Brands Consumers Trust
Value Without Compromise
Innovation That Leads The Way
Lifetime Brands Annual Report 2009
1
LIFETIME BRANDS, INC. 2009 ANNUAL REPORT
Financial Highlights
500000
$494
50000
$488
$457
400000
40000
$415
300000
30000
200000
20000
$15
100000
10000
0
2006
2007
0
2008
200
150
$157
$134
100
$90
$95
$1.10
50
$0.57
$3
$0.22
4.0
3.5
3.0
2.5
2.0
1.5
1.0
$8
0.5
($48)
0.0
2009
2006
2007
2008
2009
2006
2007
($3.99)
0
2008
2009
2006
2007
2008
2009
NET SALES
IN MILLIONS
NET INCOME (LOSS)
IN MILLIONS
DILUTED INCOME (LOSS)
PER COMMON SHARE
DEBT
IN MILLIONS
Year Ended December 31,
(in thousands, except per share data)
2006
2007
2008
2009
NET SALES
$457,400
$493,725
$487,935
$415,040
NET INCOME (LOSS)
$14,895
$7,529
($47,755)
$2,715
DILUTED INCOME (LOSS)
PER COMMON SHARE
$1.10
$0.57
($3.99)
$0.22
DEBT
$89,703
$134,128
$157,164
$95,128
Lifetime Brands, Inc., is North America’s leading designer,
developer and marketer of a broad range of nationally branded
consumer products used in the home, including Kitchenware,
Cutlery & Cutting Boards, Bakeware & Cookware, Pantryware &
Spices, Dinnerware, Flatware, Glassware and Home Décor.
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LIFETIME BRANDS, INC. 2009 ANNUAL REPORT
Dear Fellow Shareholders
In 2009, Lifetime’s net sales were $415.0 million and
In 2009, we expanded the reach of the Pfaltzgraff® and
net income was $2.7 million or $0.22 per diluted share.
Mikasa® brands by developing brand extensions, such as
Although these results were not as strong as we wished,
Pfaltzgraff® Everyday and Gourmet Basics by Mikasa™,
considering the challenging economic climate in which we
which allow us to present those brands to a broader
operated most of the year, I believe they represent a solid
spectrum of consumers. We also introduced Pfaltzgraff®
achievement.
and Mikasa® flatware, and added new home décor and
home fragrance lines under the Mikasa® brand.
Lifetime’s ability to prosper in this environment is a tribute
to the resilience of our organization, the flexibility of
Based on current customer commitments, we are well
our business model, the strength of our brands and our
positioned for our dinnerware businesses to achieve
commitment to innovation. We focused on expanding
record levels of sales and profitability in 2010.
market share, improving our profits, controlling expenses
and reducing
inventory. Our strategy of providing
Strengthening Our Balance Sheet
products that set us apart from the competition has laid
In 2009, Adjusted EBITDA, a non-GAAP measure that
the foundation for us to be able to produce solid results.
we define as net income (loss) before interest, taxes,
Growing Our Market Share
depreciation and amortization, restructuring expenses,
goodwill and intangible asset impairment and stock option
In my letter to you last year, I wrote, “While we expect
expense, reached $34.0 million for 2009, as compared to
economic conditions to remain challenging during all
$10.5 million in 2008.
of 2009, we believe this environment presents us with
opportunities to expand market share in each of our
The combination of this strong cash flow and our focus on
product classifications.” I am pleased to report that
reducing inventory levels enabled us to reduce borrowings
Lifetime Brands was able to achieve the market share
under our bank credit agreement at year-end by almost
growth we had forecast. Moreover, I believe that the
$65 million, or 72%, as compared to year-end 2008.
Company is well positioned to continue to gain share
across all its categories in 2010.
Although we dramatically reduced inventory, from $141.6
million at December 31, 2008 to $103.9 million at year-end
This year, I would like to highlight the turnaround in our
2009, our fill rate was virtually unchanged.
dinnerware business. This would have been an outstanding
accomplishment under any circumstances, but it was
Grupo Vasconia S.A.B., one of Mexico’s leading housewares
particularly notable in a year when most dinnerware
companies, in which Lifetime owns a 30% interest, again
companies struggled to stay in business. Thanks to the
posted strong results. Net sales and net income in Mexican
efforts of Glenn Simon and the team he has built over the
Pesos increased 5% and 77%, respectively. These gains
past two years, both our “downstairs” housewares and our
were driven by strong increases in sales of kitchen and
“upstairs” bridal and luxury dinnerware businesses gained
tabletop products across all distribution channels. For
significant market share in 2009.
2009, our equity in Grupo Vasconia’s earnings, net of taxes,
increased to $2.2 million, as compared to $1.5 million in
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LIFETIME BRANDS, INC. 2009 ANNUAL REPORT
“ Lifetime’s ability to prosper in this environment is
a tribute to the resilience of our organization ”
2008, notwithstanding the weaker Mexican Peso in 2009.
of inventors and new product entrepreneurs. In fact, in
Driving Growth through Innovation
by this group and some of our most successful new
Looking forward through 2010, we believe consumers
product introductions originated from this network.
2009, we screened more than 1,000 inventions submitted
are likely to continue to be cautious throughout the year
and retailers are not yet ready to expand inventories –
Building a Leaner and Stronger Organization
although, happily, we do not expect further reductions.
In 2009, we took a number of actions that resulted in our
Under these circumstances, growth must obviously come
becoming a leaner, stronger organization and positioned
from increased market share. as in the past, we believe
Lifetime to take advantage of further economies as
that increases in market share can only be attained by
business conditions improve.
bringing to market products that fulfill our customers’
needs for newness and innovation.
We completed the consolidation of our Distribution
Lifetime Brands has led the housewares industry in new
reducing Distribution Expense, especially as business
Centers and thereby laid the foundation for further
product development for many years. Indeed, in a year
improves.
when many companies cut product development budgets
and reduced staff across the board, we increased overall
Having closed our retail outlet stores, we were able to
spending in this area. With almost 100 designers, engineers
reduce Selling, General & Administrative Expense by
and artists in the U.S. and Asia, we introduced more new
$35.6 million, or 27%, compared to the prior year, without
and innovative products annually than any other company
affecting our ability to properly run the business.
in our industry.
The new disciplines we have developed now are a
In 2009, we introduced over 5,000 new or redesigned
permanent part of our culture and should serve us well as
items, a number that we expect to increase to more than
business conditions improve. They will help us continue
5,500 this year. Many of these were shown for the first time
offering trusted brands and outstanding design at
at the March 2010 International Home + Housewares Show
significant values.
in Chicago. Reflecting our overarching goal of offering
I want to express my thanks to our employees, customers,
innovative solutions to improve everyday tasks, Lifetime’s
vendors, financial partners and shareholders, for their
new products include enhanced designs and functionality
support during this extraordinary period.
in water bottle and coffee mugs; multi-purpose peelers,
graters and slicers; high-quality barbecue tools and
accessories; fashion-forward, cutting-edge cutlery, shear
and board designs; unique spice & storage solutions; and
more.
In addition to our own full-time, in-house design staff, we
Chairman of the Board,
have developed an open innovation network of thousands
President and Chief Executive Officer
Jeffrey Siegel
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LIFETIME BRANDS, INC. 2009 ANNUAL REPORT
Innovation that Leads the Way
“ Our products make it easier to prepare, cook and
serve food at home ”
In today’s competitive environment, Lifetime Brands
provides consumers with innovative products that meet
the needs of their busy lifestyles. Our products make it
easier to prepare, cook and serve food at home and make
consumers proud of the meals they are providing for their
friends and families.
Our
in-house design and development department
consists of nearly 100 professionals, located in four design
centers in the United States and China. The technologies
we employ are second to none and are among the most
advanced in the industry.
Lifetime Brands also believes strongly in Open Innovation
and we work with industry experts to search out and
Cuisinart® Fan Knife Block Set
screen unique and innovative product ideas from individual
inventors. The best ideas are brought to life utilizing the
Company’s existing design, development and marketing
infrastructure.
Innovation reaches every part of our business through
our “Ideas of a Lifetime” program, where every associate
contributes ideas on how to improve our products, our
processes or our performance. Our Ideas program has
increased efficiencies throughout the company, saved
money and has improved customer experiences with our
products.
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LIFETIME BRANDS, INC. 2009 ANNUAL REPORT
Farberware® Bagel Slicer
4
LIFETIME BRANDS, INC. 2009 ANNUAL REPORT
Brands Consumers Trust
“ consumers continue to prefer nationally brand
products and are willing to spend more for a
product that delivers on quality ”
Our successful strategy of pairing premium brands with
superior innovation and design has established Lifetime
Brands as the industry leader in the food preparation and
tabletop categories. And even in these uncertain times,
consumers continue to look to brands to provide value for
home products.
A recent brand study conducted through an independent
third party clearly showed that our licensed KitchenAid®
and Farberware® brands are highly favored in the kitchen
tool and gadget category and are closely associated with
quality. The study we commissioned also showed that
consumers continue to prefer nationally branded products
and are willing to spend more for a product that delivers
on quality and will last a long time. All of these findings
Pfaltzgraff® Everyday Mosaic
underscore the dominant positions of our brands in the
marketplace and solidify the important role of brands in
consumer home products.
Our successful tabletop brands, such as Mikasa®,
Pfaltzgraff®, Wallace® and Towle®, are among the oldest
and most respected in the industry. Pfaltzgraff, renowned
for unique designs and motifs and a vast array of
collectible accessories, celebrates its 200th anniversary in
2011. Towle, dating back to a small silversmith in colonial
Massachusetts, is celebrating its 320th anniversary in
2010. Mikasa, our premier tabletop brand, resonates
with consumers and is uniquely positioned in the current
economic climate to gain significant market share by
offering affordable luxury and exceptional quality.
Mikasa® Gourmet Basics Anissa
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LIFETIME BRANDS, INC. 2009 ANNUAL REPORT
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LIFETIME BRANDS, INC. 2009 ANNUAL REPORT
Mikasa® Modern Butterfly
Value Without Compromise
“ We offer quality product from brands consumers
know and trust at great values ”
At Lifetime Brands, we understand that consumers’
at an affordable price. Similarly, our Pfaltzgraff® Everyday
perception of value is an increasingly important factor
and Gourmet Basics by Mikasa™ products provide great
in purchasing decisions. To that end, we are focused on
value while expanding the market for the Pfaltzgraff® and
offering products that not only perform as well as or, in
Mikasa® brands.
many cases, better than the competition, but also provide
outstanding value.
In 2009 we launched a variety of multi-functional items
such as the 3-in-1 Grater and Chop & Slide Cutting Board
with Removable Scraper, which eliminate the need to
use numerous products to accomplish cooking tasks. We
also introduced products that help the consumer create
gourmet meals, usually reserved for dining out, right in
their own homes. Home chefs can easily and quickly slice,
grate or julienne vegetables, fruits, nuts and cheese using
Speed Prep: The One-Handed Mandoline Slicer. We’re even
developing ways to transform simple foods into gourmet
delights with products such as our Perfect Burger Stuffer.
We’ve also integrated streamlined packaging, whereby the
products themselves serve as packaging, cutting down on
costs as well as being “greener” for the environment. Our
Farberware® Knife with Sheath
hanging Knives with Storage Sheaths are a great example.
This year we also instituted our Free Spice Refills for 5
Years program on all our spice racks. When a consumer
purchases any of our premium spice racks, we offer them
free spice refills for five years after the purchase.
Additionally, in 2009 we developed quality bone china
dinnerware at price points far below those currently in
the marketplace. Mikasa’s new Designing Redesigned™
products feature bone china superior strength and style
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LIFETIME BRANDS, INC. 2009 ANNUAL REPORT
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LIFETIME BRANDS, INC. 2009 ANNUAL REPORT
Farberware® 3-in-1 Twist Grater
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, 2009
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:133) No (cid:53)
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:133) No (cid:53)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes (cid:53) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,
if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes (cid:133) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of
this chapter) 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:53)
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:133) Accelerated filer (cid:133)
Non-accelerated filer (do not check if a smaller reporting company) (cid:53) Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes (cid:133)
No (cid:53)
The aggregate market value of 9,612,278 shares of the voting stock held by non-affiliates of the registrant as of
June 30, 2009 was approximately $39,121,971. 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 17, 2010 was
12,015,273
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s definitive proxy statement for the 2010 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.............................................................................................................................................................3
1A. Risk Factors.......................................................................................................................................................6
1B. Unresolved Staff Comments ............................................................................................................................ 9
2.
Properties.......................................................................................................................................................... 9
3.
Legal Proceedings ............................................................................................................................................ 9
4. Submission of Matters to a Vote of Security Holders ...................................................................................... 9
PART II
5.
Market For The Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ...........................................................................................................................................10
6.
Selected Financial Data ...................................................................................................................................12
7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ........................ 13
7A. Quantitative and Qualitative Disclosures About Market Risk.........................................................................25
8.
Financial Statements and Supplementary Data ...............................................................................................25
9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................26
9A. Controls and Procedures..................................................................................................................................26
9B. Other Information............................................................................................................................................28
PART III
10. Directors and Executive Officers and Corporate Governance ........................................................................28
11. Executive Compensation.................................................................................................................................28
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ......28
13. Certain Relationships and Related Transactions, and Director Independence................................................28
14. Principal Accounting Fees and Services ........................................................................................................28
PART IV
15. Exhibits and Financial Statement Schedules ....................................................................................................29
SIGNATURES ......................................................................................................................................................32
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.
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.
2
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 does not sell electric products or appliances. The Company either owns or
licenses its brands. The Company’s licenses generally only permit the Company to sell certain products using the
licensed brand name. The Company sells its products to retailers and distributors, and directly to consumers
through its Internet websites and mail order catalog operations. The Company markets its products under well-
respected and widely-recognized brand names in the U.S. housewares industry. According to the Home
Furnishing News Brand Survey for 2009, three of the Company’s brands, KitchenAid®, Cuisinart®, and
Farberware®, are among the four most recognized brands in the “Kitchen Tool, Cutlery and Gadgets” category.
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
5,000 new or redesigned products in 2009 and expects to introduce over 5,500 new or redesigned products in
2010.
The Company’s three main product categories are Food Preparation, consisting primarily of kitchenware and
cutlery, Tabletop, consisting primarily of dinnerware and flatware, and Home Décor, which consists primarily of
wall décor, picture frames and decorative shelving products.
The Company sources almost all of its products from suppliers located outside the United States, primarily in the
People’s Republic of China. The Company produces its sterling silver products at a leased manufacturing facility
in San Germán, 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:
Brand
Farberware®
KitchenAid®
Mikasa®
Elements®
Melannco®
Pfaltzgraff®
Cuisinart®
Wallace Silversmiths®
Kamenstein®
Towle®
Licensed/Owned
Product Category
Licensed*
Licensed
Owned
Owned
Owned
Owned
Licensed
Owned
Owned
Owned
Food Preparation and Tabletop
Food Preparation
Tabletop and Home Décor
Home Décor
Home Décor
Tabletop and Home Décor
Food Preparation and Tabletop
Tabletop and Home Décor
Food Preparation
Tabletop and Home Décor
* The Company has a 185 year royalty free license to utilize the Farberware® brand for kitchenware products.
The Company sells its products wholesale to a diverse customer base including mass merchants, specialty stores,
national chains, department stores, warehouse clubs, home centers, supermarkets and off-price retailers.
ACQUISITIONS
Since 1976, the Company has expanded its product offerings largely through acquisitions. There were no
acquisitions in 2009.
3
BUSINESS SEGMENTS
The Company’s 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®, Mikasa® and Lifetime Sterling™ Internet websites and Pfaltzgraff® mail-order catalogs. 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 the different types
of customers and the different methods used to sell, market and distribute the products.
During 2008, the Company also operated retail outlet stores that were included in the direct-to-consumer segment.
The operations of these stores ceased by December 31, 2008.
Additional information regarding the Company’s reportable segments is included in Note K of the Notes to the
Consolidated Financial Statements included in Item 15.
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), off-price retailers (such as
TJX and Ross Stores) and Internet retailers (such as Amazon.com).
The Company also operates Internet and catalog operations that sell the Company’s products directly to the
consumer.
During the years ended December 31, 2009, 2008 and 2007, Wal-Mart Stores, Inc. (including Sam’s Club)
accounted for 18%, 20%, and 21% of sales, respectively. No other customer accounted for 10% or more of the
Company’s sales during these periods. For the years ended December 31, 2009, 2008 and 2007, the Company’s ten
largest customers accounted for 64%, 60%, and 62% of sales, respectively.
DISTRIBUTION
The Company operates the following distribution centers:
Location
Fontana, California
Robbinsville, New Jersey
Winchendon, Massachusetts
Medford, Massachusetts
Size
(square feet)
753,000
700,000
175,000
5,590
SALES AND MARKETING
The Company’s sales and marketing staff coordinate directly with its wholesale customers 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 generally collaborates with its largest wholesale customers and in many instances produces specific
versions of the Company’s product lines with exclusive designs and packaging for their stores.
4
DESIGN AND INNOVATION
At the heart of the Company is a strong culture of innovation and new product development. The Company’s in-
house design and development team currently consists of 90 professional designers, artists and engineers. Utilizing
the latest available design tools, technology and materials, this team creates new products, redesigns products, and
creates packaging and merchandising concepts.
SOURCES OF SUPPLY
The Company sources its products from over 400 suppliers. Most of the Company’s suppliers are located in the
People’s Republic of China. The Company also sources products from suppliers in the United States, Hong Kong,
Taiwan, India, Japan, Indonesia, Thailand, Italy, Korea, Vietnam, Germany, Czech Republic, United Kingdom,
Canada, Poland, Portugal, Switzerland, Malaysia, Colombia, Turkey, and Mexico. The Company orders products
substantially in advance of the anticipated time of their sale. The Company does not have any formal long-term
arrangements with any of its suppliers and its 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 its sterling silver products at its leased manufacturing facility in San Germán, 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 innovative products, brand, quality, aesthetic appeal to consumers, packaging,
breadth of product line, distribution capability, prompt delivery and selling price.
PATENTS
The Company owns 129 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, 2009, the Company had a total of 979 full-time employees, 147 of whom are located in China. In
addition, the Company employed 72 people on a part-time basis, predominately in customer service and sales. None
of the Company’s employees are represented by a labor union. The Company considers its employee relations to be
good.
REGULATORY MATTERS
The products the Company manufactures are subject to the jurisdiction of various Federal, State and local statutes
and regulatory agencies, as well as the scrutiny of consumer groups. The Company’s spice container filling
operation in Winchendon, Massachusetts is regulated by the Food and Drug Administration. The Company’s
sterling silver manufacturing operations are subject to the jurisdiction of the Environmental Protection Agency.
The Company’s products are also subject to regulation under certain state laws pertaining to product safety and
liability.
5
Item 1A. Risk Factors
The Company’s business, operations, and financial condition are subject to various risks. The risks and
uncertainties described below are those that the Company considers material.
General Economic Factors and Political Conditions
The Company’s performance is affected by general economic factors and political conditions that are beyond the
Company’s control. These factors include recession, inflation, deflation, housing markets, consumer credit
availability, consumer debt levels, fuel and energy costs, interest rates, tax rates and policy, unemployment trends,
the impact of natural disasters and terrorist activities, conditions affecting the retail environment for the home and
other matters that influence consumer spending. Unfavorable economic conditions in the United States adversely
affected the Company’s performance in 2008 and 2009, and could continue to adversely affect the Company’s
performance. Unstable economic and political conditions, civil unrest and political activism, particularly in Asia,
could adversely impact the Company’s businesses.
Liquidity
The Company has substantial indebtedness and depends upon its lenders to finance its liquidity needs. The
Company was not in compliance with the terms of its Credit Facility as of December 31, 2008, and, during the
first quarter of 2009, operated under a forbearance agreement with its banks. Although the Company has been in
compliance with the terms of its Credit Facility since March 30, 2009, the interest rate on its borrowings has
increased. Such increases in the cost of funding the Company’s operations have adversely affected its
performance and will continue to do so. To the extent that the Company’s access to credit was to be restricted, the
Company would not be able to operate normally.
The Company’s Credit Facility matures in January 2011 and its Convertible Notes mature in July 2011. The
Company’s ability to operate normally would be severely jeopardized if it were unable to refinance its Credit
Facility and its Convertible Notes.
Competition
The markets for the Company’s products are intensely competitive and the Company competes with numerous
other suppliers, some of which are larger than the Company, have greater financial and other resources or employ
brands that are more established, have greater consumer recognition or are more favorably perceived by
consumers or retailers than the Company’s brands.
The Company believes it possesses certain competitive advantages; however, many factors could erode these
competitive advantages or prevent their strengthening. Accordingly, future operating results will depend on the
Company’s ability to protect or enhance its competitive advantages.
Customers
The Company’s wholesale customers include mass merchants, specialty stores, national chains, department stores,
warehouse clubs, home centers, supermarkets, off-price retailers and Internet retailers. Unanticipated changes in
purchasing and other practices by its customers, including customers’ pricing and other requirements, could
adversely affect the Company. In its e-commerce and catalog businesses, the Company sells to individual
consumers nationwide.
Many of the Company’s wholesale customers are significantly larger than the Company, have greater financial
and other resources and also purchase goods directly from vendors in Asia and elsewhere. Decisions by large
customers to increase their purchases directly from overseas vendors could have a materially adverse affect on the
Company.
6
The Company is largely dependent on the financial health of its customers. Significant changes or financial
difficulties, including consolidations of ownership, restructurings, bankruptcies, liquidations or other events that
affect retailers could result in fewer stores selling the Company’s products, the Company having to rely on a
smaller group of customers, an increase in the risk of extending credit to these customers or limit the Company’s
ability to collect amounts due from these customers.
In 2009, Wal-Mart Stores, Inc. (including Sam’s Club) accounted for 18% of the Company’s sales. A material
reduction in purchases by Wal-Mart Stores, Inc. could have a significant adverse effect on the Company’s business
and operating results. In addition, pressures by Wal-Mart Stores, Inc. that would cause the Company to materially
reduce the price of the Company’s products could result in reductions of the Company’s operating margin.
Supply Chain
The Company sources its products from suppliers located principally in Asia and, to a lesser extent, in Europe and in
the United States. The Company’s Asia vendors are located primarily in the People’s Republic of China. 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.
Changes in currency exchange rates might negatively affect the profitability and business prospects of the
Company and its overseas vendors. The Company does not have access to its vendors’ financial information and is
unable to assess its vendors’ liquidity.
The Company is subject to risks and uncertainties associated with economic and political conditions in foreign
countries, including but not limited to, foreign government regulations, taxes, import and export duties and quotas,
anti-dumping regulations, incidents and fears involving security, terrorism and wars, political unrest and other
restrictions on trade and travel.
The Company imports its products for delivery to its distribution centers and arranges for its customers to import
goods to which title has passed overseas. For purchases that are to be delivered to its distribution centers, the
Company arranges for transportation, primarily by sea, from ports in Asia and Europe to ports in the United States,
principally Newark/Elizabeth, New Jersey, and Los Angeles/Long Beach, California. Accordingly, the Company is
subject to risks incidental to such transportation. These risks include, but are not limited to, increases in fuel costs,
the availability of shipping containers, increased security restrictions, work stoppages and carriers’ ability to provide
delivery services to meet the Company’s shipping needs. Transportation disruptions and increased transportation
costs could adversely affect the Company’s business.
The Company delivers its products to its customers or makes such products available for customer pickup from its
distribution centers. Prolonged domestic transportation disruptions, as well as workforce or systems issues related to
the Company’s distribution centers, could have a negative affect on the Company’s ability to deliver goods to its
customers.
Intellectual Property
Significant portions of the Company’s business are dependent on trade names, trademarks and patents, some of
which are licensed from third-parties. Several of these license agreements are subject to termination by the
licensor. The loss of certain licenses or a material increase in the royalties the Company pays under such licenses
upon renewal could have a material adverse affect on the Company’s results of operations.
7
Regulatory
The Company is subject in the ordinary course of its business, in the United States and elsewhere, to many other
statutes, ordinances, rules and regulations that if violated by the Company could have a material adverse effect on
the Company’s business.
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.
Potential product liability claims may exceed the amount of the Company’s insurance coverage and could materially
damage the Company’s business and its financial condition.
The Company is subject to significant regulations, including the Sarbanes-Oxley Act of 2002. 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 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.
Technology
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 forecast 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 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.
In addition, although the Company has upgraded its systems and procedures to fully comply with Payment Card
Industry (“PCI”) data security standards, failure by the Company to maintain compliance with the PCI
requirements or rectify a security issue could result in fines and the imposition of restrictions on the Company’s
ability to accept credit cards.
Personnel
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.
8
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
The following table lists the principal properties at which the Company operates its business at December 31, 2009:
Location
Description
Size
(square
feet)
Owned/
Leased
Fontana, California
Principal West Coast warehouse and distribution facility
753,000
Leased
Robbinsville, New Jersey
Principal East Coast warehouse and distribution facility
700,000
Leased
Winchendon, Massachusetts
Warehouse and distribution facility, and spice packing line
175,000
Owned
Garden City, New York
Corporate headquarters/main showroom
146,000
Leased
Medford, Massachusetts
Offices, showroom, warehouse and distribution facility
69,000
Leased
San Germán, Puerto Rico
Sterling silver manufacturing facility
York, Pennsylvania
Guangzhou, China
Offices
Offices
New York, New York
Showrooms
Atlanta, Georgia
Shanghai, China
Showrooms
Offices
Item 3. Legal Proceedings
55,000
Leased
26,000
Leased
18,000
Leased
11,000
Leased
11,000
Leased
11,000
Leased
In March 2008, the Environmental Protection Agency (“EPA”) announced that the Company’s San Germán
Ground Water Contamination site in Puerto Rico has been 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 Germán Ground Water Contamination Superfund Site, San
Germán, 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 Germán, 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.
The Company is, from time to time, involved in other legal proceedings. The Company believes that other
current litigation is routine in nature and incidental to the conduct of the Company’s 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
9
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 quarterly high and low sales prices for the common stock of the
Company for the fiscal periods indicated as reported by NASDAQ.
2009
2008
First quarter
High
$3.96
Second quarter
4.59
Third quarter
5.95
Low
$0.97
1.38
3.33
High
$13.37
9.95
10.86
Fourth quarter
7.40
5.34
10.02
Low
$8.51
6.70
6.94
3.00
At December 31, 2009 the Company estimates that there are approximately 2,200 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 were issued or outstanding at December 31, 2009.
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. In February 2009, the Company suspended paying cash
dividends on its outstanding common shares.
The following table summarizes the Company’s equity compensation plan as of December 31, 2009:
Plan category
Number of
shares of
common stock
to be issued
upon exercise
of outstanding
options
Weighted-
average
exercise
price of
outstanding
options
Number of
shares of
common
stock
remaining
available for
future
issuance
Equity compensation plan approved by security holders
1,786,667
$12.14
1,215,729
Equity compensation plan not approved by security holders
―
―
―
Total
1,786,667
$12.14
1,215,729
10
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
$140.00
$120.00
$100.00
S
R
A
L
L
O
D
$80.00
$60.00
$40.00
$20.00
$0.00
2004
2005
2006
2007
2008
2009
Lifetime Brands, Inc.
NASDAQ Market Index
Hemscott Group Index
Date
12/31/2004
12/31/2005
12/31/2006
12/31/2007
12/31/2008
12/31/2009
Lifetime
Brands, Inc.
$100.00
131.75
105.91
84.78
24.01
48.49
Hemscott
Group Index
$100.00
98.33
122.09
105.94
45.17
84.09
NASDAQ
Market
Index
$100.00
102.20
112.68
124.57
74.71
108.56
Note:
(1) The chart assumes $100 was invested on December 31, 2004 and dividends were reinvested. Measurement points are at
the last trading day of each of the fiscal years ended December 31, 2009, 2008, 2007, 2006 and 2005. 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.
11
Item 6. Selected Financial Data
The selected consolidated statement of operations data for the years ended December 31, 2009, 2008 and 2007,
and the selected consolidated balance sheet data as of December 31, 2009 and 2008, 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 operations data for the years ended December 31, 2006 and 2005, and the
selected consolidated balance sheet data at December 31, 2007, 2006 and 2005, 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.
Year ended December 31,
STATEMENT OF OPERATIONS DATA (1)
2009
2008(2)
2007(2)
(in thousands, except per share data)
2006(2)
2005
Net sales
$415,040
$487,935
$493,725
$457,400
$307,897
Cost of sales
Distribution expenses
Selling, general and administrative expenses
Goodwill and intangible asset impairment
Restructuring expenses
Income (loss) from operations
257,839
43,329
95,647
―
2,616
15,609
303,535
57,695
131,226
29,400
17,992
(51,913)
288,997
53,493
128,527
―
1,924
20,784
265,749
49,729
112,122
―
―
178,295
34,539
69,891
―
―
29,800
25,172
Interest expense
Other income, net
(13,185)
―
(11,577)
―
(10,623)
3,935
(5,616)
31
(2,489)
73
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)
2,424
(1,880)
(63,490)
14,249
14,096
(6,567)
24,215
(9,320)
22,756
(8,647)
2,171
1,486
―
―
―
$ 2,715
$(47,755)
$ 7,529
$ 14,895
$ 14,109
Basic income (loss) per common share
Weighted-average shares outstanding – basic
$ 0.23
12,009
$ (3.99)
11,976
$ 0.58
12,969
$ 1.13
13,171
$ 1.25
11,283
Diluted income (loss) per common share
Weighted-average shares outstanding – diluted
$ 0.22
12,075
$ (3.99)
11,976
$ 0.57
13,099
$ 1.10
14,716
$ 1.23
11,506
Cash dividends per common share
$ ―
$ 0.25
$ 0.25
$ 0.25
$ 0.25
12
BALANCE SHEET DATA (1)
Current assets
Current liabilities
Working capital
Total assets
Short-term borrowings
Long-term debt
Convertible notes
Stockholders’ equity
Notes:
December 31,
2009
2008(2)
2007(2)
2006(2)
2005
$173,850
77,210
96,640
276,723
24,601
―
70,527
104,012
$232,678
149,981
82,697
341,781
89,300
―
67,864
97,509
(in thousands)
$228,078
71,283
156,795
371,415
13,500
55,200
65,428
153,102
$231,633
89,727
141,906
343,064
21,500
5,000
63,203
168,836
$155,750
69,907
85,843
222,648
14,500
5,000
―
140,487
(1) The Company acquired the business and certain assets of the following in the respective years noted which affects the comparability of the periods:
Pfaltzgraff® in July 2005, Salton in September 2005, Syratech in April 2006, Pomerantz® and Design for Living® in April 2007, Gorham® in July
2007, a 30% interest in Grupo Vasconia, S.A.B. in December 2007 and Mikasa® in June 2008.
(2) Certain amounts have been adjusted in these years to reflect the provisions of ASC Topic No. 470-20 on a retrospective basis. See Note F of the
Notes to the Consolidated Financial Statements included in Item 15 for further information regarding the provisions of ASC Topic No. 470-20.
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 15. 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 availability and use of its brands, an emphasis on innovation and
new product development and 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 brands,
and the Company’s ability to provide a 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.
13
EFFECTS OF THE CURRENT ECONOMIC ENVIRONMENT
Sales of the Company’s products declined in 2008 and 2009 as a result of the global economic recession that began
in late 2007. In addition, in 2009, retailers generally decreased overall stock-keeping levels, resulting in lower
inventory replenishment. While there are signs that a moderate economic recovery currently is underway, the
Company believes that sustainable increases in the demand for its products will not occur until employment levels
improve from current levels. A deterioration of economic conditions likely would have an adverse impact on the
Company’s sales.
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®, Mikasa® and Lifetime Sterling™ Internet websites and Pfaltzgraff® mail-order
catalogs. During 2008, the Company also operated retail outlet stores utilizing the Pfaltzgraff® and Farberware®
names that were included in the direct-to-consumer segment. However, the Company ceased operating these stores
by December 31, 2008.
INVESTMENT IN GRUPO VASCONIA, S.A.B.
In December 2007, the Company acquired approximately 30% of the capital stock of Grupo Vasconia, S.A.B.
(“Vasconia”), a manufacturer and distributor of aluminum disks, cookware and related items. Shares of Vasconia
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 accounts for its investment in Vasconia using the equity method of
accounting and has recorded its proportionate share of Vasconia’s net income for the years ended 2009 and 2008,
net of taxes, as equity in earnings of Grupo Vasconia, S.A.B in the Company’s statement of operations.
INVENTORY REDUCTION PLAN
The Company has had an inventory reduction plan in effect since 2007. The plan includes reducing the number
of individual items offered for sale and to shorten the period between inventory procurement and sale to the
customer. Consistent with this plan, the Company has been selling slower moving inventory at lower than regular
gross margin levels. The plan was developed to increase efficiency by reducing the capital invested in inventory
and substantially reducing third-party warehousing and related expenses. The plan has, in certain cases,
negatively impacted the Company’s gross margins and may negatively impact the Company’s gross margins in
the future. The Company believes this plan has been successful and it expects to continue its inventory reduction
efforts for the foreseeable future.
RESTRUCTURING EXPENSES
During the year ended December 31, 2009, the Company recognized restructuring and non-cash impairment
charges of $2.6 million. The restructuring charges consisted of lease obligations, employee related expenses and
other related costs.
The restructuring costs recognized in 2009 and 2008 were incurred in connection with: (i) the Company’s closure
of its unprofitable retail outlet store operations, (ii) the closure of the Company’s York, Pennsylvania distribution
center, the operations of which were consolidated with those of the Company’s main East Coast and West Coast
distribution centers, (iii) the decision to vacate certain excess showroom space, (iv) the realignment of the
management structure of certain of the Company’s divisions and (v) the elimination of a portion of the workforce
at its Puerto Rico sterling silver manufacturing facility.
The restructuring charges in 2009 also reflect adjustments to the restructuring charges recognized in 2008 as the
result of decisions by the Company not to vacate certain leased space that the Company had expected to vacate
and a decision not to terminate the employment of certain employees, whose employment the Company had
expected to terminate.
The Company’s restructuring efforts are substantially complete and the Company does not expect any significant
restructuring charges in the foreseeable future.
14
The Company has not accounted for the retail outlet store operations as discontinued operations pursuant to the
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 205-20,
Presentation of Financial Statements- Discontinued Operations, since the Company determined that the
operations and cash flows of the retail outlet store operations would not be eliminated from the on-going
operations of the Company. Specifically, the Company also determined that the migration of customers from the
Company’s retail outlet stores to the Company’s Internet, catalog and wholesale businesses would not be
insignificant. For this purpose, the Company concluded that the migration of sales from the retail outlet stores to
the Internet, catalog and wholesale businesses of greater than 5% would be significant.
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 2009, 2008 and 2007, net sales for the third and fourth quarters accounted for 58%,
61%, and 61% 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.
EFFECT OF ADOPTION OF ACCOUNTING PRINCIPLE
Effective January 1, 2009, the Company adopted the provisions of the FASB ASC Topic No. 470-20, Debt with
Conversion and Other Options, on a retrospective basis. ASC Topic No. 470-20 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 with the resulting debt discount amortized as
additional non-cash interest expense over the life of the convertible debt. Accordingly, the December 31, 2008
consolidated balance sheet and December 31, 2008 and 2007 consolidated statements of operations and cash
flows have been adjusted to reflect the application of the provisions of ASC Topic No. 470-20.
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.
2009
Year Ended December 31,
2008
(as adjusted)
2007
(as adjusted)
Net sales
Cost of sales
Distribution expenses
Selling, general and administrative expenses
Goodwill and intangible asset impairment
Restructuring expenses
100.0 %
62.1
10.4
23.0
―
0.6
100.0 %
62.2
11.8
26.9
6.0
3.7
100.0 %
58.5
10.8
26.0
―
0.4
Income (loss) from operations
3.9
(10.6)
4.3
Interest expense
Other income, net
(3.2)
―
(2.4)
―
(2.1)
0.8
Income (loss) before income taxes and equity
in earnings for Grupo Vasconia, S.A.B.
Income tax benefit (provision)
Equity in earnings for Grupo Vasconia, S.A.B.,
net of taxes
Net income (loss)
0.7
(13.0)
3.0
(0.5)
2.9
(1.3)
0.5
0.3
―
0.7 % (9.8) %
1.7 %
15
MANAGEMENT’S DISCUSSION AND ANALYSIS
2009 COMPARED TO 2008
Net Sales
Net sales for the year were $415.0 million, a decrease of 14.9% compared to net sales of $487.9 million in 2008.
Net sales for the wholesale segment in 2009 were $389.0 million, a decrease of $14.6 million or 3.6% compared
to net sales of $403.6 million in 2008. On a comparable basis, adjusting 2009 net sales of Mikasa®, which was
acquired on June 6, 2008, to reflect net sales only for the period after June 6, 2009, the same post acquisition
period as 2008, net sales for the Company’s wholesale segment were $374.4 million for 2009, a decrease of $29.2
million or 7.2% compared to net sales for 2008. Net sales for the Company’s Food Preparation product category
decreased approximately $14.8 million. The decrease was primarily attributable to changes in the Company’s key
customers’ sourcing patterns and product mix, and the liquidation of a significant customer in 2008. Net sales for
the Company’s Tabletop product category, excluding Mikasa®, decreased approximately $12.9 million primarily
as the result of lower sales of flatware and giftware which management attributes to the weak economy and its
negative impact on consumer spending habits, particularly for luxury items. Net sales for the Company’s Home
Décor product category decreased approximately $4.3 million due primarily to the elimination of certain low
margin business in 2009. Net sales of other wholesale products increased by $2.8 million due to the addition of a
product line in 2009.
Net sales for the direct-to-consumer segment in 2009 were $26.0 million compared to $84.3 million for 2008. On
a comparable basis, excluding (a) 2009 net sales related to Mikasa® of $1.4 million to reflect net sales for the
same post acquisition period as 2008, and (b) 2008 net sales of $55.8 million attributable to the retail outlet stores
that the Company closed by the end of 2008, net sales for the direct-to-consumer segment were $24.6 million for
2009 compared to $28.5 million in 2008, a decrease of $3.9 million. During 2009, the Company de-emphasized
its catalog business due to low profitability which, together with the weak retail sales environment, contributed to
the decline.
Cost of sales
Cost of sales for 2009 was $257.8 million compared to $303.5 million for 2008. Cost of sales as a percentage of
net sales was 62.1% for 2009 compared to 62.2% for 2008.
Cost of sales as a percentage of net sales for the wholesale segment was 64.3% for 2009 compared to 64.0% for
2008. The decrease in gross margin, primarily attributable to a shift in customer mix, was substantially offset by
lower in-bound freight costs and lower minimum royalties during 2009.
Cost of sales as a percentage of net sales for the direct-to-consumer segment decreased to 29.4% in 2009 from
53.4% in 2008. On a comparable basis, excluding 2008 cost of sales attributable to the retail outlet stores that the
Company closed by the end of 2008, cost of sales as a percentage of net sales for the direct-to-consumer segment
were 31.8% for 2008. The increase in gross margin was primarily attributable to selective price increases and less
promotional free shipping in 2009.
16
Distribution expenses
Distribution expenses for 2009 were $43.3 million compared to $57.7 million for 2008. Distribution expenses as
a percentage of net sales were 10.4% in 2009 and 11.8% for 2008.
Distribution expenses as a percentage of net sales for the wholesale segment decreased to 8.7% in 2009 from
11.0% in 2008. The decrease was primarily attributable to the elimination of duplicative costs incurred while the
Company consolidated its West Coast distribution centers in 2008 and distribution services for Mikasa® provided
by the seller and additional costs to integrate the Mikasa® inventory into the Company’s existing distribution
centers in 2008, collectively which accounted for approximately 1.3% of the decrease in distribution expenses as
a percentage of net sales. The balance of the decrease was primarily attributable to improved labor efficiencies
realized in 2009.
Distribution expenses as a percentage of net sales for the direct-to-consumer segment were 35.3% for 2009
compared to 15.9% for 2008. On a comparable basis, excluding 2008 distribution expenses for the retail outlet
stores that the Company closed by the end of 2008, distribution expenses as a percentage of net sales for the
direct-to-consumer segment were 39.6% for 2008. The decrease was due primarily to the benefit of the
Company’s closure of its York, Pennsylvania distribution center.
Selling, general and administrative expenses
Selling, general and administrative expenses for 2009 were $95.6 million, a decrease of 27.1% compared to
$131.2 million for 2008.
Selling, general and administrative expenses for 2009 for the wholesale segment were $73.5 million, a decrease of
$9.5 million or 11.4% compared to $83.0 million in 2008. As a percentage of net sales, selling, general and
administrative expenses were 18.9% for 2009 compared to 20.6% for 2008. The decrease in selling, general and
administrative expenses was primarily attributable to the Company’s expense reduction efforts and the non-
recurrence of the costs incurred in 2008 for transitional services related to Mikasa®. The decrease as a percentage
of net sales was offset in part due to the lower sales volume in 2009.
Selling, general and administrative expenses for 2009 for the direct-to-consumer segment were $10.8 million
compared to $37.3 million for 2008. On a comparable basis, excluding 2008 selling, general and administrative
expenses for the retail outlet stores that the Company closed by the end of 2008, selling, general and
administrative expenses for the direct-to-consumer segment were $12.7 million for 2008. The decrease was
primarily attributable to reductions in postage and catalog production costs as a result of the Company’s de-
emphasis of its catalog channel.
Unallocated corporate expenses for 2009 and 2008 were $11.3 million and $10.9 million, respectively. The
increase was primarily attributable to an increase in short-term incentive compensation expense offset by a
decrease in professional fees and stock option expense.
Restructuring expenses
During 2009, the Company recorded restructuring expenses and non-cash impairment charges of $2.6 million
related to the Company’s 2008 restructuring initiative, the realignment of the management structure of certain
divisions and the elimination of a portion of the workforce at its Puerto Rico sterling silver manufacturing facility.
The restructuring expenses consisted principally of charges for lease obligations, employee related expenses and
other related costs. The restructuring charges in 2009 also reflect adjustments reducing the restructuring charges
recognized in 2008 by $1.9 million as the result of decisions by the Company not to vacate certain leased space
that the Company had expected to vacate and a decision not to terminate the employment of certain employees,
whose employment the Company had expected to terminate.
17
Interest expense
Interest expense for 2009 was $13.2 million compared to $11.6 million for 2008. The increase in interest expense
was primarily attributable to higher interest rates in 2009 primarily as the result of an increase in the applicable
margin rates under the Company’s Credit Facility and a reclassification from other comprehensive loss to interest
expense as a result of the de-designation of a cash flow hedge. The increase was offset in part by lower average
borrowings during 2009.
Income tax benefit (provision)
The income tax provision for 2009 was $1.9 million compared to a benefit of $14.2 million for 2008. The
Company’s effective tax rate for 2009 primarily reflects state taxes and deferred taxes related to basis differences
in certain assets.
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 closed
by December 31, 2008 and, to a lesser extent, an increase in Internet sales as a result of the acquisition of
Mikasa®.
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.
18
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.
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 ASC Topic
No. 350, Intangibles- Goodwill and Other.
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 $11.6 million compared to $10.6 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.
19
Income tax benefit (provision)
The income tax benefit for 2008 was $14.2 million compared to a provision of $6.6 million for 2007. The
Company’s effective income tax rate was 22.4% for 2008 and 46.6% for 2007. The decrease in the effective tax
rate in 2008 was due to valuation allowances the Company recorded against certain deferred tax assets.
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, derivative
valuation 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 of the Notes to the Consolidated Financial Statements included in Item 15. 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. The Company
estimates the selling price of its inventory on a product by product basis based on the current selling environment
and considering the various available channels of distribution (e.g. wholesale: specialty store, off-price retailers
etc. or the Internet and catalog). If the estimated selling price is lower than the inventory’s cost, the Company
reduces the value of inventory to the estimated selling price. If the Company is inaccurate in its estimates of
selling prices, it could report material fluctuations in gross margin. Historically, the Company’s adjustments to
inventory have been appropriate and have not resulted in material unexpected charges.
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
initial and on-going creditworthiness of the Company’s customers. The Company also maintains an allowance for
anticipated customer deductions. The allowances for deductions are primarily based on contracts the Company
has with its customers. However, in certain cases the Company does not have a formal contract and/or customer
deductions are non-contractual. To evaluate the reasonableness of non-contractual customer deductions, the
Company analyzes currently available information and historical trends of deductions. If the financial conditions
of the Company’s customers or economic conditions were to deteriorate, resulting in an impairment of their
ability to make payments or sell the Company’s products at reasonable sales prices, or the Company’s estimate of
non-contractual deductions was determined to be inaccurate, revisions to allowances may be required, which
could adversely affect the Company’s financial condition. Historically, the Company’s allowances have been
appropriate and have not resulted in material unexpected charges.
20
Intangible assets and long-lived assets
Intangible assets deemed to have indefinite lives are not amortized but instead are subject to an annual impairment
assessment in accordance with the provisions of ASC Topic No. 350, Intangibles- Goodwill and Other. Based on
the results of the Company’s 2009 assessment, no impairment of the Company’s indefinite-lived intangible assets
was identified for the year ended December 31, 2009.
Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment in
accordance with ASC Topic No. 360, Property, Plant and Equipment, 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. The Company considered indicators of impairment of its long-lived assets and
determined that no such indicators were present at December 31, 2009.
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. The retail store sales in 2008 were
recognized at the time of sale. Catalog and Internet sales are recognized upon delivery to 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.
Employee stock options
The Company accounts for its stock options in accordance with ASC Topic No. 718-20, Awards Classified as
Equity, which 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 ASC Topic No. 740, Income Taxes, for the financial statement
recognition, measurement and disclosure of uncertain tax positions recognized in the Company’s financial
statements. 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.
Derivatives
The Company accounts for derivative instruments in accordance with ASC Topic No. 815, Derivatives and
Hedging, which 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 operations.
21
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 the Credit Facility. The Company’s primary uses of funds consist of working
capital requirements, capital expenditures and payment of principal and interest on its debt.
At December 31, 2009, the Company had cash and cash equivalents of $682,000 compared to $3.5 million at
December 31, 2008, working capital was $96.6 million at December 31, 2009 compared to $82.7 million at
December 31, 2008 and the current ratio was 2.25 to 1 at December 31, 2009 compared to 1.55 to 1 at December
31, 2008.
Borrowings under the Company’s Credit Facility decreased to $24.6 million at December 31, 2009 compared to
$89.3 million at December 31, 2008. The decrease was primarily attributable to an increase in cash from
operations that was used to pay down the amounts outstanding under the Credit Facility due to the Company’s
inventory reduction efforts, receipt of an income tax refund, reduction of discretionary expenses and other
expense reduction efforts.
The Company believes that availability under the Credit Facility and cash flows from operations is sufficient to fund
the Company’s operations. However, due to the tightening of the credit markets, the Company believes that if
needed other available sources of liquidity could be limited. If circumstances were to adversely change, the
Company would seek to improve its liquidity by taking actions such as to further lower its inventory and reduce
expenses. However, there can be no assurance that any such efforts would be successful or that the results of any
such efforts would be adequate. Finally, the combined effects of the economic downturn and credit crisis have had a
significant impact on the Company’s retail partners and in certain cases resulted in bankruptcies and eventual
liquidation. The Company closely monitors the creditworthiness of its customers. Based upon the evaluation of
changes in customers’ creditworthiness, the Company may modify credit limits and/or terms of sale. The Company
has not been materially affected by the bankruptcy or liquidation of any of its customers to date. However,
notwithstanding the Company’s efforts to monitor its customers’ financial condition, the Company may be materially
affected in the future.
In 2009, Wal-Mart Stores, Inc. (including Sam’s Club) accounted for 18% of the Company’s sales. A material
reduction of product orders by Wal-Mart Stores, Inc. could have significant adverse effects on the Company’s
business and operating results and ultimately the Company’s liquidity, including the loss of predictability and
volume production efficiencies associated with such a large customer.
Credit facility
The Company has a $130.0 million secured credit facility that matures on January 31, 2011 (the “Credit
Facility”). Borrowings under the Credit Facility are secured by all assets of the Company. 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 modified the Credit Facility in certain
ways including, as follows: (i) changed the maturity date to January 31, 2011, (ii) added certain asset categories to
the borrowing base, (iii) increased the applicable margin rates (including a minimum LIBOR of 1.75%), (iv)
revised the minimum Consolidated EBITDA (as defined in the Credit Facility) and fixed charge coverage
covenants and added both a minimum net sales for 2009 only and maximum capital expenditures covenant, (v)
eliminated the requirement of maximum leverage and minimum interest coverage ratios, (vi) eliminated the $50.0
million accordion feature, (vii) revised the minimum excess availability amount and (viii) placed restrictions on
dividends and acquisitions. The Amendment also provided for a lock-box arrangement with the collateral agent
for the benefit of its lenders; as such, the Company classified the indebtedness as a current liability in its
consolidated balance sheets as of December 31, 2009 and 2008.
On October 13, 2009, the Company entered into an agreement with its lenders to reduce the minimum net sales
requirement for the quarter ended September 30, 2009 from $114.8 million to $107.0 million.
22
On October 30, 2009, the Company entered into an agreement with its lenders to amend the Credit Facility to,
among other things: (i) reduce the minimum required availability to $15.0 million for all fiscal quarters beginning
with the fiscal quarter ended September 30, 2009, (ii) eliminate the orderly liquidation value of the Company’s
trademarks from the borrowing base and (iii) reduce the total commitment to $130.0 million.
On February 12, 2010, the Company entered into an agreement with its lenders to amend the Credit Facility to,
among other things: (i) permit the Company to purchase, from time to time, in the aggregate, up to $15.0 million
principal amount of the Company’s 4.75% Convertible Notes and (ii) eliminate the requirement for the Company
to obtain a consent from the lenders prior to consummating a Permitted Acquisition (as defined in the Credit
Facility).
At December 31, 2009, the Company had $1.2 million of open letters of credit and $24.6 million of borrowings
outstanding under the Credit Facility. Interest rates on outstanding borrowings at December 31, 2009 ranged
from 5.75% to 6.25%. Availability under the Credit Facility at December 31, 2009 was $49.9 million (net of
$15.0 million of minimum required availability). The Company has interest rate swap and collar agreements with
an aggregate notional amount of $55.2 million at December 31, 2009. The Company entered into these
agreements to effectively fix the interest rate on a portion of its borrowings under the Credit Facility.
The Company was in compliance with its financial covenants at December 31, 2009. The Company’s
Consolidated EBITDA (as defined by the Credit Facility) for the year ended December 31, 2009 was $33.3
million compared to the minimum Consolidated EBITDA required by the Credit Facility of $25.5 million.
Capital expenditures for the year ended December 31, 2009 were $2.3 million compared to the maximum capital
expenditures permitted by the Credit Facility of $6.0 million. Net sales for the three months ended December 31,
2009 were $128.1 million compared to the minimum net sales required by the Credit Facility of $116.9 million.
The fixed charge coverage ratio was 3.29 to 1.00 compared to the minimum fixed charge coverage ratio of 1.40 to
1.00.
The borrowing base at December 31, 2009 under the Credit facility is determined as the sum of (1) 85% of
eligible receivables and 85% of the orderly liquidation value of eligible inventory, less (2) reserves.
Non-GAAP financial measure
Consolidated EBITDA is a non-GAAP financial measure within the meaning of Regulation G promulgated by the
Securities and Exchange Commission. The following is a reconciliation of the net income (loss) as reported to
Consolidated EBITDA:
Net income (loss) as reported
Add back:
Three Months Ended
December 31,
Year Ended
December 31,
2009
2008
2009
2008
(in thousands)
$ 5,048
$(36,795)
$ 2,715
$(47,755)
Provision (benefit) for income taxes
Interest expense
Depreciation and amortization
Restructuring expenses
Goodwill and intangible asset impairment
Stock option expense
Consolidated EBITDA
1,311
4,124
4,855
143
―
611
$16,092
(5,993)
3,371
2,829
10,410
29,400
957
$ 4,179
1,880
13,185
13,511
(56)
―
2,099
$33,334
(14,249)
11,577
10,782
17,992
29,400
2,800
$ 10,547
23
Convertible Notes
The Company has outstanding $75.0 million aggregate principal amount of 4.75% Convertible Senior Notes due
on July 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 outstanding under its Credit Facility. 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. 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.
Dividends
In February 2009, the Company suspended paying cash dividends on its outstanding common shares.
Operating activities
Cash provided by operating activities was $64.0 million in 2009 compared to $6.9 million in 2008. The increase
was primarily attributable to improved operating results and working capital during the 2009 period and the
income tax refund related to the carry-back of fiscal 2008 losses. The increase in working capital was primarily
attributable to a reduction of inventory and accounts receivable in 2009 compared to the 2008 period.
Investing activities
Cash used in investing activities was $1.9 million in 2009 compared to $24.8 million in 2008. In 2009, investing
activities included capital expenditures of $2.3 million. In 2008, investing activities included 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. The Company’s 2010 planned capital expenditures
are estimated not to exceed $8.0 million.
Financing activities
Cash used in financing activities was $64.8 million in 2009 compared to cash provided by financing activities of
$17.2 million in 2008. In 2009, net repayments under the Company’s Credit Facility were $64.7 million. In
2008, the Company received net cash proceeds from borrowings under the Credit Facility of $20.6 million.
Contractual obligations
As of December 31, 2009, 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
$12,476
―
6,463
3,563
148
169
$22,819
1-3 years
$ 24,643
75,000
11,130
3,563
296
94
$114,726
3-5 years
$24,567
―
606
―
296
―
$25,469
More
than
5 years
$55,921
―
1,060
―
2,556
―
$59,537
Total
$117,607
75,000
19,259
7,126
3,296
263
$222,551
24
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 $50.0 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, 2009.
Item 8. Financial Statements and Supplementary Data
The Company’s Consolidated Financial Statements as of and for the year ended December 31, 2009 in Item 15
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, 2009. 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:
Net sales
Gross profit
Income (loss) from operations
Net income (loss)
Basic income (loss) per common share
Diluted income (loss) per common share
Net sales
Gross profit
Income (loss) from operations
Net loss
Basic and diluted loss per common share
Year ended December 31, 2009
First
quarter(1)
Second
quarter(1)
Third
quarter(1)
Fourth
quarter(1)
(in thousands, except per share data)
$85,334
$90,214
32,228
32,066
1,434
(3,373)
(5,959)
(1,253)
$ (0.50) $ (0.10)
$ (0.50) $ (0.10)
$128,070
$111,422
51,263
41,644
9,949
7,599
5,048
4,879
$ 0.42
$ 0.41
$ 0.40 $ 0.41
Year ended December 31, 2008(3)
First
quarter(2)
Second
quarter
Third
quarter(2)
Fourth
quarter(2)
(in thousands, except per share data)
$92,399
$98,194
37,111
38,589
(6,945)
(8,784)
(6,357)
(3,552)
$ (0.53) $ (0.30)
$140,624
54,528
3,365
(1,051)
$ (0.09)
$156,718
54,172
(39,549)
(36,795)
$ (3.07)
Notes:
(1) The Company recognized restructuring and fixed asset impairment expenses of $824,000, $(663,000), $671,000 and $1.8 million in the first,
second, third and fourth quarters of 2009, respectively.
(2) The Company recognized restructuring expenses of $2.9 million, $4.6 million and $10.5 million in the first, third and fourth quarters of 2008,
respectively, and a non-cash goodwill and intangible asset impairment of $29.4 million in the fourth quarter of 2008.
(3) Certain amounts have been adjusted in 2008 to reflect the provisions of ASC Topic No. 470-20 on a retrospective basis. See Note F of the Notes
to the Consolidated Financial Statements included in Item 15 for further information regarding the provisions of ASC Topic No. 470-20.
25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
(a)
(b)
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive
officer and principal financial and accounting officer, respectively) have concluded, based on their
evaluation as of December 31, 2009, that the Company’s controls and procedures are effective to ensure
that information required to be disclosed by the Company in the reports filed by it under the Securities
and Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commission’s rules and forms,
and include controls and procedures designed to ensure that information required to be disclosed by the
Company in such reports is accumulated and communicated to the Company’s management, including the
Chief Executive Officer and Chief Financial Officer of the Company, as appropriate, to allow timely
decisions regarding required disclosure.
Changes in Internal Controls
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, 2009. 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, 2009 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,
2009 is effective.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2009 has been
audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report.
26
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, 2009, 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, 2009 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, 2009 and 2008, and
the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years
in the period ended December 31, 2009 of Lifetime Brands, Inc. and our report dated March 17, 2010 expressed
an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Jericho, New York
March 17, 2010
27
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 2010 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.
28
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
3.2
4.1
10.1
10.2
10.3
10.4
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)**
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 May 2, 2006 between Lifetime Brands, Inc. and Jeffrey Siegel
(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)**
10.5 Amended 2000 Long-Term Incentive Plan (incorporated by reference to the Registrant’s Form 8-K dated
June 8, 2006)**
10.6 Amended 2000 Incentive Bonus Compensation Plan (incorporated by reference to the Registrant’s Form
8-K dated June 8, 2006)**
10.7
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)**
10.8
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)**
10.9
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)**
10.10 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)**
29
10.11 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)**
10.12 Evan Miller Amendment of Employment Agreement dated June 29, 2007 (incorporated by reference to
the Registrant’s Form 8-K dated June 29, 2007)**
10.13 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 (incorporated by reference to the Registrant’s Annual Report on Form 10-K for
the year ended December 31, 2008)**
10.14 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)**
10.15 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)**
10.16 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)**
10.17 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 (incorporated by reference to the Registrant’s Annual Report on Form
10-K for the year ended December 31, 2008)**
10.18 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)**
10.19 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)**
10.20 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)**
10.21 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 (incorporated by reference to
the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008)**
10.22 Amendment of the Lifetime Brands, Inc. 2000 Long-Term Incentive Plan dated June 11, 2009
(incorporated by reference to the Registrant’s Form 8-K dated June 11, 2009)**
10.23 Amended and Restated Employment Agreement, dated August 10, 2009 by and between Lifetime Brands,
Inc. and Ronald Shiftan (incorporated by reference to the Registrant’s Form 8-K dated August 10,
2009)**
10.24 Amendment of Employment Agreement, dated August 10, 2009 by and between Lifetime Brands, Inc.
and Jeffrey Siegel (incorporated by reference to the Registrant’s Form 8-K dated August 10, 2009)**
30
10.25 Waiver to the Second Amended and Restated Credit Agreement, dated as of October 13, 2009, by and
among Lifetime Brands, Inc., the several financial institutions party hereto and HSBC Bank USA,
National Association, as Administrative Agent and Co-Collateral Agent for the Lenders (incorporated by
reference to the Registrant’s Form 8-K dated October 13, 2009)**
10.26 Amendment No. 6 to Second Amended and Restated Credit Agreement, dated as of October 30, 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 October 30, 2009)**
10.27 Termination of Lease and Sublease Agreement Dated December 1, 2009 by and between Crispus Attucks
Association of York, Pennsylvania, Inc. and Lifetime Brands, Inc. (incorporated by reference to the
Registrant’s Form 8-K dated December 1, 2009)**
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)**
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.
31
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 17, 2010
/s/ Ronald Shiftan
Ronald Shiftan Chief Operating Officer and Director
Vice Chairman of the Board of Directors,
March 17, 2010
/s/ Laurence Winoker
Laurence Winoker
Senior Vice President – Finance,
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
March 17, 2010
/s/ Craig Phillips
Craig Phillips
Senior Vice-President – Distribution
and Director
March 17, 2010
/s/ David Dangoor
David Dangoor
/s/ Michael Jeary
Michael Jeary
/s/ John Koegel
John Koegel
/s/ Cherrie Nanninga
Cherrie Nanninga
/s/ William Westerfield
William Westerfield
Director
Director
Director
Director
March 17, 2010
March 17, 2010
March 17, 2010
March 17, 2010
Director March 17, 2010
32
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, 2009 and 2008
F-3
Consolidated Statements of Operations for the Years ended
December 31, 2009, 2008 and 2007
Consolidated Statements of Stockholders’ Equity for the Years ended
December 31, 2009, 2008 and 2007
Consolidated Statements of Cash Flows for the Years ended
December 31, 2009, 2008 and 2007
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, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2009. 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 30.12% 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 $20.3 million at December 31, 2009 and the Company’s equity in the net income of Grupo Vasconia, S.A.B.
and Subsidiaries is stated at $2.2 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,
2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the
period ended December 31, 2009, 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 Notes A and F to the consolidated financial statements, the Company adopted the provisions of the
Financial Accounting Standards Board Accounting Standards Codification Topic No. 470-20, Debt with
Conversion and Other Options, effective January 1, 2009.
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, 2009, 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 17, 2010 expressed an unqualified
opinion thereon.
Jericho, New York
March 17, 2010
/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 $16,557 at 2009
and $14,651 at 2008
Inventory (Note N)
Income taxes receivable (Note J)
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT, net (Note N)
OTHER INTANGIBLES, net (Note D)
INVESTMENT IN GRUPO VASCONIA, S.A.B. (Note C)
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term borrowings (Note E)
Accounts payable
Accrued expenses (Note N)
Deferred income tax liabilities (Note J)
Income taxes payable (Note J)
TOTAL CURRENT LIABILITIES
DEFERRED RENT & OTHER LONG-TERM LIABILITIES (Note N)
DEFERRED INCOME TAXES (Note J)
CONVERTIBLE NOTES (Note F)
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, shares authorized: 25,000,000; shares
issued and outstanding: 12,015,273 in 2009 and 11,989,724 in 2008
Paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
TOTAL STOCKHOLDERS’ EQUITY
December 31,
2009
2008
(as adjusted
see Note F)
$ 682
$ 3,478
61,552
103,931
―
7,685
173,850
41,623
37,641
20,338
3,271
$276,723
$ 24,601
21,895
29,827
207
680
77,210
20,527
4,447
70,527
67,562
141,612
11,597
8,429
232,678
49,908
38,420
17,784
2,991
$341,781
$ 89,300
24,151
35,902
403
225
149,981
23,054
3,373
67,864
120
129,655
(18,949)
(6,814)
104,012
120
127,497
(21,515)
(8,593)
97,509
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$276,723
$341,781
See notes to consolidated financial statements.
F-3
LIFETIME BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands – except per share data)
2009
Year ended December 31,
2008
(as adjusted
see Note F)
2007
(as adjusted
see Note F)
Net sales
$415,040
$487,935
$493,725
Cost of sales
Distribution expenses
Selling, general and administrative expenses
Goodwill and intangible asset impairment (Note D)
Restructuring expenses (Note B)
257,839
43,329
95,647
―
2,616
303,535
57,695
131,226
29,400
17,992
Income (loss) from operations
15,609
(51,913)
288,997
53,493
128,527
―
1,924
20,784
Interest expense
Other income, net
Income (loss) before income taxes and equity in earnings
of Grupo Vasconia, S.A.B.
(13,185)
―
(11,577)
―
(10,623)
3,935
2,424
(63,490)
14,096
Income tax benefit (provision) (Note J)
Equity in earnings of Grupo Vasconia, S.A.B.,
net of taxes (Note C)
(1,880)
14,249
(6,567)
2,171
1,486
―
NET INCOME (LOSS)
$ 2,715
$ (47,755)
$ 7,529
BASIC INCOME (LOSS) PER COMMON
SHARE (Note I)
DILUTED INCOME (LOSS) PER COMMON
SHARE (Note I)
$ 0.23
$ (3.99)
$ 0.58
$ 0.22
$ (3.99)
$ 0.57
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, 2006
Adoption of accounting principle (Note F)
13,283
$133 $111,165
7,862
$ 50,235
(637)
$ 78 $161,611
7,225
BALANCE AT DECEMBER 31, 2006 (as
adjusted)
Comprehensive income:
Net income (as adjusted see Note F)
Derivative fair value adjustment, net of
taxes of $170 (Note G)
Total comprehensive income
Tax benefit on exercise of stock options
Stock option expense (Note H)
Purchase and retirement of common stock
Exercise of stock options
Stock issued for acquisition
Shares issued to directors
Dividends
13,283
133
119,027
49,598
78
168,836
7,529
(203)
(14)
1
(1,363)
32
5
7
161
2,197
244
133
95
(22,658)
(3,219)
7,529
(203)
7,326
161
2,197
(22,672)
245
133
95
(3,219)
BALANCE AT DECEMBER 31, 2007
11,964
120
121,857
31,250
(125)
153,102
Comprehensive loss:
Net loss (as adjusted see Note F)
Grupo Vasconia, S.A.B. translation
adjustment (Note C)
Derivative fair value adjustment (Note G)
Total comprehensive loss
Tax benefit on exercise of stock options
Stock option expense (Note H)
Exercise of stock options
Shares issued to directors
Tax valuation allowance (Note F)
Dividends
2
24
(47,755)
7
2,800
10
57
2,766
(2,766)
(2,244)
(6,587)
(1,881)
(47,755)
(6,587)
(1,881)
(56,223)
7
2,800
10
57
―
(2,244)
BALANCE AT DECEMBER 31, 2008
11,990
120
127,497
(21,515)
(8,593)
97,509
Comprehensive income:
Net income
Grupo Vasconia, S.A.B. translation
adjustment (Note C)
Derivative hedge de-designation (Note G)
Derivative fair value adjustment (Note G)
Total comprehensive income
Stock option expense (Note H)
Exercise of stock options
Retirement of shares (Note H)
2,715
456
780
543
46
(21)
2,099
59
(149)
2,715
456
780
543
4,494
2,099
59
(149)
BALANCE AT DECEMBER 31, 2009
12,015
$120 $129,655
$(18,949)
$(6,814)
$104,012
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
operating activities:
Provision for doubtful accounts
Depreciation and amortization
Amortization of debt discount
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 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 (repayments) 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
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES
Year ended December 31,
2009
2008
(as adjusted
see Note F)
2007
(as adjusted
see Note F)
$ 2,715
$(47,755)
$ 7,529
(420)
11,472
2,663
673
734
2,099
(1,953)
―
―
789
1,458
10,782
2,435
1,999
(3,554)
2,857
(1,132)
―
29,400
3,912
79
9,659
2,226
1,060
1,908
2,292
―
(3,760)
―
1,635
6,430
37,680
(271)
(10,324)
11,263
438
(3,990)
26,154
(908)
1,142
(11,597)
(4,295)
(4,593)
19,925
1,220
(5,270)
―
(2,343)
63,988
6,908
31,567
(2,344)
―
―
408
( 1,936)
(8,859)
(16,312)
―
362
(24,809)
(19,023)
(10,543)
(22,950)
8,832
(43,684)
(64,699)
―
(225)
59
17
―
20,600
(2,995)
(414)
10
6
―
42,200
(3,303)
(456)
245
125
(22,672)
(64,848)
17,207
16,139
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year
(2,796)
3,478
(694)
4,172
4,022
150
CASH AND CASH EQUIVALENTS AT END OF YEAR
$ 682
$ 3,478
$ 4,172
See notes to consolidated financial statements.
F-6
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
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 markets and sells its
products wholesale to retailers throughout North America and directly to the consumer through its Pfaltzgraff®,
Mikasa® and Lifetime Sterling™ Internet websites and Pfaltzgraff® mail order catalogs.
Up until December 31, 2008, the Company also operated retail outlet stores under the Pfaltzgraff® and
Farberware® names.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Revenue recognition
Wholesale sales are recognized when title is transferred to the customer. Internet and catalog sales are recognized
upon delivery to the customer. The retail outlet store sales in 2008 were recognized at the time of sale. Shipping
and handling fees that are billed to customers in sales transactions are included in net sales and amounted to $3.5
million, $4.4 million, and $4.8 million for the years ended December 31, 2009, 2008 and 2007, 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 expenses amounted to $6.9 million, $8.7 million, and $8.4 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Advertising expenses
Advertising expenses are expensed as incurred and are included in selling, general and administrative expenses.
Advertising expenses were $880,000, $1.6 million and $1.6 million for the years ended December 31, 2009, 2008
and 2007, 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 initial
and on-going creditworthiness of the Company’s customers. The Company also maintains an allowance for
anticipated customer deductions. The allowances for deductions are primarily based on contracts the Company has
with its customers. However, in certain cases the Company does not have a formal contract and/or customer
deductions are non-contractual. To evaluate the reasonableness of non-contractual customer deductions, the
Company analyzes currently available information and historical trends of deductions. If the financial conditions of
the Company’s customers or economic conditions were to deteriorate, resulting in an impairment of their ability to
make payments or sell the Company’s products at reasonable sales prices, or the Company’s estimate of non-
contractual deductions was determined to be inaccurate, revisions to allowances may be required, which could
adversely affect the Company’s financial condition. Historically, the Company’s allowances have been appropriate
and have not resulted in material unexpected charges.
F-7
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
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. The Company
estimates the selling price of its inventory on a product by product basis based on the current selling environment
and considering the various available channels of distribution (e.g. wholesale: specialty store, off-price retailers
etc. or the Internet and catalog). If the estimated selling price is lower than the inventory’s cost, the Company
reduces the value of inventory to the estimated selling price. If the Company is inaccurate in its estimates of
selling prices, it could report material fluctuations in gross margin. Historically, the Company’s adjustments to
inventory have been appropriate and have not resulted in material unexpected charges. 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.
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’s cash and cash equivalents are potentially subject to concentration of credit risk. The Company
maintains cash with several financial institutions that, in some cases, is in excess of Federal Deposit Insurance
Corporation insurance limits.
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, 2009, 2008 and 2007, Wal-Mart Stores, Inc. (including Sam’s Clubs)
accounted for 18%, 20% and 21% of sales, respectively. No other customer accounted for 10% or more of the
Company’s sales during the periods. For the years ended December 31, 2009, 2008 and 2007, the Company’s ten
largest customers accounted for 64%, 60% and 62% of sales, respectively.
F-8
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
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 $75.0 million 4.75%
Convertible Senior Notes at December 31, 2009 and 2008 was $66.8 million and $39.4 million, respectively, based
on Level 2 observable inputs consisting of the most recent quoted price for the Notes obtained from the FINRA
Trade Reporting and Compliance Engine™ system at December 31, 2009 and 2008.
Fair value measurements
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 820,
Fair Value Measurements and Disclosures, provides enhanced guidance for using fair value to measure assets and
liabilities and 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.
Fair value measurements included in the Company’s consolidated financial statements relate to the Company’s
convertible notes, annual intangible asset impairment test and derivatives, described in Notes A, D and G,
respectively.
Derivatives
The Company accounts for derivative instruments in accordance with ASC Topic No. 815, Derivatives and
Hedging. ASC Topic No. 815 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
operations.
Goodwill, intangible assets and long-lived assets
Goodwill and intangible assets deemed to have indefinite lives, are not amortized but instead are subject to an
annual impairment assessment in accordance with the provisions of ASC Topic No. 350, Intangibles-Goodwill and
Other. As more fully described in Note D, the results of the Company’s 2009 assessment did not indicate an
impairment of the Company’s indefinite-lived intangible assets.
Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment in
accordance with ASC Topic No. 360, Property, Plant and Equipment, 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. The Company considered indicators of impairment of its long-lived assets and
determined that, other than the impairment charges related to the Company’s restructuring activities described in
Note B, no such indicators were present at December 31, 2009.
F-9
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC Topic No.
740, 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 ASC Topic No. 740 for the financial statement recognition, measurement
and disclosure of uncertain tax positions recognized in the Company’s financial statements. In accordance with this
provision, 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.
Stock options
The Company accounts for its stock options in accordance with ASC Topic No. 718-20, Awards Classified as
Equity, which 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 May 2008, the FASB issued ASC Topic No. 470-20, Debt with Conversion and Other Options, which 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 with the resulting debt
discount amortized as additional non-cash interest expense over the life of the convertible debt. The provisions of
ASC Topic No. 470-20 were effective for the Company on January 1, 2009 and the effects on the Company’s
consolidated financial statements as a result of the adoption are described in Note F.
In May 2009, the FASB issued ASC Topic No. 855, Subsequent Events. ASC Topic No. 855 establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial
statements are issued or are available to be issued. ASC Topic No. 855 is effective for interim and annual
reporting periods ending after June 15, 2009. The adoption of ASC Topic No. 855 did not have a material impact
on the Company’s consolidated financial statements.
Subsequent events
The Company has evaluated subsequent events through the date of the filing of its consolidated financial
statements with the Securities and Exchange Commission.
F-10
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE B — RESTRUCTURING
The restructuring and impairment charges discussed below are included in restructuring expenses in the
accompanying consolidated statements of operations for the years ended December 31, 2009, 2008 and 2007.
December 2007 store closings
In December 2007, management of the Company commenced a plan to close 30 underperforming Farberware®
and Pfaltzgraff® factory outlet 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 consisting of the following:
Store lease obligations
Consulting fees
Employee related expenses
Other related costs
Total
Year Ended December 31,
2008
2007
(in thousands)
$2,300
393
141
153
$2,987
$ ―
289
―
―
$289
There were no costs associated with these store closings recognized during the year ended December 31, 2009. The
remaining store lease obligations that were included in accrued expenses at December 31, 2008 related to these
store closings of $566,000 were paid in the first quarter of 2009.
The Company also recorded a non-cash fixed asset impairment charge of $1.6 million at December 31, 2007
related to these store closings. No impairment charges were recognized in connection with these store closings
during the years ended December 31, 2009 and 2008.
September 2008 restructuring initiative
In September 2008, management of the Company commenced a plan to: (i) close its 53 remaining Farberware®
and Pfaltzgraff® retail outlet stores due to continued poor performance, (ii) vacate its York, Pennsylvania
distribution center and consolidate the distribution with the Company’s main East and West Coast distribution
centers and (iii) vacate certain excess showroom space. In connection with these restructuring activities the
Company incurred restructuring related costs consisting of the following:
Year Ended December 31,
2009
2008
(in thousands)
Store lease obligations
Consulting fees
Employee related expenses
Other related costs
Total
$1,263
—
(206)
411
$1,468
$ 7,662
1,766
1,354
318
$11,100
F-11
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE B — RESTRUCTURING (continued)
The following is a roll-forward of the amounts included in accrued expenses related to the September 2008
restructuring initiative (in thousands):
Lease obligations
Consulting fees
Employee related
expenses
Other related costs
Total
Balance
December 31, 2008
$7,578
354
Accrual
adjustments
$(439)
—
Charges
$1,702
—
Payments
$ (8,494)
(354)
Balance
December 31, 2009
$ 347
—
1,168
224
$9,324
(289)
—
$(728)
83
411
$2,196
(955)
(537)
$(10,340)
7
98
$ 452
The adjustments in the table above reflect decisions by the Company not to vacate certain leased space that the
Company had expected to vacate and not to terminate the employment of certain employees, whose employment
the Company had expected to terminate. The amounts were included in the Company’s restructuring charges for
the year ended December 31, 2008.
During the years ended December 31, 2009 and 2008, the Company recorded non-cash asset impairment charges
of $789,000 and $3.9 million, respectively, related to these restructuring activities. The non-cash impairment
charge for the year ended December 31, 2009 reflects an adjustment reducing the non-cash impairment charge
recognized in 2008 by $1.2 million as the result of decisions by the Company not to vacate certain leased space
that the Company had expected to vacate.
Pursuant to ASC Topic No. 205-20, Presentation of Financial Statements- Discontinued Operations, the Company
has not accounted for its retail outlet store operations as discontinued operations since the Company believes that
the operations and cash flows of the retail outlet store operations would not be eliminated from the on-going
operations of the Company as a result of these store closings. Specifically, the Company determined that the
migration of customers from the Company’s retail outlet stores to the Company’s Internet, catalog and wholesale
businesses would not be insignificant. For this purpose, the Company concluded that the migration of sales from
the retail outlet stores to the Internet, catalog and wholesale businesses of greater than 5% would be significant.
Third quarter 2009 restructuring activities
During the third quarter of 2009, management of the Company commenced a plan to realign the management
structure of certain of its divisions and eliminate a portion of the workforce at its Puerto Rico sterling silver
manufacturing facility. In connection with these restructuring activities, the Company recorded $363,000 of
restructuring expenses consisting of employee related expenses, of which $136,000 of these expenses were unpaid
and included in accrued expenses at December 31, 2009.
F-12
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE C — INVESTMENT IN GRUPO VASCONIA, S.A.B.
In December 2007, the Company acquired approximately a 30% interest in Grupo Vasconia, S.A.B. (“Vasconia”)
for $23.0 million in cash. 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 years ended December 31, 2009 and
2008 in the accompanying consolidated statements of operations. The Company’s proportionate share of
Vasconia’s net income has been translated from Mexican Pesos (“MXP”) to U.S. Dollars (“USD”) using the
average daily exchange rate during the years ended December 31, 2009 and 2008. During the year ended
December 31, 2009, the Company received a cash dividend of $218,000 from Vasconia. Included in prepaid
expenses and other currents assets at December 31, 2009 and 2008, are amounts due from Vasconia of $202,000
and $371,000, respectively.
Summarized financial statement information for Vasconia as of and for the years ended December 31, 2009 and
2008 is as follows:
Income Statement
Net Sales
Gross Profit
Income from operations
Net Income
Balance Sheet
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Year Ended December 31,
2009
2008
(in thousands)
USD
$94,633
26,251
11,803
8,306
MXP
$1,276,126
353,500
159,531
111,709
USD
$110,026
28,212
11,662
6,270
MXP
$1,219,151
313,739
129,518
63,014
2009
December 31,
(in thousands)
2008
USD
$48,422
23,698
11,624
3,711
MXP
$ 630,250
308,447
151,295
48,297
USD
$ 46,320
22,371
17,583
3,981
MXP
$ 619,962
325,351
251,799
55,264
F-13
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE D — INTANGIBLE ASSETS AND GOODWILL
The Company performed its 2009 annual impairment tests for its indefinite-lived intangible assets in accordance
with ASC Topic No. 350, Intangibles- Goodwill and Other, as of October 1, 2009. The test involved the
assessment of the fair market value of the Company’s indefinite-lived intangible assets which was based on Level
2 observable inputs using a discounted cash flow approach assuming a discount rate of 14% and an annual growth
rate of 3%. The results of the assessment indicated that the fair value of the Company’s indefinite-lived intangibles
exceeded the carrying amount by approximately $29.0 million. Accordingly, the Company concluded that no
impairment to the carrying value of the Company’s indefinite-lived intangibles existed at December 31, 2009.
In 2008, due primarily to the significant decline in the Company’s market capitalization, the Company recognized
non-cash impairment charges of $29.4 million consisting of the write-off of all recorded goodwill of $27.4 million
and a reduction of the carrying amount of the Company’s indefinite-lived intangibles of $2.0 million.
Intangible assets, all of which are included in the wholesale segment, consist of the following (in thousands):
Year Ended December 31,
2009
Accumulated
Amortization
Gross
Net
Gross
2008
Accumulated
Amortization
Net
Indefinite-lived
intangible assets:
Trade names
Finite-lived
intangible assets:
Licenses
Trade names
Customer
relationships
Patents
Total
$25,530
$ ―
$25,530
$25,530
$ ―
$25,530
15,847
2,477
586
584
$45,024
(5,685)
(1,185)
(421)
(92)
$(7,383)
10,162
1,292
165
492
$37,641
15,847
2,477
586
584
$45,024
(5,123)
(1,103)
(321)
(57)
$(6,604)
10,724
1,374
265
527
$38,420
The weighted-average amortization periods for the Company’s finite-lived intangible assets as of December 31,
2009 are as follows:
Trade names
Licenses
Customer relationships
Patents
Years
30
33
3
17
Estimated amortization expense for each of the five succeeding fiscal years is as follows (in thousands):
Year ending December 31
2010
2011
2012
2013
2014
$ 717
631
591
591
591
Amortization expense for the years ended December 31, 2009, 2008 and 2007 was $775,000, $978,000, and
$915,000, respectively.
F-14
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE E — CREDIT FACILITY
The Company has a $130.0 million secured credit facility that matures on January 31, 2011 (the “Credit Facility”).
Borrowings under the Credit Facility are secured by all assets of the Company.
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 modified the Credit Facility in
certain ways including, as follows: (i) changed the maturity date to January 31, 2011, (ii) added certain asset
categories to the borrowing base, (iii) increased the applicable margin rates (including a minimum LIBOR of
1.75%), (iv) revised the minimum Consolidated EBITDA (as defined in the Credit Facility) and fixed charge
coverage covenants and added both a minimum net sales for 2009 only and maximum capital expenditures
covenant, (v) eliminated the requirement of maximum leverage and minimum interest coverage ratios, (vi)
eliminated the $50.0 million accordion feature, (vii) revised the minimum excess availability amount and (viii)
placed restrictions on dividends and acquisitions. The Company was in compliance with its financial covenants at
December 31, 2009. The Amendment also provided for a lock-box arrangement with the collateral agent for the
benefit of its lenders; as such, the Company has classified the indebtedness as a current liability in its consolidated
balance sheets as of December 31, 2009 and 2008.
On October 13, 2009, the Company entered into an agreement with its lenders to reduce the minimum net sales
requirement for the quarter ended September 30, 2009 from $114.8 million to $107.0 million.
On October 30, 2009, the Company entered into an agreement with its lenders to further amend the Credit Facility
to, among other things: (i) reduce the minimum required availability to $15.0 million for all fiscal quarters
beginning with the fiscal quarter ended September 30, 2009, (ii) eliminate the orderly liquidation value of the
Company’s trademarks from the borrowing base and (iii) reduce the total commitment to $130.0 million.
On February 12, 2010, the Company entered into an agreement with its lenders to further amend the Credit
Facility to, among other things: (i) permit the Company to purchase, from time to time, in the aggregate, up to
$15.0 million principal amount of the Company’s 4.75% Convertible Notes and (ii) eliminate the requirement for
the Company to obtain a consent from the lenders prior to consummating a Permitted Acquisition (as defined in
the Credit Facility).
At December 31, 2009, the Company had $1.2 million of open letters of credit and $24.6 million of borrowings
outstanding under the Credit Facility. Interest rates on outstanding borrowings at December 31, 2009 ranged from
5.75% to 6.25%. Availability under the Credit Facility at December 31, 2009 was $49.9 million (net of $15.0
million of minimum required availability). The Company has interest rate swap and collar agreements with an
aggregate notional amount of $55.2 million at December 31, 2009 (see Note G). The Company entered into these
agreements to effectively fix the interest rate on a portion of its borrowings under the Credit Facility.
F-15
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE F — CONVERTIBLE NOTES
The Company has outstanding $75.0 million aggregate principal amount of 4.75% Convertible Senior Notes due
July 15, 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 outstanding under its Credit Facility. 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.
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, 2009 the unamortized balance of these costs is $917,000 and is included in other assets in the
consolidated balance sheet.
Effective January 1, 2009, the Company adopted the provisions of ASC Topic No. 470-20 on a retrospective basis
as though the provisions were in effect at the date of issuance of the Notes in June 2006. As a result of the
adoption, the Company reclassified $7.9 million (net of taxes of $2.8 million) from convertible notes to additional
paid-in-capital and recorded a debt discount of $12.8 million to be amortized to interest expense over the term of
the Notes. In 2008, the Company recorded a full valuation allowance against all of its deferred taxes.
Accordingly, the Company increased additional paid in capital and accumulated deficit by $2.8 million to reflect
the valuation allowance in the 2008 period in the accompanying statement of stockholders’ equity.
F-16
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE F — CONVERTIBLE NOTES (continued)
The following tables set forth the effects of the retrospective adoption of ASC Topic No. 470-20 on the Company’s
consolidated balance sheet at December 31, 2008, consolidated statements of operations and cash flows for the
years ended December 31, 2008, and 2007 (in thousands, except per share data):
Selected balance sheet data:
Convertible notes
Paid-in-capital
Accumulated deficit
Selected statement of operations and cash flow data:
Statement of Operations
Interest expense
Loss before income taxes and equity in earnings of Grupo
Vasconia, S.A.B.
Income tax benefit
Net loss
Basic and diluted loss per common share
Statement of Cash Flows
Amortization of debt discount
Deferred income taxes
Statement of Operations
Interest expense
Income before income taxes
Income tax provision
Net income
Basic income per common share
Diluted income per common share
Statement of Cash Flows
Amortization of debt discount
Deferred income taxes
F-17
December 31, 2008,
As reported
$ 75,000
116,869
(18,023)
As adjusted
$ 67,864
127,497
(21,515)
Year Ended
December 31, 2008,
As reported
As adjusted
$ (9,142)
$ (11,577)
(61,055)
10,540
(49,029)
(4.09)
(63,490)
14,249
(47,755)
(3.99)
―
155
2,435
(3,554)
Year Ended
December 31, 2007,
As reported
As adjusted
$ (8,397)
16,322
(7,430)
8,892
0.69
0.68
$ (10,623)
14,096
(6,567)
7,529
0.58
0.57
―
2,771
2,226
1,908
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE F — CONVERTIBLE NOTES (continued)
At December 31, 2009 and December 31, 2008, the carrying amounts of the debt and equity components of the
Notes were as follows (in thousands):
Carrying amount of equity component, net of tax
December 31,
2009
$10,628
2008
$10,628
Principal amount of liability component
Unamortized discount
Carrying amount of debt component
$75,000
(4,473)
$70,527
$75,000
(7,136)
$67,864
At December 31, 2009 the remaining period over which the debt discount will be amortized is 1.5 years. The
effective interest rate of the liability component was 9.02% at the date of issuance. Total interest recognized
related to the Notes, including amortization of the debt discount and offering costs, was $6.8 million, $6.6 million
and $6.4 million for the years ended December 31, 2009, 2008 and 2007, respectively.
NOTE G — DERIVATIVES
The Company has interest rate swap agreements with an aggregate notional amount of $50.0 million and interest
rate collar agreements with an aggregate notional amount of $40.2 million to manage interest rate exposure related
to its variable interest rate borrowings under the Credit Facility. The agreements expire in November 2010 through
January 2011.
An interest rate swap agreement with a notional amount of $15.0 million and the interest rate collar agreements
were designated as cash flow hedges at inception, with the effective portion of the fair value gains or losses on
these agreements recorded as a component of accumulated other comprehensive loss. During November 2009, the
interest rate collar agreements were de-designated as a cash flow hedge as a result of reductions and projected
future reductions in the Company’s borrowings hedged by the interest rate collar agreements. Accordingly, the
Company reclassified a portion of the loss included in other comprehensive loss related to the interest rate collar
agreements of $780,000, representing the ineffective portion of the hedge, to interest expense. In addition,
beginning in December 2009 and through the termination of the interest rate collar agreements, the Company will
amortize the remaining loss of $382,000 included in other comprehensive loss and recognize the fair value gains
or losses related to the interest rate collar agreements in interest expense. The effect of recording the cash flow
hedges at fair value resulted in an unrealized gain of $543,000 at December 31, 2009 and unrealized losses of $1.9
million and $203,000 (net of taxes of $170,000) for the years ended December 31, 2008 and 2007, respectively.
Interest rate swap agreements with an aggregate notional amount of $35.0 million were not designated as hedges at
inception and the fair value gains or losses from these swap agreements are recognized in interest expense. The
effect of recording these interest rate swap agreements and the interest rate collar agreements (beginning with
December 31, 2009) at fair value resulted in unrealized gains of $143,000 and $148,000 for the years ended
December 31, 2009 and 2008, respectively, and an unrealized loss of $358,000 for the year ended December 31,
2007.
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 $1.8 million and $2.5 million at
December 31, 2009 and 2008, respectively, and is included in accrued expenses and deferred rent & other long-
term liabilities.
F-18
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE H — CAPITAL STOCK
Long-term incentive plan
In June 2009, the shareholders of the Company approved an amendment to the Company’s 2000 Long-Term
Incentive Plan (the “Plan”) to increase the shares available for grant by 1,000,000 shares to 3,500,000 shares.
These 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, 2009, there were 1,215,729 shares available for grant under the
Plan. All stock options granted through December 31, 2009 under the Plan have exercise prices equal to the
market values of the Company’s common stock on the dates of grant.
In February 2009, two key executives of the Company irrevocably and voluntarily cancelled their options to
purchase a total of 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, 2009, is as follows:
Weighted-
average
exercise price
Options
Weighted-
average
remaining
contractual life
(years)
Aggregate
intrinsic
value
Options outstanding, December 31, 2006
1,410,900
$22.78
Grants
Exercises
Cancellations
Options outstanding, December 31, 2007
Grants
Exercises
Cancellations
Options outstanding, December 31, 2008
Grants
Exercises
Cancellations
516,500
(32,000)
(86,500)
1,808,900
286,000
(1,750)
(56,500)
2,036,650
632,000
(12,650)
(869,333)
21.65
7.64
23.48
22.69
7.15
5.50
26.67
20.41
3.43
5.43
25.28
Options outstanding, December 31, 2009
1,786,667
12.14
Options exercisable, December 31, 2009
693,858
15.44
6.51
5.03
$3,091,570
$ 474,197
F-19
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE H — CAPITAL STOCK (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, 2009. 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, 2009 and the exercise price.
The total intrinsic value of stock options exercised for the years ended December 31, 2009, 2008 and 2007 was
$12,000, $10,000, and $417,000, 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 $2.1 million, $2.8 million, and $2.2 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Total unrecognized compensation cost related to unvested stock
options at December 31, 2009, before the effect of income taxes, was $3.8 million and is expected to be recognized
over a weighted-average period of 2.37 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,
2009, 2008 and 2007 was $1.92, $5.05 and $8.26, 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
2009
2008
2007
73%
4.4
1.92%
0.00%
50%
4.8
2.41%
5.20%
40%
5.2
4.56%
1.18%
Cash dividends
The Company did not pay cash dividends on its outstanding shares of common stock during the year ended
December 31, 2009. During the years ended December 31, 2008 and 2007, the Company paid a total annual cash
dividend of $0.25 per share.
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, 2009.
F-20
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE H — CAPITAL STOCK (continued)
Restricted stock
In 2009, 2008 and 2007, the Company issued 33,335, 22,586 and 7,280 restricted shares, respectively, of the
Company’s common stock to its Board of Directors representing payment of a portion of their annual retainer. The
total fair value of the restricted shares, based on the number of shares granted and the quoted market price of the
Company’s common stock on the date of grant, was $150,000, $172,500 and $150,000, respectively. The shares
vest 100% one year from the date of grant.
Escrow shares
In 2009, the Company received back 20,436 shares of its common stock valued at $149,000 that previously had
been held in escrow in connection with its 2006 acquisition of certain assets of Syratech Corporation. See Note L.
NOTE I — 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, 2009, 2008 and 2007 are as follows:
2009
2008
2007
(in thousands - except per share amounts)
Net income (loss) - Basic
Interest expense, net, 4.75% Convertible Senior Notes
Net income (loss) – Diluted
$ 2,715
―
$ 2,715
$(47,755)
―
$(47,755)
Weighted-average shares outstanding – Basic
Effect of dilutive securities:
Stock options
4.75% Convertible Senior Notes
Weighted-average shares outstanding – Diluted
12,009
11,976
66
―
12,075
―
―
11,976
Basic income (loss) per common share
$ 0.23
$ (3.99)
Diluted income (loss) per common share
$ 0.22
$ (3.99)
$ 7,529
―
$ 7,529
12,969
130
―
13,099
$ 0.58
$ 0.57
The computations of diluted income (loss) per common share for the years ended December 31, 2009, 2008 and
2007 excludes options to purchase 1,435,348, 2,036,650 and 1,544,000 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, 2009, 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 their antidilutive effect.
F-21
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE J — INCOME TAXES
The provision (benefit) for income taxes consists of:
2009
Year Ended December 31,
2008
(in thousands)
2007
Current:
Federal
State and local
Deferred
Income tax provision (benefit)
$ 162
984
734
$1,880
$(11,478)
1,388
(4,159)
$(14,249)
$3,891
768
1,908
$6,567
The Company has carried back the prior year loss for Federal tax purposes.
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:
Deferred rent expense
Grupo Vasconia, S.A.B. translation
adjustment
Stock options
Inventory
Depreciation and amortization
Operating loss carry-forward
AMT credit
Accounts receivable allowances
Accrued bonuses
Derivatives
Other
Total deferred income tax asset
Deferred income tax liability:
Depreciation and amortization
Indefinite-lived intangibles
Convertible Debt
Grupo Vasconia, S.A.B. equity in earnings
Inventory
Other
Total deferred income tax liability
December 31,
2009
2008
(in thousands)
$ 2,424
$ 2,117
2,403
1,413
1,603
672
617
633
176
389
619
990
$11,939
2,553
919
2,614
―
1,209
709
852
313
1,054
4,033
$16,373
(4,273)
(1,727)
(383)
― (31)
(3,776)
(2,765)
(198)
― (1,303)
― (211)
(8,284)
(6,383)
Net deferred income tax asset
5,556
8,089
Valuation allowance
(10,210)
(11,865)
Net deferred income tax liability
$ (4,654)
$ (3,776)
F-22
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE J — INCOME TAXES (continued)
As of December 31, 2009, the Company has utilized the Federal net operating loss carry forward generated in the
prior year. Additionally, the Company has various state net operating loss carry forwards of $12.4 million that
will begin to expire in 2014. The Company has credit carryforwards of $633,000 that do not expire. Management
has determined that it is not more likely than not that these assets will be realized and a valuation allowance has
been established. In accordance with ASC Topic No. 740, 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 provision (benefit) for income taxes differs from the amounts computed by applying the applicable Federal
statutory rates as follows:
Year Ended December 31,
2008
2007
2009
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
Non-deductible expenses
Valuation allowance
Other
Provision (benefit) for income taxes
35.0%
(35.0)%
35.0%
37.9
11.5
6.4
(19.3)
6.1
77.6%
(3.3)
0.5
1.1
19.4
(5.1)
(22.4)%
5.9
3.4
0.8
―
1.5
46.6%
The estimated value of the Company’s tax positions at December 31, 2009, 2008 and 2007 is a liability of
$335,000, $498,000 and $1.4 million, respectively, and consists of the following:
2009
Year Ended December 31,
2008
(in thousands)
2007
Balance at January 1
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax position of prior years
Balance at December 31
$498
28
191
$335
$1,437
303
1,242
$ 498
$1,704
36
9
312
$1,437
The Company had approximately $69,000, net of federal benefit, accrued at December 31, 2009 for the payment of
interest. The Company’s policy for recording interest and penalties is to record such items as a component of
income taxes.
If the Company’s tax positions are sustained by the taxing authorities in favor of the Company, the Company’s
liability would be reduced by $335,000, of which $335,000 would impact the Company’s tax provision. On a
quarterly basis, the Company evaluates its tax positions and revises its estimates accordingly. The Company
believes that it is reasonably possible that $335,000 of its tax positions will be resolved within the next twelve
months.
The Company has identified the following jurisdictions as “major” tax jurisdictions: U.S. Federal, California,
Massachusetts, Pennsylvania, New York and New Jersey. As of December 31, 2009, the Company has settled
their Federal tax examination for the periods 2006 through 2008. The Company is no longer subject to U.S.
Federal income tax examinations for the years prior to 2008. The periods subject to examination for the
Company’s major state jurisdictions are the years ended 2006 through 2008.
F-23
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE K — 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®, Mikasa® and Lifetime Sterling™ Internet websites and the Company’s
Pfaltzgraff® mail-order catalogs.
As more fully described in Note B, the Company ceased operating its Pfaltzgraff® and Farberware® retail outlet
stores by December 31, 2008. The results of operations of certain of these 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 and acquired intangible assets.
Assets in the unallocated corporate category consist of cash and tax related assets that are not allocated to the
segments.
2009
Year Ended December 31,
2008
(in thousands)
2007
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
$389,078
25,962
$415,040
$403,591
84,344
$487,935
$416,890
76,835
$493,725
$ 30,581
(3,637)
(11,335)
$ 15,609
$(11,979)
(28,998)
(10,936)
$(51,913)
$ 42,968
(10,010)
(12,174)
$ 20,784
$ 11,252
220
$ 11,472
$ 9,975
807
$ 10,782
$ 8,178
1,481
$ 9,659
F-24
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE K — BUSINESS SEGMENTS (continued)
Segment information (continued)
2009
Year Ended December 31,
2008
(in thousands)
2007
Assets:
Wholesale
Direct-to-consumer
Unallocated/ corporate/ other
Total assets
Capital expenditures:
Wholesale
Direct-to-consumer
Total capital expenditures
Notes:
$273,589
2,452
682
$276,723
$321,284
5,422
15,075
$341,781
$337,156
22,163
12,096
$371,415
$ 1,684
660
$ 2,344
$ 8,538
321
$ 8,859
$ 17,412
1,611
$ 19,023
(1) In 2009, income from operations for the wholesale segment includes $600,000 for restructuring and impairment expenses. In 2008,
loss from operations for the wholesale segment included non-cash goodwill and intangible asset impairment charges totaling $29.4
million. See Notes B and D.
(2) In 2009, 2008 and 2007, loss from operations for the direct-to-consumer segment includes $2.0 million, $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:
2009
Year Ended December 31,
2008
(in thousands)
2007
Food Preparation
Tabletop
Home Décor
Other
Total
$217,476
113,479
53,360
4,763
$389,078
$232,211
111,769
57,650
1,961
$403,591
$247,336
97,995
68,856
2,703
$416,890
F-25
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE L — COMMITMENTS AND CONTINGENCIES
Operating leases
The Company has lease agreements for its corporate headquarters, distribution centers, 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 December 2009, in connection with the Company’s restructuring activities described in Note B, the Company
entered into an agreement pursuant to which, among other things, the Company was released from its lease
obligations for the space the Company leased in the Greenway Tech Center in York, Pennsylvania that had served
as the headquarters of the Company’s retail operations.
Future minimum payments under non-cancelable operating leases are as follows (in thousands):
Year ending December 31
2010
2011
2012
2013
2014
Thereafter
Total
$ 12,476
12,195
12,448
12,319
12 248
55,921
$117,607
Rental and related expenses under operating leases were $13.5 million, $23.0 million and $18.3 million for the years
ended December 31, 2009, 2008 and 2007, respectively.
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
2010
2011
Total minimum lease payments
Less: amounts representing interest
Present value of minimum lease payments
$169
94
263
( 19)
$244
The current and non-current portions of the Company’s capital lease obligations at December 31, 2009 of
$154,000 and $90,000, respectively, and at December 31, 2008 of $230,000 and $239,000, respectively, are
included in accrued expenses, and deferred rent & other long-term liabilities, respectively.
F-26
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE L — COMMITMENTS AND CONTINGENCIES (continued)
Royalties
The Company has license agreements that require the payment 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
2010
2011
2012
2013
2014
Thereafter
Total
$ 6,463
5,423
5,707
300
306
1,060
$19,259
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 the New York State Supreme Court,
New York County, asserting a single cause of action for breach of contract. Syratech alleged 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. In November 2009, the Company
entered into a settlement agreement and the action was dismissed. Pursuant to the settlement agreement, the
Company paid Syratech $425,000.
In March 2008, the Environmental Protection Agency (“EPA”) announced that the San Germán 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 Germán Ground Water Contamination Superfund Site, San Germán, 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 Germán, 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.
F-27
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE M — 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 the Internal Revenue Service limit of
$16,500 ($22,000 for employees 50 years or over) for 2009. During 2008 and 2007, 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 and $778,000 in 2008 and 2007, 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, 2009 and 2008, the total unfunded retirement benefit
obligation was $3.3 million and $3.2 million, respectively, and is included in accrued expenses, and deferred rent
& other long-term liabilities. During the years ended December 31, 2009 and 2008, the Company paid retirement
benefits related to these obligations of $153,000 and $148,000, respectively. The Company expects to pay a total
of $148,000 in retirement benefits related to these obligations during the year ending December 31, 2010.
NOTE N — OTHER
Inventory
The components of inventory are as follows:
Finished goods
Work in process
Raw materials
Total
December 31,
2009
2008
(in thousands)
$101,270
1,635
1,026
$103,931
$137,378
2,197
2,037
$141,612
F-28
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE N — 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,
2009
2008
(in thousands)
$ 64,927
24,283
1,716
123
115
91,164
(49,541)
$ 41,623
$ 63,868
24,469
1,708
1,301
115
91,461
(41,553)
$ 49,908
Depreciation and amortization expense on property and equipment for the years ended December 31, 2009, 2008
and 2007 was $9.4 million, $9.8 million and $8.7 million, respectively.
Included in machinery, furniture and equipment and accumulated depreciation at December 31, 2009 are
$2.1 million and $1.7 million, respectively, related to assets recorded under capital leases. 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.
As more fully described in Note B, the Company recorded non-cash impairment charges in connection with its
restructuring activities of $789,000, $3.9 million and $1.6 million in 2009, 2008 and 2007, respectively.
In November 2007, the Company sold its former corporate headquarters in Westbury, New York, for net proceeds
of $8.8 million. The Company recognized a gain of $3.7 million on the sale which is included in other income, net
for the year ended December 31, 2007.
Accrued expenses
Accrued expenses consist of:
Customer allowances and rebates
Compensation
Interest
Vendor invoices
Royalties
Derivative liability
Commissions
Freight
Restructuring costs
Other
Total
December 31,
2009
2008
(in thousands)
$10,693
4,948
2,666
3,020
1,801
1,695
737
704
588
2,975
$29,827
$ 5,956
1,924
2,272
6,066
2,021
―
1,218
2,245
9,890
4,310
$35,902
F-29
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE N — OTHER (continued)
Deferred rent & other long-term liabilities
Deferred rent & other long-term liabilities consist of:
Deferred rent liability
Mikasa® contingent consideration
Retirement benefit obligations
Derivative liability
Long-term portion of capital lease obligations
Total
Supplemental cash flow information
December 31,
2009
2008
(in thousands)
$10,998
6,215
3,148
76
90
$20,527
$11,135
6,215
3,003
2,462
239
$23,054
2009
Year Ended December 31,
2008
(in thousands)
2007
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
$ 8,804
380
$ 8,635
6,138
$6,167
6,392
$ 388
―
―
―
―
$(6,587)
3,264
―
―
―
$ ―
―
133
34
7,039
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, 2009
Deducted from asset accounts:
Allowance for doubtful
accounts
Reserve for sales
returns and allowances
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
$ 1,853
$ 1,204
$ 1,624
(a)
$ 1,433
12,798
$14,651
22,180
$23,384
(c)
19,854
$21,478
(b)
15,124
$16,557
$ 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
(a) Uncollectible accounts written off, net of recoveries.
(b) Allowances granted.
(c) Charged to net sales.
S-1
Officers and Directors
Offices
JEFFREY SIEGEL
Chairman of the Board of Directors
Chief Executive Officer and President
RONALD SHIFTAN
Vice Chairman of the Board of Directors
Chief Operating Officer
CRAIG PHILLIPS
Senior Vice President – Distribution
Executive Officer and Director
LAURENCE WINOKER
Senior Vice President – Finance
Treasurer and Chief Financial Officer
DANIEL SIEGEL
Executive Vice President
SARA SHINDEL
General Counsel and Secretary
DAVID E. R. DANGOOR
Director
MICHAEL JEARY
Director
JOHN KOEGEL
Director
CHERRIE NANNINGA
Director
WILLIAM U. WESTERFIELD
Director
CORPORATE HEADQUARTERS
1000 Stewart Avenue
Garden City, NY 11530
(516) 683-6000
Corporate Information
CORPORATE COUNSEL
Samuel B. Fortenbaugh III
New York, NY 10111
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Jericho, NY 11753
TRANSFER AGENT & REGISTRAR
The Bank of New York Mellon
480 Washington Boulevard
Jersey City, NJ 07310
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, 2009 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 17, 2010,
at the Corporate Headquarters.
9
LIFETIME BRANDS, INC. 2009 ANNUAL REPORT
Lifetime Brands, Inc.
1000 Stewart Avenue, Garden City, New York 11530
10
LIFETIME BRANDS, INC. 2009 ANNUAL REPORT