the Company had $2.1 million of open letters of credit and $89.3 million of borrowings outstanding under
the Credit Facility. Interest rates on outstanding borrowings at December 31, 2008 ranged from 2.50% to 7.07%.
The Company has interest rate swap and collar agreements with an aggregate notional amount of $55.2 million.
The Company entered into these agreements to effectively fix the interest rate on a portion of its borrowings
under the Credit Facility.
On March 31, 2009, the Company entered into a waiver and amendment to the Credit Facility (the
“Amendment”). Pursuant to the Amendment, the Company’s lenders waived the Company’s non-compliance
with the financial covenants required by the Credit Facility at December 31, 2008. The Amendment modifies the
Credit Facility in certain ways including, as follows: (i) changes the maturity date to January 31, 2011, (ii) adds
certain asset categories to the borrowing base, (iii) increases the applicable margin rates (including a minimum
LIBOR of 1.75%), (iv) revises the minimum EBITDA and fixed charge coverage covenants and adds both a
minimum net sales and maximum capital expenditures covenant, (v) eliminates the requirement of maximum
leverage and minimum interest coverage ratios, (vi) eliminates the $50 million accordion feature, (vii) revises the
minimum excess availability amount and (viii) places restrictions on dividends and acquisitions. As of March 31,
2009 (on a pro forma basis after giving effect to the terms of the Amendment), the Company had available
liquidity of $29.7 million under the Credit Facility. The Amendment also provides for a lock-box arrangement
with the collateral agent. Pursuant to the Amendment, although the Credit Agreement matures on January 31,
2011, Emerging Issues Task Force 95-22, Balance Sheet Classification of Borrowings Outstanding under
Revolving Credit Arrangements That Include both a Subjective Acceleration Clause and a Lock-Box
Arrangement, requires the indebtedness to be classified as a current liability on the consolidated balance sheet as
of December 31, 2008.
During 2008 and continuing in 2009, the Company has implemented certain actions in an effort to improve its
future financial performance. Such actions include closing its retail outlet stores, consolidating distribution centers
and in 2009 paring certain selling, general and administrative expenses.
The Company believes that availability under the Credit Facility will be sufficient to fund the Company’s
operations for fiscal 2009. However, if circumstances were to change, the Company may need to refinance the
Credit Facility or otherwise amend the terms of the Credit Facility. In addition, the Company would seek to
engage in further activities, including efforts to lower its inventory and to reduce expenses. However, there can be
no assurance that any such actions would be successful or that the results of any such actions would be adequate.
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 15 and July 15 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 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. If the Notes are not converted prior to the maturity date the Company
is required to pay the holders of the Notes the principal amount of the Notes in cash upon maturity.
29
Dividends
The Company has declared and paid the following dividends in 2008:
Dividend
$0.0625
$0.0625
$0.0625
$0.0625
Date declared
January 23, 2008
March 4, 2008
June 5, 2008
October 30, 2008
Date of record
February 8, 2008
May 2, 2008
August 1, 2008
November 14, 2008
Payment date
February 15, 2008
May 16, 2008
August 15, 2008
November 28, 2008
In February 2009, in light of current economic conditions, the Company suspended paying a cash dividend on its
outstanding shares of common stock. The Company will review this decision as circumstances may warrant.
Operating activities
Cash provided by operating activities was $6.9 million in 2008 compared to $31.6 million in 2007. The decrease
was primarily attributable to the operating loss incurred in 2008 compared to operating income generated in 2007.
A reduction in working capital in 2008, most notably from lower inventory levels, partially mitigated the effect of
the lower operating performance.
Investing activities
Cash used in investing activities was $24.8 million in 2008 compared to $43.7 million in 2007. 2008 investing
activities include cash paid by the Company of $16.3 million to acquire the business and certain assets of
Mikasa® and capital expenditures of $8.9 million related primarily to the Company’s new West Coast
distribution center located in Fontana, California and the Company’s new office space in Medford,
Massachusetts. In 2007, investing activities include cash paid by the Company of $1.9 million to acquire
Pomerantz® and Design for Living®, $8.3 million paid to acquire Gorham® and $23.0 million to acquire a
29.99% interest in Grupo Vasconia S.A.B. In 2007, capital expenditures included amounts related to leasehold
improvements at the Company’s then new corporate headquarters, costs related to the implementation of the
Company’s SAP business enterprise system and costs related to the Company’s new West Coast distribution
center in Fontana, California. The Company’s 2009 planned capital expenditures are estimated not to exceed $6.0
million.
Financing activities
Cash provided by financing activities was $17.2 million in 2008 compared to $16.1 million in 2007. In 2008, the
Company received net cash proceeds from borrowings under the Credit Facility of $20.6 million. In 2007, the
Company received net cash proceeds from borrowings under the Credit Facility of $42.2 million and used $22.7
million for repurchases of shares of its common stock.
Contractual obligations
As of December 31, 2008, 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
$12,899
(cid:2)
11,252
3,563
148
258
$28,120
1-3 years
$24,035
75,000
1,577
7,126
296
258
$108,292
3-5 years
$24,517
(cid:2)
312
(cid:2)
296
(cid:2)
$25,125
More
than
5 years
$68,506
(cid:2)
1,216
(cid:2)
2,411
(cid:2)
$72,133
Total
$129,957
75,000
14,357
10,689
3,151
516
$233,670
30
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, 2008.
Item 8. Financial Statements and Supplementary Data
The Company’s Consolidated Financial Statements as of and for the year ended December 31, 2008 commencing
on page F-1 are incorporated herein by reference.
The following table sets forth certain unaudited consolidated quarterly statement of operations data for the eight
quarters ended December 31, 2008. 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, 2008
First
quarter(1)
Second
quarter
Third
quarter(1)
Fourth
quarter (1)
(in thousands, except per share data)
Net sales
Gross profit
Income (loss) from operations
Net loss
Basic and diluted loss per common share
$98,194
38,589
(8,784)
(5,997)
$ (0.50)
$92,399
37,111
(6,945)
(3,183)
$ (0.27)
$140,624
54,528
3,365
(674)
$ (0.06)
$156,718
54,172
(39,549)
(39,175)
$ (3.27)
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
$91,371
39,465
(552) (1,750)
(1,283) (2,026)
$ (0.10) $ (0.15)
$ (0.10) $ (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
Note:
(1) The Company recognized restructuring expenses of $2.9 million, $4.6 million and $10.5 million in the first, third and fourth quarter of 2008,
respectively, and a non-cash goodwill and intangible asset impairment of $29.4 million in the fourth quarter of 2008.
31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
(a)
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, 2008, 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.
(b)
Changes in Internal Controls
There were no 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, 2008. 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, 2008 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,
2008 is effective.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 has been
audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report.
32
Report of Independent Registered Public Accounting Firm
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, 2008, 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, 2008 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, 2008 and 2007, and
the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 2008 of Lifetime Brands, Inc. and our report dated March 31, 2009 expressed
an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Melville, New York
March 31, 2009
33
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 2009 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.
34
PART IV
Item 15. Exhibits and 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
10.4
10.5
10.6
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)**
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)**
10.7 Amended 2000 Long-Term Incentive Plan (incorporated by reference to the Registrant’s Form 8-K dated
June 8, 2006)**
10.8 Amended 2000 Incentive Bonus Compensation Plan (incorporated by reference to the Registrant’s Form
8-K dated June 8, 2006)**
10.9
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)**
10.10 First Amendment 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)**
10.11 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)**
35
10.12
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)**
10.13 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)**
10.14 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)**
10.15 Evan Miller Amendment of Employment Agreement dated June 29, 2007 (incorporated by reference to
the Registrant’s Form 8-K dated June 29, 2007)**
10.16 Robert McNally Amendment of Employment Agreement dated July 2, 2007 (incorporated by reference to
the Registrant’s Form 8-K dated June 28, 2007)**
10.17 Amendment No.1 dated September 5, 2007 to the 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***
10.18 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)**
10.19 Amendment No. 2 to Second Amended and Restated Credit Agreement by and among Lifetime Brands,
Inc., Lenders party hereto, 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/A dated April 17, 2008)**
10.20 Asset Purchase Agreement between Mikasa, Inc. and Lifetime Brands, Inc. dated June, 6 2008
(incorporated by reference to the Registrant’s Form 10-Q dated June 30, 2008)**
10.21 Amendment No. 2 dated September 25, 2008 to the 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***
10.22 Amendment to the Company’s Second Amended and Restated Credit Agreement, Amendment No. 3,
dated September 29, 2008 (incorporated by reference to the Registrant’s Form 8-K dated September 29,
2008)**
10.23 Forbearance Agreement and Amendment No. 4, dated as of February 12, 2009, by and among Lifetime
Brands, Inc., the several financial institutions party hereto and HSBC Bank USA, National Association,
as Administrative Agent for the Lenders. (incorporated by reference to the Registrant’s Form 8-K dated
February 12, 2009)**
10.24 Amendment to Forbearance Agreement and Amendment No. 4, dated as of March 6, 2009, by and among
Lifetime Brands, Inc., the several financial institutions party hereto and HSBC Bank USA, National
Association, as Administrative Agent for the Lenders. (incorporated by reference to the Registrant’s Form
8-K dated March 6, 2009)**
10.25 Waiver and Amendment No. 5 to Second Amended and Restated Credit Agreement, dated as of March
31, 2009, by and among Lifetime Brands, Inc., the several financial institutions party hereto and HSBC
Bank USA, National Association, as Administrative Agent for the Lenders.***
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)**
18.1
Letter from Ernst & Young LLP stating an acceptable change in accounting method for the impairment of
goodwill dated October 28, 2008 (incorporated by reference to the Registrant’s Form 10-Q dated
September, 30 2008)**
36
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****
99.1 Grupo Vasconia, S.A.B. (formerly Ekco, S.A.B.), Report of Independent Registered Accounting Firm ***
Notes to exhibits:
* 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.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Lifetime 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 31, 2009
/s/ Ronald Shiftan
Ronald Shiftan Chief Operating Officer and Director
Vice Chairman of the Board of Directors,
March 31, 2009
/s/ Laurence Winoker
Laurence Winoker
Senior Vice President – Finance,
Treasurer and Chief Financial Officer
(Principal Financial and
Accounting Officer)
March 31, 2009
/s/ Craig Phillips
Craig Phillips
Senior Vice-President – Distribution
and Director
March 31, 2009
s/ David Dangoor
David Dangoor
/s/ Michael Jeary
Michael Jeary
/s/ John Koegel
John Koegel
/s/ Sheldon Misher
Sheldon Misher
/s/ Cherrie Nanninga
Cherrie Nanninga
/s/ William Westerfield
William Westerfield
Director
Director
Director
Director
Director
March 31, 2009
March 31, 2009
March 31, 2009
March 31, 2009
March 31, 2009
Director March 31, 2009
38
Item 15
LIFETIME BRANDS, INC.
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
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
F-2
Consolidated Balance Sheets as of December 31, 2008 and 2007
F-3
Consolidated Statements of Operations for the Years ended
December 31, 2008, 2007 and 2006
Consolidated Statements of Stockholders’ Equity for the Years ended
December 31, 2008, 2007 and 2006
Consolidated Statements of Cash Flows for the Years ended
December 31, 2008, 2007 and 2006
Notes to Consolidated Financial Statements
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, 2008 and 2007, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December 31, 2008. 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. The financial statements of Grupo
Vasconia, S.A.B. and Subsidiaries (a corporation in which the Company has a 29.99% interest), have been
audited by other auditors whose report has been furnished to us, and our opinion on the consolidated
financial statements, insofar as it relates to the amounts included for Grupo Vasconia, S.A.B. and
Subsidiaries, is based solely on the report of the other auditors. In the consolidated financial statements,
the Company’s investment in Grupo Vasconia, S.A.B. and Subsidiaries is stated at $17.8 million at
December 31, 2008 and the Company’s equity in the net income of Grupo Vasconia, S.A.B. and
Subsidiaries is stated at $1.5 million for the year then ended.
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 and the report
of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the financial statements referred to
above present fairly, in all material respects, the consolidated financial position of Lifetime Brands, Inc. at
December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 2008, 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 also have 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,
2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March 31, 2009 expressed an
unqualified opinion thereon.
Melville, New York
March 31, 2009
/s/ ERNST & YOUNG LLP
F-2
LIFETIME BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands-except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, less allowances of $14,651 at 2008
and $16,400 at 2007
Inventory
Deferred income taxes
Income taxes receivable
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT, net
GOODWILL
OTHER INTANGIBLES, net
INVESTMENT IN GRUPO VASCONIA, S.A.B.
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term borrowings
Accounts payable
Accrued expenses
Deferred income tax liabilities
Income taxes payable
TOTAL CURRENT LIABILITIES
DEFERRED RENT & OTHER LONG-TERM LIABILITIES
DEFERRED INCOME TAXES
LONG-TERM DEBT
CONVERTIBLE NOTES
December 31,
2008
2007
$ 3,478
$ 4,172
67,562
141,612
(cid:2)
11,597
8,429
232,678
49,908
(cid:2)
38,420
17,784
2,991
$341,781
$ 89,300
24,151
35,902
403
225
149,981
23,054
3,373
(cid:2)
75,000
65,030
143,684
7,925
(cid:2)
7,267
228,078
54,332
27,432
35,383
22,950
3,240
$371,415
$ 13,500
21,759
31,504
(cid:2)
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: 11,989,724 in 2008 and 11,964,388 in 2007
Paid-in capital
Retained earnings (accumulated deficit)
Accumulated other comprehensive loss
TOTAL STOCKHOLDERS’ EQUITY
120
116,869
(18,023)
(8,593)
90,373
120
113,995
33,250
(125)
147,240
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$341,781
$371,415
See notes to consolidated financial statements.
F-3
LIFETIME BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands – except per share data)
Year ended December 31,
2007
2008
2006
Net sales
$487,935
$493,725
$457,400
Cost of sales
Distribution expenses
Selling, general and administrative expenses
Goodwill and intangible asset impairment
Restructuring expenses
303,535
57,695
131,226
29,400
17,992
Income (loss) from operations
(51,913)
288,997
53,493
128,527
(cid:2)
1,924
20,784
265,749
49,729
112,122
(cid:2)
(cid:2)
29,800
Interest expense
Other income, net
Income (loss) before income taxes and equity in earnings
of Grupo Vasconia, S.A.B.
(9,142)
(cid:2)
(8,397)
3,935
(4,576)
31
(61,055)
16,322
25,255
Income tax benefit (provision)
Equity in earnings of Grupo Vasconia, S.A.B., net of taxes
10,540
1,486
(7,430)
(cid:2)
(9,723)
(cid:2)
NET INCOME (LOSS)
$ (49,029)
$ 8,892
$ 15,532
BASIC INCOME (LOSS) PER COMMON SHARE
$ (4.09)
$ 0.69
$ 1.18
DILUTED INCOME (LOSS) PER COMMON SHARE
$ (4.09)
$ 0.68
$ 1.14
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
deficit)
Accumulated
other
comprehensive
income (loss)
Total
BALANCE AT DECEMBER 31, 2005
12,922
$129 $101,468
$ 38,890
$ (cid:2) $140,487
Comprehensive income:
Net income
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
116
240
5
(820)
(3,367)
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
Derivative fair value adjustment, net of
taxes of $170
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
Comprehensive loss:
Net loss
Grupo Vasconia, S.A.B. translation
adjustment
Derivative fair value adjustment
Total comprehensive loss
Tax benefit on exercise of stock options
Stock option expense
Exercise of stock options
Shares issued to directors
Dividends
(49,029)
2
24
7
2,800
10
57
(2,244)
(6,587)
(1,881)
(49,029)
(6,587)
(1,881)
(57,497)
7
2,800
10
57
(2,244)
BALANCE AT DECEMBER 31, 2008
11,990
$120 $116,869
$(18,023)
$(8,593)
$ 90,373
See notes to consolidated financial statements.
F-5
LIFETIME BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Provision for doubtful accounts
Depreciation and amortization
Deferred rent
Deferred income taxes
Stock compensation expense
Undistributed earnings of Grupo Vasconia, S.A.B.
Gain on sale of property
Goodwill and intangible asset impairment
Fixed asset impairment
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 receivable
Income taxes payable
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
INVESTING ACTIVITIES
Purchases of property and equipment, net
Business acquisitions
Investment in Grupo Vasconia, S.A.B.
Net proceeds from sale of property
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Proceeds from borrowings, net
Cash dividends paid
Payment of capital lease obligations
Proceeds from the exercise of stock options
Excess tax benefits from stock option expense
Purchases of common stock
Proceeds from issuance of convertible notes, net
Other
NET CASH PROVIDED BY FINANCING ACTIVITIES
Year ended December 31,
2008
2007
2006
$(49,029)
$ 8,892
$ 15,532
1,458
10,782
1,999
155
2,857
(1,132)
(cid:2)
29,400
3,912
79
9,659
1,060
2,771
2,292
(cid:2)
(3,760)
(cid:2)
1,635
81
8,380
440
421
1,270
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(3,990)
26,154
(908)
1,142
(11,597)
(4,295)
(4,593)
19,925
1,220
(5,270)
(cid:2)
(2,343)
5,336
(36,410)
251
(4,422)
(cid:2)
(2,330)
6,908
31,567
(11,451)
(8,859)
(16,312)
(cid:2)
362
(24,809)
(19,023)
(10,543)
(22,950)
8,832
(43,684)
(21,144)
(43,763)
(cid:2)
(cid:2)
(64,907)
20,600
(2,995)
(414)
10
6
(cid:2)
(cid:2)
(cid:2)
17,207
42,200
(3,303)
(456)
245
125
(22,672)
(cid:2)
(cid:2)
16,139
4,022
150
7,000
(3,332)
(387)
196
638
(cid:2)
71,938
(331)
75,722
(636)
786
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year
(694)
4,172
CASH AND CASH EQUIVALENTS AT END OF YEAR
$ 3,478
$ 4,172
$ 150
See notes to consolidated financial statements.
F-6
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
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, which are either owned or licensed. The Company sells its products wholesale to
retailers throughout North America and directly to the consumer through the Internet and mail order catalogs. During
2008 the Company also sold its products through Company-operated factory, outlet and clearance stores. However, as
more fully described in Note B, the Company ceased operating its retail stores by December 31, 2008.
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.
Revenue recognition
Wholesale sales are recognized when title of merchandise passes and the risks and rewards of ownership have
transferred to the customer. Retail store sales were recognized at the time of sale. 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 $4.4 million, $4.8 million and $4.8 million for the years
ended December 31, 2008, 2007 and 2006, 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 amounted to $8.7 million, $8.4 million and $8.9 million for the years ended December
31, 2008, 2007 and 2006, respectively.
Advertising expenses
Advertising expenses are expensed as incurred and are included in selling, general and administrative expenses.
Advertising expenses were $1.6 million, $1.6 million and $2.0 million for the years ended December 31, 2008,
2007 and 2006, 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, 2008
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 second 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, 2008, 2007 and 2006, Wal-Mart Stores, Inc. (including Sam’s Clubs)
accounted for 20%, 21% and 17% of net sales, respectively. No other customer accounted for 10% or more of the
Company’s net sales during the periods. For the years ended December 31, 2008, 2007 and 2006, the Company’s
ten largest customers accounted for 60%, 62% and 49% of net sales, respectively.
F-8
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
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. The fair value of the Company’s $75 million 4.75%
Convertible Senior Notes at December 31, 2008 and 2007 was $39.4 million and $66.1 million, respectively, based
on the most recent quoted price of the Company’s 4.75% Convertible Senior Notes at December 31, 2008 and
2007.
Fair value measurements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“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. 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 adopted SFAS No. 157,
except as it applies to nonfinancial assets and liabilities as noted in FSP 157-2, on January 1, 2008. Fair value
measurements included in the Company’s consolidated financial statements are disclosed in Notes E and H.
Derivatives
The Company accounts for derivative instruments in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and subsequent amendments. SFAS No. 133 requires that all derivative
instruments be recognized on the balance sheet at fair value as either an asset or a liability. Changes in the fair
value of derivatives that qualify as hedges and have been designated as part of a hedging relationship for
accounting purposes 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.
F-9
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)
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 assessment in accordance with the provisions of SFAS No.142, Goodwill and Other Intangible
Assets.
During 2008, the Company changed the date of its annual goodwill impairment assessment from December 31 to
October 1. This change was performed to better support the completion of the assessment prior to the Company’s
filing requirement for its Annual Report on Form 10-K as an accelerated filer, and in order to better align the
timing of this assessment with the Company’s normal process for updating its strategic plan and forecasts. The
Company determined that the change in accounting principle related to the annual testing date is preferable under
the circumstances and does not result in adjustments to the financial statements when applied retrospectively.
As more fully described in Note E, at December 31, 2008, the Company has recognized a non-cash goodwill
impairment charge and a non-cash impairment charge related to certain indefinite-lived intangible assets in
accordance with the provisions of SFAS No.142, Goodwill and Other Intangible Assets.
Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment in
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, 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. As more fully described in Note B, during 2008, the Company recognized fixed asset
impairment charges in connection with its restructuring activities in 2008.
Income taxes
The Company accounts for income taxes using the asset and liability method in accordance with SFAS No. 109,
Accounting for Income Taxes. 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.
The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”)
No. 48, Accounting for Uncertainty in Income Taxes, for the financial statement recognition, measurement and
disclosure of uncertain tax positions recognized in the Company’s financial statements. In accordance with FIN
No. 48, 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.
F-10
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock options
The Company accounts for its stock options in accordance with SFAS No. 123(R), Share-Based Payment. SFAS
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. The Company uses the Black-Scholes option valuation model to
estimate the fair value of its stock options. The Black-Scholes option valuation model requires the input of highly
subjective assumptions including the expected stock price volatility of the Company’s common stock. Changes in
these subjective input assumptions can materially affect the fair value estimate of the Company’s stock options.
New accounting pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141(R)”).
Under SFAS 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities
assumed in a transaction at the acquisition date fair value with limited exceptions. SFAS 141(R) will change the
accounting treatment for certain specific acquisition-related items, including expensing acquisition-related costs as
incurred and expensing restructuring costs associated with an acquired business. SFAS 141(R) applies
prospectively, with limited exceptions, to business combinations for which the acquisition date is on or after the
first fiscal period beginning on or after December 15, 2008. Early adoption is not permitted. Generally, the effect
of SFAS 141(R) will depend on future acquisitions and, as such, the Company does not currently expect the
adoption of SFAS 141(R) to have a material impact on the Company’s consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities
– an amendment of FASB Statement No. 133, which enhances the disclosure requirements for derivatives and
hedging activities. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15,
2008. SFAS No. 161 will only affect the Company’s derivatives disclosures beginning January 1, 2009 and will
not have any impact on the Company’s consolidated financial statements.
In May 2008, the FASB issued FASB Staff Position Accounting Principles Board (“APB”) No. 14-1, Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may
be settled in cash, or other assets, on conversion (including partial cash settlement), to separately account for the
liability (debt) and equity (conversion option) components in a manner that reflects the issuer’s non-convertible
debt borrowing rate. The resulting debt discount (equity portion) is amortized over the period the convertible debt
is expected to be outstanding as additional non-cash interest expense. The provisions of FSP APB 14-1 will be
required to be applied to the Company’s 4.75% Convertible Senior Notes and are effective for the Company on
January 1, 2009 on a retrospective basis. The Company expects that upon adoption of FSP APB 14-1 on January 1,
2009, interest expense for 2008, 2007 and 2006 will be increased by $2.4 million, $2.2 million and $1.0 million,
respectively, and the Company will record an unamortized debt discount of $12.8 million, which will be amortized
over a period of five years from the date the Company’s 4.75% Convertible Senior Notes were issued. The
Company expects to record additional interest expense of approximately $2.7 million, $2.9 million and $1.6
million in 2009, 2010 and 2011, respectively, due to the adoption of FSP APB 14-1.
Reclassifications
Certain amounts in the 2007 and 2006 consolidated statement of cash flows were reclassified to conform to the
presentation in 2008. These reclassifications had no material effect on the Company’s previously reported
consolidated financial statements.
F-11
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE B — RESTRUCTURING
December 2007 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. All 30 stores were closed by the end of the first
quarter of 2008. In connection with these store closings, the Company incurred restructuring related costs of $3.0
million and $289,000 during the years ended December 31, 2008 and 2007, respectively, consisting of the
following:
Store lease obligations
Consulting fees
Employee related expenses
Other related costs
Total
Year Ended
Year Ended
December 31, 2008
December 31, 2007
(in thousands)
$2,300
393
141
153
$2,987
$ (cid:2)
289
(cid:2)
(cid:2)
$289
The following is a roll-forward of the amounts included in accrued expenses related to the December 2007
restructuring initiative (there were no amounts accrued related to this restructuring at December 31, 2007):
Store lease obligations
Consulting fees
Employee related expenses
Other related costs
Total
Balance
March 31, 2008
Charges
Payments
December 31, 2008
Balance
$2,300
192
141
96
$2,729
(in thousands)
$ (cid:2)
(cid:2)
(cid:2)
107
$107
$(1,734)
(192)
(141)
(203)
$(2,270)
$566
(cid:2)
(cid:2)
(cid:2)
$566
Due to the change in circumstances with respect to the stores that were closed, the Company reviewed the related
fixed assets of the stores for impairment and determined that the net book value of the fixed assets would not be
recoverable. Accordingly, the Company recorded a non-cash fixed asset impairment charge of $1.6 million at
December 31, 2007.
September 2008 restructuring initiative
In September 2008, management of the Company commenced a plan to close all 53 of its remaining Pfaltzgraff®
factory and clearance stores and Farberware® outlet stores and vacate its York, PA distribution center. In
connection with this restructuring initiative, the Company incurred restructuring related costs of $11.1 million
during the year ended December 31, 2008 consisting of the following:
Store lease obligations
Consulting fees
Employee related expenses
Other related costs
Total
Year Ended
December 31, 2008
(in thousands)
$ 7,662
1,766
1,354
318
$11,100
F-12
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE B — RESTRUCTURING (continued)
September 2008 restructuring initiative (continued)
The following is a roll-forward of the amounts included in accrued expenses related to the September 2008
restructuring initiative:
Store lease obligations
Consulting fees
Employee related expenses
Other related costs
Total
Balance
Balance
September 30, 2008
Charges
Payments
December 31, 2008
$ (cid:2)
(cid:2)
195
142
$337
(in thousands)
$ 7,662
1,766
1,159
176
$10,763
$ (84)
(1,412)
(186)
(94)
$(1,776)
$7,578
354
1,168
224
$9,324
Due to the change in circumstances as a result of the September 2008 restructuring initiative, the Company
reviewed the fixed assets related to the stores and the York, PA distribution center for impairment and determined
that the net book value of certain fixed assets would not be recoverable. Accordingly, the Company recorded a
non-cash fixed asset impairment charge of $3.9 million during the year ended December 31, 2008.
The above restructuring related costs and non-cash fixed asset impairment charges are included within restructuring
expenses in the accompanying consolidated statement of operations for the years ended December 31, 2008 and
2007.
NOTE C — MIKASA® ACQUISITION
In June 2008, the Company acquired the business and certain assets of Mikasa, Inc. (“Mikasa®”) from Arc
International SA (“ARC”). Mikasa® is a leading provider of dinnerware, crystal stemware, barware, flatware and
decorative accessories. Mikasa® products are distributed through department stores, specialty stores and big box
chains, as well as through the Internet. The preliminary purchase price was $20.7 million, consisting of (i) $17.3
million of cash, (ii) $3.3 million of certain liabilities assumed at closing, and (iii) acquisition related costs of
$142,000. The agreement also requires the Company to pay ARC an amount by which the sum of 5% of the
annual net sales of Mikasa® products for 2009, 2010 and 2011, exceeds $5.0 million.
The Company accounted for its acquisition of the business and certain assets of Mikasa® under the purchase
method of accounting in accordance with SFAS No. 141. Accordingly, the results of operations of Mikasa® have
been included in the Company’s consolidated statement of operations from the date of acquisition. The purchase
price was funded by borrowings under the Company’s Credit Facility. The Mikasa® acquisition was not deemed
material; accordingly, summary pro forma financial information has not been presented.
F-13
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE C — MIKASA® ACQUISITION (continued)
A valuation of the assets acquired from Mikasa® resulted in an excess of the fair value of the assets acquired from
Mikasa®, which consisted of inventory, the Mikasa® tradename and tools and molds, over the preliminary
purchase price in the amount of $6.2 million. In accordance with SFAS No. 141, as the Company is subject to
potential contingent consideration that could result in an addition to the preliminary purchase price, the excess
value (negative goodwill) has been recorded as a long-term liability in the accompanying balance sheet pending
resolution of the contingencies. To the extent that the fair value of the assets acquired exceeds the total purchase
price, after a reduction to the carrying value of the non-current assets acquired, at the end of the contingency period,
the Company will recognize the excess value as an extraordinary gain. To the extent that the additional purchase
price, if any, at the end of the contingency period exceeds the excess value, the Company will record additional
purchase price related to the Mikasa® acquisition.
NOTE D — INVESTMENT IN GRUPO VASCONIA, S.A.B.
In December 2007, the Company acquired approximately 29.99% of the capital stock of Grupo Vasconia, S.A.B.
(“Vasconia”), (formerly known as, Ekco, S.A.B.), a manufacturer and distributor of aluminum disks, cookware and
related items. Shares of Vasconia’s capital stock are traded on the Bolsa Mexicana de Valores, S.A. de C.V., the
Mexico Stock Exchange, under the symbol VASCONI.MX. The Company, based upon a third-party valuation,
allocated the purchase price of Vasconia as follows (in thousands):
Investment
Goodwill
Customer relationships (estimated life of 16 years)
Total
$16,036
5,166
1,748
$22,950
The Company accounts for its investment in Vasconia using the equity method of accounting. Accordingly, the
Company has recorded its proportionate share of Vasconia’s net income (reduced for amortization expense related
to the customer relationships acquired), for the year ended December 31, 2008 in the accompanying consolidated
statement of operations and its share of Vasconia’s translation adjustment in the accompanying consolidated
statement of Stockholders’ Equity at December 31, 2008. During the year ended December 31, 2008 the Company
received a cash dividend in the amount of $263,000 from Vasconia.
Summarized financial statement information for Vasconia as of and for the year ended December 31, 2008 is as
follows (in thousands):
Balance sheet
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Income statement
Net sales
Gross profit
Income from operations
Net income
$ 46,320
22,371
17,583
3,981
$110,026
28,212
11,662
6,270
F-14
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE E — GOODWILL AND INTANGIBLE ASSETS
Goodwill was included as an asset in the wholesale segment. There were no additions to goodwill during the year
ended December 31, 2008.
The Company initially performed its annual impairment tests for its goodwill and indefinite-lived intangible assets
in accordance with SFAS No. 142 as of October 1, 2008, but due primarily to a continued decline in the market
value of the Company’s common stock, updated the tests at December 31, 2008. The goodwill test involved the
assessment of the fair market value of the Company as a single reporting unit. In connection with these tests, the
Company calculated the Company’s implied goodwill and determined the fair value of its indefinite-lived
intangible assets at December 31, 2008. The fair value measurements were based on Level 2 observable inputs
using a combination of market capitalization, discounted cash flow and market approach. As a result of the
goodwill impairment test, due primarily to the significant decline in the market value of its common stock, the
Company recorded a non-cash goodwill impairment charge of approximately $26.9 million. The Company also
recorded a non-cash indefinite-lived intangible impairment charge of $1.7 million due to the fair value of certain
indefinite-lived assets being less than the carrying amount of the assets. These impairment charges are included
within goodwill and intangible asset impairment in the accompanying consolidated statement of operations for
2008.
In January 2009, the Company disposed of its USE: business. As a result of the disposal, the Company recognized
a non-cash impairment charge related to USE: goodwill of $579,000 and USE: intangible assets of $247,000 at
December 31, 2008.
Intangible assets, all of which are included in the wholesale segment, consist of the following (in thousands):
Year Ended December 31,
2008
Accumulated
Amortization
Gross
Net
Gross
2007
Accumulated
Amortization
Net
Indefinite-lived
intangible assets:
Trade names
Finite-lived
intangible assets:
Licenses
Trade names
Customer
relationship
s
Designs
Patents
Total
$25,530
$ (cid:2)
$25,530
$21,443
$ (cid:2)
$21,443
15,847
2,477
586
(cid:2)
584
$45,024
(5,123)
(1,103)
10,724
1,374
15,847
2,477
(4,490)
(1,020)
11,357
1,457
(321)
(cid:2)
(57)
$(6,604)
265
(cid:2)
527
$38,420
886
460
584
$41,697
(451)
(330)
(23)
$(6,314)
435
130
561
$35,383
The weighted-average amortization periods for the Company’s finite-lived intangible assets as of December 31,
2008 are as follows:
Trade names
Licenses
Customer relationships
Patents
Years
30
33
3
17
F-15
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE E — GOODWILL AND INTANGIBLE ASSETS (continued)
Intangible assets (continued)
Estimated amortization expense for each of the five succeeding fiscal years is as follows (in thousands):
Year ending December 31
2009
2010
2011
2012
2013
$779
717
631
591
591
Amortization expense for the years ended December 31, 2008, 2007 and 2006 was $978,000, $915,000, and
$855,000, respectively.
NOTE F — CREDIT FACILITY
The Company has a $150 million secured credit facility, which until March 31, 2009, had an accordion feature for
an additional $50 million and matures 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 (until March 31, 2009), the
Company was required to satisfy certain financial covenants, including maximum leverage and capital
expenditures and a minimum interest coverage ratio. Borrowings under the Credit Facility have different interest
rate options that are based either on, (i) an alternate base rate, (ii) LIBOR, or (iii) the lender’s cost of funds rate,
plus in each case a margin based on the applicable leverage ratio.
In March 2008, the Credit Facility was amended to: (i) establish a borrowing base (comprised of a percentage of
each of eligible accounts receivable, inventory and trademarks) calculation to determine availability under the
Credit Facility, (ii) increase the applicable margin rates and (iii) revised certain financial covenants. In September
2008, the Credit Facility was further amended to: (i) establish a minimum excess availability amount, (ii) include a
minimum fixed charge ratio and a minimum EBITDA covenants, (iii) revised the leverage and interest coverage
covenants and (iv) increased the applicable margin rates.
At December 31, 2008, the Company was not in compliance with the financial covenants required by the Credit
Facility. On each of February 12, 2009 and March 6, 2009, the Company entered into a forbearance agreement
and amendment to the Credit Facility whereby the lenders agreed to forbear from taking actions they would
otherwise have been permitted to take as a result of the non-compliance. In consideration thereof, the Company
agreed to further restrictions on its borrowings and an increase in the applicable margin rates.
On March 31, 2009, the Company entered into a waiver and amendment to the Credit Facility (the “Amendment”).
Pursuant to the Amendment, the Company’s lenders waived the Company’s non-compliance with the financial
covenants required by the Credit Facility at December 31, 2008.
F-16
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE F — CREDIT FACILITY (continued)
The Amendment modifies the Credit Facility in certain ways including, as follows: (i) changes the maturity date
to January 31, 2011, (ii) adds certain asset categories to the borrowing base, (iii) increases the applicable margin
rates (including a minimum LIBOR of 1.75%), (iv) revises the minimum EBITDA and fixed charge coverage
covenants and adds both a minimum net sales and maximum capital expenditures covenant, (v) eliminates the
requirement of maximum leverage and minimum interest coverage ratios, (vi) eliminates the $50 million
accordion feature, (vii) revises the minimum excess availability amount and (viii) places restrictions on dividends
and acquisitions. The Amendment also provides for a lock-box arrangement with the collateral agent. Pursuant to
the Amendment, although the Credit Agreement matures on January 31, 2011, Emerging Issues Task Force 95-22,
Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Arrangements That Include both
a Subjective Acceleration Clause and a Lock-Box Arrangement, requires the indebtedness to be classified as a
current liability on the consolidated balance sheet as of December 31, 2008.
At December 31, 2008, the Company had $2.1 million of open letters of credit and $89.3 million of borrowings
outstanding under the Credit Facility. Interest rates on outstanding borrowings at December 31, 2008 ranged
from 2.50% to 7.07%. The Company has interest rate swap and collar agreements (see Note H) with an aggregate
notional amount of $55.2 million. The Company entered into these agreements to effectively fix the interest rate
on a portion of its borrowings under the Credit Facility.
The Company believes that availability under the Credit Facility will be sufficient to fund the Company’s
operations for fiscal 2009. However, if circumstances were to change, the Company may need to refinance the
Credit Facility or otherwise amend the terms of the Credit Facility. In addition, the Company would seek to
engage in further activities, including efforts to lower its inventory and to reduce expenses. However, there can be
no assurance that any such actions would be successful or that the results of any such actions would be adequate.
NOTE G — 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 outstanding 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. If the Notes are not converted
prior to the maturity date the Company is required to pay the holders of the Notes the principal amount of the
Notes in cash upon maturity. The Company has reserved 2,678,571 shares of common stock for issuance upon
conversion of the Notes.
F-17
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE G — CONVERTIBLE NOTES (continued)
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, 2008 the unamortized balance of these costs is $1.5 million and is included in other assets in the
consolidated balance sheet.
As more fully described in Note A, on January 1, 2009, the Company will be required to retrospectively adopt FSP
APB 14-1. The Company expects that upon adoption of FSP APB 14-1 on January 1, 2009, interest expense for
2008, 2007 and 2006 will be increased by $2.4 million, $2.2 million and $1.0 million, respectively, and the
Company will record an unamortized debt discount of $12.8 million, which will be amortized over a period of five
years from the date the Company’s 4.75% Convertible Senior Notes were issued. The Company expects to record
additional interest expense of approximately $2.7 million, $2.9 million and $1.6 million in 2009, 2010 and 2011,
respectively, due to the adoption of FSP APB 14-1.
NOTE H — DERIVATIVES
The Company has 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, and a credit default swap with a notional amount of $1
million to manage credit exposure related to certain accounts receivable. The interest rate swap and collar
agreements expire in 2010 and the credit default swap expires in 2009.
Certain interest rate swap agreements with an aggregate notional amount of $35 million and the credit default
swap were not designated as hedges under SFAS 133 and the fair value gains or losses from these swap
agreements are recognized in earnings. The effect of recording these interest rate swap agreements at fair value
resulted in an unrealized gain of $148,000 and an unrealized loss of $358,000 for the years ended December 31,
2008 and 2007, respectively, 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 loss. The effect of recording these agreements at fair value
resulted in an unrealized loss of $1.9 million for the year ended December 31, 2008 and an unrealized loss of
$203,000 (net of taxes of $170,000) for the year ended December 31, 2007. No amounts recorded in other
comprehensive loss are expected to be reclassified to interest expense in the next twelve months.
The fair value of the above derivatives have been obtained from the counterparties to the agreements and are
based on Level 2 observable inputs using proprietary models and estimates about relevant future market
conditions. The aggregate fair value of the Company’s derivative instruments was a liability of $2.5 million and
$731,000 for the years ended December 31, 2008 and 2007, respectively, which is included in deferred rent &
other long-term liabilities.
NOTE I — CAPITAL STOCK
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 2008, 2007 and 2006. In February 2009, in light of current economic
conditions, the Company suspended paying a cash dividend on its outstanding shares of common stock.
F-18
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE I — CAPITAL STOCK (continued)
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, 2008.
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 grant and vest over a range of up to five years from the
date of grant. As of December 31, 2008, there were 11,031 shares available for grant under the Plan. All stock
options granted through December 31, 2008 under the Plan have exercise prices equal to the market values of the
Company’s stock on the dates of grant.
In 2009, two key executives of the Company voluntarily cancelled their options to purchase 600,000 shares of the
Company’s common stock, which had a nominal fair value, in order to increase the shares available for grant under
the Plan.
Stock options
A summary of the Company’s stock option activity and related information for the three years ended
December 31, 2008 is as follows:
Weighted-
average
exercise
price
Weighted-
average
remaining
contractual life
(years)
Aggregate
intrinsic
value
Options
Options outstanding, December 31, 2005
875,157
$14.51
Grants
Exercises
Cancellations
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
Grants
Exercises
Cancellations
286,000
(1,750)
(56,500)
Options outstanding, December 31, 2008
2,036,650
Options exercisable, December 31, 2008
1,179,250
29.96
6.95
28.12
22.78
21.65
7.64
23.48
22.69
7.15
5.50
26.67
20.41
21.68
F-19
6.79
4.65
-
-
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE I — CAPITAL STOCK (continued)
Stock options (continued)
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, 2008. 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, 2008 and the exercise price. There were no in-the-money options at
December 31, 2008.
The total intrinsic value of stock options exercised for the years ended December 31, 2008, 2007 and 2006 was
$9,900, $417,000 and $2.7 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 $2.8 million, $2.2 million and $2.2 million for the years ended
December 31, 2008, 2007 and 2006, respectively. Total unrecognized compensation cost related to unvested stock
options at December 31, 2008, before the effect of income taxes, was $5.2 million and is expected to be recognized
over a weighted-average period of 2.6 years.
The Company values stock options using the Black-Scholes option valuation model. The Black-Scholes option
valuation model, as well as other available models, was developed for use in estimating the fair value of traded
options, which have no vesting restrictions and are fully transferable. The Black-Scholes option valuation model
requires 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, changes in the
subjective input assumptions can materially affect the fair value estimate of the Company’s stock options.
The weighted-average per share grant date fair value of stock options granted during the years ended December
31, 2008, 2007 and 2006 was $5.05, $8.26 and $12.11, respectively.
The fair value for these stock options was estimated at the date of grant using the following weighted-average
assumptions:
Historical volatility
Expected term (years)
Risk-free interest rate
Expected dividend yield
2008
2007
2006
50%
4.8
2.41%
5.20%
40%
5.2
4.56%
1.18%
41%
5.2
5.02%
0.834%
Restricted stock
In 2008, 2007 and 2006, the Company issued 22,586, 7,280 and 5,254 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 $172,500, $150,000 and $115,000, respectively. The
shares granted in 2008 and 2007 cliff vest one year from the date of grant. The shares granted in 2006 vested in
quarterly installments over a period of one year.
F-20
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE I — CAPITAL STOCK (continued)
Share repurchase program
In 2007, the Board of Directors of the Company 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, 2008, 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. There were no purchases during 2008. In March 2009,
the Board of Directors of the Company terminated the program.
NOTE J — INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share has been computed by dividing net income (loss) by the weighted-average
number of shares of the Company’s common stock outstanding. Diluted income (loss) per common share adjusts
net income (loss) and basic income (loss) per common share for the effect of all potentially dilutive shares of the
Company’s common stock. The calculations of basic and diluted income (loss) per common share for the years
ended December 31, 2008, 2007 and 2006 are as follows:
2008
2007
2006
(in thousands - except per share amounts)
$(49,029)
$ 8,892
$15,532
Net income (loss) - Basic
Interest expense 4.75% Convertible Senior Notes, net
of tax
Net income (loss) – Diluted
Weighted- average shares outstanding – Basic
Effect of dilutive securities:
Stock options
4.75% Convertible Senior Notes
Weighted- average shares outstanding – Diluted
(cid:2)
$(49,029)
11,976
(cid:2)
(cid:2)
11,976
Basic income (loss) per common share
Diluted income (loss) per common share
$ (4.09)
$ (4.09)
(cid:2)
$ 8,892
12,969
130
(cid:2)
13,099
$ 0.69
$ 0.68
1,312
$16,844
13,171
183
1,362
14,716
$ 1.18
$ 1.14
The computations of diluted income (loss) per common share for the years ended December 31, 2008, 2007 and
2006 excludes options to purchase 2,036,650, 1,544,000 and 974,000 shares of the Company’s common stock,
respectively, due to their antidilutive effect. The computations of diluted income (loss) per common share for the
years ended December 31, 2008 and 2007 also excludes 2,678,571 shares of the Company’s common stock
issuable upon the conversion of the Company’s 4.75% Convertible Senior Notes and related interest expense, due
to its antidilutive effect in those years.
F-21
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE K — INCOME TAXES
The provision (benefit) for income taxes consists of:
2008
Year Ended December 31,
2007
(in thousands)
2006
Current:
Federal
State and local
Deferred
Income tax provision (benefit)
$(11,478)
1,388
(450)
$(10,540)
$3,891
768
2,771
$7,430
$7,442
1,860
421
$9,723
The Company has the ability to carry back the majority of the current year loss for Federal tax purposes.
Accordingly, the Company has recorded a current benefit for these losses.
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:
Deferred income tax assets:
Inventory
Grupo Vasconia, S.A.B. translation
adjustment
Deferred rent expense
Operating loss carry-forward
Stock options
Accounts receivable allowances
Accrued bonuses
Other
Total deferred income tax asset
Deferred income tax liability:
Depreciation and amortization
Inventory
Other
Total deferred income tax liability
December 31,
2008
2007
(in thousands)
$ 1,421
$ 4,347
2,553
2,117
1,209
919
852
313
6,989
16,373
(cid:2)
1,055
(cid:2)
390
1,603
469
61
7,925
(3,807)
(1,303)
(409)
(5,519)
(8,211)
(cid:2)
(cid:2)
(8,211)
Net deferred income tax asset (liability)
10,854
(286)
Valuation allowance
(14,630)
(cid:2)
Net deferred income tax liability
$ (3,776)
$ (286)
F-22
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE K — INCOME TAXES (continued)
At December 31, 2008, the Company has a Federal net operating loss carry forward of $1.3 million which will
expire in 2029. Additionally, the Company has various state net operating loss carry forwards that will begin to
expire in 2014. Since management is uncertain of its ability to utilize its future deferred tax benefits, a full valuation
allowance has been established. In accordance with SFAS No. 109, Accounting for Income Taxes, the Company
has offset its total deferred tax asset with certain deferred tax liabilities that are expected to reverse in the carry
forward period. The net deferred tax liability of $3.8 million at December 31, 2008 relates to indefinite-lived
intangible assets.
The provision (benefit) for income taxes differs from the amounts computed by applying the applicable federal
statutory rates as follows:
Year Ended December 31,
2007
2006
2008
Provision (benefit) 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
Valuation allowance
Other
Provision (benefit) for income taxes
(35.0)%
35.0%
35.0%
(3.3)
0.5
25.0
(4.5)
(17.3)%
5.6
2.9
(cid:2)
2.0
45.5%
4.8
(cid:2)
(cid:2)
(1.3)
38.5%
The estimated value of the Company’s tax positions at December 31, 2008 and 2007 is a liability of $498,000 and
$1.4 million, respectively, 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 January 1, 2008
Increases – tax positions in prior years
Decreases- tax positions in prior years - settled
Decreases – tax positions in prior years – lapse of statute
Balance as of December 31, 2008
$1,704
9
(312)
36
$1,437
303
(128)
(1,114)
$ 498
If the Company’s tax positions are sustained by the taxing authorities in favor of the Company, the Company’s FIN
48 liability would be reduced by $498,000, of which $307,000 would impact the Company’s tax provision. On a
quarterly basis the Company evaluates its tax positions and revises its estimates accordingly. During the quarter
ended June 30, 2008 the Company reversed $1.3 million (including accrued interest) of its FIN 48 liability as a
result of the expiration of the statute of limitations on a certain tax year, resulting in an increase in the income tax
benefit recorded during the period. The Company believes that $342,000 of its tax positions will reverse within the
next twelve months.
The Company has identified Federal, California, Massachusetts, New York and New Jersey as “major” tax
jurisdictions. The periods subject to examination for the Company’s Federal returns are years 2006 and 2007. The
periods subject to examination for the Company’s California, Massachusetts, New York and New Jersey returns
are years 2005, 2006 and 2007.
F-23
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE K — INCOME TAXES (continued)
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 the years ended December 31, 2008 and 2007.
NOTE L — BUSINESS SEGMENTS
Segment information
The Company operates in two reportable business segments; the wholesale segment which is the Company’s primary
business that designs, markets and distributes its products to retailers and distributors, and the direct-to-consumer
segment, through its Pfaltzgraff® and Mikasa® Internet websites and the Company’s Pfaltzgraff® mail-order
catalogs. As described in Note B, the Company ceased operating its Pfaltzgraff® factory and clearance stores and
Farberware® outlet stores by December 31, 2008. The operations of these retails stores were included in the
direct-to-consumer segment during 2008.
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.
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 senior 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.
2008
Year Ended December 31,
2007
(in thousands)
2006
Net sales:
Wholesale
Direct-to-consumer
Total net sales
Income (loss) from operations:
Wholesale (1)
Direct-to-consumer (2)
Unallocated corporate expenses
Total income (loss) from operations
Depreciation and amortization:
Wholesale
Direct-to-consumer
Total depreciation and amortization
$403,591
84,344
$487,935
$416,890
76,835
$493,725
$374,081
83,319
$457,400
$(11,979)
(28,998)
(10,936)
$(51,913)
$ 42,968
(10,010)
(12,174)
$ 20,784
$ 46,824
(8,129)
(8,895)
$ 29,800
$ (9,975)
(807)
$(10,782)
$ (8,178)
(1,481)
$ (9,659)
$ (7,078)
(1,302)
$ (8,380)
F-24
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE L — BUSINESS SEGMENTS (continued)
Segment information (continued)
2008
Year Ended December 31,
2007
(in thousands)
2006
Assets:
Wholesale
Direct-to-consumer
Unallocated/ corporate/ other
Total assets
Capital expenditures:
Wholesale
Direct-to-consumer
Total capital expenditures
Notes:
$321,284
5,422
15,075
$341,781
$337,156
22,163
12,096
$371,415
$310,260
24,136
8,668
$343,064
$ (8,538)
(321)
$ (8,859)
$ (17,412)
(1,611)
$ (19,023)
$ (17,719)
(3,425)
$ (21,144)
(1) In 2008, loss from operations for the wholesale segment includes non-cash goodwill and intangible asset impairment charges totaling
$29.4 million. See Note E.
(2) In 2008 and 2007, loss from operations for the direct-to-consumer segment includes $18.0 million and $1.9 million of restructuring
and non-cash fixed asset impairment charges, respectively. See Note B.
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
2008
Year ended December 31,
2007
(in thousands)
2006
$232,264
111,770
57,650
1,907
$403,591
$247,336
97,995
68,856
2,703
$416,890
$239,200
88,466
44,040
2,375
$374,081
F-25
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE M — COMMITMENTS AND CONTINGENCIES
Operating leases
The Company has lease agreements for its corporate headquarters, distribution centers, direct-to-consumer offices,
showrooms and sales offices 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.
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 serves 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 new office space replaced
118,000 square feet of office space that the Company leased in the Boston, Massachusetts area.
Future minimum payments under non-cancelable operating leases are as follows (in thousands):
Year ending December 31
2009
2010
2011
2012
2013
Thereafter
Total
$ 12,899
12,047
11,988
12,208
12,309
68,506
$129,957
The forgoing lease obligations at December 31, 2008 exclude the leases related to the Company’s retail stores, all of
which were closed by December 31, 2008.
During the year ended December 31, 2006, 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 year ended December 31, 2006, Meyer Corporation reimbursed
the Company $2.0 million.
Rental and related expenses under operating leases were $23.0 million, $18.3 million and $16.5 million for the years
ended December 31, 2008, 2007 and 2006, respectively. The amounts for 2006 are prior to the Meyer reimbursement
described above.
F-26
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE M — COMMITMENTS AND CONTINGENCIES (continued)
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
2009
2010
2011
Total minimum lease payments
Less: amounts representing interest
Present value of minimum lease payments
$258
166
92
516
( 47)
$469
The current and non-current portions of the Company’s capital lease obligations at December 31, 2008 of
$230,000 and $239,000, respectively, and at December 31, 2007 of $369,000 and $457,000, respectively, are
included in accrued expenses, and deferred rent & 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
2009
2010
2011
2012
2013
Thereafter
Total
$11,252
1,419
158
162
150
1,216
$14,357
Legal proceedings
The Company is a defendant in various lawsuits and from time-to-time regulatory proceedings which may require
the recall of its products, 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 October 2007, Syratech Corporation (“Syratech”) commenced an action against the Company and the
Company’s wholly-owned subsidiary, Syratech Acquisition Corporation, in New York State Supreme Court, New
York County, asserting a single cause of action for breach of contract. Syratech alleges that the Company
breached the parties’ asset purchase agreement by failing to file and make effective a registration statement for
shares of the Company’s common stock issued to Syratech for its assets. The complaint alleges damages of
approximately $2.1 million. The Company denies that it is liable to Syratech under the claim set forward in the
complaint, and intends to vigorously defend this action. No trial date has been set. A mediation session is
scheduled for April 15, 2009.
F-27
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE M — COMMITMENTS AND CONTINGENCIES (continued)
Legal proceedings (continued)
In March 2008, the Environmental Protection Agency (“EPA”) announced that the San German Ground Water
Contamination site in Puerto Rico was added to the Superfund National Priorities List due to contamination present
in the local drinking water supply. Wallace Silversmiths de Puerto Rico, Ltd. ("Wallace"), a wholly-owned
subsidiary of the Company, received a Notice of Potential Liability and Request for Information Pursuant to 42
U.S.C. Sections 9607(a) and 9604(e) of the Comprehensive Environmental Response, Compensation, Liability Act
regarding the San German Ground Water Contamination Superfund Site, San German, Puerto Rico dated May 29,
2008 from the EPA. The EPA requested that Wallace provide information regarding Wallace’s occupation of the
facility located in San German, Puerto Rico and contamination of the ground water supply. By letter dated June
18, 2008, the Company responded to the EPA’s Request for Information on behalf of Wallace. The Company has
engaged environmental consultants to investigate the environmental condition of the property and preliminary
discussions with the EPA have been initiated. At this time, it is not possible for the Company to evaluate the
outcome.
NOTE N — 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. During 2008, 2007 and 2006, the Company matched 50% of employee contributions up to 4% of an
employee’s eligible compensation. Effective January 1, 2009 the Company suspended its matching contribution as
an expense savings measure. The Company made matching contributions to the 401(k) plan of $777,000,
$778,000 and $809,000 in 2008, 2007 and 2006, 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, 2008 and 2007, the total unfunded retirement benefit
obligation was $3.2 million and $3.0 million, respectively, and is included in accrued expenses, and deferred rent
& other long-term liabilities. During the years ended December 31, 2008 and 2007, 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, 2009.
NOTE O — OTHER
Inventory
The components of inventory are as follows:
Finished goods
Work in process
Raw materials
Total
December 31,
2008
2007
(in thousands)
$137,378
2,197
2,037
$141,612
$139,042
2,412
2,230
$143,684
F-28
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE O — OTHER (continued)
Property and equipment
Property and equipment consist of:
Machinery, furniture and equipment
Leasehold improvements
Building and improvements
Construction in progress
Land
Less: accumulated depreciation and amortization
Total
December 31,
2008
2007
(in thousands)
$ 63,868
24,469
1,708
1,301
115
91,461
(41,553)
$ 49,908
$ 63,223
24,878
1,708
176
115
90,100
(35,768)
$ 54,332
Depreciation and amortization expense on property and equipment for the years ended December 31, 2008, 2007
and 2006 was $9.8 million, $8.7 million and $7.5 million, respectively.
Included in machinery, furniture and equipment and accumulated depreciation at December 31, 2008 are
$2.1 million and $1.6 million, respectively, related to assets recorded under capital leases. 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.
As more fully described in Note B, the Company recorded non-cash impairment charges in connection with its
restructuring activities of $3.9 million and $1.6 million in 2008 and 2007, respectively.
Accrued expenses
Accrued expenses consist of:
Restructuring costs
Vendor invoices
Customer allowances and rebates
Compensation
Interest
Freight
Royalties
Commissions
Contract settlement
Dividends payable
Other
Total
December 31,
2008
2007
(in thousands)
$ 9,890
6,066
5,956
1,924
2,272
2,245
2,021
1,218
(cid:2)
(cid:2)
4,310
$35,902
$ (cid:2)
6,572
3,339
6,615
2,062
992
2,387
686
1,612
748
6,491
$31,504
F-29
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE O — OTHER (continued)
Deferred rent & other long-term liabilities
Deferred rent & other long-term liabilities consist of:
Deferred rent liability
Mikasa® negative goodwill
Retirement benefit obligations
Derivative liability
Long-term portion of capital lease obligations
Total
Supplemental cash flow information
December 31,
2008
2007
(in thousands)
$11,135
6,215
3,003
2,462
239
$23,054
$10,442
(cid:2)
2,851
731
457
$14,481
2008
Year Ended December 31,
2007
(in thousands)
2006
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for taxes
Non-cash investing activities:
Grupo Vasconia, S.A.B. translation adjustment
Liabilities assumed in business acquisition
Common stock issued in connection with business acquisition
Equipment acquired under capital lease obligations
Capitalized tenant improvement allowances
$ 8,635
6,138
$6,167
6,392
$ 2,500
10,994
$(6,587)
3,264
(cid:2)
(cid:2)
(cid:2)
$ (cid:2)
(cid:2)
133
34
7,039
$ (cid:2)
(cid:2)
6,821
521
(cid:2)
F-30
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, 2008
Deducted from asset accounts:
Allowance for doubtful
accounts
Reserve for sales
returns and allowances
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
$ 395
$ 1,614
$ 156
(a)
$ 1,853
16,005
$16,400
23,160
$24,774
(c)
26,367
$26,523
(b)
12,798
$14,651
$ 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
(a) Uncollectible accounts written off, net of recoveries.
(b) Allowances granted.
(c) Charged to net sales.
S-1
Exhibit 10.17
Amendment Agreement No. 1 dated September 5, 2007 among:
(i)
Lifetime Brands, Inc., a company duly organized and in existence pursuant to
the laws of the State of Delaware in the United States of America (“LTB” or “Strategic Investor”);
(ii)
Ekco, S.A.B., a Mexican sociedad anónima bursátil duly organized and in
existence pursuant to the laws of the United Mexican States (“Ekco” or the “Company”, provided that
when the context so requires it, “Company” shall also include the Company Subsidiaries); and
(iii) Mr. José Ramón Elizondo Anaya, a Mexican individual (“Mr. Elizondo”),
Mr. Miguel Ángel Huerta Pando, a Mexican individual (“Mr. Huerta” and together with Mr. Elizondo
the “Primary Shareholders”).
WITNESSETH
WHEREAS, Lifetime Brands, Inc., Ekco, S.A.B., Mr. José Ramón Elizondo Anaya and Mr. Miguel
Angel Huerta Pando entered into a Shares Subscription Agreement dated June 8, 2007 (the “SSA”)
pursuant to which they agreed, among others, on the terms and conditions for a subscription of shares
issued by Ekco, S.A.B. by Lifetime Brands, Inc.
WHEREAS, the parties wish to amend the SSA as described below:
NOW THEREFORE, the parties hereto agree as follows:
1. Section 1.1(a) is hereby amended to read as follows:
(a)
As soon as practicable, but in no event later than December 31, 2007
(the “Issue Date”), the Company shall issue shares of common stock (the “New Shares”), and shall
make New Shares available for subscription by Strategic Investor in the terms provided below.
Strategic Investor shall have the right to subscribe the shares in the terms provided hereunder, through
a newly incorporated Mexican entity (“NewCo”) wholly owned by the Strategic Investor, provided
that Strategic Investor: (i) shall not be obliged to purchase any shares if less than 29.99% of the
outstanding capital stock of the Company on a fully diluted basis, are available for subscription; and
(ii) shall not be obliged to purchase any shares in excess of those New Shares representing exactly
29.99% of the outstanding capital stock of the Company on a fully diluted basis.
2. Section 14.1(b) is hereby amended to read as follows:
(b)
by notice in writing by either of the Strategic Investor, the Company
or the Primary Shareholders, if the Closing does not occur on or before January 31, 2007; provided
that if the Closing does not occur on or before such date as the result of a willful breach or willful
default by a party with respect to its obligations under this Agreement on or before such date, such
party may not terminate this Agreement pursuant to this Section 14.1(b), and the other party to this
Agreement shall at its option enforce its rights against such breaching or defaulting party and seek any
remedies against such party, in either case as provided hereunder and by applicable law;
3. Section 9.1(f)(iii) is hereby amended to read as follows:
(iii)
Strategic Investor shall not directly or indirectly (including through its
Affiliates) carry on activities, conduct, own an interest in or otherwise participate (whether as a
supplier, lender, guarantor, investor, employer, proprietor, shareholder, agent, consultant or partner),
sale or distribution of or in the control or management of all or any part of a business involved in the
manufacture, sale or distribution of houseware products, including but not limited to kitchenware,
cookware, pressure cookers, pots, pans, kitchen gadgets and utensils, cutlery, thermoses, dinnerware
and flatware in Mexico, Colombia, Argentina, Venezuela, Costa Rica, El Salvador, Guatemala,
Honduras, Nicaragua, Panama, Belize and Dominican Republic, until the second anniversary of the
Exit Date, without the prior written consent of the Company and the Primary Shareholders.
4. All other provisions of the SSA shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.
LIFETIME BRANDS, INC.
By: /s/ Jeffrey Siegel
Name: Jeffrey Siegel
Title: Attorney-in-fact
EKCO, S.A.B.
By:/s/ José Ramón Elizondo Anaya
Name: Mr. José Ramón Elizondo Anaya
Title: Attorney-in-fact
By:/s/ Emmanuel Reveles Ramírez
Name: Mr. Emmanuel Reveles Ramírez
Title: Attorney-in-fact
PRIMARY SHAREHOLDERS
By:/s/ José Ramón Elizondo Anaya
Name: Mr. José Ramón Elizondo Anaya
By:/s/ Miguel Ángel Huerta Pando
Name: Mr. Miguel Ángel Huerta Pando
F-ii
Exhibit 10.21
Amendment Agreement No. 2 dated , September 25, 2008 among:
(i)
Lifetime Brands, Inc., a company duly organized and in existence pursuant to
the laws of the State of Delaware in the United States of America (“LTB” or “Strategic Investor”);
(ii)
Grupo Vasconia S.A.B., formerly known as Ekco, S.A.B., a Mexican
sociedad anónima bursátil duly organized and in existence pursuant to the laws of the United Mexican
States (the “Company”, provided that when the context so requires it, “Company” shall also include
the Company Subsidiaries); and
(iii) Mr. José Ramón Elizondo Anaya, a Mexican individual (“Mr. Elizondo”),
Mr. Miguel Ángel Huerta Pando, a Mexican individual (“Mr. Huerta” and together with Mr. Elizondo
the “Primary Shareholders”).
WITNESSETH
WHEREAS, Lifetime Brands, Inc., Ekco, S.A.B. (now known as Grupo Vasconia S.A.B.), Mr. José
Ramón Elizondo Anaya and Mr. Miguel Angel Huerta Pando entered into a Shares Subscription
Agreement dated June 8, 2007 (the “SSA”) pursuant to which they agreed, among others, on the terms
and conditions for a subscription of shares issued by Ekco, S.A.B. (now known as Grupo Vasconia
S.A.B.) by Lifetime Brands, Inc.
WHEREAS, on September 5, 2007 the parties entered into an Amendment Agreement No. 1 to
amend the SSA.
WHEREAS, the parties wish to amend the SSA as described below:
NOW THEREFORE, the parties hereto agree as follows:
1. Section 9.1(f)(i) is hereby amended to read as follows:
(i)
The Company agrees that it shall not (i) directly or indirectly carry on
activities, conduct, own an interest in or otherwise participate (whether as a supplier, lender,
guarantor, investor, employer, proprietor, shareholder, agent, consultant or partner) in the
manufacture, sale or distribution of or in the control or management of all or any part of a business
involved in the manufacture, sale or distribution of houseware products, including, but not limited to,
kitchenware, cookware, pressure cookers, pots, pans, kitchen gadgets and utensils, cutlery, thermoses,
dinnerware and flatware in the United States or Canada (the “Cross-Border Products”) until the second
anniversary of the Exit Date, without the prior written consent of Strategic Investor, provided that the
Company shall have the right to continue selling the Cross-Border Products to such customers listed in
Exhibit 9.1 (f) (i) “List of Customers”, and to such other customers as may be requested in writing by
the Company (the “Requested Customers”) and that have not been vetoed by the Strategic Investor.
The Company shall have the right to sell to the Requested Customers only if the Company has not
received a written veto from the Strategic Investor within ten (10) Business Days following the date
the written notice was received by the Strategic Investor. Any one of the Cross-Border Products that
is also sold by the Strategic Investor shall be sold by the Company at a price no less than the price
identified by the Strategic Investor on an approved price list (the “Approved Price List”), as may be
provided and updated by the Strategic Investor from time to time;
2. Section 9.1(f)(iii) is hereby amended to read as follows:
(iii)
Strategic Investor shall not directly or indirectly (including through its
Affiliates) carry on activities, conduct, own an interest in or otherwise participate (whether as a
supplier, lender, guarantor, investor, employer, proprietor, shareholder, agent, consultant or partner),
sale or distribution of or in the control or management of all or any part of a business involved in the
manufacture, sale or distribution of houseware products, including but not limited to kitchenware,
cookware, pressure cookers, pots, pans, kitchen gadgets and utensils, cutlery, thermoses, dinnerware
and flatware in Mexico, Colombia, Brazil, Chile, Peru, Ecuador, Argentina, Venezuela, Costa Rica, El
Salvador, Guatemala, Honduras, Nicaragua, Panama, Belize and Dominican Republic, until the second
anniversary of the Exit Date, without the prior written consent of the Company and the Primary
Shareholders; provided, however, that the foregoing does not apply with respect to Strategic Investor’s
Corporate Giftware Agreement with Arc International relating to the Mikasa business.
3. All other provisions of the SSA shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.
LIFETIME BRANDS, INC.
By: /s/ Jeffrey Siegel
Name: Jeffrey Siegel
Title: Attorney-in-fact
GRUPO VASCONIA S.A.B. (FORMERLY
KNOWN AS EKCO, S.A.B.)
By:/s/ José Ramón Elizondo Anaya
Name: Mr. José Ramón Elizondo Anaya
Title: Attorney-in-fact
By:/s/ Emmanuel Reveles Ramírez
Name: Mr. Emmanuel Reveles Ramírez
Title: Attorney-in-fact
PRIMARY SHAREHOLDERS
By:/s/ José Ramón Elizondo Anaya
Name: Mr. José Ramón Elizondo Anaya
By:/s/ Miguel Ángel Huerta Pando
Name: Mr. Miguel Ángel Huerta Pando
F-ii
Exhibit 10.25
WAIVER AND AMENDMENT NO. 5
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
WAIVER AND AMENDMENT NO. 5 (this “Amendment”), dated as of March 31,
2009, by and among LIFETIME BRANDS, INC., (the “Borrower”), the several financial
institutions party hereto and HSBC BANK USA, NATIONAL ASSOCIATION, as
Administrative Agent for the Lenders.
RECITALS
A.
The Borrower, the Lenders, Citibank, N.A. and Wachovia Bank, National
Association, as Co-Documentation Agents, JPMorgan Chase Bank, N.A., as Syndication Agent,
and the Administrative Agent are parties to the Second Amended and Restated Credit Agreement,
dated as of October 31, 2006 (as it may be amended, restated, supplemented or otherwise
modified from time to time, the “Credit Agreement”). Unless otherwise defined herein, all
capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement.
B.
The Borrower was not, as at December 31, 2008, in compliance with the
provisions of Sections 7.13, 7.15 and 7.18 of the Credit Agreement.
C.
The Borrower has (1) requested that the Administrative Agent and the Required
Lenders waive compliance by the Borrower with the requirements of Sections 7.13, 7.15 and 7.18
of the Credit Agreement for the fiscal quarter ending December 31, 2008 and (2) requested the
Lenders to amend the Credit Agreement in certain respects.
D.
The Administrative Agent has advised the Borrower that the Super-Majority
Lenders are willing to agree to its request on the terms and subject to the conditions set forth in
this Amendment.
Accordingly, in consideration of the foregoing, the parties hereto hereby agree as
follows:
1. Waiver. The Administrative Agent and the Required Lenders hereby waive non-
compliance by the Borrower with the requirements of Sections 7.13, 7.15 and 7.18 of
the Credit Agreement (as if effect on December 31, 2008) for the period ended
December 31, 2008; provided that such waiver (a) is limited to the matters expressly
stated in this Section 1 and (b) shall not be deemed to be a waiver of any future non-
compliance with Section 7.13, 7.15 or 7.18 of the Credit Agreement or a waiver of
any violations of any other provisions of the Credit Agreement.
2. Amendments to Credit Agreement.
(a)
Additional Definitions. Section 1.01 of the Credit Agreement is hereby
amended by adding the following new definitions in the appropriate alphabetical order:
“Additional Guarantor” means Wallace Silversmiths de Puerto
Rico Ltd., a Cayman Islands company.
“Adjusted Excess Availability” means, as of any date of
determination, the positive difference, if any, between (a) the Borrowing Base
-1-
Amount as of such date minus any Reserves and (b) the Aggregate Revolving
Exposure as of such date.
“Amendment No. 5” means Amendment No. 5 to Second
Amended and Restated Credit Agreement dated as of March 31, 2009 among the
Borrower, the Lenders party thereto and the Administrative Agent.
“Amendment No. 5 Effective Date” means March 31, 2009.
“Banking Services” each and any of the following bank services
provided to any Loan Party by any Lender or any of its Affiliates: (a) credit cards
for commercial customers (including, without limitation, “commercial credit
cards” and purchasing cards), (b) stored value cards and (c) treasury management
services (including, without limitation, controlled disbursement, automated
clearinghouse transactions, return items, overdrafts and interstate depository
network services).
“Banking Services Obligations” means of the Loan Parties
means any and all obligations of the Loan Parties, whether absolute or contingent
and howsoever and whensoever created, arising, evidenced or acquired
(including all renewals, extensions and modifications thereof and
substitutions therefor) in connection with Banking Services.
“Blocked Account Bank” means HSBC Bank USA, National
Association, or any successor thereto.
“Blocked Accounts” has the meaning set forth in Section 2.16(a).
“Borrower’s Account” has the meaning set forth in Section
2.09(g).
“Collateral Access Agreement” means an agreement in writing,
in form and substance satisfactory to the Co-Collateral Agents, from the lessor of
premises to the Borrower or any Guarantor, or any other Person (i) to whom any
Collateral (including Inventory, Equipment, bills of lading or other documents of
title) is consigned or (ii) who has custody, control or possession of any such
Collateral or (iii) is otherwise the owner or operator of any such premises on
which any of such Collateral is located, pursuant to which such lessor, consignee
or other Person acknowledges the Lien of the Administrative Agent in such
Collateral, agrees to waive any and all claims such lessor, consignee or other
Person may, at any time, have against such Collateral, whether for processing,
storage or otherwise, and agrees to permit the Co-Collateral Agents access to,
and the right to remain on, the premises of such lessor, consignee or other Person
so as to exercise the rights and remedies of the Agent and the Lenders and
otherwise deal with such Collateral, and which contains such other provisions as
the Co-Collateral Agents may require from time to time.
“Consultant” means Carl Marks & Co., Inc. or another
restructuring consultant reasonably acceptable to the Co-Collateral Agents.
- 2 -
“Customs Broker” means the Persons selected by the Borrower
after written notice by the Borrower to the Co-Collateral Agents who are
reasonably acceptable to the Co-Collateral Agents to perform port of entry
services to process Inventory imported by the Borrower or any Guarantor from
outside the United States of America and to supply facilities, labor and materials
to the Borrower in connection therewith, provided that, as to each such Person (a)
the Administrative Agent shall have received a Collateral Access Agreement
duly authorized, executed and delivered by such Person, (b) such agreement is in
full force and effect and (c) such Person shall be in compliance in all material
respects with the terms thereof.
“Eligible Work in Process Inventory” means work in process
Inventory constituting the precious metals component of such Inventory that
satisfies the criteria set forth in the definition of “Eligible Inventory”.
“Excess Availability” means, as of any date of determination, the
positive difference, if any, between (a) the lesser of (i) the Aggregate Revolving
Commitment as of such date and (ii) the Borrowing Base Amount as of such date
minus any Reserves and (b) the Aggregate Revolving Exposure as of such date.
“Defaulting Lender” has the meaning set forth in Section
2.15(a).
“Lender Default” has the meaning forth in Section 2.15(a).
“Net Orderly Liquidation Value Percentage” means, as of any
date with respect to the determination of the relevant Borrowing Base Percentage
of Eligible Inventory or Eligible Work in Process Inventory, the percentage as of
such date assigned to the net orderly liquidation value of Eligible Inventory or
Eligible Work in Process Inventory, as the case may be, in the most recent
appraisal of the Loan Parties’ Inventory by an independent appraiser.
“Non-Defaulting Lenders” has the meaning set forth in Section
2.15(b).
“Reserves” means, as of any date of determination, such amounts
as the Co-Collateral Agents may from time to time establish and revise in good
faith based on the lending practices of the Co-Collateral Agents upon notice in
the case of additional categories of Reserves (provided no Default has occurred
and is continuing, of not less than two (2) days) to the Borrower, reducing the
amount of Loans and Letters of Credit which would otherwise be available to the
Borrower under the lending formulas provided for herein. Such amounts may
include, but shall not be limited to, amounts: (a) to reflect events, conditions,
contingencies or risks, which, as determined by the Co-Collateral Agents in good
faith, adversely affect or have a reasonable likelihood of adversely affecting
either (i) the Accounts Receivable, the Inventory or the value thereof, (ii) the
assets or business operations of the Borrower or (iii) the Liens and other rights of
the Lenders or the Administrative Agent in the Collateral (including the
enforceability, perfection, priority and ranking thereof); (b) to reflect the Co-
- 3 -
Collateral Agents’ good faith belief that any collateral report or financial
information furnished by or on behalf of the Borrower or the Guarantors to the
Administrative Agent or any Lender is incomplete, inaccurate or misleading; (c)
in respect of any state of facts which the Co-Collateral Agents determine in good
faith constitutes a Default; (d) to reflect the amount of any dilution in respect of
the Eligible Accounts, inventory shrinkage or any liabilities of the Borrower
(including, without limitation, liabilities for unpaid Taxes, workers’
compensation, wages, employee withholdings or deductions, amounts owed to
suppliers or workmen) which pursuant to any applicable laws, rules or
regulations of any Governmental Authority may result in the imposition of a Lien
capable of ranking senior to or pari passu with the Lien of the Administrative
Agent; (e) to reflect accrued and unpaid royalties, fees or other charges payable
by the Borrower or any Guarantor in respect of licenses or other agreements to
use Intellectual Property owned by third parties; (f) to reflect any rental payments
(covering a period of three (3) months) or other charges or other amounts (for
such three-month period) which may at any time be payable to lessors of real or
personal property at or in which Inventory or records of any Loan Party are
located and with respect to which the Administrative Agent shall not have
received a Collateral Access Agreement; (g) to reflect freight, duty or other
similar charges which may at any time arise in connection with in-transit
Inventory; or (h) in respect of Banking Services and Hedging Agreements.
“Settlement Date” means the Amendment No. 5 Effective Date
and thereafter Tuesday of each week, unless such day is not a Business Day in
which case it shall be the next succeeding Business Day, and every other
Business Day designated by the Administrative Agent as a “Settlement Date” by
notice from the Administrative Agent to each Lender.
“Tax Refund” means the income tax refund of the Borrower in an
amount to be set forth on IRS Form 1139 prepared by Ernst & Young LLP in
respect of federal income taxes for the Borrower’s 2008 fiscal year.
“Tax Refund Amount” means, (a) during the period from (i) the
date of receipt by the Administrative Agent of a copy of the Form 1139 filed with
the Internal Revenue Service by the Borrower in respect of the Tax Refund and
copies of Forms 8302 and 8821 or such other relevant Internal Revenue Service
forms necessary to be filed with the Internal Revenue Service (as so filed) in
order for the Tax Refund to be paid directly into a Blocked Account and for
notices from the Internal Revenue Service denying or reducing the amount of the
Tax Refund be delivered to the Administrative Agent, to (ii) the earlier to occur
of (A) September 30, 2009 and (B) the date on which the Borrower receives the
Tax Refund, an amount equal to the lesser of 75% of the Tax Refund and
$9,000,000 and (b) thereafter, $0.00.
“Week” means the time period commencing with the opening of
business on a Monday and ending on the end of business the following Sunday.
- 4 -
(b)
Alternate Base Rate. Section 1.01 of the Credit Agreement is hereby
amended by deleting the definition of “Alternate Base Rate” in its entirety and substituting the
following therefor:
“Alternate Base Rate” means, on any date, a variable rate of
interest per annum equal to the greatest of (a) the highest of the “prime rate,”
“reference rate,” “base rate” or other similar rate as determined by the
Administrative Agent (or any successor to the Administrative Agent) announced
from time to time by HSBC Bank USA, National Association (or any successor
to HSBC Bank USA, National Association) (with the understanding that any
such rate may merely be a reference rate and may not necessarily represent the
lowest or best rate actually charged to any customer by such bank), (b) the
Federal Funds Open Rate plus one percent (1.0%) and (c) the 30-Day LIBOR
Rate plus one percent (1.0%). For purposes of this definition: (i) “Federal Funds
Open Rate” shall mean, for any day, the rate per annum determined by the
Administrative Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the Open Rate for
federal funds transactions as of the opening of business for federal funds
transactions among members of the Federal Reserve System arranged by federal
funds brokers on such day, as quoted by Garvin Guybutler, any successor entity
thereto, or any other broker selected by the Administrative Agent, as set forth on
the applicable Telerate display page; provided that if such day is not a Business
Day, the Federal Funds Open Rate for such day shall be the Open Rate on the
immediately preceding Business Day, or if no such rate shall be quoted by a
federal funds broker at such time, such other rate as determined by the
Administrative Agent in accordance with its usual procedures; (ii) “30-Day
LIBOR Rate” shall mean, for any day, the rate per annum determined by the
Administrative Agent by dividing (x) the Published Rate by (y) a number equal
to 1.00 minus the percentage prescribed by the Federal Reserve for determining
the maximum reserve requirements with respect to any eurocurrency funding by
banks on such day; and “Published Rate” shall mean the rate of interest
published each Business Day in The Wall Street Journal “Money Rates” listing
under the caption “London Interbank Offered Rates” for a one month period (or,
if no such rate is published therein for any reason, then the Published Rate shall
be the eurodollar rate for a one month period as published in another publication
determined by the Administrative Agent).
(c)
Applicable Margin. Section 1.01 of the Credit Agreement is hereby
amended by deleting the definition of “Applicable Margin” in its entirety and substituting the
following therefor:
“Applicable Margin” means (a) with respect to ABR Borrowings
and Swing Line Borrowings, 3.00%, (b) with respect to Eurodollar Borrowings,
4.00% and (c) with respect to the Commitment Fees, 0.50%.
(d)
Borrowing Base Amount. Section 1.01 of the Credit Agreement is
hereby amended by deleting the definition of “Borrowing Base Amount” in its entirety and
substituting the following therefor:
- 5 -
“Borrowing Base Amount” means, as of any date of
determination, a sum equal to (a) the Borrowing Base Percentage of Eligible
Receivables plus (b) the lesser of (i) the Borrowing Base Percentage of Eligible
Inventory and (ii) the Eligible Inventory Amount as of such date plus (c) the
lesser of (i) $25,000,000 and (ii) the Trademark OLV Amount as of such date
plus (d) the Tax Refund Amount as of such date plus (e) the lesser of (i)
$2,000,000 and (ii) the Borrowing Base Percentage of Eligible Work in Process
Inventory as of such date.
(e)
Borrowing Base Certificate. Section 1.01 of the Credit Agreement is
hereby amended by deleting the definition of “Borrowing Base Certificate” in its entirety and
substituting the following therefor:
“Borrowing Base Certificate” means a certificate in substantially
the form of Exhibit A to Amendment No. 5, duly executed by a Financial Officer
of the Borrower and delivered to the Administrative Agent, appropriately
completed, by which such Financial Officer shall certify to the Administrative
Agent the Borrowing Base Amount and the calculation thereof as of the date of
such certificate.
(f)
Borrowing Base Percentage. Section 1.01 of the Credit Agreement is
hereby amended by deleting the definition of “Borrowing Base Percentage” in its entirety and
substituting the following therefor:
“Borrowing Base Percentage” means (a) with respect to Eligible
Receivables, 85%, (b) with respect to Eligible Inventory, (i) during the period
from the Amendment No. 5 Effective Date to and including June 30, 2009, 90%
of the Net Orderly Liquidation Value Percentage with respect to Eligible
Inventory as of the date of determination of the Borrowing Base Percentage, and
(ii) from and after July 1, 2009, 85% of the Net Orderly Liquidation Value
Percentage with respect to Eligible Inventory as of the date of determination of
the Borrowing Base Percentage, and (c) with respect to Eligible Work in Process
Inventory, 85% of the Net Orderly Liquidation Value Percentage with respect to
Eligible Work in Process Inventory as of the date of determination of the
Borrowing Base Percentage. Subject to the provisions of Section 10.02(b), the
Borrowing Base Percentage with respect to each category of assets may be
increased or decreased by the Co-Collateral Agents at any time and from time to
time in the exercise of good faith and based upon the lending practices of the Co-
Collateral Agents, consistent with criteria customary in the commercial finance
industry generally. The Administrative Agent shall give the Borrower not less
than two (2) Business Days prior written notice of its determination to decrease
the Borrowing Base Percentage of any category of assets. The Borrower
consents to any such increases or decreases and acknowledge that decreasing the
Borrowing Base Percentage or increasing or imposing reserves may limit or
restrict the Extensions of Credit requested by the Borrower.
- 6 -
(g)
Eligible Inventory. Section 1.01 of the Credit Agreement is hereby
amended by deleting the definition of “Eligible Inventory” in its entirety and substituting the
following therefor:
“Eligible Inventory” means Inventory (other than Eligible Work
in Process Inventory) located in the United States of America or in transit as
provided in clause (e) below subject to a fully perfected first priority security
interest in favor of the Administrative Agent, for the ratable benefit of the
Secured Parties, pursuant to the Security Agreement which is not on consignment
from any third party and which conforms to the representations and warranties
contained in the Security Agreement. Notwithstanding the foregoing, “Eligible
Inventory” shall not include (a) obsolete or damaged Inventory, (b) Inventory
consisting of samples, promotional, marketing, packaging or shipping materials
or supplies or otherwise not of a type held for sale in the ordinary course of the
Borrower’s or a Guarantor’s business, (c) Inventory not saleable within one year
from the date of acquisition or creation thereof, (d) Inventory to be returned to
suppliers, (e) any Inventory at premises other than those owned and controlled by
the Borrower or any Guarantor except (i) any Inventory that would otherwise be
Eligible Inventory at locations that are leased by the Borrower or any Guarantor
(including public warehouse facilities at which the Borrower’s Inventory is
segregated from property of third parties) may nevertheless be considered
Eligible Inventory if the Administrative Agent shall have received a Collateral
Access Agreement, duly authorized, executed and delivered by the owner and
lessor of such premises, and (ii) Inventory which would otherwise be Eligible
Inventory having a value of up to (x) $10,000,000 divided by (y) the Borrowing
Base Percentage for Eligible Inventory in effect on the date of determination of
Eligible Inventory and that is located outside of the United States of America and
in transit to either the premises of a Customs Broker in the United States of
America or premises of the Borrower or any Guarantor in the United States of
America which are either owned and controlled by the Borrower or such
Guarantor or leased by the Borrower or such Guarantor (but only if the
Administrative Agent shall have received a Collateral Access Agreement, duly
authorized, executed and delivered by the owner and lessor of such premises, as
the case may be), provided that (A) the Administrative Agent has a first priority
perfected Lien upon, and control and possession of, all originals of documents of
title with respect to such Inventory, (B) the Administrative Agent has received (I)
a Collateral Access Agreement, duly authorized, executed and delivered by the
Customs Broker handling the shipping and delivery of such Inventory, (II) a
copy of the certificate of marine cargo insurance in connection therewith in
which the Administrative Agent has been named as an additional insured and loss
payee in a manner acceptable to the Administrative Agent and (III) a copy of the
invoice and manifest with respect thereto and (C) such Inventory is not subject to
any Letter of Credit, (D) the Borrower shall have caused all bills of lading and
other documents of title relating to the goods being purchased by it which are
outside the United States of America and in transit to such premises to name the
Borrower as consignee, unless and until the Co-Collateral Agents may direct
otherwise or, in the event that the Co-Collateral Agents shall have so directed,
from time to time as the Co-Collateral Agents may direct, the Borrower shall
- 7 -
have caused the Administrative Agent or such other financial institution or other
Person as the Co-Collateral Agents may specify to be named as consignee, it
being understood, without limiting any other rights of the Administrative Agent,
the Co-Collateral Agents or any Lender hereunder, at any time on or after the
occurrence of a Default, and for so long as the same is continuing, the
Administrative Agent shall have the right to endorse and negotiate on behalf of,
and as attorney-in-fact for, the Borrower and the Guarantors any bill of lading or
other document of title with respect to such goods naming the Borrower or any
Guarantor as consignee to the Administrative Agent; (E) three (3) originals of
each bill of lading or other document of title which, unless and until the Co-
Collateral Agents shall direct otherwise, shall have been delivered as follows:
(I) one (1) original to such Customs Broker as the Borrower may specify (so long
as the Administrative Agent has received a Collateral Access Agreement duly
authorized, executed and delivered by such Customs Broker) and (II) two (2)
originals sent to the Administrative Agent or to such other Person as the
Administrative Agent may designate for such purpose; (F) the Borrower shall
have obtained a copy (but not the originals) of such bill of lading and other
documents of title from the Customs Broker; and (G) the Borrower shall have
caused all bills of lading or other documents of title relating to goods purchased
by the Borrower or any Guarantor which are outside the United States of
America and in transit to the premises of the Borrower or such Guarantor or the
premises of a Customs Broker in the United States of America to be issued in a
form so as to constitute negotiable documents as such term is defined in the
Uniform Commercial Code; (f) Inventory that is subject to any licensing, patent,
royalty, trademark, trade name or copyright agreement with any third party from
whom the Borrower or any Guarantor has received notice of a dispute in respect
of any such agreement or with respect to which the Administrative Agent has not
obtained a Collateral Access Agreement, duly authorized, executed and delivered
by such third party and (g) except as expressly provided in clause (e) above with
respect to Inventory in transit and except for Eligible Work in Process Inventory
of the Additional Guarantor located in Puerto Rico, Inventory which is not
located on the Borrower’s or a Guarantor’s owned or leased premises in the
United States of America.
(h)
Grid Effectiveness Date. Section 1.01 of the Credit Agreement is hereby
amended by deleting the definition of “Grid Effectiveness Date” in its entirety.
(i)
Interest Coverage Ratio. Section 1.01 of the Credit Agreement is hereby
amended by deleting the definition of “Interest Coverage Ratio” in its entirety.
(j)
Leverage Ratio. Section 1.01 of the Credit Agreement is hereby
amended by deleting the definition of “Leverage Ratio” in its entirety.
(k)
LIBO Rate. Section 1.01 of the Credit Agreement is hereby amended by
deleting the definition of “LIBO Rate” in its entirety and the following substituted therefor:
“LIBO Rate” means, with respect to any Eurodollar Borrowing,
for any Interest Period applicable thereto, the greater of (a) one and three-
quarters percent (1.75%) and (b) a rate of interest per annum, as determined by
- 8 -
the Administrative Agent, equal to the rate for deposits in dollars for a period
comparable to such Interest Period which appears on the Reuters Page LIBOR01
(or such other page as may replace LIBOR01 on the Reuters Monitor Money
Rates Service for the purpose of displaying such rates or such other service as
may be nominated by the British Bankers Association, for the purpose of
displaying London interbank offered rates for dollar deposits) as of 11:00 a.m.,
London time, on the day that is two Business Days prior to the first day of such
Interest Period. If such rate does not appear on Reuters Page LIBOR01 (or such
other replacement page), LIBO Rate shall be the rate per annum (rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point) at which
deposits in dollars are offered by four major banks in the London interbank
market at approximately 11:00 a.m., London time, on the day that is two
Business Days prior to the first day of such Interest Period to prime banks in the
London interbank market for a period of one month commencing on the first day
of such Interest Period in an amount comparable to the principal amount of such
Eurodollar Borrowing. The Administrative Agent will request the principal
London office of each such bank to provide a quotation of its rate. If at least two
such quotations are provided as requested, the rate for such Interest Period shall
be the arithmetic mean of the quotations. If fewer than two quotations are
provided as requested, the rate for such Interest Period shall be the arithmetic
mean of the rates quoted by major banks in New York City, selected by the
Administrative Agent, at approximately 11:00 a.m., New York City time, on the
date that is two Business Days prior to the first day of such Interest Period for
loans in dollars to leading European banks for a period of one month
commencing on the first day of such Interest Period in an amount comparable to
such Eurodollar Borrowing. In the event that the Administrative Agent is unable
to obtain any such quotation as provided above, it shall be deemed that LIBO
Rate pursuant to a Eurodollar Borrowing cannot be determined.
(l)
Permitted Acquisition. Section 1.01 of the Credit Agreement is hereby
amended by deleting the definition of “Permitted Acquisition” in its entirety and the following
substituted therefor:
“Permitted Acquisition” means the purchase, holding or
acquisition of (including pursuant to any merger) any Capital Stock, evidences of
indebtedness or other securities (including any option, warrant or other right to
acquire any of the foregoing) of any other Person, or the purchase or acquisition
of (in one transaction or a series of transactions (including pursuant to any
merger)) any assets of any other Person constituting a business unit (each an
“acquisition”), provided that, (a) at the time thereof and immediately after giving
effect thereto no Default shall have occurred and be continuing, (b) the aggregate
amount of consideration paid, and Indebtedness assumed, by the Borrower and
the Subsidiaries in connection with all such acquisitions made during the period
from and after the Amendment No. 5 Effective Date shall not exceed $5,000,000,
(c) such Person or business unit, as the case may be, is in substantially the same
business as the Borrower, (d) the Managing Person of such Person shall have
approved or recommend such acquisition, (e) the Borrower shall have complied
with the provisions of Section 6.11 with respect to such Person or assets and (f)
- 9 -
before and immediately after giving effect to such acquisition (i) the Fixed
Charge Coverage Ratio shall be not less than 1.50:1 and (ii) Excess Availability
shall be not less than $50,000,000.
(m) Obligations. Section 1.01 of the Credit Agreement is hereby amended by
deleting the phrase “unless otherwise agreed upon in writing by the Lenders,” in clause (c) of the
definition of “Obligations” and adding a new clause (d) thereto to read in its entirety as follows:
and (d) all Banking Services Obligations.
(n)
Revolving Maturity Date. Section 1.01 of the Credit Agreement is
hereby amended by deleting the definition of “Revolving Maturity Date” in its entirety and the
following substituted therefor:
“Revolving Maturity Date” means January 31, 2011.
(o)
Swing Line Commitment. Section 1.01 of the Credit Agreement is
hereby amended by deleting the reference to “$0.00” in the definition of “Swing Line
Commitment” and substituting “$5,000,000” therefor.
(p)
Telerate Page 3750. Section 1.01 of the Credit Agreement is hereby
amended by deleting the definition of “Telerate Page 3750” in its entirety.
(q)
Commitments. Section 2.01 of the Credit Agreement is hereby amended
by deleting the first sentence thereof in its entirety and the substituting the following therefor:
Subject to the terms and conditions set forth herein, each Lender having a
Revolving Commitment agrees to make Revolving Loans to the Borrower from
time to time during the Availability Period in an aggregate principal amount up
to an amount that will not result in such Lender’s Revolving Exposure exceeding
such Lender’s Revolving Commitment; provided that no Lender shall be
permitted or required to make Revolving Loans to the Borrower in excess of an
aggregate principal amount equal to (i) the lesser of (A) an amount that will not
result in such Lender’s Revolving Exposure exceeding such Lender’s Revolving
Commitment and (B) such Lender’s Commitment Percentage of the Borrowing
Base Amount minus (ii) such Lender’s Commitment Percentage of any Reserves.
(r)
Swing Line Loans. Section 2.05(a) of the Credit Agreement is hereby
amended by deleting the proviso thereto in its entirety and substituting the following therefor:
provided that (i) immediately after making each Swing Line Loan, (A) the
aggregate outstanding principal balance of the Swing Line Loans will not exceed
the Swing Line Commitment and (B) the Aggregate Revolving Exposure will not
exceed (I) the lesser of (x) the Aggregate Revolving Commitment and (y) the
Borrowing Base Amount minus (II) any Reserves, (ii) prior thereto or
simultaneously therewith the Borrower shall have borrowed Revolving Loans,
(iii) no Lender shall be in default of its obligations under this Agreement and (iv)
no Credit Party shall have notified the Swing Line Lender and the Borrower in
writing at least one Business Day prior to the Borrowing Date with respect to
- 10 -
such Swing Line Loan, that the conditions set forth in Section 5.02 have not been
satisfied and such conditions remain unsatisfied as of the requested time of the
making such Swing Line Loan.
(s)
Prepayment of Loans. Section 2.08 of the Credit Agreement is hereby
amended by adding a new Section 2.08(g) thereto to read in its entirety as follows:
(g) Immediately upon receipt of the proceeds of the Tax Refund,
the Borrower shall prepay Revolving Borrowings in an amount equal to the
amount of the Tax Refund actually received by the Borrower by depositing such
proceeds in a Blocked Account.
(t)
Payments Generally; Pro Rata Treatment; Sharing of Setoff. Section
2.09 of the Credit Agreement is hereby amended by adding new Sections 2.09(f), 2.09(g) and
2.09(h) thereto to read in their entirety as follows:
(f)
Notwithstanding anything in the contrary in Section
2.09(b) or in the Security Agreement, any proceeds of Collateral received by the
Administrative Agent (i) not constituting either (A) a specific payment of
principal, interest, fees or other sum payable under the Loan Documents (which
shall be applied as specified by the Borrower), (B) a mandatory prepayment
(which shall be applied in accordance with Section 2.08) or (C) amounts to be
applied from the Blocked Accounts (which shall be applied in accordance with
Section 2.16) or (ii) after an Event of Default has occurred and is continuing and
the Administrative Agent so elects or the Required Lenders so direct, such funds
shall be applied ratably first, to pay any fees, indemnities, or expense
reimbursements including amounts then due to the Administrative Agent and the
Issuer from the Borrower (other than in connection with Banking Services or
Hedging Agreements), second, to pay any fees or expense reimbursements then
due to the Lenders from the Borrower (other than in connection with Banking
Services or Hedging Agreements), third, to pay interest then due and payable on
the Loans ratably, fourth, to prepay principal on the Loans and unreimbursed
Reimbursement Obligations ratably, fifth, to pay an amount to the Administrative
Agent equal to one hundred five percent (105%) of the aggregate undrawn face
amount of all outstanding Letters of Credit and the aggregate amount of any
unpaid Letter of Credit Exposure, to be held as cash collateral pursuant to Section
2.12, sixth, to payment of any amounts owing with respect to Banking Services
and Hedging Agreements, and seventh, to the payment of any other Obligation
due to the Administrative Agent or any Lender by the Borrower.
Notwithstanding anything to the contrary contained in this Agreement, unless so
directed by the Borrower, or unless a Default is in existence, neither the
Administrative Agent nor any Lender shall apply any payment which it receives
to any Eurodollar Loan, except (x) on the expiration date of the Interest Period
applicable to any such Eurodollar Loan or (y) in the event, and only to the extent,
that there are no outstanding ABR Loans and, in any such event, the Borrower
shall pay the break funding payment required in accordance with Section 3.06.
The Administrative Agent and the Lenders shall have the continuing and
- 11 -
exclusive right to apply and reverse and reapply any and all such proceeds and
payments to any portion of the Obligations.
(g) The Administrative Agent shall maintain, in accordance with
its customary procedures, a loan account (the “Borrower’s Account”) in the name
of the Borrower in which shall be recorded the date and amount of each
Extension of Credit made by the Lenders and the date and amount of each
payment in respect thereof; provided that the failure by the Administrative Agent
to record the date and amount of any Extension of Credit shall not adversely
affect the obligations of the Borrower to repay the Extensions of Credit in
accordance with the terms of this Agreement. Each month, the Administrative
Agent shall send to the Borrower a statement showing the accounting for the
Extensions of Credit made, payments made or credited in respect thereof, and
other transactions between the Lenders and the Borrower during such month.
The monthly statements shall be deemed correct and binding upon the Borrower
in the absence of manifest error and shall constitute an account stated between
the Lenders and the Borrower unless the Administrative Agent receives a written
statement of the Borrower’s specific exceptions thereto within thirty (30) days
after such statement is received by the Borrower. The records of the
Administrative Agent with respect to the loan account shall be conclusive
evidence absent manifest error of the amounts of Extensions of Credit and other
charges thereto and of payments applicable thereto.
(h) The Borrower recognizes that the amounts evidenced by
checks, notes, drafts or any other items of payment relating to and/or proceeds of
Collateral may not be collectible by the Administrative Agent on the date
received. In consideration of the Administrative Agent’s agreement to
conditionally credit the Borrower’s Account as of the Business Day on which the
Administrative Agent receives those items of payment, the Borrower agrees that,
in computing the charges under this Agreement, all items of payment shall be
deemed applied by the Administrative Agent on account of the Obligations on (i)
the Business Day the Administrative Agent receives such payments via wire
transfer or electronic depository check or (ii) in the case of payments received by
the Administrative Agent in any other form, the Business Day such payment
constitutes good funds in the Administrative Agent’s account. The
Administrative Agent shall not, however, be required to credit the Borrower’s
Account for the amount of any item of payment which is unsatisfactory to the
Administrative Agent and the Administrative Agent may charge the Borrower’s
Account for the amount of any item of payment which is returned to the
Administrative Agent unpaid.
(u)
Optional Increase in Commitments. Section 2.10 of the Credit
Agreement is hereby deleted in its entirety and [Intentionally Deleted] substituted therefor.
(v)
Letters of Credit. The first sentence of Section 2.11(a) of the Credit
Agreement is hereby deleted in its entirety and the following substituted therefor:
- 12 -
The Borrower may request the Issuer to issue letters of credit (the “Letters of
Credit”; each, individually, a “Letter of Credit”) during the period from the
Effective Date to the thirtieth Business Day prior to the Revolving Maturity Date,
provided that immediately after the issuance of each Letter of Credit (i) the Letter
of Credit Exposure of all Lenders would not exceed the Letter of Credit
Commitment, (ii) the Letter of Credit Exposure of all Lenders with respect to (A)
trade or commercial documentary Letters of Credit shall not exceed $20,000,000
and (B) standby Letters of Credit shall not exceed $10,000,000 and (iii) the
Aggregate Revolving Exposure would not exceed (A) the lesser of (x) the
Aggregate Revolving Commitment and (y) the Borrowing Base Amount minus
(B) any Reserves.
(w) Manner of Borrowing and Payment; Defaulting Lender; Certain
Provisions Concerning the Collateral. Article 2 of the Credit Agreement is hereby amended by
adding new Sections 2.14, 2.15 and 2.16 thereto to read in their entirety as follows:
Section 2.14 Manner of Borrowing and Payment
(a)
(i) Notwithstanding anything to the contrary contained in
Section 2.04(a), 2.05 or 2.09(b), commencing with the first Business Day
following the Amendment No. 5 Effective Date, each Revolving Borrowing shall
first be advanced by the Swing Line Lender as a Swing Line Loan and each
payment by the Borrower on account of Revolving Loans shall be applied first to
Swing Line Loans advanced by the Swing Line Lender. On or before 1:00 p.m.
(New York time) on each Settlement Date commencing with the first Settlement
Date following the Amendment No. 5 Effective Date, the Administrative Agent
and the Lenders shall make certain payments as follows: (A) if the aggregate
amount of new Swing Line Loans made during the preceding Week (if any)
exceeds the aggregate amount of repayments applied to outstanding Swing Line
Loan and Revolving Loans during such preceding Week, then each Lender shall
provide the Administrative Agent with funds in an amount equal to its applicable
Commitment Percentage of the difference between (I) such new Swing Line
Loans and (II) such repayments, which funds shall be deemed to be proceeds of
Revolving Loans made by the Lenders (regardless of whether the conditions set
forth in Section 5.02 have been satisfied) and (B) if the aggregate amount of
repayments applied to outstanding Swing Line Loans during such Week exceeds
the aggregate amount of new Swing Line Loans made during such Week, then
the Administrative Agent shall provide each Lender with funds in an amount
equal to its applicable Commitment Percentage of the difference between (I) such
repayments and (II) such Swing Line Loans.
(ii) Each Lender shall be entitled to earn interest at the
applicable interest rate on outstanding Revolving Loans which it has funded.
(iii) Promptly following each Settlement Date, the
Administrative Agent shall submit to each Lender a certificate with respect to
payments received and Swing Line Loans made during the Week immediately
- 13 -
preceding such Settlement Date. Such certificate of the Administrative Agent
shall be conclusive in the absence of manifest error.
(b) Unless the Administrative Agent shall have been notified
by telephone, confirmed in writing, by any Lender that such Lender will not
make the amount which would constitute its applicable Commitment Percentage
of the Revolving Loans available to the Administrative Agent, the Administrative
Agent may (but shall not be obligated to) assume that such Lender shall make
such amount available to the Administrative Agent on the next Settlement Date
and, in reliance upon such assumption, make available to the Borrower a
corresponding amount. The Administrative Agent will promptly notify the
Borrower of its receipt of any such notice from a Lender. If such amount is made
available to the Administrative Agent on a date after such next Settlement Date,
such Lender shall pay to the Administrative Agent on demand an amount equal
to the product of (i) the daily average Federal Funds Rate (computed on the basis
of a year of 360 days) during such period as quoted by the Administrative Agent,
times (ii) such amount, times (iii) the number of days from and including such
Settlement Date to the date on which such amount becomes immediately
available to the Administrative Agent. A certificate of the Administrative Agent
submitted to any Lender with respect to any amounts owing under this Section
2.14(b) shall be conclusive, in the absence of manifest error. If such amount is
not in fact made available to the Administrative Agent by such Lender within
three (3) Business Days after such Settlement Date, the Administrative Agent
shall be entitled to recover such an amount, with interest thereon at the rate per
annum then applicable to such Revolving Loans hereunder, on demand from the
Borrower; provided that the Administrative Agent’s right to such recovery shall
not prejudice or otherwise adversely affect the Borrower’s rights (if any) against
such Lender.
(c) Any sums expended by the Administrative Agent or any
Lender due to the Borrower’s failure to perform or comply with its obligations
under this Agreement or any other Loan Document including, without limitation,
the Borrower’s obligations under Sections 2.16, 6.04, 6.06(b) or 6.10, may be
charged to the Borrower’s Account as a Revolving Loan maintained as an ABR
Loan and added to the Obligations
Section 2.15 Defaulting Lender
(a) Notwithstanding anything to the contrary contained herein,
in the event any Lender (i) has failed or refused (which failure or refusal
constitutes a breach by such Lender of its obligations under this Agreement) to
make available its portion of any Extension of Credit or (ii) notifies either the
Administrative Agent or the Borrower that it does not intend to make available
its portion of any Extension of Credit (if the actual refusal would constitute a
breach by such Lender of its obligations under this Agreement) (each, a “Lender
Default”), all rights and obligations hereunder of such Lender (a “Defaulting
Lender”) as to which a Lender Default is in effect and of the other parties hereto
- 14 -
shall be modified to the extent of the express provisions of this Section 2.15
while such Lender Default remains in effect.
(b)
Extensions of Credit shall be incurred pro rata from
Lenders (the “Non-Defaulting Lenders”) which are not Defaulting Lenders based
on their respective Commitment Percentages, and no Commitment Percentage of
any Lender or any pro rata share of any Extension of Credit required to be
advanced by any Lender shall be increased as a result of such Lender Default.
Amounts received in respect of principal of any type of Extension of Credit shall
be applied to reduce the applicable Extensions of Credit of each Lender (other
than any Defaulting Lender) pro rata based on the aggregate of the outstanding
Extensions of Credit of that type of all Lenders at the time of such application;
provided that the Administrative Agent shall not be obligated to transfer to a
Defaulting Lender any payments received by the Administrative Agent for the
Defaulting Lender’s benefit, nor shall a Defaulting Lender be entitled to the
sharing of any payments hereunder (including any principal, interest or fees).
Any amount payable to a Defaulting Lender hereunder (whether on account of
principal, interest, fees or otherwise) shall, in lieu of being distributed to such
Defaulting Lender, be retained by the Administrative Agent in a segregated
account and, subject to any applicable requirements of law, be applied at such
time or times as may be determined by the Administrative Agent (i) first, to the
payment of any amounts owing by such Defaulting Lender to the Administrative
Agent hereunder, (ii) second, pro rata, to the payment of any amounts owing by
such Defaulting Lender to the Issuer or Swing Line Lender hereunder, (iii) third,
if so determined by the Administrative Agent or requested by an Issuer or Swing
Line Lender, to be held in such account as cash collateral for future funding
obligations of the Defaulting Lender of any participating interest in any Swing
Line Loan or Letter of Credit, (iv) fourth, to the funding of any Loan in respect
of which such Defaulting Lender has failed to fund its portion thereof as required
by this Agreement, as determined by the Administrative Agent, (v) fifth, if so
determined by the Administrative Agent and the Borrower, held in such account
as cash collateral for future funding obligations of the Defaulting Lender of any
Loans under this Agreement, (vi) sixth, to the payment of any amounts owing to
the Lenders or the Issuer or the Swing Line Lender as a result of any judgment of
a court of competent jurisdiction obtained by any Lender or the Issuer or the
Swing Line Lender against such Defaulting Lender as a result of such Defaulting
Lender’s breach of its obligations under this Agreement, (vii) seventh, to the
payment of any amounts owing to the Borrower as a result of any judgment of a
court of competent jurisdiction obtained by the Borrower against such Defaulting
Lender as a result of such Defaulting Lender’s breach of its obligations under this
Agreement, and (viii) eighth, to such Defaulting Lender or as otherwise directed
by a court of competent jurisdiction; provided that if such payment is (x) a
prepayment of the principal amount of any Loans or reimbursement obligations
in respect of Reimbursement Obligations for which a Defaulting Lender has
funded its participation obligations and (y) made at a time when the conditions
set forth in Section 5.02 are satisfied, such payment shall be applied solely to
prepay the Loans of, and reimbursement obligations owed to, all non-Defaulting
- 15 -
Lenders pro rata prior to being applied to the prepayment of any Loans, or
reimbursement obligations owed to, any Defaulting Lender.
(c) A Defaulting Lender shall not be entitled to give
instructions to the Administrative Agent or to approve, disapprove, consent to or
vote on any matters relating to this Agreement and the other Loan Documents.
All amendments, waivers and other modifications of this Agreement and the
other Loan Documents may be made without regard to a Defaulting Lender and,
for purposes of the definition of “Required Lenders” and “Super-Majority
Lenders”, a Defaulting Lender shall be deemed not to be a Lender and not to
have either Extension of Credit outstanding or a Commitment Percentage.
(d) Other than as expressly set forth in this Section 2.15, the
rights and obligations of a Defaulting Lender (including the obligation to
indemnify the Administrative Agent) and the other parties hereto shall remain
unchanged. Without limiting the foregoing, the existence of a Defaulting Lender
shall not affect the obligations of the Borrower and the other Loan Parties to the
Non-Defaulting Lenders, the Issuer, the Swing Line Lender or others under this
Agreement or the other Loan Documents. Nothing in this Section 2.15 shall be
deemed to release any Defaulting Lender from its obligations under this
Agreement and the other Loan Documents, shall alter such obligations, shall
operate as a waiver of any default by such Defaulting Lender hereunder, or shall
prejudice any rights which the Borrower, the Administrative Agent, the Issuer or
any Lender may have against any Defaulting Lender as a result of any default by
such Defaulting Lender hereunder.
(e)
In the event a Defaulting Lender retroactively cures to the
satisfaction of the Administrative Agent the breach which caused a Lender to
become a Defaulting Lender, such Defaulting Lender shall no longer be a
Defaulting Lender and shall be treated as a Lender under this Agreement.
Section 2.16 Certain Provisions Concerning the Collateral
(a) The Borrower shall establish and maintain, at its expense,
block accounts or lockbox and related blocked accounts (collectively, the
“Blocked Accounts”) as the Co-Collateral Agents may require with the Blocked
Account Bank or such other bank or banks as may be selected by the Borrower
and be acceptable to the Co-Collateral Agents into which the Borrower shall
immediately deposit all payments on Accounts Receivable and all payments
constituting proceeds of Inventory or other Collateral received by it in the
identical form in which such payments were made, whether by cash, check or
other manner. The Borrower shall instruct each of its account debtors to remit all
payments with respect to Accounts Receivable to the Blocked Accounts. The
Borrower, the Administrative Agent and the Blocked Account Bank shall enter
into an agreement in form and substance acceptable to the Co-Collateral Agents
directing the Blocked Account Bank to transfer such funds so deposited to the
Administrative Agent, either to any account maintained by the Administrative
Agent at the Blocked Account Bank or by wire transfer to appropriate account(s)
- 16 -
of the Administrative Agent for application to the Obligations in accordance with
Section 2.09(b). All funds deposited in a Blocked Account shall immediately
become the property of the Administrative Agent and the Borrower shall obtain
the agreement by the Blocked Account Bank to waive any offset rights against
the funds so deposited. None of the Administrative Agent, any Co-Collateral
Agent or any Lender assumes any responsibility for any Blocked Account
arrangement, including without limitation, any claim of accord and satisfaction or
release with respect to deposits accepted by any bank thereunder.
(b) Each Loan Party will, at such Loan Party’s sole cost and
expense, but on the Administrative Agent’s behalf and for the Administrative
Agent’s account, collect as the Administrative Agent’s property and in trust for
the Administrative Agent all amounts received by it on Accounts Receivable or
any other Collateral, and shall not commingle such collections with such Loan
Party’s funds or use the same except to deliver to the Administrative Agent, or
deposit in a Blocked Account, in original form and on the date of receipt thereof,
all checks, drafts, notes, money orders, acceptances, cash and other evidences of
Indebtedness.
(c) The Administrative Agent shall, following the occurrence
and during the continuation of an Event of Default, have the right to send notice
of the assignment of, and the Administrative Agent’s security interest in, the
Accounts Receivable to any and all account debtors thereon or any third party
holding or otherwise concerned with any of the Collateral. The Administrative
Agent shall have the sole right to collect the Accounts Receivable, take
possession of the Collateral, or both. The Administrative Agent’s actual
collection expenses, including, but not limited to, stationery and postage,
telephone and telecopy, secretarial and clerical expenses and the salaries of any
collection personnel used for collection, may be charged to the Borrower’
Account and added to the Obligations.
(d) The Administrative Agent shall have the right to receive,
endorse, assign and/or deliver in the name of the Administrative Agent or any
Loan Party any and all checks, drafts and other instruments for the payment of
money relating to the Accounts Receivable, and each Loan Party hereby waives
notice of presentment, protest and non-payment of any instrument so endorsed.
Each Loan Party hereby constitutes the Administrative Agent or the
Administrative Agent’s designee as such Loan Party’s attorney with power (i) at
all times: (A) to endorse such Loan Party’s name upon any notes, acceptances,
checks, drafts, money orders or other evidences of payment or Collateral; (B) to
sign such Loan Party’s name on any invoice or bill of lading relating to any of
the Accounts Receivable, drafts against account debtors, assignments and
verifications of Accounts Receivable; (C) to send verifications of Accounts
Receivable to any account debtor; and (D) to sign such Loan Party’s name on all
financing statements or any other documents or instruments deemed necessary or
appropriate by the Administrative Agent to preserve, protect, or perfect the
Administrative Agent’s interest in the Collateral and to file same; and (ii)
following the occurrence and during the continuation of an Event of Default: (A)
- 17 -
to demand payment of the Accounts Receivable; (B) to enforce payment of the
Accounts Receivable by legal proceedings or otherwise; (C) to exercise all of
such Loan Party’s rights and remedies with respect to the collection of the
Accounts Receivable and any other Collateral; (D) to settle, adjust, compromise,
extend or renew the Accounts Receivable; (E) to settle, adjust or compromise any
legal proceedings brought to collect Accounts Receivable; (F) to prepare, file and
sign such Loan Party’s name on a proof of claim in bankruptcy or similar
document against any account debtor; (G) to prepare, file and sign such Loan
Party’s name on any notice of Lien, assignment or satisfaction of Lien or similar
document in connection with the Accounts Receivable; and (H) to do all other
acts and things necessary to carry out this Agreement. All acts of said attorney or
designee are hereby ratified and approved, and said attorney or designee shall not
be liable for any acts of omission or commission nor for any error of judgment or
mistake of fact or of law, unless done maliciously or with gross negligence (as
determined by a court of competent jurisdiction in a final and non-appealable
judgment); this power being coupled with an interest is irrevocable while any of
the Obligations remain unpaid. The Co-Collateral Agents shall (following the
occurrence and during the continuation of an Event of Default) have the right at
any time to change the address for delivery of mail addressed to any Loan Party
to such address as the Co-Collateral Agents may designate and to receive, open
and dispose of all mail addressed to such Loan Party. The Administrative Agent
shall provide the Borrower with prompt notice of any action taken pursuant to
this Section 2.16(c); provided that failure to give such notice shall not affect the
validity of such action.
(e) None of the Administrative Agent, any Co-Collateral
Agent or any Lender shall, under any circumstances or in any event whatsoever,
have any liability for any error or omission or delay of any kind occurring in the
settlement, collection or payment of any of the Accounts Receivable or any
instrument received in payment thereof, or for any damage resulting therefrom.
Upon the occurrence and during the continuation of an Event of Default, the
Administrative Agent may, without notice or consent from any Loan Party, sue
upon or otherwise collect, extend the time of payment of, compromise or settle
for cash, credit or upon any terms any of the Accounts Receivable or any other
securities, instruments or insurance applicable thereto and/or release any obligor
thereof. The Administrative Agent is authorized and empowered to accept the
return of the goods represented by any of the Accounts Receivable, without
notice to or consent by the Borrower, all without discharging or in any way
affecting any Loan Party’s liability hereunder.
(f) No Loan Party will, without the Administrative Agent’s
consent, compromise or adjust any Accounts Receivable (or extend the time for
payment thereof) or accept any returns of merchandise or grant any additional
discounts, allowances or credits thereon except for those compromises,
adjustments, returns, discounts, credits and allowances as have been heretofore
customary in the business of such Loan Party.
- 18 -
(x)
Interest. Section 3.01(c) of the Credit Agreement is hereby deleted in its
entirety and the following substituted therefor:
(c)
Swing Line Loans shall, in each case, bear interest at the
Alternate Base Rate plus the Applicable Margin.
(y)
Fees. Section 3.03(b) of the Credit Agreement is hereby amended by
deleting the reference to “1.00%” in clause (i) thereof and substituting the following therefor:
the Eurodollar Margin, in each case on the maximum amount available under any
contingency to be drawn under such Letter of Credit
(z)
Financial Statements and Other Information.
Clause (b) of Section 6.01 of the Credit Agreement is hereby
amended by renumbering the existing clause (b) as clause (b)(i) and adding a new clause (b)(ii) to
Section 6.01 to read in its entirety as follows:
(i)
(ii) with respect to (A) the months of March, June and
September, within 40 days after the end of each such monthly period of each
fiscal year, (B) the month of December, within 45 days after the end of such
monthly period of each fiscal year and (C) each other month, within 30 days after
the end of each such monthly period of each fiscal year, beginning with the
monthly period ending March 31, 2009, the Consolidated balance sheets and
related statements of income and cash flows of the Borrower and the Subsidiaries
as of the end of and for month and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for the corresponding
month, and period or periods, of the previous fiscal year, all certified by one of
its Financial Officers as presenting fairly in all material respects the financial
condition and results of operations of the Borrower and the Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments;
deleted in its entirety and the following substituted therefor:
(ii)
Clause (c) of Section 6.01 of the Credit Agreement is hereby
(c) (i) concurrently with any delivery of financial statements
under clauses (a), (b)(i) or (b)(ii) of this Section 6.01, a certificate of a Financial
Officer of the Borrower (A) certifying as to whether a Default has occurred and,
if a Default has occurred, specifying the details thereof and any action taken or
proposed to be taken with respect thereto and (B) stating whether any change in
GAAP or in the application thereof has occurred since the date of the financial
statements referred to in Section 4.04(a) and, if any such change has occurred,
specifying the effect of such change on the financial statements accompanying
such certificate and (ii) concurrently with any delivery of financial statements
under clauses (a) or (b)(i) of this Section 6.01, a certificate of a Financial Officer
of the Borrower setting forth (A) reasonably detailed calculations demonstrating
- 19 -
compliance with Sections 7.15, 7.18, 7.19, 7.20, 7.21 and 7.22 and (B) any
change in the Guarantors as of the date of such certificate;
deleted in its entirety and the following substituted therefor:
(iii) Clause (g) of Section 6.01 of the Credit Agreement is hereby
(g) within twenty (20) days after the last day of each month, a
Borrowing Base Certificate, duly completed and setting forth in reasonable detail
the calculations required thereby, as of such last day, together with a completed
aged schedule of Accounts Receivable as of such last day and an Inventory
summary prepared on a basis similar to exhibit G of the Inventory & Valuation
report dated March 3, 2009 issued by Gordon Brothers Group (but setting forth
dollar amounts for each category set forth in such exhibit) tying to the
Borrowing Base Amount as of the such last day;
Section 6.01 of the Credit Agreement is hereby amended by
adding the following new clauses (h), (i), (j) (k) and (l) thereto to read in their entirety as follows:
(iv)
(h) not later than Tuesday of each week, a Borrowing Base
Certificate as of the last Business Day of the immediately preceding week, duly
completed and setting forth in reasonable detail the calculations required thereby,
which calculations of the Borrowing Base Amount as of such last Business Day
of the immediately preceding week shall be based on (A) aged Accounts
Receivable and an Inventory summary prepared on a basis similar to exhibit G of
the Inventory & Valuation report dated March 3, 2009 issued by Gordon
Brothers Group (but setting forth dollar amounts for each category set forth in
such exhibit) as of such last Business Day of the immediately preceding week
and shall exclude therefrom Accounts Receivable and Inventory excluded in the
determination of Eligible Receivables and Eligible Inventory in the calculation of
the Borrowing Base Amount pursuant to the most recent monthly Borrowing
Base Certificate delivered pursuant to clause (g) above and (B) outstanding
Loans and Letters of Credit as of such last Business Day of the immediately
preceding week;
(i) not later than 15 days after the first day of each fiscal year,
written monthly projections for such fiscal year, including revenues and expenses
projected to be attributable to the Borrower during such fiscal year and projected
Adjusted Excess Availability and Excess Availability during such fiscal year, all
in reasonable detail, in form satisfactory to the Administrative Agent, and
certified by a Financial Officer of the Borrower as the Borrower’s good faith
projections of the matters contained therein (it being understood that such
projections represent good faith estimates of performance of the Borrower and its
Subsidiaries for the periods stated therein based on assumptions believed in good
faith to be reasonable when made and as of the date thereof and such projections
are estimates for which actual results may vary materially from those contained
in the projections);
- 20 -
(j) on the first Business Day of each week, written projections
of cash flows of the Borrower and its Subsidiaries for the succeeding thirteen
(13) week period commencing on such Business Day, all in reasonable detail,
including projections of Excess Availability for each week in such thirteen week
period, in form satisfactory to the Administrative Agent, and certified by a
Financial Officer of the Borrower as the Borrower’s good faith projections of the
matters contained therein (it being understood that such projections represent
good faith estimates of performance of the Borrower and its Subsidiaries for the
periods stated therein based on assumptions believed in good faith to be
reasonable when made and as of the date thereof and such projections are
estimates for which actual results may vary materially from those contained in
the projections);
(k) not later than 40 days after the Amendment No. 5 Effective
Date, a report of the Consultants (which shall have been provided with
unrestricted access to all facilities of the Loan Parties, all book and records of the
Loan Parties and senior management and other key personnel of the Loan Parties
as the Consultant may reasonably request in preparing such report), identifying
high priority issues and making specific recommendations intended to improve
the business efficiency, infrastructure and overall profitability of the Borrower
and its Subsidiaries, and addressing organizational and personnel issues, with an
assessment of the Borrower and its three year financial plan, including risks to
projected revenue and profitability, problems and issues requiring prompt
resolution, specific business recommendations to deal with current economic
conditions, including, where appropriate, proposed timelines for completion and
expected resource and capital requirements, and containing such other
information reasonably required by the Co-Collateral Agents; and
(l) concurrently with any delivery of financial statements under
clause (b)(ii) of this Section 6.01, a written discussion and analysis by
management of the Borrower, in reasonable detail and in form satisfactory to the
Administrative Agent, of the Borrower’s performance and operations during the
immediately preceding month, including, without limitation, a comparison of
actual performance for such month with the projected performance set forth in
the projections most recently delivered to the Administrative Agent.
(aa) Notice of Material Events. Section 6.02 of the Credit Agreement is
hereby amended by (i) deleting the word “and” at the end of clause (c), (ii) deleting the period at
the end of clause (d) and substituting “; and” therefor and (iii) adding a new clause (e) to read in
its entirety as follows:
(e) promptly upon learning thereof, report to the Administrative
Agent all matters materially affecting the value, enforceability or collectibility of
any portion of the Collateral including, without limitation, any Loan Party’s
reclamation or repossession of, or the return to any Loan Party of, a material
amount of goods or claims or disputes asserted by any account debtor or other
obligor.
- 21 -
(bb) Books and Records; Inspection Rights. Section 6.06(b) of the Credit
Agreement is hereby deleted in its entirety and the following substituted therefor:
(b) At the written request of the Administrative Agent or the Co-
Collateral Agents in their sole discretion, but no more frequently than (i) two (2) times in
each fiscal year with respect to field examinations and appraisals of Inventory and one (1)
time in each fiscal year with respect to appraisals of Trademarks, unless an Event of
Default has occurred and is continuing in which case such limitations shall not apply, the
Borrower shall, and shall cause each of the Guarantors to, permit the Administrative
Agent, the Co-Collateral Agents or any Related Party to perform such appraisals of
Inventory and Trademarks and field examinations, Collateral analysis or other business
analysis or audit relating to the Borrower or any Guarantor (each a “Monitoring”), as
applicable, and shall in connection therewith provide the Administrative Agent upon
reasonable advance notice (unless an Event of Default has occurred which is then
continuing) with access during normal business hours to the Inventory or facilities, as
applicable, and all book and records of the Loan Parties required by the Administrative
Agent or the Co-Collateral Agents to conduct such Monitoring as required by the
Administrative Agent or the Co-Collateral Agents and shall in connection therewith
provide the Administrative Agent and the Co-Collateral Agents with access during
normal business hours to all facilities and all book and records of the Loan Parties
required by the Administrative Agent or the Co-Collateral Agents to conduct each such
Monitoring. The Borrower shall pay to the Administrative Agent, promptly after demand
the
therefor, (i) all reasonable out-of-pocket costs and expenses
Administrative Agent or any Collateral Agent in connection with any such Monitoring,
and (ii) in the event that such Monitoring is conducted by the Administrative Agent, the
Co-Collateral Agents or any Related Party, the reasonable fees charged by each person
employed in connection with such Monitoring.
incurred by
(cc) Books and Records; Inspection Rights. Section 6.06 of the Credit
Agreement is hereby amended by adding a new Section 6.06(c) to read in its entirety as follows:
(c)
The Borrower shall, and shall cause each of its
Subsidiaries to, grant the Credit Parties unrestricted access to the Consultants on
terms and conditions reasonably acceptable to the Co-Collateral Agents during
the term of the Consultants’ (or any successor’s) engagement.
(dd)
Investments, Loans, Advances, Guarantees and Acquisitions. Section
7.04 of the Credit Agreement is hereby amended by deleting clause (i) thereof in its entirety and
substituting the following therefor:
(i)
Permitted Acquisitions by the Borrower or any
Subsidiary; provided that (i) the Borrower shall have delivered to the
Administrative Agent and the Lenders not less than 10 Business Days prior to the
consummation of any such Permitted Acquisition a certificate of a Financial
Officer of the Borrower in form and substance satisfactory to the Administrative
Agent and the Required Lenders evidencing projected pro forma compliance with
Sections 7.15, 7.18, 7.19, 7.20, 7.21 and 7.22 after giving effect to such
Permitted Acquisition for the period from the date of such Permitted Acquisition
- 22 -
to the Revolving Maturity Date and (ii) the Required Lenders shall have
consented in writing to such Permitted Acquisition;
(ee) Restricted Payments. Section 7.08 of the Credit Agreement is hereby
deleted in its entirety and the following substituted therefor:
Section 7.08 Restricted Payments
The Borrower will not, and will not permit any of the
Subsidiaries to, declare or make, or agree to pay for or make, directly or
indirectly, any Restricted Payment, except that (a) the Borrower may declare and
pay dividends with respect to its equity securities payable (A) in additional
shares of its equity securities or (B) commencing January 1, 2010, in cash ;
provided that, (x) after giving effect to any such payment of dividends, the Fixed
Charge Coverage Ratio, calculated on a pro forma basis as if such dividends had
been made on the last day of the most recently ended fiscal quarter of the
Borrower, shall not be less than 1.50:1, (y) immediately after giving effect to any
such payment of dividends, Excess Availability shall be not less than
$50,000,000,and (z) before and after giving effect to such dividends no Default
shall exist or result therefrom and (b) any Subsidiary may declare and pay
dividends to the Borrower or any other Subsidiary.
(ff)
Leverage Ratio. Section 7.12 of the Credit Agreement is hereby deleted
in its entirety and [Intentionally deleted] substituted therefor.
(gg)
Interest Coverage Ratio. Section 7.13 of the Credit Agreement is hereby
deleted in its entirety and [Intentionally deleted] substituted therefor.
(hh)
Fixed Charge Coverage Ratio. Section 7.15 of the Credit Agreement is
hereby deleted in its entirety and the following substituted therefor:
Section 7.15 Fixed Charge Coverage Ratio
The Borrower shall not permit the Fixed Charge Coverage Ratio as of the
last day of any fiscal quarter ending during any period in the table set forth below
to be less than the ratio set forth opposite such period:
Period
Fixed Charge Coverage
Ratio
Fiscal Quarter Ending December 31, 2009
Fiscal Quarter Ending March 31, 2010 and
Each Fiscal Quarter Thereafter
1.40:1.00
1.50:1.00
(ii) Minimum Consolidated EBITDA. Section 7.18 of the Credit Agreement
is hereby deleted in its entirety and the following substituted therefor:
- 23 -
Section 7.18 Consolidated EBITDA
The Borrower shall not permit Consolidated EBITDA for any
four consecutive fiscal quarter period ending during any period in the table set
forth below to be less than the amount set forth opposite such period:
Period
Consolidated EBITDA
Fiscal Quarter Ending March 31, 2010
Fiscal Quarter Ending June 30, 2010
Fiscal Quarter Ending September 30, 2010
Fiscal Quarter Ending December 31, 2010
$28,000,000.00
$30,000,000.00
$32,200,000.00
$33,800,000.00
(jj) Minimum Adjusted Excess Availability. Section 7.19 of the Credit
Agreement is hereby deleted in its entirety and the following substituted therefor:
Section 7.19 Minimum Adjusted Excess Availability
The Borrower shall not permit the Adjusted Excess Availability
at any time during any period in the table set forth below to be less than the
amount set forth opposite such period:
Fiscal Quarter Ending
Fiscal Quarter Ending June 30, 2009
Fiscal Quarter Ending September 30, 2009
Fiscal Quarters Ending December 31, 2009 and
March 31, 2010
Fiscal Quarter Ending June 30, 2010
Fiscal Quarter Ending September 30, 2010 and
thereafter
Minimum Adjusted
Excess Availability
$10,000,000.00
$20,000,000.00
$25,000,000.00
$20,000,000.00
$25,000,000.00
(kk) Capital Expenditures; Minimum Year-to-Date EBITDA; Net Sales.
Article 7 of the Credit Agreement is hereby amended by adding new Sections 7.20, 7.21 and 7.22
to read in their entirety as follows:
Section 7.20 Capital Expenditures
The Borrower shall not make or become obligated to make, and
shall not permit its Subsidiaries to make or become obligated to make, Capital
Expenditures (including the incurrence of any Capital Lease Obligations) in
respect of any fiscal period in the table set forth below in an aggregate amount
greater than the amount set forth opposite such fiscal period:
- 24 -
Fiscal Year Period
Capital Expenditures
January 1, 2009 to and including March 31,
2009
January 1, 2009 to and including June 30, 2009
January 1, 2009 to and including
September 30, 2009
January 1, 2009 to and including
December 31, 2009
January 1, 2010 to and including March
31, 2010
January 1, 2010 to and including June 30,
2010
January 1, 2010 to and including
September 30, 2010
January 1, 2010 to and including
December 31, 2010
$1,500,000.00
$3,500,000.00
$5,000,000.00
$6,000,000.00
$2,000,000.00
$4,000,000.00
$6,000,000.00
$8,000,000.00
Section 7.21 Minimum Year-to-Date EBITDA
The Borrower shall not permit Consolidated EBITDA for any
period in the table set forth below to be less than the amount set forth opposite
such period:
Period
Consolidated EBITDA
January 1, 2009 to and including
March 31, 2009
January 1, 2009 to and including
April 30, 2009
January 1, 2009 to and including
May 31, 2009
January 1, 2009 to and including
June 30, 2009
January 1, 2009 to and including
July 31, 2009
January 1, 2009 to and including
August 30, 2009
$(4,400,000.00)
$(4,400,000.00)
$(4,000,000.00)
$(3,400,000.00)
$(2,400,000.00)
$2,500,000.00
- 25 -
Period
Consolidated EBITDA
January 1, 2009 to and including
September 30, 2009
January 1, 2009 to and including
October 31, 2009
January 1, 2009 to and including
November 30, 2009
January 1, 2009 to and including
December 31, 2009
Section 7.22 Net Sales
$10,500,000.00
$17,900,000.00
$23,000,000.00
$25,500,000.00
The Borrower shall not permit net sales (as determined in
accordance with GAAP consistently applied) for any fiscal quarter in the table set
forth below to be less than the amount set forth opposite such fiscal quarter:
Fiscal Quarter
Fiscal Quarter Ending June 30, 2009
Fiscal Quarter Ending September 30, 2009
Fiscal Quarter Ending December 31, 2009
Net Sales
$80,288,000.00
$114,810,000.00
$ 116,937,000.00
(ll)
Events of Default. Section 8.01 of the Credit Agreement is hereby
amended by (i) deleting the reference to “30 days” in clause (e) thereof and substituting “15
Business Days” therefor and (ii) deleting the reference to “60 consecutive days” in clause (k)
thereof and substituting “30 consecutive days” therefor.
(mm) Agents. Section 9.08 of the Credit Agreement is hereby deleted in its
entirety and the following substituted therefor:
Section 9.08 Agents
None of the banks or other Persons identified on the cover page
of this Agreement, in the preamble to this Agreement or otherwise in this
Agreement as a “collateral agent”, “syndication agent”, “documentation agent”,
“lead arranger” or “joint lead arranger” shall have any right, power, obligation,
liability, responsibility or duty to any Person under this Agreement, any of the
other Loan Documents or otherwise, other than HSBC Bank USA, National
Association in its capacity as Administrative Agent and Co-Collateral Agent,
JPMorgan Chase Bank, N.A. in its capacity as Co-Collateral Agent and each
Lender in its capacity as a Lender. Without limiting the foregoing, none of such
banks or other Persons so identified shall have or be deemed to have any
- 26 -
fiduciary relationship with any other such bank or other Person but such banks or
other Persons shall have the benefit of the provisions of Section 9.02.
(nn) Collateral Agents. Article 9 of the Credit Agreement is hereby amended
by adding a new Section 9.09 to read in its entirety as follows:
Section 9.09 Collateral Agents
Each Credit Party hereby irrevocably appoints HSBC Bank
USA, National Association and JPMorgan Chase Bank, N.A. as a collateral agent
(in such capacity, each a “Collateral Agent” or a “Co-Collateral Agent” and
collectively, the “Co-Collateral Agents”) and authorizes the Co-Collateral
Agents to take such actions on its behalf and to exercise such powers as are
delegated to the Co-Collateral Agents by the terms hereof, together with such
actions and powers as are reasonably incidental thereto. The banks or other
Persons acting as Collateral Agent or Co-Collateral Agents shall have the benefit
of the provisions of Sections 9.02, 9.03, 9.04, 9.05 and 9.07. Subject to the
appointment and acceptance of a successor Collateral Agent or Co-Collateral
Agent as provided in this Section, a Collateral Agent may resign at any time by
notifying the Credit Parties and the Borrower. Upon any such resignation, the
Administrative Agent shall have the right, with the approval of the Required
Lenders, to appoint a successor. If no successor shall have been so approved by
the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Collateral Agent gives notice of its resignation, then the
Administrative Agent shall perform the duties of such Collateral Agent. After a
Collateral Agent’s resignation hereunder, the provisions of this Article 9 and
Section 10.03 shall continue in effect for the benefit of such retiring Collateral
Agent, its sub-agents and their respective Related Parties in respect of any
actions taken or omitted to be taken by any of them while it was acting as
Collateral Agent. The actions of the Co-Collateral Agents shall be taken jointly;
provided that, in the event the Co-Collateral Agents shall fail to agree within the
time period required for such action (or, if no time period is specified herein,
within a reasonable time in light of the circumstances, but in no event more than
five (5) Business Days from the first determination that action is required), the
more restrictive action proposed to be taken shall govern.
(oo) Notices. Section 10.01 of the Credit Agreement is hereby amended by:
(i) deleting the phrase “One Merrick Avenue, Westbury, New York
11590” in clause (a) thereof in its entirety and substituting “1000 Stewart Avenue, Garden City,
New York 11530” therefor;
(ii) clause (b) thereof in its entirety and substituting the following
therefor:
(b)
if to the Administrative Agent, to it at: HSBC Bank
USA, National Association, Agent Servicing Department, One HSBC Center,
26th Floor, Buffalo, New York 14203, Attention of: Donna Riley (Telephone No.
(716) 841-4178; Telecopy No. (716) 841-0269); with a copy to (i) HSBC Bank
- 27 -
USA, National Association, 534 Broadhollow Road, Melville, New York 11747,
Attention of: Christopher J. Mendelsohn (Telephone No. (631) 752-4343;
Telecopy No. (631) 752-4340) and to (ii) HSBC Business Credit (USA) Inc., 452
Fifth Avenue, New York, New York 10018, Attention of: Thomas A. Getty, Jr.
(Telephone No. (212) 525-5473; Telecopy No. (212) 525-2520); and
clause (c) to read in its entirety as follows:
(iii) renumbering clause (c) thereof as clause (d) and adding a new
(c)
if to the Co-Collateral Agents to each at: (i) HSBC
Business Credit (USA) Inc., 452 Fifth Avenue, New York, New York 10018,
Attention of: Thomas A. Getty, Jr. (Telephone No. (212) 525-5473; Telecopy
No. (212) 525-2520) and (ii) JPMorgan Chase Bank, N.A., 270 Park Avenue,
44th Floor, Mail Code NY1-K854, New York, New York 10017-2014, Attention
of: Joseph A. Lisack (Telephone No. (212) 270-0280; Telecopy No. (646) 534-
2288).
(pp) Waivers; Amendments. Section 10.02(b) of the Credit Agreement is
hereby amended by:
entirety as follows:
(i)
adding after clause (vii) thereof a new clause (viii) to read in its
or (viii) change any of the provisions of the definition of “Super-Majority
Lenders”, change any provision of Section 2.09(f) or increase the Aggregate
Revolving Commitment, without the written consent of each Lender
substituting the following therefor:
(ii)
deleting the further proviso at the end thereof in its entirety and
and provided, further, that (x) no such agreement shall (1) change any provision
of the definition of “Borrowing Base Amount” that would have the effect of
adding additional categories of assets to the computation of the Borrowing Base
Amount or increase any dollar amount set forth in the definition of “Borrowing
Base Amount”, (2) increase any percentage set forth in the definition of
“Borrowing Base Percentage”, (3) increase any percentage or amount set forth in
the definition of “Trademark OLV Amount” or “Tax Refund Amount”, (4) change
the definition of “Adjusted Excess Availability”, “Eligible Inventory”, “Eligible
Receivables”, “Excess Availability” or any defined term used in any such
definition or (5) change any provisions of Section 7.19, without the written
consent of the Super-Majority Lenders and (y) no such agreement shall amend,
modify or otherwise affect the rights or duties of the Administrative Agent, the
Swing Line Lender or the Issuer hereunder without the prior written consent of
the Administrative Agent, the Swing Line Lender or the Issuer, as the case may
be.
(qq) General.
Notwithstanding anything herein or in the Credit Agreement to
the contrary, the provisions of sections 5(a) and 5(b) of Forbearance Agreement and Amendment
No. 4 to Second Amended and Restated Credit Agreement dated as of February 12, 2009 among
(i)
- 28 -
the Borrower, the Lenders party thereto and the Administrative Agent, as amended, shall have no
force or effect after the Amendment No. 5 Effective Date.
All references to “this Agreement” in the Credit Agreement and
to “the Credit Agreement” in the other Loan Documents shall be deemed to refer to the Credit
Agreement as amended hereby.
(ii)
3.
Conditions to Effectiveness. This Amendment shall be effective upon the
satisfaction of each of the following conditions:
(a)
The Administrative Agent shall have received an executed counterpart of
this Amendment signed by the Borrower, the Super-Majority Lenders and the Administrative
Agent.
(b)
The Administrative Agent shall have received an executed counterpart of
the acknowledgement and consent annexed hereto duly executed by each of the Guarantors.
(c)
The Borrower shall have paid to the Administrative Agent for the
account of each Lender that (i) notified the Administrative Agent on or before 5:00 p.m. on
March 26, 2009 of its approval of the amendments to the Credit Agreement set forth in this
Amendment and (ii) has executed this Amendment, a fee equal to 0.625% of such Lender’s
Revolving Commitment as in effect on the Amendment No. 5 Effective Date.
(d)
The Administrative Agent shall have received a certificate from an
officer of the Borrower and each Guarantor attaching (i) a true and complete copy of its
Organizational Documents, (ii) setting forth the incumbency of its officer or officers or other
analogous counterpart who may sign the Loan Documents, including therein a signature specimen
of such officer or officers and (iii) attaching a certificate of good standing of the Secretary of
State of the jurisdiction of its formation and of each other jurisdiction in which it is qualified to
do business.
(e)
The Additional Guarantor shall have become a party to the Guarantee
Agreement and to each applicable Security Document in the manner provided in the Credit
Agreement, the Guarantee Agreement and such Security Documents.
(f)
The Administrative Agent shall have received a completed Perfection
Certificate, dated the Amendment No. 5 Effective Date and signed by a Vice President or a
Financial Officer of the Borrower, together with all attachments contemplated thereby.
(g)
The Administrative Agent shall have received a duly executed pro forma
Borrowing Base Certificate as of the Amendment No. 5 Effective Date.
(h)
The Borrower shall have retained Carl Marks & Co., Inc. or another
restructuring consultant reasonably acceptable to the Co-Collateral Agents, and the Credit Parties
shall be permitted unrestricted access to such Consultants on terms and conditions reasonably
acceptable to the Co-Collateral Agents.
(i)
After giving effect to any Extensions of Credit made on the Amendment
No. 5 Effective Date, the Borrower shall have Excess Availability of not less than
$30,000,000.00.
- 29 -
(j)
The representations and warranties contained in the Credit Agreement
shall be true and correct in all material respects (except to the extent such representations and
warranties specifically relate to an earlier date) and, after giving effect to the amendments set
forth in Section 1 hereof, no Default or Event of Default shall exist.
(k)
The Administrative Agent shall have received all fees and other amounts
due and payable on or prior to the Amendment No. 5 Effective Date, including, to the extent
invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or
paid by the Borrower hereunder.
(l)
The Borrower shall have paid the reasonable fees and disbursements of
counsel to the Administrative Agent in connection with this Amendment.
The Administrative Agent shall notify the Borrower and the Credit Parties of the Amendment No.
5 Effective Date, and such notice shall be conclusive and binding.
4.
Post Closing Covenants.
(a)
Not later than 30 days after the Amendment No. 5 Effective Date, the
Borrower shall have instructed each of its account debtors to remit all payments with respect to
Accounts Receivable to the Blocked Accounts.
(b)
Not later than 60 days after the Amendment No. 5 Effective Date, the
Administrative Agent shall have received all Collateral Access Agreements, waivers and consents
and intellectual property licensor consents or assignments required by and satisfactory to the Co-
Collateral Agents.
(c)
Not later than 60 days after the Amendment No. 5 Effective Date, the
Administrative Agent shall have received certificates of the Borrower and the Additional
Guarantor attaching a true and complete copy of the resolutions evidencing all necessary
corporate action (in form and substance satisfactory to the Administrative Agent) taken by (i) the
Borrower to ratify the transactions contemplated by this Amendment and (ii) the Additional
Guarantor to authorize the execution, delivery and performance of the Loan Documents to which
it is a party and the transactions contemplated thereby.
(d)
Not later than 90 days after the written request of the Co-Collateral
Agents, the Borrower shall deliver to the Administrative Agent one or more mortgages or deeds
of trust and such other instruments, documents or agreements as reasonably requested by the Co-
Collateral Agents, each in form and substance reasonable satisfactory to the Co-Collateral
Agents, in order to grant a perfected Lien on the real property of the Borrower located at 362 -363
River Street, Winchendon, Massachusetts.
(e)
Failure by the Borrower to observe or perform any covenant or
agreement contained in this Section 4 shall constitute an Event of Default under clause (d) of
Section 8.01 of the Credit Agreement.
5.
Representations and Warranties. The Borrower hereby represents and warrants
to the Administrative Agent and the Lenders that:
The representations and warranties set forth in the Loan Documents
(other than the representations and warranties made as of a specific date) are true and correct in
(a)
- 30 -
all material respects as of the date hereof and with the same effect as though made on and as of
the date hereof.
(b)
After giving effect to the waivers set forth on Section 1 hereof and the
amendments set forth in Section 2 hereof, no Default or Event of Default and no event or
condition which, with the giving of notice or lapse of time or both, would constitute such a
Default or Event of Default, now exists or would exist.
(c)
(i) The execution, delivery and performance by the Borrower of this
Amendment is within its organizational powers and have been duly authorized by all necessary
action (corporate or otherwise) on the part of the Borrower, (ii) this Amendment is the legal, valid
and binding obligation of the Borrower, enforceable against the Borrower in accordance with its
terms, and (iii) neither this Amendment nor the execution, delivery and performance by the
Borrower hereof: (A) contravenes the terms of the Borrower’s organization documents, (B)
conflicts with or results in any breach or contravention of, or the creation of any Lien under, any
document evidencing any contractual obligation to which the Borrower is a party or any order,
injunction, writ or decree to which the Borrower or its property is subject, or (C) violates any
requirement of law.
6.
Effect; No Waiver.
(a)
The Borrower hereby (i) reaffirms and admits the validity and
enforceability of the Loan Documents and all of its obligations thereunder and (ii) agrees and
admits that it has no defenses to or offsets against any such obligation. Except as specifically set
forth herein, the Credit Agreement and the other Loan Documents shall remain in full force and
effect in accordance with their terms and are hereby ratified and confirmed. Other than as
expressly set forth in Section 1 hereof, the execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any existing or future Default or Event of Default,
whether known or unknown or any right, power or remedy of the Administrative Agent or the
Lenders under the Credit Agreement, nor constitute a waiver of any provision of the Credit
Agreement, except as specifically set forth herein.
(b)
The Borrower hereby (i) reaffirms all of its agreements and obligations
under the Security Documents, (ii) reaffirms that all Obligations of the Borrower under or in
connection with the Credit Agreement as amended hereby are “Obligations” as that term is
defined in the Security Documents and (iii) reaffirms that all such Obligations continue to be
secured by the Security Documents, which remains in full force and effect and is hereby ratified
and confirmed.
7.
Miscellaneous.
(a)
The Borrower shall pay the Administrative Agent upon demand for all
reasonable expenses, including reasonable attorneys’ fees and expenses of the Administrative
Agent, incurred by the Administrative Agent in connection with the preparation, negotiation and
execution of this Amendment.
(b)
THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE
CONFLICTS OF LAW PROVISIONS, BUT INCLUDING SECTIONS 5-1401 AND 5-1402 OF
THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK) AND DECISIONS
OF THE STATE OF NEW YORK.
- 31 -
(c)
This Amendment shall be binding upon the Borrower, the Administrative
Agent and the Lenders and their respective successors and assigns, and shall inure to the benefit
of the Borrower, the Administrative Agent and the Lenders and the respective successors and
assigns of the Administrative Agent and the Lenders.
(d)
This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which taken together shall constitute one and the
same instrument.
[Signature pages follow.]
- 32 -
AS EVIDENCE of the agreement by the parties hereto to the terms and conditions herein
contained, each such party has caused this Amendment to be executed on its behalf.
LIFETIME BRANDS, INC.
By: /s/ Laurence Winoker
Laurence Winoker
Senior Vice President and Chief Financial
Officer
LIFETIME BRANDS AMENDMENT NO. 5
HSBC BANK USA, NATIONAL ASSOCIATION,
as Administrative Agent, Co-Collateral Agent, Issuer
and Lender
By:/s/Thomas A. Getty Jr.
Name: Thomas A. Getty Jr.
Title: Vice President
LIFETIME BRANDS AMENDMENT NO. 5
JPMORGAN CHASE BANK, N.A.,
as Syndication Agent, Co-Collateral Agent and
Lender
By: /s/ Joseph A. Lisack
Name: Joseph A. Lisack
Title:Vice President
LIFETIME BRANDS AMENDMENT NO. 5
CITIBANK, N.A.,
as Co-Documentation Agent and Lender
By:_/s/Anthony J. Timpanaro
Name: Anthony J. Timpanaro
Title:Vice President
LIFETIME BRANDS AMENDMENT NO. 5
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Co-Documentation Agent and Lender
Title:Senior Vice President______
By:/s/ Edward Nallan
Name:Edward P. Nallan, Jr.
LIFETIME BRANDS AMENDMENT NO. 5
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned Guarantors hereby (1) consents to the execution and delivery by the
Borrower of the foregoing Amendment No. 5; (2) confirms and agrees that it is a Guarantor party to the
Guarantee Agreement and a Grantor party to the Security Agreement and that the Guarantee Agreement,
the Security Agreement and the other Loan Documents to which it is a party are, and shall continue to be,
in full force and effect in accordance with their respective terms, (3) agrees that the definition of
“Obligations” (and any other term referring to the indebtedness, liabilities and obligations of the
Borrower to the Administrative Agent or any of the Lenders) in the Guarantee Agreement and the other
Loan Documents shall include the Indebtedness of the Borrower under the foregoing Amendment No. 5;
(4) agrees that the definition of “Credit Agreement” in the Guarantee Agreement and the other Loan
Documents to which it is a party is hereby amended to mean the Credit Agreement as modified by the
foregoing Amendment No. 5; (5) reaffirms its continuing liability under its Guarantee Agreement (as
modified hereby); (6) reaffirms all of its agreements and obligations under the Security Documents;
(7) reaffirms that all Obligations of the Borrower under or in connection with the Credit Agreement as
modified by the foregoing Amendment No. 5 are “Obligations” as that term is defined in the Security
Documents; and (8) reaffirms that all such Obligations continue to be secured by the Security Documents,
which remain in full force and effect and are hereby ratified and confirmed.
OUTLET RETAIL STORES, INC.
By: /s/ Laurence Winoker
Laurence Winoker
Senior Vice President and
Chief Financial Officer
PFALTZGRAFF FACTORY STORES, INC.
By: /s/ Laurence Winoker
Laurence Winoker
Senior Vice President and
Chief Financial Officer
SYRATECH ACQUISITION CORPORATION
By: /s/ Laurence Winoker
Laurence Winoker
Senior Vice President and
Chief Financial Officer
LTB DE MEXICO, S.A. DE C.V.
By: /s/Laurence Winoker
Laurence Winoker
Director
TMC ACQUISITION INC.
By: /s/ Laurence Winoker
Laurence Winoker
Senior Vice President and
Chief Financial Officer
Subsidiaries of the Registrant
Name of subsidiary
Outlet Retail Stores, Inc.
Pfaltzgraff Factory Stores, Inc.
Syratech Acquisition Corp.
TMC Acquisition Inc.
Wallace Silversmiths de Puerto Rico Ltd.
Lifetime Brands, Inc. (HK) Limited
Exhibit 21.1
State/Country of
Incorporation
Ownership
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Hong Kong
100%
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 31, 2009, 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, 2008.
Melville, New York
March 31, 2009
/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 31, 2009
/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 31, 2009
/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,
2008 (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 31, 2009
Date: March 31, 2009
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.
Exhibit 99.1
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, 2008
as filed with the Securities and Exchange Commission.
Requests 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 a.m. on Thursday, June 11, 2009,
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
Executive Officer and Director
laurence WinOKer
Senior Vice President – Finance
Treasurer and Chief Financial Officer
Sara ShinDel
General Counsel and Secretary
DaviD DangOOr
Director
Michael Jeary
Director
JOhn KOegel
Director
ShelDOn MiSher
Director
cherrie nanninga
Director
WilliaM WeSterFielD
Director
Mikasa® Italian Countryside
Speed Prep, the One Handed Mandoline Slicer
Cuisinart® CA-X Series Chef Knife
Pedrini® 3-in-1 Garlic Press
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
8
Lifetime Brands, Inc.
1000 Stewart Avenue,
Garden City, New York 11530
The trademarks ® and TM and logos appearing herein are the property of Lifetime Brands, Inc. and/or their respective owners. © 2009. All rights reserved.