Brands are just the beginning.
L I F E T I M E B R A N D S A N N U A L R E P O R T 2 0 1 3
Financial Highlights
NET SALES
IN MILLIONS
500
0
EBITDA(1)
IN MILLIONS
45
0
2010
2011
2012
2013
2010
2011
2012
2013
NET INCOME AND ADJUSTED NET INCOME(2)
IN MILLIONS
DILUTED INCOME PEr COMMON ShArE AND
ADJUSTED DILUTED INCOME PEr COMMON ShArE(2)
NET INCOME
ADJUSTED NET INCOME
DILUTED INCOME PER COMMON SHARE
ADJUSTED DILUTED INCOME PER COMMON SHARE
Year Ended December 31,
(in thousands, except per share data)
2010
2011
2012
2013
Net SaLeS
eBItDa(1)
$443,171
$444,418
$486,842
$502,721
$42,918
$38,098
$41,242
$43,478
Net INCOMe
$20,261
$14,066
$20,947
$9,281
aDJUSteD Net INCOMe(2)
$14,569
$14,486
$16,156
$14,496
DILUteD INCOMe
PeR COMMON SHaRe
aDJUSteD DILUteD INCOMe
PeR COMMON SHaRe(2)
$1.64
$1.18
$1.12
$1.16
$1.64
$1.26
$0.71
$1.11
(1) eBItDa IS a NON-GaaP FINaNCIaL MeaSURe tHat IS ReCONCILeD tO GaaP Net INCOMe ON PaGe 27 OF tHe COMPaNY’S FORM 10-K
FOR tHe YeaR eNDeD DeCeMBeR 31, 2013 aND PaGe 24 OF tHe COMPaNY’S FORM 10-K FOR tHe YeaR eNDeD DeCeMBeR 31, 2011.
(2) aDJUSteD Net INCOMe IS a NON-GaaP FINaNCIaL MeaSURe tHat IS ReCONCILeD tO GaaP Net INCOMe ON PaGe [13] OF tHIS aNNUaL RePORt.
Lifetime Brands, Inc
We are one of the world’s leading
designers, developers, and marketers
of a broad range of nationally
branded consumer products used
in the home. Our categories include
Kitchenware, Cutlery, Cutting Boards,
Bakeware, Cookware, Dinnerware,
Flatware, Glassware, Pantryware,
Spices, and Home Décor.
Mission Statement
We are committed to delivering
five-star experiences to the earth’s
consumers through innovative
products, services, and solutions
for the home. In return, they
reward us with increased market
share and profitability, allowing
our associates, stakeholders,
and shareholders to prosper.
1
Lifetime Brands, Inc. 2013 Annual Report Dear fellow shareholders
I AM PLEASED TO REPORT THAT
2013 MARKED ANOTHER YEAR OF
STRONG FINANCIAL PERFORMANCE
FOR LIFETIME BRANDS.
For 2013, Consolidated Net Sales reached $502.7
million, the highest in the Company’s history. Income
from operations was $28.2 million and Consolidated
EBITDA was $43.5 million, both also records. Net
income was $9.3 million or $0.71 per diluted share.
We achieved these results despite a struggling
U.S. economy, the imposition of higher duties
on ceramic products by the European Union, a
write-down in the fair value of our investment
in Grupo Vasconia SAB, overall weakness in the
Mexican economy that affected Grupo Vasconia’s
performance, and greater-than-expected expenses
in connection with Vasconia’s integration of Almexa,
the aluminum company it acquired in 2012.
Moreover, we foresee significant opportunities
for growth in 2014, fueled by an improving
U.S. economy, an unprecedented number
of major new product introductions, and
a number of key acquisitions.
In January 2014, we acquired Thomas Plant
(Birmingham) Limited. Trading as Kitchen Craft,
Thomas Plant is one of the United Kingdom’s
leading suppliers of kitchenware products and
accessories. The company’s broad range of
housewares products is marketed under well-
known proprietary, customer-exclusive, and
private label brands to over 2,600 retailers in the
U.K. and in over 70 countries worldwide. We are
especially pleased that Andrew Plant, Richard
Plant, and Peter Bushell, members of the family
that has managed the company over its 164-year
existence, will continue in senior leadership roles.
In February, we purchased the intellectual property
and certain assets of BUILT NY, Inc., a designer
and distributor of lunch boxes, wine bags, and
baby accessories. The acquisition of BUILT brings
us new and exciting product classifications and
provides us access to a broad base of independent
retailers in over 60 countries worldwide.
In March, we acquired the business and assets of
La Cafetière Ltd., a supplier of products to brew
and serve coffee and tea, which further broadens
our product classifications and strengthens our
presence in the U.K. and Continental Europe.
These acquisitions have the potential to add over
$75 million in net sales and significantly increase our
net income and diluted earnings per share in 2014.
At The International Home + Housewares Show
in March 2014, we introduced an extraordinary
number of new products, all featuring innovative
styles and designs. We also introduced ten new
brands, including Bombay®, BUILT®, Mossy
Oak®, Reo™, and Brick Oven™. Our focus is
on developing brands that we can use on a
wide range of products all over the world. We
are also dedicating more resources to the
development and marketing of these brands.
There are many promising international trends as
well. In Europe, net sales of Creative Tops increased
2
Lifetime Brands, Inc. 2013 Annual Report in the fourth quarter of 2013 over the same period
in 2012, and we foresee continued improvement
in 2014, as the U.K. economy continues to improve
and customers adjust to the increased pricing
resulting from higher duty rates. We received
a trading license in China, and will become a
supplier of kitchenware products to Walmart stores
there beginning in the second half of this year.
2013 also saw several notable developments in
the corporate governance area. In June, our Board
of Directors elected Daniel Siegel as President of
Lifetime Brands. Dan’s promotion is part of our
management succession plan, intended to ensure
that the next generation of Lifetime’s leaders
continues to execute our core strategies and drive
growth in our business. Since Dan joined Lifetime
in 1992, he has repeatedly demonstrated his
expertise in the housewares industry, his passion for
innovation, and his strong leadership capabilities.
Dan is responsible for Lifetime’s expanded focus
on product innovation, for developing our social
media and electronic marketing strategies, and for
overseeing our expansion into new markets outside
North America. Over the last several years, Dan
has also been the principal architect of Lifetime
Next™, the strategic initiative that lays out our path
for moving forward over the next five years.
In August, the Board of Directors appointed
John Koegel to the newly created position of
Lead Director. John has served as a Director
since 2008, and his extensive retailing
background, broad industry experience, and
leadership skills provide the Board of Directors
with valuable strategic insight and counsel.
In November, the Board elected Dennis E. Reaves as
a Director. Dennis was formerly Senior Vice President
and General Merchandise Manager of Walmart
Jeffrey Siegel
Chairman of the Board,
and Chief Executive Officer
Stores, Inc. and has served as a senior consultant
to leading retailers, including Big Lots, Inc. and
Gap, Inc., and to multinational consumer products
companies, such as Jarden Corporation. Dennis has
been a strategic advisor to Lifetime for many years,
and will continue to provide us with his unsurpassed
knowledge, experience, and vision as we develop
new distribution channels in existing markets and
continue to expand the Company’s global footprint.
In summary, we are committed to executing our
strategic plan and have developed the resources,
talent, and systems to achieve our goals. We believe
this is a winning strategy for our Company, our
shareholders, and our employees. We look forward
to continuing to move ahead in the coming year.
Respectfully,
Jeffrey Siegel
Chairman of the Board and Chief Executive Officer
3
Lifetime Brands, Inc. 2013 Annual Report Brands are just
the beginning
LIFETIME BRANDS IS A LEADING
GLOBAL PROVIDER OF KITCHENWARE,
TABLETOP, AND OTHER PRODUCTS
USED IN THE HOME.
We have a diverse portfolio of powerful brands,
including well-known kitchenware brands, such
as Farberware®, KitchenAid®, Brick Oven™, Fred®
& Friends, Guy Fieri®, Kizmos™, Kitchen Craft®,
Misto®, Mossy Oak®, Pedrini®, Reo™, Sabatier®,
Savora™, and Vasconia®; respected tabletop
brands, such as Mikasa®, Pfaltzgraff®, Creative
Tops®, Gorham®, International® Silver, Kirk Stieff®,
La Cafetière®, Sasaki®, Towle® Silversmiths, Tuttle®,
Wallace®, V&A®, and Royal Botanic Gardens Kew®;
and home solutions brands, including Bombay®,
BUILT®, Debbie Meyer®, Kamenstein®, and Design
for Living™. We also provide exclusive private
label products to leading retailers worldwide.
REO™ GADGETS
4
MOSSY OAK® DINNERWARE
For over half a century our designs have defined
the look of products used to prepare, cook, and
serve meals at home. With billions of products
sold, we’ve helped shape the look of kitchens and
dining rooms worldwide. But we didn’t stop there.
Driven by our strategic plan, Lifetime Next™, we
are constantly on the lookout for opportunities
to create new brands, expand existing brands,
and acquire brands and licenses to increase
our market presence. In the past year, we
capitalized on these opportunities and added an
exciting array of products to our assortments.
We created Reo™, a global kitchenware brand
with a simple philosophy: make fun, friendly,
quality cooking tools everyone has access to. It’s
an idea borrowed from Sam Siegel, one of the
original founders of Reo Products in 1957. His
idea proved to be a success and, as his company
grew, it eventually became Lifetime Brands.
Our new Reo™ brand is both a celebration of
Lifetime’s origins and an introduction to a new
generation of consumers. With designs that
Lifetime Brands, Inc. 2013 Annual Report are cool yet functional, these kitchen tools make cooking
enjoyable and easy. They also look stylish while preparing
meals, and are designed to be displayed while not in use.
Consumers can be proud that by purchasing Reo products,
they’re involved with a brand that gives back. We have
partnered with WhyHungerTM, so every person who buys
one of these products will be donating to people in
need by helping to provide meals around the world.
We also created Brick Oven™, a specialty brand specifically
targeted to the at-home pizza chef. Pizza has long been
an American food favorite, and it continues to grow in
popularity. In fact, 93% of Americans eat pizza at least
once per month, making it the number one dinner
choice. Frozen pizza comprises 81.7% of the retail
pizza market, with estimated sales of $4.4 billion.
Brick Oven™ looks to capitalize on this large and growing
market by becoming a one-stop shop for all pizza prep
products. With everything from a unique pizza stone with
a brick oven design to a slicer that doubles as a serving
utensil, Brick Oven™ provides the tools every novice or
gourmet chef needs to masterfully heat a frozen pizza or
transform a few simple ingredients into a culinary delight.
Lifetime Brands is the only company that can offer such a
wide assortment of pizza prep products across multiple
categories, as well as innovative merchandising solutions that
allow retailers to display them in a comprehensive collection.
Brick Oven™ features creative packaging, and is supported by
unique, easy-to-implement merchandisers and display units.
In 2013, our popular Savora™ brand expanded its breadth
of assortment to include the barware category. This new
line of tools and gadgets is both a natural extension of
and a perfect fit for the sleek and sophisticated styling that
characterizes all Savora™ products. The brand’s advanced
designs are ideally suited for the cocktail nation demographic.
BRICK OVENTM PIZZA STONE
SAVORATM BARWARE
ASSORTED BOMBAY® PRODUCTS
5
Lifetime Brands, Inc. 2013 Annual Report BUILT PATTERNED BAGS AND FOLDING PICNIC BAG
Savora™ has been honored to receive multiple
design awards, including the 2013 Good Design
Award and the 2013 HFN Housewares Trailblazer
Award. Currently, Savora™ products are available on
five continents, in 650 doors at over 500 retailers.
The time-honored Sabatier® brand expanded
in 2013 as well, entering into the kitchen tools
category. Legendary for its design and impeccable
craftsmanship, Sabatier® now brings the tradition of
European excellence to the realm of food prep. For
its entry into this new market, Lifetime’s design
team created a new range of premium-level olive
wood chef’s tools with updated packaging that
reflects a modern take on traditional French forms.
Lifetime also acquired new licenses in the past year,
further expanding our presence in the marketplace.
We entered into a partnership with Bombay®
to develop products in the home décor and
lighting, wall décor, tabletop, flatware, pantryware,
and storage and organization categories.
Bombay® has been a much-loved specialty
brand for over 30 years, and ranks 6th among
recognizable home décor brands in America.
Bombay® is a home lifestyle brand that
fulfills consumers’ desire for products that
represent “value luxury,” and are distinguished
by classic styling and unexpected detail.
Lifetime Brands also recently acquired BUILT®,
a designer and distributor of brightly colored,
uniquely patterned Neoprene products, including
lunch bags, wine totes, picnic cases, and storage
totes. BUILT®’s customer base comprises over
6
Lifetime Brands, Inc. 2013 Annual Report 30,000 retail outlets in over 60 countries.
BUILT® is well known and highly regarded for
authenticity, quality, and innovation. Through
continued innovation, exemplary craftsmanship,
and distinctive patterns, BUILT® accessories
support a recreational lifestyle, and make every day
more enjoyable. The BUILT® product line, which
embodies “the good life” spirit, will complement
Lifetime’s product portfolio and enhance our
distribution to fine retailers worldwide.
Lifetime has also partnered with Mossy Oak®
to offer a collection of beverageware, food
preparation, tabletop, and home décor products
featuring Mossy Oak® camouflage patterns. The
Mossy Oak® brand is one of the most effective and
most recognized camouflage brands in the country.
Lifetime’s partnership with Mossy Oak® allows us to
expand our product selection for current retailers,
in addition to developing partnerships with new
retailers. We are thrilled to bring our product
offerings to the loyal consumers who embrace
Mossy Oak® as part of their love of the outdoors, as
well as those consumers who purchase camouflage
patterned merchandise from a fashion perspective.
The products offered in Mossy Oak® cover a
wide range of categories, including thermal
beverageware and hydration, kitchen
tools and gadgets, barbecue, cutlery,
cookware, dining and entertaining, as well
as decorative elements for the home.
Lifetime entered into a partnership with
Debbie Meyer in 2013 to offer an assortment
of food storage and gadgets. Known as the
“Home Problem Solver,” Debbie Meyer uses
her wealth of knowledge to find answers to
common problems. Her patented inventions
and innovative products are tangible solutions
that help make everyday life easier. She has an
uncanny ability to identify and solve problems
we all have in and around the home.
Her most popular product, Debbie Meyer®
GreenBags® – food storage bags that extend
the life of fruits and vegetables – have had
sales of over 1 billion units. Additionally,
Debbie Meyer® has a built-in media presence,
and is currently appearing as a featured
brand on The Home Shopping Network.
SABATIER® CUTLERY SET
7
Lifetime Brands, Inc. 2013 Annual Report Expanding our
international presence
ANOTHER KEY COMPONENT
OF OUR STRATEGIC PLAN IS
INTERNATIONAL ExPANSION.
Acquisitions have always been a key
component of Lifetime’s long-term growth
strategy, and we are now employing this
strategy to help grow our company into a
global enterprise. We look to accelerate our
international growth by acquiring companies
that have existing multinational footprints.
In January 2014, we acquired Kitchen Craft®,
one of the United Kingdom’s leading suppliers
of kitchenware products and accessories.
Based in Birmingham, Kitchen Craft® sells
products under well-known proprietary,
customer-exclusive, and owned label brands.
The company supplies over 2,600 customers
in all classes of trade in the UK and in over
70 countries worldwide. For its fiscal year
ended May 27, 2013, Kitchen Craft® had net
revenues of approximately $70 million.
The acquisition of Kitchen Craft® represents
a compelling opportunity for Lifetime to
accelerate our growth and make Lifetime a
more effective global resource to our key
retailer partners. Kitchen Craft®’s broad range
of kitchenware products will complement
the tableware and gift assortments marketed
by our other UK subsidiary, Creative Tops.
Also, in March 2014, we announced the
acquisition of La Cafetière®, a UK-based
designer and distributor of products to
brew and serve coffee and tea. Its products
are distributed worldwide under the La
Cafetière® and Randwyck® brands.
In selected key markets, Lifetime has
partnered with strong local companies to
bring together Lifetime’s strengths in branding,
product design, sourcing, and marketing
with the local knowledge and expertise of
seasoned local management teams that
have significant economic stake in their
enterprises. Our Partner Company model has
been very successful and, to date, we have
investments in Canada, Mexico, and Brazil.
Since the establishment of Lifetime Brands
Canada in 2008, LBC’s business has grown
5-fold, with strong presence at 1,000
major retail locations including Canadian
Tire, Walmart, Target, and Costco.
In Mexico, Grupo Vasconia SAB has grown
substantially since Lifetime became a 30%
shareholder in 2007. Vasconia’s growth has been
fueled by the addition of Lifetime’s product
lines, as well as by strategic acquisitions of
aluminum mills, making Vasconia the largest
domestic aluminum producer in Mexico.
In Brazil, GS Internacional S/A does business
with over 3,100 customers in over 5,000
retail locations. A dedicated team has been
installed to develop the business with key
national retailers including Walmart, Sam’s
Club, and Cencosud. In addition, our market
share in food preparation categories increased
8
Lifetime Brands, Inc. 2013 Annual Report as assortments expanded with current and
new customers. A retail direct and online
marketing department was established to grow
the GSI brand online and in social media.
Lifetime Brands and its Partner Companies
strive to be strong and reliable local
partners to our customers worldwide. As
local suppliers with a global presence, our
combined organization is a trusted partner
to some of the world’s largest retailers.
We are proud to have made our expansion
into international markets a priority for
Lifetime Brands. Before we embarked on
this initiative, we serviced slightly over 2,800
customers at 28,000 doors. Since focusing
on global enterprise, we are now servicing
over 10,000 customers at 59,000 doors, and
now have the infrastructure to reach current
consumers in 80 countries on four continents.
In August, we will open a new 12,000 sq. ft.
showroom in Hong Kong featuring all of our
global brands. We now have an international
sales force focusing on those countries where
we do not presently have a physical presence.
In addition, we are in the process of opening
our own sales office in China dedicated to
servicing Chinese retailers. The first customer to
be serviced by this office will be Walmart China.
We expect to begin shipping directly to their
400 stores in the second quarter of this year.
9
Lifetime Brands, Inc. 2013 Annual Report Communication
is at our core
FROM CONNECTING OUR EMPLOYEES
TO INFORMING OUR CONSUMERS, IT’S
IMPERATIVE WE DELIVER OUR MESSAGE.
Critical to the implementation and execution of
our Strategic Plan is to communicate the goals of
Lifetime Next™ to all our employees. These goals
center on global expansion, innovation, process
improvement, and delivering a 5-star experience.
To ensure our Strategic Plan is embraced at every
level, we held a series of town-hall style meetings
in all Lifetime Brands locations. Senior executives
went on road shows to share the highlights of our
strategy in a dynamic multimedia presentation.
The meetings generated lots of excitement. We
handed out a booklet summarizing the goals
of Lifetime Next™ and showed videos giving an
in-depth look at a selection of our initiatives.
The overwhelming response was the
presentation made the employees feel more
connected to the company, and granted them a
greater understanding of the company’s long-
term goals. To keep all employees informed
of our progress, we will continue the tradition
of holding annual employee meetings.
We recognize our employees are our greatest
asset and strive to implement processes and
procedures designed to increase communication
among our associates around the globe.
This past year we launched The WaterCooler™,
a customized social intranet site, as a platform
to engage employees and connect them
to company calendars, directories, office
notifications, document libraries, and
more. The WaterCooler™ is a collaborative
tool where employees can contribute
ideas and content, while staying on top
of the latest company information.
The WaterCooler™ is designed to make
collaboration between employees around the
globe easy. Any employee in any location can
create a group, so members of a team have
a simple method to communicate with each
other. When a group is created, any member
can post messages, share documents, or
correspond with any other member of the
group. This functionality is especially useful
when members of the same team are located in
different time zones, countries, or continents.
We also recognize the importance of
communicating to consumers the features
and benefits of our wide array of products. We
populate our online product descriptions with
search engine optimized copy so our products
are displayed high up in search results. Our
descriptive and compelling product copy is not
only informative; it also entices consumers to buy.
Additionally, we provide consumers with rich
online multimedia content as well. Research has
shown consumers are 85% more likely to make
a purchase after watching a video; therefore, our
informative videos engage, entertain, and sell to
the consumer. We also design our packaging to
sell our products by making it easy to understand
while explaining the product perfectly.
10
Lifetime Brands, Inc. 2013 Annual Report 11
Lifetime Brands, Inc. 2013 Annual Report LIFETIME BRANDS, INC.
Supplemental Information
Reconciliation of GAAP to Non-GAAP Operating Results
(In thousands - except per share data)
!
Consolidated EBITDA:
Net income as reported
Subtract out:
Year Ended
December 31,
2010
2011
2012
2013
(unaudited)
$
20,261
$ 14,066
$ 20,947
$ 9,281
Undistributed equity in earnings (losses), net
Extraordinary item, net of tax
(2,321)
(2,477)
(2,896)
-
(5,665)
-
5,354
Add back:
Income tax provision
Interest expense
Depreciation and amortization
Restructuring expenses
Stock compensation expense
Loss on early retirement of debt
Intangible asset impairment
Permitted acquisition related expenses
4,602
9,351
9,810
-
2,928
764
-
-
Consolidated EBITDA
$ 42,918
6,122
7,758
8,397
-
2,795
-
-
1,856
$ 38,098
5,208
5,898
9,324
-
2,793
1,363
1,069
305
$ 41,242
9,175
4,847
10,415
367
2,881
102
-
1,056
$ 43,478
!Consolidated EBITDA is a non-GAAP measure that the Company defines as net income, adjusted to exclude undistributed equity earnings, income
taxes, interest, depreciation and amortization, stock compensation expense, loss on early retirement of debt, intangible asset impairment and
acquisition related expenses, as shown in the table above.
Adjusted net income and adjusted diluted income per common share:
Net income as reported
Adjustments:
Restructuring expenses, net of tax
Extraordinary item, net of tax
Bargain purchase gain in equity in earnings, net of tax
Tax benefit recorded in equity in earnings
Impairment of Vasconia investment, net of tax
Vasconia recovery of value-added taxes
Intangible asset impairment, net of tax
Loss on early retirement of debt, net of tax
Retirement benefit obligation expense, net of tax
Acquisition related expenses, net of tax
Reduction of deferred tax liability related to prior year
Normalized tax provision on reported income
Adjusted net income
Adjusted diluted income per share
Year Ended
December 31,
2010
2011
2012
2013
(unaudited)
$
20,261
$
14,066
$
20,947
$
9,281
-
(2,477)
-
-
-
-
-
443
-
-
-
(3,658)
14,569
1.18
$
$
-
-
-
-
-
-
-
-
-
1,230
-
(810)
14,486
1.16
$
$
-
-
(4,112)
(1,116)
1,336
-
645
822
268
188
(2,283)
(539)
16,156
1.26
$
$
220
-
-
-
5,040
(740)
-
61
-
634
-
-
14,496
1.11
$
$
!Adjusted net income in 2010 excludes an extraordinary gain and a loss on early retirement of debt. Adjusted net income in 2011 excludes
acquisition related expenses. Adjusted net income in 2012 excludes the bargain purchase gain included in equity in earnings, a tax benefit recorded
in equity in earnings, a write down in the Vasconia investment to fair value, intangible asset impairment, a loss on early retirement of debt related to
the repayment of the Company’s Term Loan, an expense related to retirement benefit obligations, acquisition related expenses, and a reduction of
the Company’s deferred tax liability related to the prior year. 2010, 2011 and 2012 include an adjustment to reflect a normalized annual tax rate.
Adjusted net income in 2013 excludes restructuring expenses, a write down in the Vasconia investment to fair value, Vasconia’s recovery of value-
added taxes, a loss on early retirement of debt related to the repayment of the Company’s Term Loan and acquisition related expenses.
EBITDA, adjusted net income and adjusted diluted income per common share are non-GAAP financial measures. For purposes of Regulation G, a
non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position or cash flows that
12
Lifetime Brands, Inc. 2013 Annual Report !
!
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
⌧ ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2013
or
(cid:2) 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)
Delaware
(State or other jurisdiction of
incorporation or organization)
11-2682486
(I.R.S. Employer
Identification No.)
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
(Title of each class)
The NASDAQ Stock Market LLC
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes (cid:2) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes (cid:2) No (cid:3)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter 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:3) No (cid:2)
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:3) No (cid:2)
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:3)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act:
Large accelerated filer (cid:2)
Non-accelerated filer (cid:2) (do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
(cid:3)
(cid:2)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:2) No (cid:3)
The aggregate market value of 9,767,007 shares of the voting common equity held by non-affiliates of the registrant as of June 30,
2013 was approximately $131,756,924. Directors, executive officers, and trusts controlled by said individuals are considered affiliates
for the purpose of this calculation and should not necessarily be considered affiliates for any other purpose.
The number of shares of common stock, par value $.01 per share, outstanding as of March 14, 2014 was 13,361,610.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s definitive proxy statement for the 2014 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
2
6
11
12
12
12
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 13
Selected Financial Data
15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
Quantitative and Qualitative Disclosures About Market Risk
28
Financial Statements and Supplementary Data
29
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
30
Controls and Procedures
30
Other Information
33
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
34
34
34
34
34
34
PART I
1.
1A.
1B.
2.
3.
4.
PART II
5.
6.
7.
7A.
8.
9.
9A.
9B.
PART III
10.
11.
12.
13.
14.
PART IV
15.
1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K of Lifetime Brands, Inc. (the “Company” and, unless the context otherwise requires, references to
the “Company” shall include its consolidated subsidiaries) contains “forward-looking statements” as defined by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include information concerning the Company’s and its subsidiaries’
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,” “may,” “should,” “seeks,” “potential” 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.
WHERE YOU CAN FIND 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 Company also
maintains a website at http://www.lifetimebrands.com. Information contained on this website is not a part of or incorporated by
reference into this report. The Company makes available on its website the Company’s Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, current reports on Form 8-K and amendments to these reports as soon as reasonably practicable after these
reports are filed with or furnished to the SEC. Users can access these reports free of charge on the Company’s website. 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.
PART I
Item 1. Business
OVERVIEW
The Company designs, sources and sells branded kitchenware, tableware and other products used in the home and markets its products
under a number of widely-recognized brand names and trademarks, which are either owned or licensed by the Company, or through
retailers’ private labels. The Company sells its products to retailers and distributors and sells a limited selection of its products directly
to consumers through its Internet websites. The Company primarily targets moderate 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
culture of innovation. The Company brought over 3,500 new or redesigned products to market in 2013 and expects to bring to market
over 4,000 new or redesigned products in 2014.
The Company’s product categories include two categories of products that people use to prepare, serve and consume foods,
Kitchenware (kitchen tools and gadgets, cutlery, cutting boards, cookware, bakeware and novelty housewares) and Tableware
(dinnerware, flatware and glassware); and one category, Home Solutions, which comprises other products used in the home
(pantryware, spices, food storage and home décor).
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 manufactures its sterling silver products at a leased facility in San Germán, Puerto Rico and fills containers with
spices and assembles spice racks at its owned Winchendon, Massachusetts distribution facility.
2
The Company has expanded its presence in international markets through investments in various companies that operate outside of the
United States. In 2007, the Company acquired a 30% equity interest in Grupo Vasconia, S.A.B. (“Vasconia”), an aluminum
manufacturer and housewares company based in Mexico. In January 2008, the Company entered into a strategic alliance to distribute
products in Canada. In November 2011, the Company acquired 100% of the share capital of each of Creative Tops Holdings Limited
and Creative Tops Far East Limited (collectively, “Creative Tops”). Creative Tops is a UK-based supplier of private label and branded
tableware and kitchenware products. In December 2011, the Company acquired a 40% equity interest in GS Internacional S/A
(“GSI”). GSI is a wholesale distributor of branded housewares products in Brazil. GSI markets dinnerware, glassware, home décor,
kitchenware and barware to customers, including major department stores, housewares retailers and independent shops throughout
Brazil. In January 2011, the Company, together with Vasconia and unaffiliated partners, formed a joint venture based in Hong Kong
that supplies imported kitchenware products to retailers in North, Central and South America. The Company also has a joint venture,
since February 2012 with a Chinese corporation, to distribute Mikasa® products in China.
In December 2012, the Company acquired Fred® and Friends, a business which designs and markets novelty housewares and other
products under the Fred® brand. The acquisition resulted in an expansion of the Company’s Kitchenware product category to include
innovative kitchen tools, tableware accessories, party goods, personal accessories and other products.
In January 2014, the Company acquired Thomas Plant (Birmingham) Limited (“Thomas Plant” or “Kitchen Craft”). Kitchen Craft is a
leading supplier of kitchenware products and accessories in the United Kingdom. The acquisition will allow the Company to
complement its existing global presence and expand the global resources of its retail partners.
In February 2014, the Company acquired the business and certain assets of Built NY, a designer and distributor of brightly colored,
uniquely patterned Neoprene products, including bags, totes, cases and sleeves.
In March 2014, the Company acquired the business and certain assets of La Cafetière, including exclusive distribution rights. La
Cafetière designs and distributes products to brew and serve coffee and tea. Its products are marketed worldwide under the La
Cafetière® and Randwyck® brands.
The Company continually evaluates opportunities to expand the reach of its brands and to invest in other companies that operate
principally outside the United States. These opportunities involve risks as the industry and foreign markets may not evolve as
anticipated and the Company’s objectives may not be achieved.
The Company is a Delaware corporation, incorporated on December 22, 1983.
The Company’s top brands and their respective product categories are:
Brand
Licensed/Owned
KitchenAid® .................................................. Licensed
Farberware®................................................... Licensed*
Mikasa® ......................................................... Owned
Pfaltzgraff® .................................................... Owned
Kamenstein® .................................................. Owned
Fred® ............................................................. Owned
Towle® .......................................................... Owned
Melannco® ..................................................... Owned
Elements® ...................................................... Owned
Product Category
Kitchenware
Kitchenware
Tableware and Home Solutions
Tableware and Home Solutions
Home Solutions
Kitchenware
Tableware
Home Solutions
Home Solutions
Wallace Silversmiths® ................................... Owned
Tableware and Home Solutions
* The Company has a 183 year royalty free license to utilize the Farberware® brand for kitchenware and tableware products.
The Company’s wholesale customers include mass merchants, specialty stores, national chains, department stores, warehouse clubs,
supermarkets, off-price retailers and Internet retailers.
3
BUSINESS SEGMENTS
The Company operates in two 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 Retail Direct segment in which the Company markets and
sells a limited selection of its products through its Pfaltzgraff®, Mikasa®, Lifetime Sterling® and The English Table Internet websites.
The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its
operations.
Additional information regarding the Company’s reportable segments is included in Note J of the Notes to the Consolidated Financial
Statements included in Item 15.
CUSTOMERS
The Company’s products are sold globally to a diverse customer base including mass merchants (such as Wal-Mart and Target),
specialty stores (such as Bed Bath & Beyond and Dunelm), national chains (such as Kohl’s), department stores (such as Macy’s and
Bon-Ton), warehouse clubs (such as Costco and Sam’s Club), supermarkets (such as Stop & Shop, Kroger, Tesco and Sainsbury’s),
off-price retailers (such as TJX Companies, Ross Stores and Big Lots) and Internet retailers (such as Amazon.com).
The Company also operates its own Internet sites that provide information about the Company’s products and offer consumers the
opportunity to purchase a limited selection of the Company’s products directly from the Company.
During the years ended December 31, 2013, 2012 and 2011, Wal-Mart Stores, Inc. (including Sam’s Club and Asda Superstore)
accounted for 15%, 16% and 15% of consolidated net sales, respectively. No other customer accounted for 10% or more of the
Company’s net sales during these periods.
DISTRIBUTION
The Company operates distribution centers at the following locations:
Location
Fontana, California .........................................................................................
Robbinsville, New Jersey ...............................................................................
Winchendon, Massachusetts ...........................................................................
Corby, England ...............................................................................................
Medford, Massachusetts .................................................................................
Size
(square feet)
753,000
700,000
175,000
130,000
5,590
SALES AND MARKETING
The Company’s sales and marketing staff coordinates 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 many 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; Menomonee Falls,
Wisconsin; and Corby, England.
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/or packaging for their stores.
DESIGN AND INNOVATION
At the heart of the Company is a culture of innovation and new product development. The Company’s in-house design and
development teams currently consist of 103 professional designers, artists and engineers. Utilizing the latest available design tools,
technology and materials, these teams create new products, redesign existing products and create packaging and merchandising
concepts.
4
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 Hong Kong, the United States, Japan, Vietnam, Indonesia, Malaysia,
Taiwan, Slovakia, Korea, India, the Czech Republic, Portugal, Thailand, Slovenia, Poland, Germany, United Kingdom, Italy,
Netherlands, France, Turkey and Israel. The Company orders products substantially in advance of the anticipated time of their sale by
the Company. 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.
MANUFACTURING
The Company manufactures its sterling silver products at its leased manufacturing facility in San Germán, Puerto Rico and fills
containers with spices and assembles spice racks at its owned Winchendon, Massachusetts distribution facility.
COMPETITION
The markets for kitchenware, tableware and other products used in the home including 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 approximately 105 design and utility patents. 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
received within close proximity to the required shipment dates.
EMPLOYEES
At December 31, 2013, the Company had a total of 1,247 full-time employees, of whom 210 are located in Asia and 128 in Europe. In
addition, the Company employed 48 people on a part-time basis, predominately in Corporate Marketing/Sales Support. The Company
also hires seasonal workers at its distribution centers through temporary staffing agencies. None of the Company’s employees are
represented by a labor union. The Company considers its employee relations to be good.
REGULATORY MATTERS
The Company, its subsidiaries and affiliates are subject to significant regulation by various governmental, regulatory and other
administrative authorities.
As a manufacturer and distributor of consumer products, the Company is subject to the Consumer Products Safety Act in the United
States and the Consumer Protection Act in the United Kingdom. Additionally, laws regulating certain consumer products exist in some
cities and states, as well as in other countries in which the Company or its subsidiaries and affiliates sell products.
The Company’s spice container filling operation is regulated by the Food and Drug Administration.
The Company’s operations also are subject to national, state and local environmental and health and safety laws and regulations,
including those that impose workplace standards and regulate the discharge of pollutants into the environment and establish standards
for the handling, generation, emission, release, discharge, treatment, storage and disposal of materials and substances including solid
and hazardous wastes.
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 including value-added taxes, import and export duties and quotas, anti-dumping
regulations and related tariffs associated with certain types of products, incidents and fears involving security, terrorism and wars,
political unrest and other restrictions on trade and travel.
5
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 anticipation of the pre-holiday shipping season, inventory levels increase primarily in the June through October time
period.
GEOGRAPHIC INFORMATION
Geographic information concerning the Company’s revenues and long-lived assets is contained in Note J of the Notes to the
Consolidated Financial Statements included in Item 15 of this report.
Item 1A. Risk Factors
The Company’s businesses, operations and financial condition are subject to various risks. The Company’s business, financial
condition or results of operation could be significantly affected by the risk below or additional risks not presently known to the
Company or by risks that the Company presently deems immaterial such as changes in the economy, disruptions due to terrorist
activity or manmade or natural disasters, or changes in law or accounting standards. The risks and uncertainties described below are
those that the Company considers material.
The Company has substantial indebtedness and is highly seasonal.
The Company has substantial indebtedness and depends upon its bank loan facilities to finance its liquidity needs. In addition the
Company’s business is seasonal and therefore, its borrowing needs fluctuate. The Company’s loan agreements have financial
maintenance covenants which, if not maintained, could result in default and the acceleration of the Company’s indebtedness. The
Company’s loan agreements also contain other restrictions, including limitations on acquisitions and indebtedness, that could restrict
the Company in operating its business, including execution of its strategic plan. In January 2014, the Company entered into a Second
Amended and Restated Credit Agreement which provides for, among other things, an extension of the maturity of the $175.0 million
Revolving Credit Facility (defined below) to January 11, 2019 and a new Term Loan of $50.0 million. The new Term Loan has
mandatory amortization and an excess cash flow requirement, as defined.
The Company’s business may be materially affected by market conditions and by global and economic conditions and other factors
beyond its control.
The Company’s performance is affected by general economic factors, the strength of retail economies and political conditions that are
beyond its control. Retail economies are impacted by factors such as consumer demand and the condition of the retail industry, which
in turn, is effected by general economic factors. These general economic factors include, among other factors:
• Recession, inflation, deflation, unemployment and other factors adversely affecting consumer spending patterns generally;
• Conditions affecting the retail environment for the home and other matters that influence consumer spending in the home
retail industry specifically;
• Housing markets;
• Consumer credit availability and consumer debt levels;
• Material input costs, including fuel and energy costs and labor cost inflation;
• Foreign currency translation;
•
Interest rates;
• Government policies including tax policies relating to value-added taxes, import and export duties and quotas, anti-
dumping regulations and related tariffs and social compliance standards;
• The impact of natural disasters and terrorist activities;
• Unfavorable economic conditions in the United States, the United Kingdom and elsewhere; and
• Unstable economic and political conditions, civil unrest and political activism, particularly in Asia.
6
The Company’s international operations present special challenges that it may not be able to meet, and this could adversely affect
the Company’s financial results.
The Company conducts business outside of the United States through subsidiaries, affiliates and joint ventures. These entities have
operations in the United Kingdom, Mexico, Canada, Brazil, Hong Kong and China; therefore, the Company is subject to increases and
decreases in its investments resulting from the impact of fluctuations in foreign currency exchange rates. These entities also bear risks
similar to those risks of the Company; however, there are specific additional risks related to these organizations such as the failure of
the Company’s partners or other investors to meet their obligations and higher credit and liquidity risks related to thinly capitalized
entities. Failure of these entities or the Company’s vendors to adhere to required regulatory or other standards, including social
compliance standards, could impact the Company’s reputation and adversely impact the Company’s business.
The Company’s growth has, to a material extent, depended upon acquisitions and its strategy is likely to continue to involve
acquisitions. If it is unable to manage its acquisitions effectively, the business may be materially harmed.
The Company has achieved growth through investments and acquisitions. There can be no assurance that the Company will continue
to be able to successfully integrate these businesses or identify and integrate future acquisitions into its existing business without
substantial costs, delays or other operational or financial difficulties. Additionally, the Company makes certain assumptions based on
the information provided by potential acquisition candidates and also conducts due diligence to ensure the information provided is
accurate and based on reasonable assumptions. However, the Company may be unable to realize the anticipated benefits from an
acquisition or predict accurately how an acquisition will ultimately affect the business, financial condition or results of operations.
Failure of these businesses to achieve expected results, the diversion of the Company’s management’s attention and the failure to
retain key personnel at these businesses could have a material adverse effect on the Company’s business, results of operations and
financial condition.
The Company’s borrowings are subject to interest rate fluctuations and an increase in interest rates could adversely affect the
Company’s financial results.
The Company’s borrowings bear interest at floating rates. An increase in interest rates would adversely affect the Company’s
profitability. The Company has entered into interest rate swap agreements to manage interest rate exposure in connection with a
portion of its variable interest rate borrowings. To the extent that the Company’s access to credit may be restricted because of its own
performance, its bank lenders’ performances or conditions in the capital markets generally, the Company would not be able to operate
normally.
The Company faces intense competition from other companies worldwide.
The markets for the Company’s products are intensely competitive. The Company competes with many 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.
Changes in the Company’s customer purchasing practices could adversely affect the Company’s operating results.
The Company’s wholesale customers include mass merchants, specialty stores, national chains, department stores, warehouse clubs,
supermarkets, off-price retailers and Internet retailers. Unanticipated changes in purchasing and other practices by the Company’s
customers, including a customer’s pricing and payment terms, inventory destocking, limitations on shelf space, more extensive
packaging requirements, changes in order quantities, use of private label brands and other practices, could adversely affect the
Company’s profitability. In addition, as a result of the desire of retailers to more closely manage inventory levels, there is a growing
trend among retailers to make purchases on a “just-in-time” basis. This requires the Company to shorten its lead time for production in
certain cases and more closely anticipate demand, which could in the future require the Company to carry additional inventories. The
Company’s annual earnings and cash flows also depend to a great extent on the results of operations in the latter half of the year due to
the seasonality of its sales. The Company’s success and sales growth is also dependent on its evaluation of consumer preferences and
changing trends. The Company also sells a limited quantity of the Company’s products to individual consumers and smaller retailers
through its own Internet sites.
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 effect on the Company. 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 limitations on the Company’s ability to collect amounts due from these customers. Although the
7
Company has long-established relationships with many of its customers, the Company does not have any long-term supply or binding
contracts or guarantees of minimum purchases. Purchases by the Company’s customers are generally made using individual purchase
orders. Customers may cancel their orders, change purchase quantities from forecast volumes, delay purchases for a number of
reasons beyond the Company’s control or change other terms of their business relationship with the Company. Significant or
numerous cancellations, reductions, delays in purchases or changes in business practices by customers could have a material adverse
effect on the Company’s business.
Retailers place great emphasis on timely delivery of products for specific selling seasons, especially during our third fiscal quarter,
and on the fulfillment of consumer demand throughout the year. The Company cannot control all of the various factors that might
affect product delivery to retailers. Failure to deliver products to the Company’s retailers in a timely and effective manner, often under
special vendor requirements to use specific carriers and delivery schedules, could damage the Company’s reputation and brands and
result in loss of customers or reduced orders.
Changes at the Company’s largest customers could adversely affect the Company’s operating results.
In 2013, Wal-Mart Stores, Inc. (including Sam’s Club and Asda Superstore) accounted for 15% of the Company’s net 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. Reduced sales by Wal-Mart Stores, Inc. for
reasons, affecting it or the retail industry generally, may also result in reduced demand by Wal-Mart Stores, Inc. for the Company’s
products. The concentration of the Company’s business with Wal-Mart Stores, Inc. extends to its international businesses, including
Vasconia in Mexico and its strategic alliance in Canada, due to the market presence of Wal-Mart Stores, Inc. in these foreign
countries. The Company has other significant customers, which account for less than 10% of sales, but the loss of which could have a
significant effect on the Company’s business and operating results. Changes in purchasing practice of or decline in the financial
condition of Wal-Mart Stores, Inc. or these other companies may have an adverse impact on the Company’s business, revenue and
operating results. Further, with the continuing trend of consolidation in the retail industry, the ability of the Company’s largest
customers to continue to purchase from the Company is always subject to risk. Consolidation also has the effect of increasing the
bargaining power of retailers, as the existing retailers become fewer and larger.
International suppliers subject the Company to regional regulatory, political, economic and foreign currency exchange risk which
could adversely affect the Company’s operating results.
The Company sources its products from suppliers located in Asia, Europe and the United States. The Company’s Asia vendors are
located primarily in the People’s Republic of China, which subjects the Company to various risks within the region including
regulatory, political, economic and foreign currency changes. The Company’s ability to select and retain reliable vendors and
suppliers who provide timely deliveries of quality parts and products efficiently will impact its success in meeting customer demand
for timely delivery of quality products. The Company’s sourcing operations and its vendors are impacted by labor costs in China.
Labor historically has been readily available at low cost relative to labor costs in North America. However, as China is experiencing
rapid social, political and economic changes, labor costs have risen in some regions and there can be no assurance that labor will
continue to be available to the Company in China at costs consistent with historical levels or that changes in labor or other laws will
not be enacted which would have a material adverse effect on the Company’s operations in China. Interruption of supplies from any of
the Company’s vendors, 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’ financial
conditions including their liquidity.
The Company’s international trade subjects it to transportation risks.
The Company imports its products for delivery to its distribution centers, as well as arranges for its customers to import goods to
which title has passed overseas or at port of entry. 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 New
York/Newark/Elizabeth and Los Angeles/Long Beach, and the United Kingdom, principally Felixstowe. Accordingly, the Company is
subject to risks incidental to such transportation. These risks include, but are not limited to, increases in fuel costs, fuel shortages, the
availability of ships, 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.
8
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 effect on the Company’s ability to deliver goods to its customers.
The loss of certain licenses or material changes in royalty rates could adversely affect the Company’s operating margin.
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 royalty rates the Company pays under such licenses upon renewal could result in a reduction of the
Company’s operating margin.
The Company operates in a regulated environment that imposes significant compliance requirements. Non-compliance with these
requirements could subject the Company to sanctions and adversely affect the Company’s business.
The Company is subject in the ordinary course of its business, in the United States and elsewhere, to many statutes, ordinances, rules
and regulations that if violated by the Company or its affiliates, partners or vendors could have a material adverse effect on the
Company’s business. The Company is required to comply with the United States Foreign Corrupt Practices Act, the U.K. Bribery Act
and similar anti-bribery laws prohibiting the Company from engaging in bribery or making other prohibited payments to foreign
officials for the purpose of obtaining or retaining business. The Company’s employees and other agents could engage in such
conduct for which the Company might be held responsible. If the Company’s employees or other agents are found to have engaged in
such practices, the Company could suffer substantial penalties.
The Company is subject to general business laws and regulations, 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
laws and regulations 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 and regulations governing issues such as
property ownership, sales and other taxes and personal privacy apply to the Internet and e-commerce. Unfavorable resolutions of these
issues would harm the Company’s business. This could, in turn, diminish the demand for the Company’s products on the Internet and
increase the Company’s cost of doing business.
The Company sells consumer products which involve an inherent risk of product liability claims.
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, the Office of Fair Trading in the U.K.,
by other regulatory authorities or through private causes of action. Any defects in products the Company markets could harm the
Company’s reputation, 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’s product standards could be impacted by new or revised environmental rules and regulations or other social initiatives.
A failure in the Company’s operating systems or infrastructure or those of third parties, could disrupt the Company’s business,
result in the disclosure of confidential information and cause losses.
The Company relies on many 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 of these systems could have a material adverse effect on the
Company’s business and results of operations. To keep pace within a competitive retail environment, the Company uses and will
continue to evaluate new technologies to improve the efficiency of designing new innovative products. The success of certain product
categories in a competitive marketplace can be dependent upon the creation and launch of new innovative products.
The Company’s brands are subject to reputational risks.
The consumer goods industry is by its nature more prone to reputational risks than other industries. This has been compounded in
recent years by the free flow of unverified information on the Internet and, in particular, on social media websites. Actual or perceived
negative commentary on the Company’s products could subject the Company to reputational risks related to its brands.
9
The Company is subject to cyber security risks and may incur increasing costs in an effort to minimize those risks.
The Company employs systems and websites that allow for the secure storage and transmission of proprietary or confidential
information regarding the Company’s customers, employees and others, including credit card information and personal identification
information. The Company has made significant efforts to secure its computer network to mitigate the risk of possible cyber-attacks.
However, the Company’s computer network could be compromised which could impact operations and confidential 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 adversely impact profits.
In addition, although the Company’s systems and procedures 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.
If the Company is unable to attract and maintain its highly skilled personnel the Company’s business could be adversely affected.
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.
Increases in the cost of employee benefits could impact the Company’s financial results and cash flows.
The Company self-insures a substantial portion of the costs of employee healthcare and workers compensation. This could result in
higher volatility in the Company’s earnings and exposes the Company to higher financial risks. The U.S. federal healthcare legislation,
which came into effect in 2013, contains provisions which could materially impact the Company’s future healthcare costs. Changes in
the law for 2014, including the imposition of a penalty on individuals who do not obtain healthcare coverage, may result in employees
who are currently eligible but elect not to participate in the Company’s healthcare plans now finding it more advantageous to do so,
which may increase the Company’s healthcare costs. It is also possible that making changes or failing to make changes in the
healthcare plans the Company offers will make the Company less attractive to its current or potential employees. Implementing the
requirements of the Affordable Care Act is also likely to impose some additional administrative costs on the Company.
Interruptions in the Company’s operations caused by outside forces could cause material losses.
The Company’s worldwide operations could be subject to natural and man-made disasters, telecommunications failures, water
shortages, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, conflicts, acts of terrorism, health epidemics and
other business interruptions. The occurrence of any of these business disruptions could seriously harm the Company’s business,
revenue and financial condition and increase the Company’s costs and expenses. If the Company’s or its manufacturers’ warehousing
facilities or transportation facilities are damaged or destroyed, the Company would be unable to distribute products on a timely basis,
which could harm the Company’s business. The Company’s back-up operations may be inadequate, and the Company’s business
interruption insurance may not be enough to compensate for any losses that may occur.
Demand for new products and the inability to develop and introduce new competitive products at favorable profit margins could
adversely affect the Company’s performance and prospects for future growth.
The uncertainties associated with developing and introducing new products, such as the market demands and the costs of development
and production, may impede the successful development and introduction of new products. Acceptance of the new products may not
meet sales expectations due to several factors, such as the Company’s failure to accurately predict market demand or its inability to
resolve technical issues in a timely and cost-effective manner. Additionally, the inability to develop new products on a timely basis
could result in the loss of business to competitors.
10
The Company’s product costs are subject to a high degree of price fluctuation.
Various commodities comprise the raw materials used to manufacture of the Company’s products. The prices of these commodities
have historically fluctuated on a cyclical basis and have often depended on a variety of factors over which the Company has no
control. The cost of producing the Company’s products is also sensitive to labor costs. The selling prices of the Company’s products
have not always increased in response to raw material, labor or other cost increases, and the Company is unable to determine to what
extent, if any, it will be able to pass future cost increases through to its customers. The Company’s inability to pass increased costs
through to its customers could materially and adversely affect its financial condition or results of operations.
The Company’s projections of product demand, sales and net income are highly subjective in nature and the Company’s future
sales and net income could vary in a material amount from the Company’s projections.
From time to time, the Company may provide projections to our shareholders, lenders, investment community, and other stakeholders
of our future sales and net income. Since the Company does not have long-term purchase commitments from customers and the
customer order and ship process is very short, it is difficult for us to accurately predict the demand for many of the Company’s
products, or the amount and timing of our future sales and related net income. The Company’s projections are based on management’s
best estimate of sales using historical sales data and other information deemed relevant. These projections are highly subjective since
sales can fluctuate substantially based on the demands of their retail customers and due to other risks described in this report.
Additionally, changes in retailer inventory management strategies could make the Company’s inventory management more difficult.
Because the Company’s ability to forecast product demand and the timing of related sales includes significant subjective input, future
sales and net income could vary materially from the Company’s projections.
Large sophisticated customers may take actions that adversely affect the Company’s gross profit and results of operations.
In recent years, there is a consumer trend away from traditional grocery and drugstore channels and toward mass merchandisers,
which includes super centers and warehouse club stores. This trend has resulted in the increased size and influence of these mass
merchandisers. Additionally, these mass merchandisers source and sell products under their own private label brands that compete
with the Company’s products. As mass merchandisers grow larger and become more sophisticated, they may continue to demand
lower pricing, special packaging, shorter lead times for the delivery of products, or impose other requirements on product suppliers.
These business demands may relate to inventory practices, logistics or other aspects of the customer-supplier relationship. If the
Company does not effectively respond to the demands of these mass merchandisers, they could decrease their purchases from the
Company. A reduction in the demand for our products by these mass merchandisers and the costs of complying with customer
business demands could have a material adverse effect on the Company’s business, financial condition and results of operations.
The Company may not be able to adequately address the additional review and disclosure required in respect of “Conflict
Minerals.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains regulations concerning the supply of conflict minerals
originating from the Democratic Republic of Congo and adjoining countries. As a result, in August 2012 the SEC adopted annual
disclosure and reporting requirements for those companies who use such “conflict minerals.” These new requirements will require due
diligence efforts, with initial disclosure requirements beginning in May 2014. There will be costs associated with complying with
these disclosure requirements, including the costs of investigations to determine the sources of raw materials used in the Company’s
products and the costs of any changes to products, processes or sources of supply as a consequence of the results of such
investigations. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in the
Company’s products. As there may be only a limited number of suppliers offering these materials “conflict free,” the Company cannot
ensure that it will be able to obtain necessary materials from such suppliers in sufficient quantities or at competitive prices. Also, the
Company may face reputational challenges if it determines that certain of its products contain minerals not determined to be “conflict
free” or if it is unable to sufficiently verify the origins for all “conflict minerals” used in its products through the procedures it may
implement.
Item 1B. Unresolved Staff Comments
None
11
Item 2. Properties
The following table lists the principal properties at which the Company operates its business at December 31, 2013:
Location
Description
Corporate headquarters/main showroom
Offices, showroom, warehouse and distribution facility
Offices, showroom, warehouse and distribution facility
Fontana, California .........................................................
Principal West Coast warehouse and distribution facility
Robbinsville, New Jersey ................................ Principal East Coast warehouse and distribution facility
Winchendon, Massachusetts ................................Warehouse and distribution facility, and spice packing line
Garden City, New York ..................................................
Corby, England ...............................................................
Medford, Massachusetts .................................................
San Germán, Puerto Rico ................................ Sterling silver manufacturing facility
Cumberland, Rhode Island ................................ Offices
Shanghai, China ..............................................................
Offices
Guangzhou, China ..........................................................
Offices
New York, New York .....................................................
Showrooms
York, Pennsylvania .........................................................
Offices
Atlanta, Georgia ..............................................................
Showrooms
Kowloon, Hong Kong .....................................................
Offices and showrooms
Bentonville, Arkansas .....................................................
Offices and showroom
Menomonee Falls, Wisconsin ................................Showroom
Size
(square feet)
Owned/
Leased
753,000
700,000
175,000
146,000
145,000
69,000
55,000
34,000
22,000
18,000
17,000
14,000
11,000
9,000
7,000
4,000
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Item 3. Legal Proceedings
Wallace Silversmiths de Puerto Rico, Ltd. (“Wallace de Puerto Rico”), a wholly-owned subsidiary of the Company, operates a
manufacturing facility in San Germán, Puerto Rico that is leased from the Puerto Rico Industrial Development Company
(“PRIDCO”). In March 2008, the United States Environmental Protection Agency (the “EPA”) announced that the San Germán
Ground Water Contamination site in Puerto Rico (the “Site”) had been added to the Superfund National Priorities List due to
contamination present in the local drinking water supply.
In May 2008, Wallace de Puerto Rico received from the EPA 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. The Company
responded to the EPA’s Request for Information on behalf of Wallace de Puerto Rico. In July 2011, Wallace de Puerto Rico received a
letter from the EPA requesting access to the property that it leases from PRIDCO, and the Company granted such access. In February
2013, the EPA requested access to conduct further environmental investigation at the property. The Company granted such access and
further EPA investigation is pending.
The Company is not aware of any determination by the EPA that any remedial action is required for the Site and, accordingly, is not
able to estimate the extent of any possible liability.
The Company is, from time to time, involved in other legal proceedings. The Company believes that such other current litigation is
routine in nature and incidental to the conduct of the Company’s business and that none of this litigation, individually or collectively,
would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosure
Not applicable
12
PART II
Item 5. Market For 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.
First quarter ............................................................................................. $
Second quarter .........................................................................................
Third quarter ............................................................................................
Fourth quarter ..........................................................................................
13.00 $
13.75
16.35
16.35
2013
High
Low
10.28 $
11.11
13.50
13.80
2012
High
12.95 $
12.77
13.31
12.58
Low
10.30
10.11
10.72
9.00
At December 31, 2013, the Company estimates that there were approximately 2,021 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, 2013.
In March 2011, the Company determined that it would resume paying cash dividends on its outstanding shares of common stock,
which was suspended in February 2009. In the last two fiscal years, the Board of Directors declared a dividend of $0.025 per share
payable on February 15, 2012, May 15, 2012, August 15, 2012, November 15, 2012, February 15, 2013, a dividend of $0.03125 per
share payable on May 15, 2013, August 15, 2013 and November 15, 2013 and a dividend of $0.0375 per share payable on
February 14, 2014. The Board of Directors currently intends to continue paying cash dividends for the foreseeable future, although the
Board of Directors may in its discretion determine to modify or eliminate such dividends at any time.
The following table summarizes the Company’s equity compensation plan as of December 31, 2013:
Plan category
Equity compensation plan approved by security holders ...........
Equity compensation plan not approved by security holders .....
Total ...........................................................................................
Number of
shares of
common
stock to be
issued upon
exercise of
outstanding
options
2,371,650 $
—
2,371,650 $
Weighted-
average
exercise price
of
outstanding
options
Number of
shares of
common
stock
remaining
available for
future
issuance
12.75
—
12.75
643,073
—
643,073
13
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.
Date
12/31/2008 ..................................................................................... $
12/31/2009 .....................................................................................
12/31/2010 .....................................................................................
12/31/2011 .....................................................................................
12/31/2012 .....................................................................................
12/31/2013 .....................................................................................
Lifetime
Brands, Inc.
Hemscott
Group Index
NASDAQ
Market
Index
100.00 $
201.98
396.61
345.41
305.70
457.29
100.00 $
178.53
212.44
196.43
290.18
445.84
100.00
145.34
171.70
170.34
200.57
281.14
Note:
(1) The chart assumes $100 was invested on January 1, 2009 and dividends were reinvested. Measurement points are at the last
trading day of each of the fiscal years ended December 31, 2009, 2010, 2011, 2012 and 2013. The material in this chart is not
soliciting material, is not deemed filed with the SEC 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 the chart is prepared
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.
14
Item 6. Selected Financial Data
The selected consolidated statement of operations data for the years ended December 31, 2013, 2012 and 2011 and the selected
consolidated balance sheet data as of December 31, 2013 and 2012 has 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, 2010 and 2009 and the selected consolidated balance sheet data at December 31, 2011, 2010 and
2009 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,
2013
2012
2011
(in thousands, except per share data)
2010(2)
2009
STATEMENT OF OPERATIONS DATA(1)
Net sales ...................................................................................... $ 502,721 $ 486,842 $ 444,418 $ 443,171 $ 415,040
257,839
Cost of sales ................................................................................
43,329
Distribution expenses ..................................................................
95,647
Selling, general and administrative expenses ..............................
—
Intangible asset impairment ........................................................
Restructuring expenses ...............................................................
2,616
15,609
Income from operations ..............................................................
(13,185)
Interest expense ...........................................................................
Loss on early retirement of debt .................................................
—
Income before income taxes, equity in earnings and
273,774
44,570
95,044
—
—
29,783
(9,351)
(764)
310,054
44,046
104,338
1,069
—
27,335
(5,898)
(1,363)
282,058
43,882
93,894
—
—
24,584
(7,758)
—
315,459
44,364
114,345
—
367
28,186
(4,847)
(102)
extraordinary item ..................................................................
Income tax provision...................................................................
Equity in (losses) earnings, net of taxes (3) ...................................
Income before extraordinary item ...............................................
Extraordinary item, net of taxes ..................................................
Net income .................................................................................. $
Basic income per common share before extraordinary item ....... $
Basic income per common share of extraordinary item ..............
Basic income per common share ................................................ $
23,237
(9,175)
(4,781)
9,281
—
9,281 $
0.73 $
—
0.73 $
20,074
(5,208)
6,081
20,947
—
20,947 $
1.67 $
—
1.67 $
16,826
(6,122)
3,362
14,066
—
14,066 $
1.16 $
—
1.16 $
19,668
(4,602)
2,718
17,784
2,477
20,261 $
1.48 $
0.20
1.68 $
2,424
(1,880)
2,171
2,715
—
2,715
0.23
—
0.23
Weighted-average shares outstanding—basic .............................
12,757
12,511
12,128
12,036
12,009
Diluted income per common share before extraordinary item .... $
Diluted income per common share of extraordinary item ...........
Diluted income per common share ............................................. $
0.71 $
—
0.71 $
1.64 $
—
1.64 $
1.12 $
—
1.12 $
1.44 $
0.20
1.64 $
0.22
—
0.22
Weighted-average shares outstanding—diluted ..........................
13,043
12,810
12,529
12,376
12,075
Cash dividends declared per common share ............................... $ 0.13125 $
0.125 $
0.075 $
— $
—
December 31,
2013
2012
2011
2010
2009
(in thousands)
BALANCE SHEET DATA(1)
Current assets ............................................................................... $ 214,676 $ 212,759 $ 198,797 $ 182,253 $ 173,850
77,210
Current liabilities .........................................................................
96,640
Working capital ............................................................................
Total assets ...................................................................................
276,723
24,601
Short-term borrowings .................................................................
Long-term debt ............................................................................
—
Convertible senior notes ..............................................................
70,527
104,012
Stockholders’ equity ....................................................................
69,494
145,182
336,739
3,937
65,919
—
180,905
60,512
121,741
277,586
4,100
50,000
23,557
127,606
66,899
145,860
348,797
11,375
84,593
—
172,230
69,962
128,835
318,745
15,000
82,625
—
146,175
15
Notes:
(1)
(2)
(3)
Investments and acquisitions of the following, in the respective years noted, affect the comparability of the periods: the
acquisition of Creative Tops in November 2011, a 40% equity investment in GS Internacional S/A (“GSI”) in December 2011
and the acquisition of Fred® & Friends in December 2012.
In 2010, the Company recorded an extraordinary gain of $2.5 million as a result of the elimination of the negative goodwill
recorded in conjunction with the purchase of the business and certain assets of Mikasa®, Inc.
In 2012, the Company recorded a gain of $4.1 million within equity in earnings related to Vasconia’s purchase of Almexa and in
2013, the Company recorded a charge of $5.0 million, net of tax for the reduction of the fair value of the Company’s investment
in Vasconia.
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 including those discussed on pages 2-3 of this Annual Report under “Disclosures
regarding Forward-Looking Statements” and under Item 1A “Risk Factors” and Item 7A “Quantitative and Qualitative Disclosures
Regarding Market Risk.”. 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 designs, sources and sells branded kitchenware, tableware and other products used in the home. The Company’s
product categories include two categories of products that people use to prepare, serve and consume foods, Kitchenware (kitchen tools
and gadgets, cutlery, cutting boards, cookware, bakeware and novelty housewares) and Tableware (dinnerware, flatware and
glassware); and one category, Home Solutions, which comprises other products used in the home (pantryware, spices, food storage
and home décor). In 2013, Kitchenware products and Tableware products accounted for approximately 89% of the Company’s
wholesale net sales and 86% of its consolidated net sales, as compared with 80% and 76%, respectively, in 2012.
The Company markets several product lines within each of its product categories and under most of the Company’s brands, primarily
targeting moderate to premium price points through every major level of trade. The Company believes it possesses certain competitive
advantages based on its brands, its emphasis on innovation and new product development and its sourcing capabilities. The Company
owns or licenses a number of the leading brands in its industry including KitchenAid®, Farberware®, Mikasa®, Pfaltzgraff®,
Kamenstein®, Fred®, Towle®, Melannco®, Elements® and Wallace Silversmiths®. Historically, the Company’s sales growth has come
from expanding product offerings within its product categories, by developing existing brands, acquiring new brands and establishing
new product categories. Key factors in the Company’s growth strategy have been 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 teams that create new products, packaging and merchandising concepts.
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 Retail Direct segment, in which the Company
markets and sells a limited selection of its products to consumers through its Pfaltzgraff®, Mikasa®, Lifetime Sterling® and The English
Table Internet websites. The operating results of Fred® & Friends are included in the Wholesale segment from December 20, 2012, the
date it was acquired by the Company.
EQUITY INVESTMENTS
The Company owns approximately 30% of the outstanding capital stock of Grupo Vasconia, S.A.B. (“Vasconia”), a leading Mexican
housewares company and aluminum manufacturer. 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, net of taxes, as equity in earnings in the Company’s
consolidated statements of operations. Pursuant to a Shares Subscription Agreement (the “Agreement”), the Company may designate
four persons to be nominated as members of Vasconia’s Board of Directors. Shares of Vasconia’s capital stock are traded on the Bolsa
Mexicana de Valores, the Mexican Stock Exchange (www.bmv.com.mx). The Quotation Key is VASCONI.
16
The Company recorded equity in (losses) earnings of Vasconia, net of taxes, of $(4.0) million, $6.9 million and $2.9 million for the
years ended December 31, 2013, 2012 and 2011, respectively. Equity in losses in 2013 includes a charge of $5.0 million, net of tax,
for the reduction in its fair value, as discussed in the following paragraph. Equity in earnings of Vasconia in 2012 includes $4.1
million related to the Company’s portion of a bargain purchase gain recognized by Vasconia on its purchase of Almexa, an aluminum
mill and manufacturer of aluminum foil, a $1.1 million tax benefit realized in the period and the reduction of the investment to fair
value of $1.3 million, net of tax.
In 2013, as a result of a decline in the quoted stock price and the 2013 quarterly decline in the operating results of Vasconia, the
carrying amount of the Company’s investment in Vasconia exceeded its fair value and, therefore, the Company reduced its investment
value by $5.0 million during the year ended December 31, 2013, net of tax, to its fair value.
In January 2011, the Company, together with Vasconia and unaffiliated partners, formed Housewares Corporation of Asia Limited
(“HCA”), a Hong Kong-based company that supplies imported kitchenware products to retailers in North, Central and South America.
The Company accounts for its 40% investment in HCA using the equity method of accounting and has recorded its proportionate share
of HCA’s net income as equity in earnings in the Company’s consolidated statements of operations.
In December 2011, the Company acquired a 40% equity interest in GS Internacional S/A (“GSI”). GSI is a leading wholesale
distributor of branded housewares products in Brazil. The company markets dinnerware, glassware, home décor, kitchenware and
barware to customers throughout Brazil including major department stores, housewares retailers and independent shops. The
Company accounts for its investment in GSI using the equity method of accounting and has recorded its proportionate share of GSI’s
net income, net of taxes, as equity in earnings in the Company’s consolidated statements of operations. Pursuant to a Shareholders’
Agreement, the Company has the right to designate three persons (including one independent person, as defined) to be nominated as
members of GSI’s Board of Directors.
In February 2012, the Company entered into Grand Venture Holdings Limited (“Grand Venture”), a joint venture with Manweal
Development Limited (“Manweal”), a Chinese corporation, to distribute Mikasa® products in China, which included an initial
investment by the Company of $500,000. The Company and Manweal each own 50% of Grand Venture and have rights and
obligations proportionate to their ownership percentage. The Company accounts for its investment in Grand Venture using the equity
method of accounting and has recorded its proportionate share of Grand Venture’s net loss in equity in earnings in the Company’s
consolidated statements of operations.
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 2013, 2012 and 2011, net sales for the third and fourth quarters accounted for 61%, 58% and 59%, 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.
IMPACT OF INFLATION
Inflation rates in the United States and in major foreign countries where the Company operations have not had a significant impact on
its results of operations or financial position during 2013, 2012, or 2011. The Company will continue its practice of monitoring costs
and adjusting prices, accordingly.
EFFECT OF ADOPTION OF ACCOUNTING PRINCIPLE
In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible
Assets for Impairment, which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the
quantitative impairment test described in ASC Topic No. 350, Intangibles – Goodwill and Other. The amendments in this update are
effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company’s
adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or
cash flows.
17
Effective January 2013, the Company adopted ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income, which requires an entity to provide information about the amounts
reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the
face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be
reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be
reclassified in their entirety to net income (e.g., net periodic pension benefit cost), an entity is required to cross-reference to other
disclosures required under GAAP that provide additional detail about those amounts. In connection with the adoption of this standard,
the Company added additional disclosure about the Company’s accumulated other comprehensive income to Note M of its financial
statements.
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.
Net sales ...............................................................................................
Cost of sales .........................................................................................
Gross margin ........................................................................................
Distribution expenses ...........................................................................
Selling, general and administrative expenses ......................................
Restructuring .......................................................................................
Intangible asset impairment .................................................................
Income from operations .......................................................................
Interest expense ...................................................................................
Loss on early retirement of debt ..........................................................
Income before income taxes and equity in earnings ............................
Income tax provision ...........................................................................
Equity in (losses) earnings, net of taxes ...............................................
Net income ...........................................................................................
Year Ended December 31,
2013
100.0%
62.8
37.2
8.8
22.7
0.1
—
5.6
(1.0)
—
4.6
(1.8)
(1.0)
1.8%
2012
100.0%
63.7
36.3
9.0
21.4
—
0.2
5.7
(1.2)
(0.3)
4.2
(1.1)
1.2
4.3%
2011
100.0%
63.5
36.5
9.9
21.1
—
—
5.5
(1.7)
—
3.8
(1.4)
0.8
3.2%
18
MANAGEMENT’S DISCUSSION AND ANALYSIS
2013 COMPARED TO 2012
Net Sales
Net sales for the year 2013 were $502.7 million, an increase of 3.3%, compared to net sales of $486.8 million in 2012. The increase
was primarily the result of the inclusion of the net sales of Fred® & Friends, which was acquired in December 2012.
Net sales for the Wholesale segment in 2013 were $483.1 million, an increase of $18.3 million, or 3.9%, as compared to net sales of
$464.8 million in 2012. Net sales for the Company’s Kitchenware product category in 2013 were $281.2 million, an increase of $25.1
million, or 9.8%, as compared to net sales of $256.1 million in 2012. Net sales for the Company’s Kitchenware product category
included $19.5 million of net sales for the year ended December 31, 2013 from Fred® & Friends as compared to $0.2 million from
Fred® & Friends in 2012. The increase in the Company’s Kitchenware product category was primarily attributable to successful new
cutlery programs and new kitchen tools and gadgets programs throughout the year. Net sales for the Company’s Tableware product
category in 2013 were $149.0 million, a decrease of $7.5 million, or 4.8%, as compared to net sales of $156.5 million for 2012. The
Tableware product category sales decrease reflects a decline in luxury tableware sales and a $3.7 million decrease in net sales at
Creative Tops due to the impact of higher duties imposed by the European Union. Sales at Creative Tops increased in the fourth
quarter of 2013 as customers in the European Union adjusted to the increased pricing resulting from duty rates. Net sales for the
Company’s Home Solutions products category in 2013 were $52.9 million, an increase of $0.7 million, or 1.3%, as compared to net
sales of $52.2 million in 2012. The increase in sales for the Company’s Home Solutions product category was primarily due to new
pantryware programs, larger seasonal programs related to wall décor and lighting products in the second half of 2013, which offset
reduced sales in the first half of the year resulting from a decline in close out activity and lower volume at a major warehouse club in
the first quarter.
Net sales for the Retail Direct segment in 2013 were $20.7 million, a decrease of $1.3 million, or 5.9%, as compared to $22.0 million
for 2013. The decrease was primarily attributable to a reduction in promotional activities in 2013.
In 2013, the Company recorded a non-operating adjustment of $1.1 million to reduce accounts receivable for previously issued credits
within the Retail Direct business which related to 2010 and earlier periods.
Gross margin
Gross margin for 2013 was $187.3 million, or 37.2%, as compared to $176.8 million, or 36.3%, for the corresponding period in 2012.
Gross margin for the Wholesale segment was 36.0% for 2013 as compared to 34.8% for 2012. Gross margin may be expected to
fluctuate from period to period based on a number of factors, including product mix and customer mix. The increase in gross margin
was the result of the inclusion of Fred® & Friends which was acquired in December 2012.
Gross margin for the Retail Direct segment was 68.8% for 2013 as compared to 68.6% for 2012. The increase in gross margin reflects
reduced discounting of dinnerware in 2013 principally from the elimination of the use of multiple coupons for one transaction.
Distribution expenses
Distribution expenses for 2013 were $44.4 million as compared to $44.0 million for 2012. Distribution expenses as a percentage of net
sales were 8.8% in 2013 and 9.0% in 2012.
Distribution expenses as a percentage of sales shipped from the Company’s warehouses located in the United States for the Wholesale
segment were 8.8% for 2013 as compared to 8.9% for 2012. The decrease primarily reflects labor efficiencies and improved labor
management which reduced headcount in the distribution facilities in 2013. Additionally, the closure of the Fred® & Friends
distribution center reduced the related distribution expenses.
Distribution expenses as a percentage of net sales for the Retail Direct segment were 29.6% for 2013 compared to 28.9% for 2012.
The increase was due to declining sales relative to fixed expenses.
Selling, general and administrative expenses
Selling, general and administrative expenses (“SG&A”) for 2013 were $114.3 million, an increase of $10.0 million, or 9.6%, as
compared to $104.3 million for 2012.
SG&A expenses for 2013 for the Wholesale segment were $91.3 million, an increase of $8.9 million, or 10.8%, as compared to $82.4
million in 2012. As a percentage of net sales, SG&A expenses were 18.9% for 2013 compared to 17.7% for 2012. The increase was
due to the inclusion of Fred® & Friends and an increase in selling expenses, such as trade show expenses and employee related
expenses.
19
SG&A expenses for 2013 for the Retail Direct segment were $8.2 million compared to $8.3 million for 2012.
Unallocated corporate expenses for 2013 and 2012 were $14.9 and $13.6 million, respectively, due to an increase in professional fees.
Restructuring expenses
Restructuring expenses for 2013 were $0.4 million. The expenses resulted from the planned closure of the Fred® & Friends
distribution center which included the elimination of certain employee positions in the third quarter of 2013.
Intangible asset impairment
During the year ended December 31, 2012, the Company’s home décor products category experienced a significant decline in sales.
The Company believes the most significant factor was the reduction in retail space allocated to the category which has also
contributed to pricing pressure. While the Company believed this market condition was not permanent, following a strategic review of
the business, it decided to re-brand a portion of the home décor products under the Mikasa® and Pfaltzgraff® trade names. As a result
of these factors, the Company recorded an impairment charge of $1.1 million in its statement of operations for the year ended
December 31, 2012, which reduced the book value of its Elements® trade name.
Interest expense
Interest expense for 2013 was $4.8 million as compared to $5.9 million for 2012. The decrease in interest expense was attributable to
lower average interest rates and lower average borrowings in 2013 as compared to 2012.
Loss on early retirement of debt
In December 2013, the Company repaid a portion of its senior secured credit agreement. In connection with the payoff, the Company
wrote off debt issuance costs of $0.1 million. In June and July 2012, the Company repaid its second lien credit agreement. In
connection with the payoff, the Company wrote off debt issuance costs of $1.4 million.
Income tax provision
The income tax provision was $9.2 million in 2013 and $5.2 million in 2012. The Company’s effective tax rate for 2013 was 39.5% as
compared to 25.9% for 2012. The effective tax rate in 2013 reflects a reduced tax rate in the United Kingdom and an increased tax rate
in Puerto Rico. The effective tax rate for 2012 reflects an income tax benefit for a non-cash adjustment to a deferred tax liability of
$2.3 million related to an earlier period.
Equity in earnings
The Company’s equity in earnings for 2013 and 2012 are as follows:
Equity in earnings of Grupo Vasconia:
Equity earnings before bargain purchase gain, tax benefit and
reduction in investment to fair value, net of tax ...................... $
Bargain purchase gain in equity in earnings, net of tax ...............
Tax benefit recorded in equity in earnings(1) ................................
Reduction in investment to fair value, net of tax .........................
Equity in (losses) earnings of Grupo Vasconia .....................................
Equity in losses of GSI ..........................................................................
Equity in losses of other investments ....................................................
$
Year Ended December 31,
2013
2012
(in thousands)
1,000
—
—
(5,040)
(4,040)
(656)
(85)
(4,781)
$
$
3,015
4,112
1,116
(1,336)
6,907
(727)
(99)
6,081
Note:
(1)
Income tax benefit related to the valuation allowance reversal for deferred taxes associated with cumulative foreign currency
translation adjustments.
20
Equity in losses of Vasconia, net of taxes, was $4.0 million for 2013 as compared to equity in earnings of $6.9 million for 2012.
Equity in losses in 2013 includes a charge of $5.0 million, net of tax, for the reduction in Vasconia’s fair value. Vasconia reported
income from operations for 2013 of $5.4 million compared to $14.6 million for 2012 and net income of $4.3 million in 2013
compared to $34.2 million in 2012. The decrease in net income was due to a decline in kitchenware and aluminum sales and reduced
margins on aluminum sales in 2013 and a $22.9 million bargain purchase gain recognized by Vasconia on its purchase of Almexa, an
aluminum mill and manufacturer of aluminum foil in 2012.
Equity in earnings for 2013 also includes a loss of $0.7 million from the Company’s 40% equity interest in GSI and losses of $85,000
related to other investments. Equity in earnings for 2012 also includes a loss of $0.7 million from the Company’s 40% equity interest
in GSI and losses of $0.1 million related to other investments.
Net Sales
2012 COMPARED TO 2011
Net sales for the year were $486.8 million, an increase of 9.5%, compared to net sales of $444.4 million in 2011. The increase was
primarily the result of the inclusion of the net sales of Creative Tops, which was acquired in November 2011.
Net sales for the Wholesale segment in 2012 were $464.8 million, an increase of $43.7 million, or 10.4%, as compared to net sales of
$421.1 million in 2011. Net sales included $42.6 million from Creative Tops in 2012 compared to $6.7 million from Creative Tops in
2011. Net sales for the Company’s Kitchenware product category in 2012 were $256.1 million, an increase of $40.4 million, or 18.7%,
as compared to net sales of $215.7 million in 2011. The increase in the Company’s Kitchenware product category was primarily
attributable to the strength and expansion of certain brands and the introduction of new innovative styles and designs including the
new Guy Fieri® line. The Kitchenware category also included $0.2 million of sales from the Fred® & Friends business acquired on
December 20, 2012. Net sales for the Company’s Tableware product category in 2012 were $113.9 million, a decrease of $20.7
million, or 15.4%, as compared to net sales of $134.6 million for 2011. The Tableware product category sales decrease was partially
attributable to the absence, in the 2012 period, of sales of excess sterling silver finished goods inventory and a major rollout of
dinnerware each of which occurred in the 2011 period. In addition, the category experienced weakness at the retail level. Net sales for
the Company’s Home Solutions products category in 2012 were $52.2 million, a decrease of $11.9 million, or 18.6%, as compared to
net sales of $64.1 million in 2011. The decrease in sales for the Company’s Home Solutions product category was due to weak
consumer demand for this category.
Net sales for the Retail Direct segment in 2012 were $22.0 million, a decrease of $1.3 million, or 5.6%, as compared to $23.3 million
for 2011. The decrease was primarily attributable to a reduction in promotional activities in 2012.
Gross margin
Gross margin for 2012 was $176.8 million, or 36.3%, as compared to $162.4 million, or 36.5%, for the corresponding period in 2011.
Gross margin for the Wholesale segment was 34.8% for 2012 as compared to 34.9% for 2011.
Gross margin for the Retail Direct segment was 68.6% for 2012 as compared to 66.9% for 2011. The increase in gross margin reflects
the mix in product sales, less promotional activities, a revised pricing strategy and more effective web design which favorably affected
margins during the 2012 period.
Distribution expenses
Distribution expenses for 2012 were $44.0 million as compared to $43.9 million for 2011. Distribution expenses as a percentage of net
sales were 9.0% in 2012 and 9.9% for 2011.
Distribution expenses as a percentage of sales shipped from the Company’s warehouses located in the United States for the Wholesale
segment were 8.9% for 2012 as compared to 9.4% for 2011. The percentage decrease resulted from significant improvements in labor
management and other operating expense savings.
Distribution expenses as a percentage of net sales for the Retail Direct segment were 28.9% for 2012 compared to 29.8% for 2011.
Retail Direct also benefitted from improved labor management and other operating expense savings.
21
Selling, general and administrative expenses
SG&A expenses for 2012 were $104.3 million, an increase of $10.4 million, or 11.1%, as compared to $93.9 million for 2011.
Excluding the expenses of Creative Tops, SG&A expenses for 2012 were $94.7 million, an increase of $1.9 million as compared to
$92.8 million for 2011.
SG&A expenses for 2012 for the Wholesale segment were $82.4 million, an increase of $11.0 million, or 15.4%, as compared to $71.4
million in 2011. As a percentage of net sales, SG&A expenses were 17.7% for 2012 compared to 17.0% for 2011. The increase
principally reflects higher expenses for Creative Tops to support its business expansion plan and an increase in employee related
expenses.
SG&A expenses for 2012 for the Retail Direct segment were $8.3 million compared to $9.2 million for 2011. The decrease was
primarily attributable to improved expense management.
Unallocated corporate expenses for 2012 and 2011 were $13.6 million and $13.3 million, respectively, due to an increase in
compensation offset by a reduction in acquisition related expenses.
Intangible asset impairment
During the year ended December 31, 2012, the Company’s home décor products category experienced a significant decline in sales.
The Company believes the most significant factor was the reduction in retail space allocated to the category which also contributed to
pricing pressure. While the Company believes this market condition is not permanent, following a strategic review of the business, it
decided to re-brand a portion of the home décor products under the Mikasa® and Pfaltzgraff® trade names. As a result of these factors,
the Company recorded an impairment charge of $1.1 million in its statement of operations which reduced the book value of its
Elements® trade name.
Interest expense
Interest expense for 2012 was $5.9 million as compared to $7.8 million for 2011. The decrease in interest expense was primarily
attributable to lower average interest rates and lower average borrowings. The most significant factor in the rate reduction related to
the retirement of the Company’s 4.75% convertible senior notes.
Loss on early retirement of debt
As previously discussed, in June and July 2012, the Company repaid its second lien credit agreement and wrote off debt issuance costs
of $1.4 million.
Income tax provision
The income tax provision was $5.2 million in 2012 and $6.1 million in 2011. The Company’s effective tax rate for 2012 was 25.9% as
compared to 36.4% for 2011. The effective tax rate in 2012 reflects an income tax benefit for a non-cash adjustment to a deferred tax
liability of $2.3 million related to the prior year. The effective tax rate for 2011 included a valuation allowance reversal related to
various deferred tax assets, including net operating losses, for which a tax benefit was not previously recognized.
Equity in earnings
Equity in earnings of Vasconia, net of taxes, was $6.9 million for 2012 and $2.9 million for 2011. Vasconia reported income from
operations for 2012 of $14.6 million compared to $17.3 million for 2011 and net income of $34.2 million in 2012 compared to $11.4
million in 2011. The increase in net income was primarily due to a $22.9 million bargain purchase gain recognized by Vasconia on its
purchase of Almexa, an aluminum mill and manufacturer of aluminum foil.
Equity in earnings for 2012 also includes a loss of $0.7 million from the Company’s 40% equity interest in GSI and losses of $0.1
million related to other investments. Equity in earnings for 2011 includes income of $0.5 million derived from the Company’s 50%
joint venture investment in World Alliance Enterprises Limited which was dissolved in 2012.
22
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, 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, health insurance reserves, impairment of goodwill, tangible and intangible assets, stock option
expense, accruals related to the Company’s tax positions and tax valuation allowances. 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 using 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. If the estimated selling price is lower than the inventory’s cost, the Company reduces the
value of the inventory to its net realizable value.
Accounts Receivable
The Company periodically reviews the collectability 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 with customers. However, in certain cases the Company does not have a formal contract and, therefore, 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 general 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 varied from actual deductions, revisions to
allowances would 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.
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. Additionally, if events or conditions were to indicate the carrying value of a reporting unit may not be recoverable, the
company would evaluate goodwill and other intangible assets for impairment at that time. As it relates to the goodwill assessment, the
Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less
than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment testing
described in ASU Topic No. 350, Intangibles – Goodwill and Other. The second step is a quantitative test to measures the amount of
impairment if there is an indication from the first step that one exists. The Company also evaluates qualitative factors to determine
whether or not its indefinite lived intangibles have been impaired and then performs quantitative tests if required. These tests can
include the royalty savings model or other valuation models.
Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment 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 discounted 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, 2013.
23
In 2012, the Company recorded an impairment charge of $1.1 million related to a decline in value of Elements, a brand trade name
used for home décor products . The impairment was triggered by a period of decline in the sales and gross margin of the brand.
Currently, the appraised value of Elements approximates its book value of $3.3 million. If in the future, the sales and/or gross margin
for Elements products were to further decline an additional impairment charge will be recorded.
Revenue recognition
The Company sells products:
• Wholesale, to retailers and distributors, and
• Retail, directly to consumers.
Wholesale sales and retail sales are recognized when title passes to the customer, which is primarily at the shipping point for
wholesale sales and upon delivery to the customer for retail sales. Shipping and handling fees that are billed to customers in sales
transactions are included in net sales. Net sales exclude taxes that are collected from customers and remitted to the taxing authorities.
The Company offers various sales incentives and promotional programs to its customers from time to time in the normal course of
business. These incentives and promotions typically include arrangements such as cooperative advertising, buydowns, volume rebates
and discounts. These arrangements and an estimate of sales returns are reflected as reductions in net sales in the Company’s
condensed consolidated statements of operations.
Employee stock options
The Company accounts for its stock options through 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 and the risk-free interest rate. Changes in these subjective input
assumptions can materially affect the fair value estimate of the Company’s stock options on the date of the option grant. The Company
historically has not issued options which would be variable awards.
Employee healthcare
The Company self-insures certain portions of its health insurance plan. The Company maintains an accrual for unpaid claims and
estimated claims incurred but not yet reported (“IBNR”). Although management believes that it uses the best information available to
estimate IBNR claims, actual claims may vary significantly from estimated claims.
Income taxes
The Company applies the required provisions for 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 financial statement recognition and measurement of a tax position taken. The valuation allowance is also
calculated, established or maintained when it is “more likely than not” that all or a portion of deferred tax assets will not be realized.
Derivatives
The Company accounts for all derivative instruments 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 highly 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. If the derivative which is
designated as part of a hedging relationship is considered ineffective in achieving offsetting changes in fair value or cash flows
attributable to the risk being hedged, the changes in fair value are recorded in operations. For derivatives that do not qualify or are not
designated as hedging instruments for accounting purposes, changes in fair value are recorded in operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s principal sources of cash to fund liquidity needs are: (i) cash provided by operating activities and (ii) borrowings
available under its Revolving Credit Facility. The Company’s primary uses of funds consist of working capital requirements, capital
expenditures, acquisitions and investments and payments of principal and interest on its debt.
24
At December 31, 2013, the Company had cash and cash equivalents of $4.9 million compared to $1.9 million at December 31, 2012,
working capital was $145.2 million at December 31, 2013 as compared to $145.9 million at December 31, 2012 and the current ratio
was 3.09 to 1 at December 31, 2013 compared to 3.18 to 1 at December 31, 2012.
Borrowings under the Company’s Revolving Credit Facility decreased to $49.2 million at December 31, 2013 compared to $61.0
million at December 31, 2012. The decrease in borrowings was primarily attributable to a decrease in the working capital needs.
The Company believes that availability under the Revolving Credit Facility and cash flows from operations are sufficient to fund the
Company’s operations for the next twelve months. However, if circumstances were to adversely change, the Company may seek
alternative sources of liquidity including debt and/or equity financing. However, there can be no assurance that any such alternative
sources would be available or sufficient. The Company closely monitors the creditworthiness of its customers. Based upon its
evaluation of changes in customers’ creditworthiness, the Company may modify credit limits and/or terms of sale. However,
notwithstanding the Company’s efforts to monitor its customers’ financial condition, the Company could be materially affected in the
future.
Revolving Credit Facility and Term Loan
The Company has a $175.0 million secured credit agreement (the “Revolving Credit Facility”), maturing on July 27, 2017, with a
bank group led by JPMorgan Chase Bank, N.A. and an expansion option which permits the Company, subject to certain conditions
including the consent of the Senior Secured Term Loan (defined below) lenders, to increase the maximum borrowing commitment
from $175.0 million to $225.0 million.
At December 31, 2013, borrowings outstanding under the Revolving Credit Facility were $49.2 million and open letters of credit were
$1.3 million.
Borrowings under the Revolving Credit Facility bear interest, at the Company’s option, at one of the following rates: (i) the Alternate
Base Rate, defined as the greater of the Prime Rate, Federal Funds Rate plus 0.5% or the Adjusted LIBO Rate plus 1.0%, plus a
margin of 1.0% to 1.75%, or (ii) the Eurodollar Rate, defined as the Adjusted LIBO Rate plus a margin of 2.0% to 2.75%. The
respective margins are based upon availability. Interest rates on outstanding borrowings at December 31, 2013 ranged from 2.125% to
4.25%. In addition, the Company pays a commitment fee of 0.375% to 0.50% on the unused portion of the Revolving Credit Facility.
Availability under the Revolving Credit Facility was approximately $87.8 million, or 50%, of the total loan commitment at
December 31, 2013.
The Company classifies a portion of the Revolving Credit Facility as a current liability if the Company’s intent and ability is to repay
the loan from cash flows from operations which are expected to occur within the year. Repayments and borrowings under the facility
can vary significantly from planned levels based on cash flow needs and general economic conditions.
At December 31, 2013, the Company had $20.6 million outstanding under its senior secured credit agreement with JP Morgan Chase
Bank, N.A. (the “Senior Secured Term Loan”), which was set to mature on July 27, 2018.
The Senior Secured Term Loan bore interest, at the Company’s option, at the Alternate Base Rate (as defined) plus 4.00%, or the
Adjusted LIBOR Rate (as defined) plus 5.00%.
The Senior Secured Term Loan provided that for any four consecutive fiscal quarters ending after July 27, 2012, (x) if at any time
EBITDA (as defined) was less than $34.0 million but equal to or greater than $30.0 million, the ratio of Indebtedness (as defined) to
EBITDA could not exceed 3.0 to 1.0 and (y) EBITDA could not be less than $30.0 million at any time. Capital expenditures were
limited and for the year ended December 31, 2013, such limit was $9.0 million. The Senior Secured Term Loan provided for other
customary restrictions and events of default. Restrictions included limitations on additional indebtedness, acquisitions, investments
and payment of dividends, among others. Further, the Senior Secured Term Loan provided that the Company maintain a minimum
fixed charge coverage ratio of 1.10 to 1.00 for any four consecutive fiscal quarters ending after July 27, 2012. The Company was in
compliance with the financial covenants of the Senior Secured Term Loan and the Revolving Credit Facility at December 31, 2013.
25
In January 2014, the Company entered into a Second Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A. The
Second Amended and Restated Credit Agreement provides for, among other things, (i) an extension of the maturity of the $175.0
million Revolving Credit Facility to January 11, 2019 and (ii) a new Term Loan facility of $50.0 million.
The Company utilized the proceeds of the Term Loan provided for in the Second Amended and Restated Credit Agreement and
additional borrowings under its Revolving Credit Facility to: (i) repay the existing borrowings under the Company’s Senior Secured
Term Loan, and (ii) finance the acquisition by the Company of 100% of the share capital of Thomas Plant (Birmingham) Limited.
The Company expects that it will continue to borrow and repay funds, subject to availability, under the facility based on working
capital and other corporate needs.
Derivatives
The Company is a party to interest rate swap agreements with an aggregate notional amount of $29.8 million to manage interest rate
exposure in connection with its variable interest rate borrowings. The hedge period in the agreements commenced in March 2013 and
expires in June 2018, and the notional amounts amortize over this period. The hedge provides for a fixed payment of interest at an
annual rate of 1.05% in exchange for the Adjusted LIBOR Rate. In March 2013, based on the interest rate swap agreements, the
Company commenced the payment of interest at a fixed annual rate of 6.05%.
Capital expenditures
Capital expenditures for the year ended December 31, 2013 were $3.8 million.
Consolidated EBITDA
The Company’s Consolidated EBITDA for the four quarters ended December 31, 2013 was $43.5 million, as follows:
Consolidated EBITDA for the four quarters ended
December 31, 2013
(in thousands)
Three months ended December 31, 2013 ..................................
Three months ended September 30, 2013 ................................
Three months ended June 30, 2013 ...........................................
Three months ended March 31, 2013 ........................................
Total for the four quarters................................................ $
21,011
15,067
4,321
3,079
43,478
26
Non-GAAP financial measure
Consolidated EBITDA is a non-GAAP financial measure within the meaning of Regulation G promulgated by the SEC. This measure
is provided because management of the Company uses this financial measure in evaluating the Company’s on-going financial results
and trends. Management also uses this non-GAAP information as an indicator of business performance. The following is a
reconciliation of net income as reported to Consolidated EBITDA for the years ended December 31, 2013 and 2012 and each fiscal
quarter of 2013 and 2012:
Net income as reported ................................. $
(632 ) $
(568 ) $
1,093 $
9,388 $
9,281
March 31, 2013
June 30, 2013
September 30, 2013
December 31, 2013
Three Months Ended
Year Ended
December 31, 2013
(in thousands)
Subtract out:
Undistributed equity (earnings)
losses, net ..............................
Add back: ............................................
Income tax provision (benefit) ...
Interest expense..........................
Depreciation and amortization ...
Stock compensation expense .....
Loss on early retirement of
debt ........................................
Restructuring expenses ..............
Permitted acquisition related
expenses ................................
Consolidated EBITDA .................................. $
(246 )
480
(399 )
1,162
2,523
671
—
—
(477 )
1,149
2,667
722
—
288
5,452
3,869
1,280
2,517
738
—
79
(332 )
6,182
1,256
2,708
750
102
—
—
3,079 $
60
4,321 $
39
15,067 $
957
21,011 $
5,354
9,175
4,847
10,415
2,881
102
367
1,056
43,478
Net income as reported ................................. $
1,344 $
559 $
3,890 $
15,154 $
20,947
March 31, 2012
June 30, 2012
September 30, 2012
December 31, 2012
December 31, 2012
Three Months Ended
Year Ended
(in thousands)
Subtract out:
Undistributed equity earnings,
net ..........................................
Add back: ............................................
Income tax provision .................
Interest expense..........................
Depreciation and amortization ...
Stock compensation expense .....
Loss on early retirement of
debt ........................................
Intangible asset impairment .......
Permitted acquisition related
expenses ................................
Consolidated EBITDA .................................. $
Dividends
(398)
(108 )
588
1,698
2,207
698
—
—
94
1,675
2,262
754
348
—
(695)
1,930
1,271
2,409
679
1,015
1,069
(4,464)
(5,665)
2,596
1,254
2,446
662
—
—
5,208
5,898
9,324
2,793
1,363
1,069
85
6,222 $
—
5,584 $
—
11,568 $
220
17,868 $
305
41,242
The Board of Directors declared a dividend of $0.025 per share payable on May 15, 2012, August 15, 2012, November 15, 2012 and
February 15, 2013, a dividend of $0.03125 per share payable on May 15, 2013, August 15, 2013 and November 15, 2013 and a
dividend of $0.0375 payable on February 14, 2014.
Operating activities
Net cash provided by operating activities was $35.8 million in 2013 as compared to $22.7 million in 2012 and $12.2 million in 2011.
The increase was primarily attributable to a decrease in accounts receivable, a decrease in payments of accounts payable, accrued
expenses and other liabilities offset by an increase in inventory and increase in the payments of income taxes.
27
Investing activities
Net cash used in investing activities was $3.8 million in 2013 as compared to $22.2 million in 2012 and $30.6 million in 2011. In 2012
investing activities principally related to cash consideration of $14.5 million for the acquisition of Fred® and Friends and cash
consideration of $2.6 million for the investment in GSI. In 2011, cash consideration of $20.6 was paid for the acquisition of Creative
Tops and cash consideration of $5.0 million was paid for the investment in GSI. No such investing activities occurred in 2013.
Financing activities
Net cash used in financing activities was $29.0 million in 2013 as compared to $2.2 million in 2012 and $17.9 million in 2011. The
Company had net repayments of $11.7 million to its Revolving Credit Facility in 2013 as compared to net borrowings of $3.3 million
in 2012 and net borrowings of $43.5 million in 2011. The proceeds from the 2012 borrowings were principally used to finance a
portion of the Fred® & Friends acquisition. The proceeds from the 2011 borrowings were principally used to finance the Creative Tops
acquisition, finance the Company’s investment in GSI, retire Notes and pay the acquisition related costs of $2.0 million. Additionally,
the Company’s 2013 borrowings were used to repurchased 245,575 shares under the 2013 stock repurchase program for a total cost of
$3.2 million.
CONTRACTUAL OBLIGATIONS
As of December 31, 2013, the Company’s contractual obligations were as follows (in thousands):
Payment due by period
Operating leases .................................................................................. $
Short-term debt ...................................................................................
Long-term debt ...................................................................................
Interest on debt ....................................................................................
Minimum royalty payments ................................................................
Post retirement benefits.......................................................................
Total .................................................................................................... $ 179,558 $ 28,747 $ 76,987 $ 51,834 $
Total
78,421 $ 15,162 $ 28,780 $ 17,860 $
3,937
65,919
9,946
15,975
5,360
—
30,488
2,032
827
627
—
35,431
4,833
7,689
254
3,937
—
3,081
6,424
143
3-5 years
1-3 years
Less than
1 year
More than
5 years
16,619
—
—
—
1,035
4,336
21,990
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 and foreign currency exchange rates. The
Company believes it has moderate exposure to these risks. The Company assesses market risk based on changes in interest rates
utilizing a sensitivity analysis that measures the potential loss in earnings and cash flows based on a hypothetical 10% change in these
rates.
The Company’s functional currency is the U.S. Dollar. The Company has foreign operations through its acquisitions, investments and
strategic alliances which have operations in the United Kingdom, Mexico, Canada, Brazil, Hong Kong and China; therefore, the
Company is subject to increases and decreases in its investments resulting from the impact of fluctuations in foreign currency
exchange rates. Additional transactions exposing the company to exchange rate risk include sales, certain inventory purchases and
operating expenses. Through its subsidiaries, portions of the Company’s cash, trade accounts receivable and trade accounts payable
are denominated in foreign currencies. For the year ended December 31, 2013, approximately 10% of the Company’s net sales
revenue was in foreign currencies. These sales were primarily denominated in British Pounds and Canadian Dollars. The Company
makes most of its inventory purchases from the Far East and uses the U.S. Dollar for such purchases. In the Company’s consolidated
statements of income foreign exchange gains and losses are recognized in Selling, general and administrative expense. A hypothetical
10% change in exchange rates, with U.S. Dollar as the functional and reporting currency would result in less than $0.1 million change
in Selling, general and administrative expense.
The Company’s Revolving Credit Facility and Senior Secured Term Loan bore 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 entered into an
interest rate swap agreement in August 2012 to manage interest rate exposure in connection with its variable interest rate borrowings.
As of December 31, 2013, approximately $40.1 million of the Company’s debt carries a variable rate of interest. The remainder of the
debt (approximately $29.8 million) carries a fixed rate of interest either by nature or through the use of interest rate swaps. A
hypothetical and instantaneous 10% increase in the Company’s variable interest rates increase interest expense by less than $0.1
million over a twelve month period.
28
Interest rate swaps expose the Company to counterparty credit risk for nonperformance. The Company manages its exposure to
counterparty credit risk by dealing with counterparties who are international financial institutions with investment grade credit ratings.
Although the Company’s credit risk is the replacement cost at the estimated fair value of these instruments, the Company believes that
the risk of incurring credit risk losses is remote.
The Company does not enter into derivative financial instruments for trading purposes.
Item 8. Financial Statements and Supplementary Data
The Company’s Consolidated Financial Statements as of and for the year ended December 31, 2013 in Item 15 commencing on page
F-1 are incorporated herein by reference.
The following tables set forth certain unaudited consolidated quarterly statement of operations data for the eight quarters ended
December 31, 2013. 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 ...................................
Year ended December 31, 2013
First
quarter
Second
quarter
Third
quarter
Fourth
quarter(2)
(in thousands, except per share data)
98,657 $
36,312
(115)
(632)
(0.05)
(0.05)
96,976 $
36,356
12
(568)
(0.04)
(0.04)
142,229 $
51,277
11,693
1,093
0.09
0.08
164,859
63,317
16,596
9,388
0.73
0.72
Year ended December 31, 2012
First
quarter
Second
quarter
Third
quarter
Fourth
quarter(1)
(in thousands, except per share data)
Net sales ..................................................................................... $
Gross profit .................................................................................
Income from operations..............................................................
Net income .................................................................................
Basic income per common share ................................................
Diluted income per common share .............................................
109,041 $
40,460
3,232
1,344
0.11
0.11
94,939 $
35,374
2,153
559
0.04
0.04
128,050 $
44,909
7,411
3,890
0.31
0.30
154,812
56,045
14,539
15,154
1.21
1.19
Note:
(1) The fourth quarter ended December 31, 2012 reflects an income tax benefit for a non-cash adjustment of $2.3 million to a
deferred tax liability related to the prior year fourth quarter.
(2) The fourth quarter December 31, 2013 reflects a non-operating adjustment of $1,053 to reduce accounts receivable for
previously issued credits with respect to the Retail Direct business which related to 2010 and earlier periods.
29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
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
officer, respectively) have concluded, based on their evaluation as of December 31, 2013, 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
Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’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.
30
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, 2013. 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:
•
•
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
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
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, 2013 using the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework). Based on this assessment, management has determined that the
Company’s internal control over financial reporting as of December 31, 2013 is effective.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their report.
31
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, 2013, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework) (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’s 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, 2013 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, 2013 and 2012, and the related consolidated statements of
operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31,
2013 of Lifetime Brands, Inc. and our report dated March 14, 2014 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Jericho, New York
March 14, 2014
32
Item 9B. Other Information
Not applicable.
33
PART III
Items 10, 11, 12, 13 and 14
The information required under these items is contained in the Company’s 2014 Proxy Statement, which will be filed with the SEC
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.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) See 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
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Second Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 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 Exhibit 3.1 to the Registrant’s Current
Report on Form 8-K filed on June 18, 2013)
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 Exhibit 4.2 to Amendment
No. 1 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 Exhibit 10.41 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
Evan Miller Amendment of Employment Agreement dated June 29, 2007 (incorporated by reference to Exhibit 10.1 to
the Registrant’s Current Report on Form 8-K filed July 3, 2007)*
Employment agreement dated May 2, 2006 between Lifetime Brands, Inc. and Jeffrey Siegel (incorporated by reference
to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed May 8, 2006)*
Amendment of Employment Agreement, dated August 10, 2009 by and between Lifetime Brands, Inc. and Jeffrey Siegel
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed August 12, 2009)*
Second Amendment of Employment Agreement, dated November 9, 2010, by and between Lifetime Brands, Inc. and
Jeffrey Siegel (incorporated by reference to Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2010)*
Employment Agreement, dated March 4, 2011, by and between Lifetime Brands, Inc. and Jeffrey Siegel (incorporated
by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 8, 2011)*
First Amendment to Employment Agreement, dated April 30, 2012, between Lifetime Brands, Inc. and Jeffrey Siegel
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed April 30, 2012)*
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 Exhibit 99.1 to the
Registrant’s Current Reports on Form 8-K filed May 15, 2006)*
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 Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006)
Amended 2000 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K filed June 9, 2006)*
Amendment to the Lifetime Brands, Inc. 2000 Long-Term Incentive Plan dated November 1, 2007 (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 5, 2007)*
34
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
Amendment of the Lifetime Brands, Inc. 2000 Long-Term Incentive Plan dated June 11, 2009 (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 12, 2009)*
Amended 2000 Incentive Bonus Compensation Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K filed June 9, 2006)*
Employment agreement dated June 28, 2007 between Lifetime Brands, Inc. and Laurence Winoker (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed July 3, 2007)*
Amendment to Employment Agreement, dated March 8, 2010, between Lifetime Brands, Inc. and Laurence Winoker
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 10, 2010)*
Amendment of Employment Agreement, dated April 12, 2012, between Lifetime Brands, Inc. and Laurence Winoker
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed April 16, 2012)*
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 Exhibit 99.1 to the
Registrant’s Current Report on Form 8-K filed June 11, 2007)
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 Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2008)
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 Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2008)
Lease Agreement between Granite Sierra Park LP and Lifetime Brands, Inc. dated June 29, 2007 (incorporated by
reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed July 6, 2007)
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 Exhibit 99.1 to the Registrant’s Current Report on Form 8-K/A dated April 22, 2008)
Amendment No. 3 to the Company’s Second Amended and Restated Credit Agreement, September 29, 2008
(incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed September 30, 2008)
Forbearance Agreement and Amendment No. 4, dated as of February 12, 2009, by and among Lifetime Brands, Inc., the
several financial institutions parties thereto and HSBC Bank USA, National Association, as Administrative Agent for
the Lenders (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed
February 19, 2009)
Amendment to Forbearance Agreement and Amendment No. 4, dated as of March 6, 2009, by and among Lifetime
Brands, Inc., the several financial institutions parties thereto and HSBC Bank USA, National Association, as
Administrative Agent for the Lenders (incorporated by reference to the Exhibit 99.1 to Registrant’s Current Report on
Form 8-K filed March 10, 2009)
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 parties thereto and HSBC Bank USA, National
Association, as Administrative Agent for the Lenders (incorporated by reference to Exhibit 10.25 to the Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2008)
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 parties thereto and HSBC Bank USA, National Association, as
Administrative Agent for the Lenders (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on
Form 8-K filed November 2, 2009)
Amendment No. 7 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 Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed February 12, 2010)
35
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
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 parties thereto and HSBC Bank USA, National Association, as
Administrative Agent and Co-Collateral Agent for the Lenders (incorporated by reference to Exhibit 99.1 to the
Registrant’s Current Report on Form 8-K filed October 16, 2009)
Asset Purchase Agreement between Mikasa, Inc. and Lifetime Brands, Inc. dated June, 6 2008 (incorporated by
reference to Exhibit 99.1 to the Registrant’s Form 10-Q dated June 30, 2008)
Amended and Restated Employment Agreement, dated August 10, 2009 by and between Lifetime Brands, Inc. and
Ronald Shiftan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed
August 12, 2009)*
Amendment of Amended and Restated Employment Agreement, dated November 9, 2010, by and between Lifetime
Brands, Inc. and Ronald Shiftan (incorporated by reference to Exhibit 10.33 to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 2010)*
Second Amended and Restated Employment Agreement, dated as of December 20, 2012, by and between Lifetime
Brands, Inc. and Ronald Shiftan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed December 21, 2012)*
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 Exhibit 99.1 to the Registrant’s
Current Report on Form 8-K filed December 2, 2009)
Amended and Restated Executive Employment Agreement, dated March 8, 2010, between Lifetime Brands, Inc. and
Craig Phillips (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on
March 10, 2010)*
Credit Agreement, dated as of June 9, 2010, among Lifetime Brands, Inc., JPMorgan Chase Bank, N.A., as
administrative agent and a co-collateral agent, and HSBC Business Credit (USA) Inc., as syndication agent and a co-
collateral agent, with exhibits (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2013)
Second Lien Credit Agreement, dated as of June 9, 2010, among Lifetime Brands, Inc. and Citibank, N.A., as
administrative agent and collateral agent, with exhibits (incorporated by reference to Exhibit 99.2 to the Registrant’s
Current Report on Form 8-K filed June 15, 2010)
Amendment No. 1 to the Second Lien Credit Agreement, dated as of March 9, 2011, among Lifetime Brands, Inc. and
Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 10.34 to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010)
Amendment No. 2 of the Second Lien Credit Agreement, dated as of October 28, 2011, by and among Lifetime
Brands, Inc. and Citibank, N.A., as administrative agent and collateral agent, with exhibits (incorporated by reference
to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed November 3, 2011)
Amended and Restated Credit Agreement, dated as of October 28, 2011, by and among Lifetime Brands, Inc., the
Foreign Subsidiary Borrowers parties thereto, the Other Loan Parties hereto, the Lenders party hereto JP Morgan
Chase Bank, N.A., as Administrative Agent and a Co-Collateral Agent, and HSBC Bank USA, National Association,
as Syndication Agent and a Co-Collateral Agent (incorporated by reference to Exhibit 10.4 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2013)
Share Purchase Agreement, dated November 4, 2011, by and among Lifetime Brands, Inc. and Creative Tops Holding
Limited and Creative Tops Far East Limited (incorporated by reference to Exhibit 99.2 to the Registrant’s Current
Report on Form 8-K filed November 8, 2011)
Senior Secured Credit Agreement, dated as of July 27, 2012, among Lifetime Brands, Inc., the Subsidiary Guarantors,
the Lenders and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent (incorporated by
reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013)
Amendment No. 1 to the Senior Secured Credit Agreement, dated as of November 13, 2012, among Lifetime Brands,
Inc., the Subsidiary Guarantors party thereto, the Swap Agreement Counterparty, the financial institutions party thereto
and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 99.3 to the
Registrant’s Current Report on Form 8-K filed June 27, 2013)
36
10.44
10.45
10.46
14.1
18.1
21.1
23.1
23.2
31.1
31.2
32.1
99.1
99.2
Amendment No. 2 to the Senior Secured Credit Agreement, dated as of June 21, 2013, among Lifetime Brands, Inc.,
the Subsidiary Guarantors party thereto, the financial institutions party thereto and JPMorgan Chase Bank, N.A., as
Administrative Agent (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed
June 27, 2013)
Share Purchase Agreement, dated January 15, 2014, relating to Thomas Plant (Birmingham) Limited (incorporated by
reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed January 17, 2014)
Second Amended and Restated Credit Agreement, dated as of January 13, 2014, among Lifetime Brands, Inc., as
Borrower, The Subsidiary Guarantors Party Thereto, as Subsidiary Guarantors, The Lenders Party Thereto and
JPMorgan Chase Bank, N.A., as Administrative Agent and a Co-Collateral Agent, and HSBC Bank USA, National
Association, as Syndication Agent and a Co-Collateral Agent, with exhibits. (incorporated by reference to Exhibit 99.3
to the Registrant’s Current Report on Form 8-K filed January 17, 2014)
Code of Ethics dated February 28, 2013 (incorporated by reference to Exhibit 14.1 to the Registrant’s Current Report
on Form 8-K filed March 6, 2013)
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 Exhibit 18 to the Registrant’s Quarterly Report on Form 10-Q for
the quarter ended September, 30 2008)
Subsidiaries of the registrant
Consent of Ernst & Young LLP
Consent of Castillo Miranda Y Compañía, S.C.
Certification by Jeffrey Siegel, Chief Executive Officer and Chairman of the Board of Directors, 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
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
Certification by Jeffrey Siegel, Chief Executive Officer and Chairman of the Board of Directors, 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
Grupo Vasconia, S.A.B. (formerly Ekco, S.A.B.), Report of Independent Registered Accounting Firm
Grupo Vasconia, S.A.B. (formerly Ekco, S.A.B.), separate financial statements and Report of Independent Registered
Accounting Firm (incorporated by reference to Exhibit 99.1 to the Registrant’s Annual Report on Form 10-K/A for
the year ended December 31, 2012)
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
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.
* Compensatory plans in which the directors and executive officers of the Company participate.
(c)
Financial Statement Schedules — the response to this portion of Item 15 is submitted as a separate section of this report.
37
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Lifetime Brands, Inc.
/s/ Jeffrey Siegel
Jeffrey Siegel
Chairman of the Board of Directors,
Chief Executive Officer and Director
Date: March 14, 2014
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
/s/ Jeffrey Siegel
Jeffrey Siegel
/s/ Ronald Shiftan
Ronald Shiftan
/s/ Laurence Winoker
Laurence Winoker
/s/ Craig Phillips
Craig Phillips
/s/ David Dangoor
David Dangoor
/s/ Michael Jeary
Michael Jeary
/s/ John Koegel
John Koegel
/s/ Cherrie Nanninga
Cherrie Nanninga
/s/ Dennis Reaves
Dennis Reaves
/s/ Michael Regan
Michael Regan
/s/ William Westerfield
William Westerfield
Title
Chairman of the Board of Directors,
Chief Executive Officer and Director
(Principal Executive Officer)
Vice Chairman of the Board of Directors,
Chief Operating Officer and Director
Senior Vice President – Finance,
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date
March 14, 2014
March 14, 2014
March 14, 2014
Senior Vice-President – Distribution and Director
March 14, 2014
March 14, 2014
March 14, 2014
March 14, 2014
March 14, 2014
March 14, 2014
March 14, 2014
March 14, 2014
Director
Director
Director
Director
Director
Director
Director
38
Item 15
LIFETIME BRANDS, INC.
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of Lifetime Brands, Inc. are filed as part of this report under Item 8 – Financial
Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm ...........................................................................................................
Consolidated Balance Sheets as of December 31, 2013 and 2012 ..................................................................................................
Consolidated Statements of Operations for the Years ended December 31, 2013, 2012, and 2011 ...............................................
Consolidated Statements of Comprehensive Income for the Years ended December 31, 2013, 2012 and 2011 ............................
Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2013, 2012, and 2011 ...............................
Consolidated Statements of Cash Flows for the Years ended December 31, 2013, 2012, and 2011 ..............................................
Notes to Consolidated Financial Statements ...................................................................................................................................
F-2
F-3
F-4
F-5
F-6
F-7
F-8
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, 2013
and 2012, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2013. Our audits also included the financial statement schedule listed in the Index
at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedule based on our audits. We did not audit the consolidated financial
statements of Grupo Vasconia, S.A.B. and Subsidiaries (a corporation in which the Company has a 30% interest), which statements
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
$30.5 million and $36.4 million at December 31, 2013 and 2012, respectively, and the Company’s equity in the net income (loss) of
Grupo Vasconia, S.A.B. and Subsidiaries is stated at ($4.0) million for the year ended December 31, 2013, $6.9 million for the year
ended December 31, 2012 and $2.9 million for the year ended December 31, 2011.
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, 2013 and 2012, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, 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.
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, 2013, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our
report dated March 14, 2014 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Jericho, New York
March 14, 2014
F-2
December 31,
2013
2012
4,947 $
1,871
LIFETIME BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands-except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................................................................................................... $
Accounts receivable, less allowances of $5,209 at December 31, 2013 and $3,996 at December 31,
2012 .................................................................................................................................................
Inventory (Note M) ..............................................................................................................................
Prepaid expenses and other current assets ............................................................................................
Deferred income taxes (Note I) ............................................................................................................
TOTAL CURRENT ASSETS ....................................................................................................
PROPERTY AND EQUIPMENT, net (Note M) ...........................................................................................
INVESTMENTS (Note C) .............................................................................................................................
INTANGIBLE ASSETS, net (Note D) ..........................................................................................................
OTHER ASSETS ...........................................................................................................................................
97,369
104,584
5,393
3,542
212,759
31,646
43,685
57,842
2,865
TOTAL ASSETS ............................................................................................................. $ 336,739 $ 348,797
87,217
112,791
5,781
3,940
214,676
27,698
36,948
55,149
2,268
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Revolving Credit Facility (Note E) ...................................................................................................... $
Current maturity of Senior Secured Term Loan (Note E) ....................................................................
Accounts payable .................................................................................................................................
Accrued expenses (Note M) .................................................................................................................
Income taxes payable (Note I) ..............................................................................................................
TOTAL CURRENT LIABILITIES ............................................................................................
DEFERRED RENT & OTHER LONG-TERM LIABILITIES (Note M) .....................................................
DEFERRED INCOME TAXES (Note I) .......................................................................................................
REVOLVING CREDIT FACILITY (Note E) ...............................................................................................
SENIOR SECURED TERM LOAN (Note E) ...............................................................................................
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, shares authorized: 100 shares of Series A and 2,000,000 shares of
— $
3,937
21,426
41,095
3,036
69,494
18,644
1,777
49,231
16,688
7,000
4,375
18,555
33,354
3,615
66,899
21,565
3,510
53,968
30,625
Series B; none issued and outstanding .............................................................................................
—
—
Common stock, $.01 par value, shares authorized: 25,000,000; shares issued and outstanding:
12,777,407 at December 31, 2013 and 12,754,467 at December 31, 2012 .....................................
Paid-in capital .......................................................................................................................................
Retained earnings .................................................................................................................................
Accumulated other comprehensive loss (Note M) ...............................................................................
TOTAL STOCKHOLDERS’ EQUITY ......................................................................................
128
142,489
33,849
(4,236)
172,230
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY ..................................... $ 336,739 $ 348,797
128
146,273
38,224
(3,720)
180,905
See notes to consolidated financial statements.
F-3
LIFETIME BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands – except per share data)
Year Ended December 31,
2013
2012
2011
Net sales ................................................................................................................................... $ 502,721 $ 486,842 $ 444,418
282,058
Cost of sales .............................................................................................................................
162,360
Gross margin ............................................................................................................................
43,882
Distribution expenses ...............................................................................................................
93,894
Selling, general and administrative expenses ...........................................................................
—
Restructuring expenses ............................................................................................................
Intangible asset impairment (Note D) ......................................................................................
—
24,584
Income from operations ...........................................................................................................
(7,758)
Interest expense (Note E) .........................................................................................................
Loss on early retirement of debt (Note E) ................................................................................
—
16,826
Income before income taxes and equity in earnings ................................................................
(6,122)
Income tax provision (Note I) ..................................................................................................
3,362
Equity in (losses) earnings, net of taxes (Note C) ....................................................................
14,066
NET INCOME ....................................................................................................................... $
315,459
187,262
44,364
114,345
367
—
28,186
(4,847)
(102)
23,237
(9,175)
(4,781)
9,281 $
310,054
176,788
44,046
104,338
—
1,069
27,335
(5,898)
(1,363)
20,074
(5,208)
6,081
20,947 $
BASIC INCOME PER COMMON SHARE (NOTE H) .................................................... $
DILUTED INCOME PER COMMON SHARE (NOTE H) .............................................. $
0.73 $
0.71 $
1.67 $
1.64 $
1.16
1.12
See notes to consolidated financial statements.
F-4
LIFETIME BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income ....................................................................................................................................... $ 9,281 $ 20,947 $ 14,066
Other comprehensive income (loss), net of tax:
Translation adjustment (Note M) ...........................................................................................
Deferred gains (losses) on cash flow hedges (Notes F & M): ................................................
Fair value adjustment, net of tax of $160 in 2013 and tax benefit of $182 in 2012 ......
Total deferred gains (losses) on cash flow hedges ..............................................
Effect of retirement benefit obligations (Note M): .................................................................
Net income (loss) arising from retirement benefit obligations, net of tax benefit of
(140)
3,077
(704)
241
241
(272)
(272)
—
—
Year ended December 31,
2013
2012
2011
$241 in 2013 and tax of $791 in 2012 ......................................................................
Less: amortization of loss included in net income, net of tax of $36 in 2013 and $18
in 2012 .....................................................................................................................
—
—
Total effects of retirement benefit obligations.....................................................
(704)
Other comprehensive income (loss), net of tax ................................................................................
Comprehensive income .................................................................................................................... $ 9,797 $ 22,592 $ 13,362
27
(1,160)
1,645
54
415
516
(1,187)
361
—
See notes to consolidated financial statements.
F-5
LIFETIME BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
BALANCE AT DECEMBER 31, 2010................
Comprehensive income:
Net income ....................................................
Translation adjustment ..................................
Total comprehensive income ...............
Shares issued to directors (Note G) .........................
Stock compensation expense (Note G) ...................
Issuance of 255,908 shares of common stock for
acquisition of Creative Tops ..............................
Exercise of stock options ........................................
Dividends (Note G) .................................................
BALANCE AT DECEMBER 31, 2011................
Comprehensive income:
Net income ....................................................
Translation adjustment ..................................
Derivative fair value adjustment (Note F) .....
Effect of retirement benefit obligations .........
Total comprehensive income ...............
Shares issued to directors (Note G) .........................
Stock compensation expense (Note G) ...................
Issuance of 143,568 shares of common stock for
acquisition of Fred® & Friends (Note B) ............
Tax benefit on exercise of stock options .................
Exercise of stock options ........................................
Dividends (Note G) .................................................
BALANCE AT DECEMBER 31, 2012................
Comprehensive income:
Net income ....................................................
Translation adjustment ..................................
Derivative fair value adjustment (Note F) .....
Effect of retirement benefit obligations .........
Total comprehensive income ...............
Shares issued to directors (Note G) .........................
Stock compensation expense (Note G) ...................
Reduction of tax benefit from stock options, net ....
Exercise of stock options ........................................
Treasury Stock Repurchase .....................................
Dividends (Note G) .................................................
BALANCE AT DECEMBER 31, 2013................
Common stock
Shares
Amount
Paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
loss
Total
12,065 $
121 $ 131,350 $
1,312 $
(5,177) $ 127,606
—
—
21
—
256
89
—
12,431
—
—
—
—
23
—
144
—
156
—
12,754
—
—
—
—
—
—
—
—
3
—
—
124
—
—
—
—
—
—
1
—
3
—
128
—
—
—
—
—
—
14,066
—
183
2,612
3,097
225
—
137,467
—
—
—
—
267
2,526
1,506
150
573
—
142,489
—
—
—
—
—
—
—
—
(913)
14,465
20,947
—
—
—
—
—
—
—
—
(1,563)
33,849
9,281
—
—
—
21
—
—
248
(246)
—
12,777 $
277
—
2,604
—
(310)
—
1,213
2
—
(2)
—
—
128 $ 146,273 $ 38,224 $
—
—
—
—
(3,227)
(1,679)
—
(704)
—
—
—
—
—
(5,881)
—
3,077
(272)
(1,160)
—
—
—
—
—
—
(4,236)
14,066
(704)
13,362
183
2,612
3,100
225
(913)
146,175
20,947
3,077
(272)
(1,160)
22,592
267
2,526
1,507
150
576
(1,563)
172,230
—
(140)
241
415
9,281
(140)
241
415
9,797
277
2,604
(310)
1,215
(3,229)
(1,679)
(3,720) $ 180,905
—
—
—
—
—
—
See notes to consolidated financial statements.
F-6
LIFETIME BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
OPERATING ACTIVITIES
Net income .................................................................................................................. $
Adjustments to reconcile net income to net cash provided by operating activities:
9,281 $
20,947 $
14,066
Year ended December 31,
2013
2012
2011
Provision for doubtful accounts .........................................................................
Depreciation and amortization ...........................................................................
Amortization of debt discount ...........................................................................
Amortization of financing costs .........................................................................
Deferred rent ......................................................................................................
Deferred income taxes .......................................................................................
Stock compensation expense .............................................................................
Undistributed equity earnings ............................................................................
Intangible asset impairment (Note D) ................................................................
Loss on early retirement of debt (Note E) ..........................................................
Changes in operating assets and liabilities (excluding the effects of business
acquisitions)
Accounts receivable ...........................................................................................
Inventory ............................................................................................................
Prepaid expenses, other current assets and other assets .....................................
Accounts payable, accrued expenses and other liabilities ..................................
Income taxes payable .........................................................................................
NET CASH PROVIDED BY OPERATING ACTIVITIES ...............
INVESTING ACTIVITIES
Purchases of property and equipment ..........................................................................
Equity investments ......................................................................................................
Business acquisition, net of cash acquired ..................................................................
Net proceeds from sale of property .............................................................................
NET CASH USED IN INVESTING ACTIVITIES .............................
FINANCING ACTIVITIES
Proceeds from Revolving Credit Facility (Note E) .....................................................
Repayments from Revolving Credit Facility (Note E) ................................................
Proceeds from Revolving Credit Facility, net (Note E)...............................................
Proceeds from Senior Secured Term Loan (Note E) ...................................................
Repayments from Senior Secured Term Loan (Note E) ..............................................
Repayments of Term Loan (Note E) ...........................................................................
Repurchase of 4.75% convertible senior notes ............................................................
Payments for stock repurchase ....................................................................................
Financing Costs ...........................................................................................................
Cash dividends paid (Note G) .....................................................................................
Payment of capital lease obligations ...........................................................................
Proceeds from the exercise of stock options................................................................
Excess tax benefit from stock options .........................................................................
NET CASH (USED IN) PROVIDED BY FINANCING
139
10,415
—
528
(962)
(2,275)
2,881
5,354
—
102
10,099
(8,207)
(449)
9,437
(579)
35,764
(3,842)
—
—
11
(3,831)
220,222
(231,959)
—
—
(14,375)
—
—
(3,229)
—
(1,515)
—
1,215
613
123
9,324
—
649
(668)
(3,011)
2,793
(5,665)
1,069
1,363
(14,741)
9,694
(529)
(166)
1,515
22,697
(4,955)
(2,765)
(14,500)
27
(22,193)
183,600
(180,257)
—
35,000
—
(40,000)
—
—
—
(1,249)
—
577
150
(24)
8,397
543
802
(133)
(1,218)
2,795
(2,896)
—
—
3,297
(5,365)
318
(4,673)
(3,722)
12,187
(4,959)
(5,123)
(20,584)
31
(30,635)
—
—
43,525
—
—
—
(24,100)
—
(761)
(913)
(78)
225
—
ACTIVITIES......................................................................................
Effect of foreign exchange on cash .......................................................................................
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................
Cash and cash equivalents at beginning of year ....................................................................
CASH AND CASH EQUIVALENTS AT END OF YEAR ............................................. $
(29,028)
171
3,076
1,871
4,947 $
(2,179)
574
(1,101)
2,972
1,871 $
17,898
171
(379)
3,351
2,972
See notes to consolidated financial statements
F-7
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
NOTE A — SIGNIFICANT ACCOUNTING POLICIES
Organization and business
Lifetime Brands, Inc. (the “Company”) designs, sources and sells branded kitchenware, tableware and other products used in the home
and markets its products under a number of brand names and trademarks, which are either owned or licensed by the Company or
through retailers’ private labels. The Company markets and sells its products principally on a wholesale basis to retailers. The
Company also markets and sells a limited selection of its products directly to consumers through its Pfaltzgraff®, Mikasa®, Lifetime
Sterling® and The English Table Internet websites.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (“U.S. GAAP”) for financial information and with the instructions to Form 10-K.
The accompanying consolidated financial statements include estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with U.S. GAAP.
The most significant of these estimates and assumptions relate 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, stock option expense, estimates for unpaid healthcare claims, derivative valuations, accruals related to the Company’s tax
positions and tax valuation allowances. Although these and other estimates and assumptions are based on the best available
information, actual results could be materially different from these estimates.
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.
Foreign Currency
All foreign subsidiaries use the local currency of their respective countries as their functional currency. Assets and liabilities are
translated into U.S. dollars at exchange rates prevailing at the balance sheet dates. Revenues, costs and expenses are translated into
U.S. dollars at average exchange rates for the relevant period. Gains and losses resulting from translation are recorded as a component
of accumulated other comprehensive gain (loss). Gains and losses from foreign currency transactions are recognized in selling, general
and administrative expenses in the consolidated statements of operations. Foreign currency gain/loss was a $258,000 loss in 2013,
$415,000 loss in 2012 and a $28,000 gain in 2011.
Revenue recognition
The Company sells products wholesale, to retailers and distributors, and retail, directly to consumers. Wholesale sales and retail direct
sales are recognized when title passes to the customer, which is primarily at the shipping point for Wholesale sales and upon delivery
to the customer for retail direct sales. Shipping and handling fees that are billed to customers in sales transactions are included in net
sales and amounted to $1.4 million for each of the three years ended December 31, 2013, 2012 and 2011. Net sales exclude taxes that
are collected from customers and remitted to the taxing authorities.
The Company offers various sales incentives and promotional programs to its customers from time to time in the normal course of
business. These incentives and promotions typically include arrangements such as cooperative advertising, buydowns, volume rebates
and discounts. These arrangements and an estimate of sales returns are reflected as reductions in net sales in the Company’s
consolidated statements of operations.
Cost of sales
Cost of sales consist primarily of costs associated with the production and procurement of product, inbound freight costs, purchasing
costs, royalties and other product procurement related charges.
F-8
Distribution expenses
Distribution expenses consist primarily of warehousing expenses and freight-out expenses. Freight-out expenses were $9.0 million,
$8.5 million and $7.5 million for the years ended December 31, 2013, 2012 and 2011, respectively. Handling costs of products sold
are included in cost of sales.
Advertising expenses
Advertising expenses are expensed as incurred and are included in selling, general and administrative expenses. Advertising expenses
were $757,000, $775,000 and $702,000 for the years ended December 31, 2013, 2012 and 2011, respectively.
Accounts receivable
The Company periodically reviews the collectability 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 with customers.
However, in certain cases the Company does not have a formal contract and, therefore, 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.
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 using 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. If the estimated selling price is lower than the inventory’s cost, the Company reduces the
value of the inventory to its net realizable value.
Property and equipment
Property and equipment is stated at cost. Property and equipment, other than leasehold improvements, is depreciated using the
straight-line method over the estimated useful lives of the assets. Building and improvements are being depreciated over 30 years and
machinery, furniture and equipment over periods ranging from 3 to 10 years. Leasehold improvements are amortized over the term of
the lease or the estimated useful lives of the improvements, whichever is shorter. Advances paid towards the acquisition of property
and equipment and the cost of property and equipment not ready for use before the end of the period are classified as construction in
progress.
Cash equivalents
The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents.
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.
During the years ended December 31, 2013, 2012 and 2011, Wal-Mart Stores, Inc. (including Sam’s Club and Asda Superstore, in the
United Kingdom) accounted for 15%, 16% and 15% of net sales, respectively. Sales to Wal-Mart Stores, Inc. are included in the
Company’s Wholesale segment. No other customer accounted for 10% or more of the Company’s sales during these periods.
F-9
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 annual goodwill and other intangible asset impairment tests and derivatives,
described in Notes D and F, respectively.
Fair value of financial instruments
The Company determined the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable are reasonable
estimates of their fair values because of their short-term nature. The Company determined that the carrying amounts of borrowings
outstanding under its Revolving Credit Facility and Senior Secured Term Loan approximate fair value since such borrowings bear
interest at variable market rates.
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 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 highly effective in achieving offsetting changes in
fair value or cash flows attributable to the risk being hedged, until the hedge item is recognized in earnings. If the derivative which is
designated as part of a hedging relationship is considered ineffective in achieving offsetting changes in fair value or cash flows
attributable to the risk being hedged, the changes in fair value are recorded in operations. For derivatives that do not qualify or are not
designated as hedging instruments for accounting purposes, changes in fair value are recorded in operations.
The Company is a party to interest rate swap agreements with an aggregate notional amount of $29.8 million to manage interest rate
exposure in connection with its variable interest rate borrowings. The hedge period in the agreements commenced in March 2013 and
expires in June 2018 and the notional amount amortizes over this period. The interest rate swap agreements were designated as cash
flow hedges under ASC Topic No. 815. The effective portion of the fair value gain or loss on these agreements are recorded as a
component of accumulated other comprehensive loss. The effect of recording these derivatives at fair value resulted in an unrealized
gain of $241,000 and an unrealized loss of $272,000, net of taxes, for the years ended December 31, 2013 and 2012, respectively. No
amounts recorded in accumulated other comprehensive loss are expected to be reclassified to interest expense in the next twelve
months.
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. Additionally, if events or conditions were to indicate the carrying value of a reporting unit may not be recoverable, the
company would evaluate goodwill and other intangible assets for impairment at that time. As it relates to the goodwill assessment, the
Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less
than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment testing
described in ASU Topic No. 350, Intangibles – Goodwill and Other. The second step is a quantitative test to measures the amount of
impairment if there is an indication from the first step that one exists. The Company also evaluates qualitative factors to determine
whether or not its indefinite lived intangibles have been impaired and then performs quantitative tests if required. These tests can
include the royalty savings model or other valuation models.
Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment 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 discounted 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, 2013.
F-10
Income taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company accounts for foreign
income taxes based upon anticipated reinvestment of profits into respective foreign tax jurisdictions.
The Company applies the authoritative guidance for the financial statement recognition, measurement and disclosure of uncertain tax
positions recognized in the Company’s financial statements. In accordance with this guidance, 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. A
valuation allowance is required to be established or maintained when it is “more likely than not” that all or a portion of deferred tax
assets will not be realized.
Stock options
The Company measures compensation expense for all share-based compensation granted to employees and non-employee directors at
fair value on the date of grant and recognizes 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 and the risk free interest rate.
Employee Healthcare
The Company self-insures certain portions of its health insurance plan. The Company maintains an accrual for estimated unpaid
claims and claims incurred but not yet reported (“IBNR”). Although management believes that it uses the best information available to
estimate IBNR claims, actual claims may vary significantly from estimated claims.
Restructuring Expenses
Costs associated with restructuring activities are recorded at fair value when a liability has been incurred. A liability has been incurred
at the point of closure for any remaining operating lease obligations and at the communication date for severance.
In April 2013, the Company commenced a plan to close the Fred® & Friends distribution center and eliminate certain employee
positions in conjunction with the closure. The Company recorded $367,000 of restructuring expenses during the year ended
December 31, 2013 related to the execution of this plan. The Company does not anticipate that it will incur any further restructuring
expenses related to this closure.
New Accounting Pronouncements
In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible
Assets for Impairment, which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the
quantitative impairment test described in ASC Topic No. 350, Intangibles – Goodwill and Other. The amendments in this update are
effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company’s
adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or
cash flows.
Effective January 2013, the Company adopted ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income, which requires an entity to provide information about the amounts
reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the
face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be
reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be
reclassified in their entirety to net income (e.g., net periodic pension benefit cost), an entity is required to cross-reference to other
disclosures required under GAAP that provide additional detail about those amounts. In connection with the adoption of this standard,
the Company added additional disclosure about the Company’s accumulated other comprehensive income to Note M of its financial
statements.
F-11
NOTE B — ACQUISITIONS
Fred® & Friends
On December 20, 2012, the Company acquired the Fred® & Friends (“F&F”). F&F designs and distributes novelty housewares under
the Fred® brand directly to retailers throughout the United States and Canada. The assets, liabilities and operating results of F&F have
been reflected in the Company’s consolidated financial statements in accordance with ASC Topic No. 805, Business Combinations,
commencing from the acquisition date and did not significantly impact the Company’s consolidated financial results for the year
ended December 31, 2012.
The purchase price was comprised of the following (in thousands):
Cash paid ..................................................................................
Common stock issued ...............................................................
Value of contingent consideration ................................
14,500
1,507
5,370
$
Total purchase price ........................................................
21,377
$
The cash portion of the purchase price was funded by borrowings under the Company’s credit facility (“Revolving Credit Facility”).
The value of contingent consideration represents the present value of estimated contingent payments of $4.0 million related to the
attainment of certain gross contribution targets for the years 2013 through 2016 and the present value of the contractual holdback
amount of $1.4 million, which serves as security for payments in satisfaction of any claim. The maximum undiscounted deferred and
contingent consideration to be paid under the agreement is $7.7 million. See Note M for amounts accrued as of December 31, 2013
related to contingent consideration.
The purchase price has been allocated based on management’s estimate of the fair value of the assets acquired and liabilities assumed,
as follows (in thousands):
Purchase
Price
Allocation
Accounts receivable(1)................................................................
Inventory ...................................................................................
Other assets ...............................................................................
Other liabilities................................................................
Goodwill and other intangibles .................................................
5,003
3,941
360
(1,519)
13,592
$
Total allocated value........................................................
21,377
$
Note:
(1) The fair value of accounts receivable approximated the gross contractual amounts receivable.
On the basis of estimated fair values, the excess of the purchase price over the net assets acquired of $13.6 million has been allocated
as follows: $7.2 million for customer relationships, $3.9 million for trade names and $2.5 million for goodwill. The goodwill
recognized results from such factors as an assembled workforce and the value of other synergies expected from combining operations
with the Company. The total amount of goodwill is expected to be deductible for tax purposes. All of the goodwill and other
intangibles are included in the Wholesale segment. Customer relationships and trade names are amortized on a straight-line basis over
their estimated useful lives (see Note D).
F-12
Creative Tops
On November 4, 2011, the Company acquired 100% of the share capital of each of Creative Tops Holdings Limited and Creative Tops
Far East Limited (collectively, “Creative Tops”) for £14.8 million ($23.7 million) of consideration, comprised of cash in the amount
of £12.9 million ($20.6 million) and 255,908 shares of common stock with a value of £1.9 million ($3.1 million). Creative Tops is a
leading UK-based supplier of private label and branded tableware and kitchenware products. The purpose of this acquisition was to
expand the Company’s sale of products into Europe including growth in the sales of the traditional products of Creative Tops and new
branded product offerings. The assets, liabilities and operating results of Creative Tops are reflected in the Company’s consolidated
financial statements in accordance with ASC Topic No. 805, Business Combinations, commencing from the acquisition date.
NOTE C — EQUITY INVESTMENTS
The Company owns approximately 30% of the outstanding capital stock of Grupo Vasconia, S.A.B. (“Vasconia”) an integrated
manufacturer of aluminum products and one of Mexico’s largest housewares companies. Shares of Vasconia’s capital stock are traded
on the Bolsa Mexicana de Valores, the Mexican Stock Exchange (www.bmv.com.mx). The Quotation Key is VASCONI. The
Company accounts for its investment in Vasconia using the equity method of accounting and records its proportionate share of
Vasconia’s net income in the Company’s statement of operations. 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, 2013, 2012 and 2011 in the accompanying consolidated statements of operations. The value of the Company’s
investment balance has been translated from Mexican Pesos (“MXN”) to U.S. Dollars (“USD”) using the spot rate of MXN 13.06 and
MXN 12.97 at December 31, 2013 and 2012, respectively. The Company’s proportionate share of Vasconia’s net income has been
translated from MXN to USD using the average exchange rates of MXN 12.46 to 13.01, MXN 12.94 to 13.51 and MXN 11.74 to
13.62 during the years ended December 31, 2013, 2012 and 2011, respectively. The effect of the translation of the Company’s
investment resulted in a (decrease) increase of the investment of $(0.3) million, $2.7 million and $(0.5) million during the years ended
December 31, 2013, 2012 and 2011, respectively. These translation effects are recorded in accumulated other comprehensive loss. The
Company received cash dividends of $571,000, $416,000 and $466,000 from Vasconia during the years ended December 31, 2013,
2012 and 2011, respectively. Included in prepaid expenses and other currents assets at December 31, 2012 are amounts due from
Vasconia of $71,000. Included within accrued expenses at December 31, 2013 are amounts due to Vasconia of $152,000.
Summarized income statement information for the years ended December 31, 2013, 2012 and 2011, as well as summarized balance
sheet information as of December 31, 2013 and 2012, for Vasconia in USD and MXN is as follows:
2013
Year Ended December 31,
2012
(in thousands)
2011
MXN
Income Statement
Net Sales ...................................................... $ 159,574 $ 2,038,200 $ 168,712 $ 2,224,256 $ 132,310 $ 1,647,479
476,501
Gross Profit ..................................................
216,715
Income from operations ...............................
142,698
Net Income ...................................................
38,134
14,614
34,172
367,944
70,430
55,077
497,413
192,182
443,630
38,143
17,254
11,395
28,775
5,438
4,315
MXN
MXN
USD
USD
USD
Balance Sheet
Current assets ...................................................................... $
Non-current assets ...............................................................
Current liabilities .................................................................
Non-current liabilities..........................................................
December 31,
2013
2012
USD
100,227 $
75,659
26,187
39,033
(in thousands)
MXN
1,309,210 $
988,289
342,060
509,868
USD
106,953 $
75,511
29,282
44,405
MXN
1,386,731
979,059
379,663
575,746
The Company recorded equity in (losses) earnings of Vasconia, net of taxes, of $(4.0) million, $6.9 million and $2.9 million for the
years ended December 31, 2013, 2012 and 2011, respectively. Equity in losses in 2013 includes a charge of $5.0 million, net of tax,
for the reduction in Vasconia’s fair value, as discussed in the following paragraph. Equity in earnings of Vasconia in 2012 includes
$4.1 million related to the Company’s portion of a bargain purchase gain recognized by Vasconia on its purchase of Almexa, an
aluminum mill and manufacturer of aluminum foil, a $1.1 million tax benefit realized in the period and the reduction of the
Company’s investment to fair value of $1.3 million, net of tax.
F-13
In 2013, as a result of a decline in the quoted stock price and the 2013 quarterly decline in the operating results of Vasconia, the
carrying amount of the Company’s investment in Vasconia exceeded its fair value and, therefore, the Company reduced its investment
value by $5.0 million during the year ended December 31, 2013, net of tax, to its fair value.
In 2012, as a result of recording the bargain purchase gain and a corresponding increase in the investment, the Company determined it
was necessary to perform an impairment test on its investment in Vasconia as of December 31, 2012. The test involved the assessment
of the fair value of the Company’s investment in Vasconia based on Level 1 quoted prices in active markets. The result of the
assessment of the Company’s investment in Vasconia indicated that the carrying amount of the investment exceeded its quoted fair
value and, therefore, was required to be reduced by $1.3 million, net of tax.
As of December 31, 2013, the fair value (based upon the quoted stock price) of the Company’s investment in Vasconia was $35.2
million. The carrying value of the Company’s investment in Vasconia was $30.5 million.
The Company owns a 40% equity interest in GS Internacional S/A (“GSI”), a leading wholesale distributor of branded housewares
products in Brazil, which the Company acquired in December 2011. The Company recorded equity in losses of GSI, net of taxes, of
$656,000 and $727,000 for the years ended December 31, 2013 and 2012, respectively. The operating results of GSI were not
significant during the period of December 9, 2011 through December 31, 2011. As of December 31, 2013, the carrying value of the
Company’s investment in GSI was $6.0 million.
The Company, together with Vasconia and unaffiliated partners, formed Housewares Corporation of Asia Limited (“HCA”), a Hong
Kong-based company, to supply direct import kitchenware products to retailers in North, Central and South America. The Company
initially invested $105,000 for a 40% equity interest in this entity during 2011.
The operating results of HCA were not significant through December 31, 2013. As of December 31, 2013, the carrying value of the
Company’s investment in HCA was $144,000.
In February 2012, the Company entered into Grand Venture Holdings Limited (“Grand Venture”), a joint venture with Manweal
Development Limited (“Manweal”), a Chinese corporation, to distribute Mikasa® products in China, which included an initial
investment of $500,000. The Company and Manweal each own 50% of Grand Venture and have rights and obligations proportionate
to their ownership percentage. The Company accounts for its investment in Grand Venture using the equity method of accounting and
has recorded its proportionate share of Grand Venture’s net loss as equity in earnings in the Company’s consolidated statements of
operations. The Company recorded equity in losses of the joint venture of $83,000 and $125,000 for the years ended December 31,
2013 and 2012, respectively. As of December 31, 2013, the carrying value of the Company’s investment in Grand Venture was $0.3
million.
The Company evaluated the disclosure requirements of ASC Topic No. 860, Transfers and Servicing, and determined that at
December 31, 2013, the Company did not have a controlling voting interest or variable interest in any of its investments and therefore
continued accounting for the investments using the equity method of accounting.
NOTE D — GOODWILL AND INTANGIBLE ASSETS
The Company’s intangible assets, all of which are included in the Wholesale segment, consist of the following (in thousands):
Goodwill ................................................................ $
Indefinite-lived intangible assets:
Year Ended December 31,
2013
Accumulated
Amortization
Gross
5,085 $
— $
2012
Accumulated
Amortization
Gross
5,085 $
— $
Net
5,085
Net
5,085 $
Trade names .................................................
18,364
—
18,364
18,364
—
18,364
Finite-lived intangible assets:
Licenses ........................................................
Trade names .................................................
Customer relationships .................................
Patents ..........................................................
15,847
10,056
18,406
584
Total ...................................................................... $ 68,342 $
F-14
(7,551)
(2,677)
(2,736)
(229)
8,296
7,379
15,670
355
(13,193) $ 55,149 $ 68,342 $
15,847
10,056
18,406
584
(7,096)
(1,800)
(1,409)
(195)
8,751
8,256
16,997
389
(10,500) $ 57,842
The Company performed its 2013 annual impairment tests for its indefinite-lived intangible assets as of October 1, 2013. The test,
which is required to be performed annually, involved the assessment of the fair market value of the Company’s indefinite-lived
intangible assets based on Level 2 observable inputs, using a discounted cash flow approach, assuming a discount rate of 12.5%-
14.0% and an average annual growth rate of 2.0%-3.5%. The result of the assessment of the Company’s indefinite-lived intangibles
indicated that the fair values exceeded the carrying values as of October 1, 2013. In addition, as of October 1, 2013 and December 31,
2013, the Company assessed the carrying value of its goodwill and determined based on qualitative factors that no impairment existed.
During 2012, the Company’s home décor products line experienced a significant decline in sales. The Company believes the most
significant factor was the reduction in retail space allocated to the category which has also contributed to pricing pressure. While the
Company believes this market condition is not permanent, following a strategic review of the business, it has decided to re-brand a
portion of the home décor products under the Mikasa® and Pfaltzgraff® trade names. As a result of these factors, the Company
recorded an impairment charge of $1.1 million in its statement of operations in the third quarter of 2012 which reduced the book value
of its Elements® trade name.
A summary of the activities related to the Company’s intangible assets for the year ended December 31, 2013 consists of the following
(in thousands):
Goodwill and Intangible Assets, December 31, 2011 ......... $
Acquisition of trade names .....................................................
Acquisition of customer relationships ....................................
Goodwill from F&F acquisition .............................................
Impairment of Elements® trade name .....................................
Amortization ...........................................................................
Goodwill and Intangible Assets, December 31, 2012 .........
Amortization ...........................................................................
Goodwill and Intangible Assets, December 31, 2013 ......... $
Intangible
Assets
44,264
3,940
7,240
—
(1,069)
(1,618)
52,757
(2,693)
50,064
Goodwill
2,673
—
—
2,412
—
—
5,085
—
5,085
$
$
Total
Intangible
Assets and
Goodwill
46,937
3,940
7,240
2,412
(1,069)
(1,618)
57,842
(2,693)
55,149
$
$
The weighted-average amortization periods for the Company’s finite-lived intangible assets as of December 31, 2013 are as follows:
Trade names ...................................................................................
Licenses .........................................................................................
Customer relationships................................................................
Patents ............................................................................................
Years
15
33
14
17
Estimated amortization expense for each of the five succeeding fiscal years is as follows (in thousands):
Year ending December 31,
2014 .....................................................................................................................
2015 .....................................................................................................................
2016 .....................................................................................................................
2017 .....................................................................................................................
2018 .....................................................................................................................
2,692
2,688
2,685
2,552
2,552
Amortization expense for the years ended December 31, 2013, 2012 and 2011 was $2.7 million, $1.6 million and $0.8 million,
respectively.
F-15
NOTE E — DEBT
Revolving Credit Facility
At December 31, 2013, the Company had a $175.0 million secured credit agreement (the “Revolving Credit Facility”), maturing on
July 27, 2017, with a bank group led by JPMorgan Chase Bank, N.A.
Borrowings under the Revolving Credit Facility are secured by a first lien priority security interest in all of the assets of the Company
and its domestic subsidiaries, including a pledge of the Company’s outstanding shares of stock in its subsidiaries (limited, in the case
of its foreign subsidiaries, to 65.0% of the Company’s equity interests), except regarding the Company’s shares in its wholly-owned
subsidiary LTB de Mexico, S.A. de C.V. (“LTB de Mexico”), which in turn holds the Company’s interest in Vasconia. Availability
under the Revolving Credit Facility is subject to a borrowing base calculation equal to the sum of (i) 85.0% of eligible domestic
accounts receivable, (ii) 85.0% of the net orderly liquidation value of eligible domestic inventory and (iii) the lesser of 50.0% of the
orderly liquidation value of eligible trademarks and $25.0 million less reserves. The borrowing base is also subject to reserves that
may be established by the administrative agent in its permitted discretion.
Borrowings under the Revolving Credit Facility bear interest, at the Company’s option, at one of the following rates: (i) the Alternate
Base Rate, defined as the greater of the Prime Rate, Federal Funds Rate plus 0.5% or the Adjusted LIBO Rate plus 1.0%, plus a
margin of 1.0% to 1.75%, or (ii) the Eurodollar Rate, defined as the Adjusted LIBO Rate plus a margin of 2.0% to 2.75%. The
respective margins are based upon availability. Interest rates on outstanding borrowings at December 31, 2013 ranged from 2.125% to
4.25%. In addition, the Company pays a commitment fee of 0.375% to 0.50% on the unused portion of the Revolving Credit Facility.
The Revolving Credit Facility provides for customary restrictions and events of default. Restrictions include limitations on additional
indebtedness, acquisitions, investments and payment of dividends, among others. Furthermore, if availability under the Revolving
Credit Facility is less than $20.0 million, the Company will be required to maintain a minimum fixed charge coverage ratio of 1.10 to
1.00, which covenant would remain effective until availability is at least $23.5 million for a period of three consecutive months.
At December 31, 2013, borrowings outstanding under the Revolving Credit Facility were $49.2 million and open letters of credit were
$1.3 million. Availability under the Revolving Credit Facility was approximately $87.8 million, or 50% of the total loan commitment
at December 31, 2013.
The Company classifies a portion of the Revolving Credit Facility as a current liability if the Company’s intent and ability is to repay
the loan from cash flows from operations which are expected to occur within the next 12 months. Repayments and borrowings under
the facility can vary significantly from planned levels based on cash flow needs and general economic conditions. The Company
expects that it will continue to borrow and repay funds, subject to availability, under the facility based on working capital and other
corporate needs.
At December 31, 2013, the Company had $20.6 million outstanding under its senior secured credit agreement (the “Senior Secured
Term Loan”), which was set to expire on July 27, 2018, with JPMorgan Chase Bank, N.A. The Senior Secured Term Loan bears
interest, at the Company’s option, at the Alternate Base Rate (as defined) plus 4.00%, or the Adjusted LIBOR Rate (as defined) plus
5.00%.
The Senior Secured Term Loan provides that for any four consecutive fiscal quarters, (x) if EBITDA (as defined) is less than $34.0
million but equal to or greater than $30.0 million, the ratio of Indebtedness (as defined) to EBITDA shall not exceed 3.0 to 1.0 and
(y) EBITDA shall not be less than $30.0 million. Capital expenditures are limited and for the year ended December 31, 2013, such
limit is $9.0 million.
The Revolving Credit Facility and Senior Secured Term Loan provide for other customary restrictions and events of default.
Restrictions include limitations on additional indebtedness, acquisitions, investments and payment of dividends, among others. The
Company was in compliance with the financial covenants of the Senior Secured Term Loan and Revolving Credit Facility at
December 31, 2013.
NOTE F — DERIVATIVES
The Company is a party to interest rate swap agreements with a notional amount of $29.8 million to manage interest rate exposure in
connection with its variable interest rate borrowings. The hedge period in the agreements commences in March 2013 and expires in
June 2018 and the notional amount amortizes over this period. The hedge provides for a fixed payment of interest at an annual rate of
1.05% in exchange for the Adjusted LIBOR Rate. In March 2013, based on the interest rate swap agreements, the Company
commenced the payment of interest at a fixed annual rate of 6.05% related to its LIBOR borrowings.
F-16
The interest rate swap agreements were designated as a cash flow hedges under ASC Topic No. 815. The effective portion of the fair
value gain or loss on these agreements is recorded as a component of accumulated other comprehensive loss. The effect of recording
these derivatives at fair value resulted in an unrealized gain of $241,000 and an unrealized loss of $272,000, net of taxes, for the years
ended December 31, 2013 and 2012, respectively. No amounts recorded in accumulated other comprehensive loss are expected to be
reclassified to interest expense in the next twelve months.
The fair value of the derivatives has been obtained from the counterparties to the agreements and was 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 $54,000 and $454,000 at December 31, 2013 and 2012, of which $48,000 and $454,000 is
included in other long-term liabilities at December 31, 2013 and 2012, respectively.
NOTE G — CAPITAL STOCK
Long-term incentive plan
In June 2012, 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 700,000 shares to 4,200,000 shares. These shares of the Company’s common
stock are available for grants 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, 2013, there were 643,073 shares available for the grant of awards.
Cash dividends
In March 2011, the Company resumed the declaration of cash dividends on its outstanding shares of common stock.
Dividends declared in 2013 and 2012 are as follows:
Date declared
Dividend per share
$0.025 ............................ March 6, 2012
$0.025 ............................ June 13, 2012
$0.025 ............................ July 31, 2012
$0.025 ............................ November 2, 2012
$0.03125 ........................ March 12, 2013
$0.03125 ........................ June 13, 2013
$0.03125 ........................ August 2, 2013
$0.0375 .......................... October 31, 2013
Date of record
Payment date
May 1, 2012
August 1, 2012
November 1, 2012
February 1, 2013
May 1, 2013
August 1, 2013
November 1, 2013
January 31, 2014
May 15, 2012
August 15, 2012
November 15, 2012
February 15, 2013
May 15, 2013
August 15, 2013
November 15, 2013
February 14, 2014
On March 11, 2014, the Board of Directors declared a quarterly dividend of $0.0375 per share payable on May 15, 2014 to
shareholders of record on May 1, 2014.
Stock repurchase program
On April 30, 2013, Lifetime’s Board of Directors authorized the repurchase of up to $10.0 million of the Company’s common stock.
The repurchase authorization permits the Company to effect repurchases from time to time through open market purchases and
privately negotiated transactions. During the year ended December 31, 2013, the Company repurchased 245,575 shares for a total cost
of $3.2 million and thereafter retired the shares.
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 issued or outstanding at December 31, 2013.
Restricted stock
In 2013, 2012 and 2011, the Company granted an aggregate of 22,459, 23,394 and 21,400 restricted shares, respectively, of the
Company’s common stock to its non-employee 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 prices of the Company’s common stock on the
dates of grant was $298,000 in 2013, $270,000 in 2012 and $230,000 in 2011. For all restricted stock grants, the restriction lapses one
year from the date of grant and the stock is expensed over the one year period.
F-17
Stock options
A summary of the Company’s stock option activity and related information for the three years ended December 31, 2013, is as
follows:
Options outstanding at December 31, 2010 ...................
Grants .......................................................................
Exercises ..................................................................
Cancellations............................................................
Options outstanding at December 31, 2011 ...................
Grants .......................................................................
Exercises ..................................................................
Cancellations............................................................
Options outstanding at December 31, 2012 ...................
Grants .......................................................................
Exercises ..................................................................
Cancellations............................................................
Expirations ...............................................................
Options
2,219,200 $
391,500
(123,500)
(11,450)
2,475,750
305,000
(199,823)
(52,750)
2,528,177
390,800
(247,827)
(68,000)
(231,500)
Options outstanding at December 31, 2013 ...................
2,371,650
Options exercisable at December 31, 2013 ....................
1,508,350 $
Weighted-
average
exercise
price
Weighted-
average
remaining
contractual
life (years)
Aggregate
intrinsic value
12.46
11.20
5.19
13.29
12.62
11.64
5.47
12.82
13.06
12.26
4.91
16.89
22.46
12.75
13.15
6.21 $
10,968,922
5.31 $
7,800,990
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, 2013. 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, 2013 and the
exercise price.
The total intrinsic values of stock options exercised for the years ended December 31, 2013, 2012 and 2011 were $1,997,000,
$1,182,000 and $830,400, respectively. The intrinsic value of a stock option that is exercised is calculated at the date of exercise.
The Company recognized stock compensation expense of $2.9 million, $2.8 million and $2.8 million for the years ended
December 31, 2013, 2012 and 2011, respectively. The stock compensation expense recognized each year is equal to the grant date fair
values of stock options vested during the year. Total unrecognized compensation cost related to unvested stock options at
December 31, 2013, before the effect of income taxes, was $3.7 million and is expected to be recognized over a weighted-average
period of 2.41 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 and risk-free interest rate. 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 estimates 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, 2013, 2012 and 2011 was $6.12, $6.05 and $5.69, respectively.
The fair values for these stock options were estimated at the dates of grant using the following weighted-average assumptions:
Historical volatility ..................................................................................
Expected term (years) ..............................................................................
Risk-free interest rate ...............................................................................
Expected dividend yield...........................................................................
2013
61%
5.6
0.88%
0.97%
2012
61%
6.0
1.10%
0.86%
2011
60%
5.6
1.96%
0.89%
F-18
NOTE H — INCOME PER COMMON SHARE
Basic income per common share has been computed by dividing net income by the weighted-average number of shares of the
Company’s common stock outstanding. Diluted income per common share adjusts net income and basic income per common share for
the effect of all potentially dilutive shares of the Company’s common stock. The calculations of basic and diluted income per common
share for the years ended December 31, 2013, 2012 and 2011 are as follows:
2013
2012
2011
Net income – Basic and Diluted .............................................. $
Weighted-average shares outstanding – Basic ......................
Effect of dilutive securities:
(in thousands—except per share amounts)
20,947
12,511
9,281
12,757
$
$
14,066
12,128
Stock options ....................................................................
Weighted-average shares outstanding – Diluted ...................
286
13,043
299
12,810
Basic income per common share ............................................ $
Diluted income per common share ......................................... $
0.73
0.71
$
$
1.67
1.64
$
$
401
12,529
1.16
1.12
The computations of diluted income per common share for the years ended December 31, 2013, 2012 and 2011 excludes options to
purchase 1,417,145, 1,450,200 and 1,600,413 shares of the Company’s common stock, respectively. The computation of diluted
income per common share for the year ended December 31, 2011 also excludes options to purchase 462,192 shares of the Company’s
common stock that were issuable upon the conversion of the Company’s 4.75% convertible senior notes and related interest expense,
which were retired in July 2011. The above shares were excluded due to their antidilutive effect.
NOTE I — INCOME TAXES
The components of income before income taxes, equity in earnings and extraordinary item are as follows:
Year Ended December 31,
2012
2013
2011
Domestic ................................................................................... $
Foreign ......................................................................................
Total income before income taxes and equity in earnings ........ $
26,470
(3,233)
23,237
The provision for income taxes (before equity in earnings) consists of:
(in thousands)
20,609
(535)
20,074
$
$
$
$
16,178
648
16,826
Year Ended December 31,
2013
2012
2011
(in thousands)
Current:
Federal .............................................................................. $
State and local ..................................................................
Foreign .............................................................................
Deferred .....................................................................................
Income tax provision ................................................................. $
8,996
1,707
747
(2,275)
9,175
$
$
6,691
761
503
(2,747)
5,208
$
$
4,657
2,063
618
(1,216)
6,122
F-19
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred
income tax assets are as follows:
December 31,
2013
2012
(in thousands)
Deferred income tax assets:
Deferred rent expense ....................................................$
Stock options ................................................................
Inventory ........................................................................
Operating loss carry-forward .........................................
Accounts receivable allowances ................................
Accrued compensation...................................................
Other ..............................................................................
Total deferred income tax assets ..........................$
3,694
3,237
1,317
2,140
192
758
1,831
13,169
$
$
4,407
3,660
1,381
1,797
106
669
1,915
13,935
Significant components of the Company’s net deferred income tax asset (liability) are as follows:
December 31,
2013
2012
(in thousands)
Deferred income tax liabilities:
Depreciation and amortization .......................................$
Intangibles .....................................................................
Equity in earnings ..........................................................
Other ..............................................................................
Total deferred income tax liabilities .....................
Net deferred income tax asset .................................................
Valuation allowance ................................................................
Net deferred income tax asset (liability) ................................$
(3,826)
(5,162)
(805)
—
(9,793)
3,376
(1,213)
2,163
$
$
(5,945)
(4,645)
(1,964)
(167)
(12,721)
1,214
(1,182)
32
The Company has generated various state net operating loss carryforwards of which $14.3 million remains at December 31, 2013 that
begin to expire in 2014. The Company has net operating losses in foreign jurisdictions of $4.5 million at December 31, 2013 that
begin to expire in 2016. In 2012, the Company recorded an income tax benefit for a non-cash adjustment to a deferred tax liability of
$2.3 million related to the prior year. Additionally, the Company recorded a reduction in its valuation allowance of $1.9 million of
which $1.1 million related to a portion of the translation adjustment deferred tax asset in connection with the equity method investee,
Vasconia. The valuation allowance which remains as of December 31, 2013 relates to certain state net operating losses.
The provision for income taxes (before equity in earnings) differs from the amounts computed by applying the applicable federal
statutory rates as follows:
Provision for federal income taxes at the statutory rate .............................
Increases (decreases):
State and local income taxes, net of Federal income tax benefit ......
Foreign rate differences ....................................................................
Non-deductible stock options ...........................................................
Non-deductible expenses ..................................................................
Valuation allowance .........................................................................
Reduction of deferred tax liabilities related to the prior year ...........
Other.................................................................................................
Provision for income taxes ........................................................................
Year Ended December 31,
2013
35.0%
2012
35.0%
2011
35.0%
5.5
(1.1)
—
2.8
—
—
(2.7)
39.5%
3.2
(1.8)
—
1.2
—
(11.6)
(0.1)
25.9%
6.4
—
0.1
3.4
(8.2)
—
(0.3)
36.4%
F-20
The estimated values of the Company’s gross uncertain tax positions at December 31, 2013, 2012 and 2011 are liabilities of $351,000,
$301,000 and $134,000, respectively, and consist of the following:
Balance at January 1 ............................................................................ $
Additions based on tax positions related to the current year ......
Additions for tax positions of prior years ...................................
Settlements .................................................................................
Balance at December 31 ...................................................................... $
Year Ended December 31,
2013
2012
2011
(301)
(31)
(164)
145
(351)
(in thousands)
(134)
$
—
(167)
—
(301)
$
$
$
(356)
—
(76)
298
(134)
The Company had approximately $71,000 and $39,000, net of federal and state tax benefit, accrued at December 31, 2013 and 2012,
respectively, 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 ultimately sustained, the Company’s liability, including interest, would be reduced by $299,000, all
of which 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 $143,000 of its tax positions will be resolved within
the next twelve months.
During 2013, the Company concluded an IRS audit examination related to the 2010 tax year. The settlement payment that resulted had
no impact on the company’s effective tax rate as it related to the timing of a tax credit. The Company is no longer subject to U.S.
Federal income tax examinations for the years prior to 2011. Also during 2013, the Company concluded an audit examination in the
UK related to 2012 which resulted in an immaterial assessment. The Company has identified the following jurisdictions as “major” tax
jurisdictions: U.S. Federal, California, Massachusetts, Illinois, New York, New Jersey and the United Kingdom. At December 31,
2013, the periods subject to examination for the Company’s major state jurisdictions are the years ended 2009 through 2012.
NOTE J — BUSINESS SEGMENTS
Segment information
The Company operates in two reportable business segments: the Wholesale segment, the Company’s primary business segment, in
which the Company designs, markets and distributes products to retailers and distributors, and the Retail Direct segment, in which the
Company markets and sells a limited selection of its products directly to consumers through its Pfaltzgraff®, Mikasa®, Lifetime
Sterling® and The English Table Internet websites. The operating results of Creative Tops and Fred® & Friends since the dates of the
acquisitions are included in the Wholesale segment.
F-21
The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its
operations. While both segments distribute similar products, the segments have been distinct due to the different methods the
Company uses to sell, market and distribute the products. Management evaluated the performance of the Wholesale and Retail Direct
segments based on net sales and income (loss) from operations through December 31, 2013. 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.
The Company excludes from segment results the effects of certain items that management does not consider in assessing segment
performance, primarily because of their non-operational nature. 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.
Year Ended December 31,
2013
2012
(in thousands)
2011
Net sales:
Wholesale ................................................................... $
Retail Direct ...............................................................
Non-operating adjustment(2) .......................................
Total net sales ................................................... $
Income from operations:
Wholesale(1) ................................................................ $
Retail Direct ...............................................................
Non-operating adjustment(2) .......................................
Unallocated corporate expenses .................................
Total income from operations ........................... $
Depreciation and amortization:
Wholesale ................................................................... $
Retail Direct ...............................................................
Total depreciation and amortization ................. $
Assets:
Wholesale ................................................................... $
Retail Direct ...............................................................
Unallocated/ corporate/ other .....................................
Total assets ....................................................... $
Capital expenditures:
Wholesale ................................................................... $
Retail Direct ...............................................................
Total capital expenditures ................................. $
483,094
20,680
(1,053)
502,721
44,152
(62)
(1,053)
(14,851)
28,186
10,150
265
10,415
327,122
730
8,887
336,739
3,647
195
3,842
$
$
$
$
$
$
$
$
$
$
464,862
21,980
—
486,842
40,530
463
—
(13,658)
27,335
9,074
250
9,324
342,872
512
5,413
348,797
4,897
58
4,955
$
$
$
$
$
$
$
$
$
$
421,119
23,299
—
444,418
38,410
(524)
—
(13,302)
24,584
8,183
214
8,397
317,435
813
497
318,745
4,730
229
4,959
Note:
(1)
(2)
In 2012, income from operations for the Wholesale segment includes $1.1 million of intangible asset impairment.
In 2013, the Company recorded a non-operating adjustment to reduce accounts receivable for previously issued credits within
the Retail Direct business which related to 2010 and earlier periods.
Geographical information
The following table sets forth net sales and long-lived assets by the major geographic locations (in thousands):
Net sales:
United States ............................................................. $
International ..............................................................
Total ................................................................. $
439,129
63,592
502,721
$
$
430,758
56,084
486,842
$
$
426,405
18,013
444,418
2013
Year ended December 31,
2012
2011
F-22
Long-lived assets at period-end:
United States ...............................................................$
International ................................................................
120,192
1,871
Total ................................................................ $
122,063
$
133,841
2,197
$
136,038
December 31,
2013
2012
Product category information – net sales
The following table sets forth net sales by major product categories included within the Company’s Wholesale operating segment:
Year Ended December 31,
2013
2012
(in thousands)
2011
Category:
Kitchenware ............................................................... $
Tableware (1) ...............................................................
Home Solutions ..........................................................
281,211
149,015
52,868
$
256,154
156,532
52,176
$
215,707
141,313
64,099
Total .................................................................. $
483,094
$
464,862
$
421,119
(1) The tableware product category includes Creative Tops revenue, which was previously presented separately. Revenue sources
disclosed in 2012 have been reclassified to conform to the current year presentation for comparative purposes.
NOTE K — COMMITMENTS AND CONTINGENCIES
Operating leases
The Company has lease agreements for its corporate headquarters, distribution centers, showrooms and sales offices that expire
through 2025. These leases generally provide for, among other things, annual base rent escalations and additional rent for real estate
taxes and other costs.
Future minimum payments under non-cancelable operating leases are as follows (in thousands):
Year Ending December 31,
2014 ...........................................................................................$
2015 ...........................................................................................
2016 ...........................................................................................
2017 ...........................................................................................
2018 ...........................................................................................
Thereafter ..................................................................................
Total .................................................................................$
15,162
14,877
13,903
10,576
7,284
16,619
78,421
Rent and related expenses under operating leases were $14.3 million, $14.8 million and $13.3 million for the years ended
December 31, 2013, 2012 and 2011, respectively. There was no sublease rental income in 2013 and 2012. Sublease rental income was
$70,000 for the year ended December 31, 2011.
F-23
Royalties
The Company has license agreements that require the payment of royalties on sales of licensed products which expire through 2023.
Future minimum royalties payable under these agreements are as follows (in thousands):
Year ending December 31,
2014 ..........................................................................................$
2015 ..........................................................................................
2016 ..........................................................................................
2017 ..........................................................................................
2018 ..........................................................................................
Thereafter ..................................................................................
Total ................................................................................$
6,424
6,882
807
411
416
1,035
15,975
Legal proceedings
Wallace Silversmiths de Puerto Rico, Ltd. (“Wallace de Puerto Rico”), a wholly-owned subsidiary of the Company, operates a
manufacturing facility in San Germán, Puerto Rico that is leased from the Puerto Rico Industrial Development Company
(“PRIDCO”). In March 2008, the United States Environmental Protection Agency (the “EPA”) announced that the San Germán
Ground Water Contamination site in Puerto Rico (the “Site”) had been added to the Superfund National Priorities List due to
contamination present in the local drinking water supply.
In May 2008, Wallace de Puerto Rico received from the EPA 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. The Company
responded to the EPA’s Request for Information on behalf of Wallace de Puerto Rico. In July 2011, Wallace de Puerto Rico received a
letter from the EPA requesting access to the property that it leases from PRIDCO, and the Company granted such access. In February
2013, the EPA requested access to conduct further environmental investigation at the property. The Company granted such access and
further EPA investigation is pending.
The Company is not aware of any determination by the EPA that any remedial action is required for the Site, and, accordingly, is not
able to estimate the extent of any possible liability.
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, individually or collectively, would
have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
NOTE L — RETIREMENT PLANS
401(k) plan
The Company maintains a defined contribution retirement plan for eligible employees under Section 401(k) of the Internal Revenue
Code. Participants can make voluntary contributions up to the Internal Revenue Service limit of $17,500 ($23,000 for employees 50
years or over) for 2013. Effective January 1, 2009, the Company suspended its matching contribution as an expense savings measure.
The Company’s U.K.-based subsidiary, Creative Tops, also maintains a defined contribution pension plan.
Retirement benefit obligations
The Company assumed retirement benefit obligations, which are paid to certain former executives of an acquired business. The
obligations under these agreements are unfunded and amounted to $5.4 million at December 31, 2013 and $5.9 million at
December 31, 2012.
The discount rate used to calculate the retirement benefit obligations was 4.50% at December 31, 2013 and 3.60% at December 31,
2012. The retirement benefit obligations are included in accrued expenses and deferred rent and other long-term liabilities.
The Company expects to recognize $47,000 of the actuarial losses included in accumulated other comprehensive loss in net periodic
benefit cost in 2014.
F-24
Future retirement benefit payments are as follows (in thousands):
Year ending December 31,
2014.............................................................................................$
2015.............................................................................................
2016.............................................................................................
2017.............................................................................................
2018.............................................................................................
2019-2023 ...................................................................................
Total ............................................................................................$
143
132
121
265
362
1,753
2,776
NOTE M — OTHER
Inventory
The components of inventory are as follows:
Finished goods .....................................................................$
Work in process................................................................
Raw materials .......................................................................
Total .....................................................................................$
108,340
1,966
2,485
112,791
$
$
101,021
2,046
1,517
104,584
December 31,
2013
2012
(in thousands)
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,
2013
2012
(in thousands)
79,132
26,959
1,604
104
100
107,899
(80,201)
27,698
$
$
75,896
26,334
1,604
920
100
104,854
(73,208)
31,646
Depreciation and amortization expense on property and equipment for the years ended December 31, 2013, 2012 and 2011 was $7.7
million, $7.8 million and $7.5 million, respectively.
Included in machinery, furniture and equipment at each of December 31, 2013 and 2012 is $2.1 million related to assets recorded
under capital leases. Included in accumulated depreciation and amortization at each of December 31, 2013 and 2012 is $1.9 million
related to assets recorded under capital leases.
F-25
Accrued expenses
Accrued expenses consist of:
December 31,
2013
2012
(in thousands)
Customer allowances and rebates ...........................................$
Compensation and benefits .....................................................
Interest .....................................................................................
Vendor invoices ......................................................................
Royalties..................................................................................
Commissions ...........................................................................
Freight .....................................................................................
Contingent consideration related to F&F acquisition ..............
Working capital excess related to F&F acquisition .................
Other .......................................................................................
Total ...............................................................................$
11,756
11,781
98
5,135
2,567
1,245
1,419
1,647
254
5,193
41,095
$
$
10,595
7,824
401
5,355
2,259
1,089
1,122
730
845
3,134
33,354
Deferred rent & other long-term liabilities
Deferred rent & other long-term liabilities consist of:
Deferred rent liability ..............................................................$
Retirement benefit obligations ................................................
Contingent consideration related to F&F acquisition ..............
Derivative liability ................................................................
2013
9,737
5,212
3,647
48
December 31,
(in thousands)
2012
$
10,719
5,752
4,640
454
Total ...............................................................................$
18,644
$
21,565
Supplemental cash flow information
Supplemental disclosure of cash flow information:
Cash paid for interest ................................................................. $
Cash paid for taxes .....................................................................
Non-cash investing activities:
Translation adjustment ............................................................... $
4,115
10,862
$
5,498
6,067
$
6,877
10,331
(140)
$
3,077
$
(704)
Year Ended December 31,
2013
2012
2011
(in thousands)
F-26
Components of accumulated other comprehensive loss, net
Accumulated translation adjustment:
Balance at beginning of year ......................................................... $
Translation adjustment during period ...........................................
Balance at end of year ................................................................... $
Accumulated effect of retirement benefit obligations:
Balance at beginning of year ......................................................... $
Net gain (loss) arising from retirement benefit obligations, net of
tax .............................................................................................
Amounts reclassified from accumulated other comprehensive
loss:
Amortization of loss, net of tax(1) .........................................
Balance at end of year ................................................................... $
Accumulated deferred gains (losses) on cash flow hedges:
Balance at beginning of year ......................................................... $
Derivative fair value adjustment, net of tax ..................................
Amounts reclassified from accumulated other comprehensive
loss:
Hedge de-designation, net of tax(2).......................................
Balance at end of year ................................................................... $
Year Ended December 31,
2013
2012
(in thousands)
(2,804)
(140)
(2,944)
(1,160)
$
$
$
(5,881)
3,077
(2,804)
—
361
(1,187)
54
(745)
(272)
241
—
(31)
27
(1,160)
—
(272)
—
(272)
$
$
$
$
$
$
$
$
$
2011
(5,177)
(704)
(5,881)
—
—
—
—
—
—
—
—
Notes:
(1)
Amount is recorded in selling, general and administrative expenses on the consolidated statements of operations.
(2) Amount is recorded in interest expense on the consolidated statements of operations.
NOTE N — SUBSEQUENT EVENTS
Amended and Restated Credit Agreement
On January 13, 2014, the Company entered into the Second Amended and Restated Credit Agreement with JPMorgan Chase Bank,
N.A. The Second Amended and Restated Credit Agreement provides for, among other things, (i) an extension of the maturity of the
$175.0 million Revolving Credit Facility to January 11, 2019 and (ii) a new Term Loan facility of $50.0 million.
Acquisition of Thomas Plant (Birmingham) Limited
On January 15, 2014, the Company acquired 100% of the share capital of Thomas Plant (Birmingham) Limited (“Thomas Plant” or
“Kitchen Craft”) for cash in the amount of £37.4 million ($61.5 million), which includes an estimated working capital adjustment and
581,432 shares of common stock of the Company with a value of £5.5 million ($9.0 million). Contingent cash consideration of up to
£5.5 million ($9.0 million) will be payable in future years if Kitchen Craft achieves certain financial targets. Kitchen Craft is a leading
supplier of kitchenware products and accessories in the United Kingdom.
As of the date of this Annual Report on Form 10-K, the information is not yet available to perform the preliminary purchase price
allocation and prepare the supplemental pro forma disclosures. The disclosures and supplemental pro forma information required by
ASC 805 — Business Combinations will be made when the information becomes available.
Acquisition of Built
On February 24, 2014, the Company acquired the business and certain assets of Built NY, a designer and distributor of brightly
colored, uniquely patterned Neoprene products, including bags, totes, cases and sleeves.
Acquisition of La Cafetière
In March 2014, the Company acquired the business and certain assets of La Cafetière, including exclusive distribution rights. La
Cafetière designs and distributes products to brew and serve coffee and tea. Its products are marketed worldwide under the La
Cafetière® and Randwyck® brands.
F-27
Item 15(a)
LIFETIME BRANDS, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
COL. A
Description
Year ended December 31, 2013
Deducted from asset accounts:
COL. B
Balance
at
beginning
of period
COL. C
Additions
COL. D
COL. E
Due to
acquisitions
Charged to
costs and
expenses
Deductions
Balance
at end of
period
(148)(a) $
(4,903)(b)
(5,051)
473
4,736
$ 5,209
(215)(a) $
(7,478)(b)
(7,693)
361
3,635
$ 3,996
(792)(a) $
(10,658)(b)
(11,450)
328
4,274
$ 4,602
Allowance for doubtful accounts ..................................... $
Reserve for sales returns and allowances ........................
$
361 $
3,635
3,996 $
— $
—
— $
260 $
6,004(c)
6,264 $
Year ended December 31, 2012
Deducted from asset accounts:
Allowance for doubtful Accounts ................................... $
Reserve for sales returns and allowances ........................
$
328 $
4,274
4,602 $
67 $
179
246 $
181 $
6,660(c)
6,841 $
Year ended December 31, 2011
Deducted from asset accounts:
Allowance for doubtful accounts ..................................... $
Reserve for sales returns and allowances ........................
1,057 $
11,554
$ 12,611 $
— $
—
— $
63 $
3,378(c)
3,441 $
(a) Uncollectible accounts written off, net of recoveries.
(b) Allowances granted.
Charged to net sales.
(c)
S-1
Exhibit 21.1
Subsidiaries of the Registrant
State/Country of
Incorporation
Name of subsidiary
Pfaltzgraff Factory Stores, Inc. ................................................................................................................ Delaware
TMC Acquisition Inc. .............................................................................................................................. Delaware
Lifetime Delaware Holdings, LLC .......................................................................................................... Delaware
Wallace Silversmiths de Puerto Rico Ltd. ............................................................................................... Cayman Islands
Lifetime Brands Global Trading (Shanghai) Company Limited .............................................................. China
New Goal Development Limited ............................................................................................................. Hong Kong
Lifetime Brands UK Limited ................................................................................................................... United Kingdom
Creative Tops Holdings Limited .............................................................................................................. United Kingdom
Creative Tops Limited ............................................................................................................................. United Kingdom
La Cafetière (UK) Limited ....................................................................................................................... United Kingdom
Creative Tops NL B.V. ............................................................................................................................ Netherlands
Lifetime Brands Holdings Limited .......................................................................................................... United Kingdom
Lifetime Brands do Brasil Participacoes Ltda.......................................................................................... Brazil
Grand Venture Enterprises Limited ......................................................................................................... Hong Kong
Creative Tops Far East Limited ............................................................................................................... Hong Kong
Thomas Plant (Birmingham) Limited ...................................................................................................... United Kingdom
Thomas Plant (Birmingham 1927) Limited ............................................................................................. United Kingdom
Frederick Hill (Birmingham) Limited ...................................................................................................... United Kingdom
Plumbob (Hardware) Limited .................................................................................................................. United Kingdom
Kitchencraft (Housewares) Limited ......................................................................................................... United Kingdom
Kitchen Craft (Asia) Limited ................................................................................................................... Hong Kong
LTB de México, S.A. de C.V. .................................................................................................................. Mexico
LVA Limited............................................................................................................................................ Hong Kong
Ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99.99%
80%
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-105382, 333-146017, 333-162734
and 333-186208) pertaining to the 2000 Long-Term Incentive Plan and the Registration Statement on Form S-3 (No. 333-137575) of
Lifetime Brands, Inc. of our reports dated March 14, 2014, with respect to the consolidated financial statements and schedule of
Lifetime Brands, Inc., and the effectiveness of internal control over financial reporting of Lifetime Brands, Inc. included in this
Annual Report (Form 10-K) for the year ended December 31, 2013.
Exhibit 23.1
/s/ ERNST & YOUNG LLP
Jericho, New York
March 14, 2014
Exhibit 23.2
Tel.: +52 (55) 8503 4200
Fax: +52 (55) 8503 4299
www.bdomexico.com
Castillo Miranda y Compañía, S.C.
Paseo de la Reforma 505-31
Torre Mayor
Colonia Cuauhtémoc
México, D.F.
CP 06500
Lifetime Brands, Inc.
We hereby consent to incorporate in the 2013 Form 10-K of Lifetime Brands, our report dated February 28, 2014, related to the audit
we performed on the consolidated financial statements of Grupo Vasconia, S. A. B. and subsidiaries for the year ended as of
December 31, 2013
CASTILLO MIRANDA Y COMPAÑÍA, S. C.
Member of BDO International
Mexico City
March 14, 2014
Bernardo Soto Peñafiel, CPA
Castillo Miranda y Compañía, S. C. (BDO Castillo Miranda) es una sociedad civil mexicana de contadores públicos y consultores de
empresas, miembro de BDO International Limited, una compañía del Reino Unido limitada por garantía, y forma parte de la red
internacional de firmas independientes de BDO.
I, Jeffrey Siegel, certify that:
CERTIFICATION
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Lifetime Brands, Inc. (“the registrant”);
Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this Annual Report;
Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this Annual Report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f))) for the registrant and have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this Annual Report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most fourth fiscal quarter that has materially affected or is reasonably likely to materially affect the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons
performing the equivalent functions):
a.
b.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 14, 2014
/s/ Jeffrey Siegel
Jeffrey Siegel
Chief Executive Officer and Chairman
of the Board of Directors
I, Laurence Winoker, certify that:
CERTIFICATION
Exhibit 31.2
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Lifetime Brands, Inc. (“the registrant”);
Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this Annual Report;
Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this Annual Report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f))) for the registrant and have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this Annual Report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s fourth fiscal quarter that has materially affected or is reasonably likely to materially affect the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons
performing the equivalent functions):
a.
b.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 14, 2014
/s/ Laurence Winoker
Laurence Winoker
Senior Vice President – Finance,
Treasurer and Chief Financial Officer
Exhibit 32.1
Certification by Jeffrey Siegel, Chief Executive Officer and Chairman of the Board of Directors, and Laurence Winoker, Senior Vice
President – Finance, Treasurer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
I, Jeffrey Siegel, Chief Executive Officer and Chairman of the Board of Directors, and I, Laurence Winoker, Senior Vice President –
Finance, Treasurer and Chief Financial Officer, of Lifetime Brands, Inc., a Delaware corporation (the “Company”), each hereby
certifies that:
(1) The Company’s Annual report on Form 10-K for the year ended December 31, 2013 (the “Form 10-K”) fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Jeffrey Siegel
Jeffrey Siegel
Chief Executive Officer and Chairman
of the Board of Directors
/s/ Laurence Winoker
Laurence Winoker
Senior Vice President- Finance, Treasurer
and Chief Financial Officer
Date: March 14, 2014
Date: March 14, 2014
A signed original of this written statement required by Section 1350 has been provided to Lifetime Brands, Inc. and will be retained by
Lifetime Brands, Inc. and furnished to the SEC or its staff, upon request.
Exhibit 99.1
Tel.: +(55) 8503 4200
Fax: +(55) 8503 4299
www.bdomexico.com
Paseo de la Reforma 505-31
Colonia Cuauhtémoc
México, D.F.
CP 06500
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of
Grupo Vasconia, S. A. B. and Subsidiaries
We have audited the accompanying consolidated financial statements of Grupo Vasconia, S. A. B. and Subsidiaries, which comprise
the consolidated statements of financial position as at December 31, 2013 and 2012, and the consolidated statements of income,
changes in shareholders’ equity and cash flows for the years then ended, and a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International
Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance
with International Standards on Auditing and the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Castillo Miranda y Compañía, S. C., una sociedad civil mexicana de contadores públicos y consultores de empresas, es miembro de
BDO International Limited, una compañía limitada por garantía del Reino Unido, y forma parte de la red internacional de firmas
independientes miembro de BDO.
Opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of Grupo Vasconia, S. A. B. and Subsidiaries as of December 31, 2013 and 2012, and its consolidated results, its changes in
shareholders’ equity and its consolidated cash flows for the years then ended, in conformity with International Financial Reporting
Standards, which differ in certain respects from accounting principles generally accepted in the United States (See Note 26 to the
consolidated financial statements).
Emphasis of matter
As mentioned in Note 4 to the financial statements, the Company adopted for first time the International Financial Reporting
Standards (IFRS) for the year ended December 31, 2012. Such adoption affected the previously reported consolidated financial
statements for the year ended December 31, 2011, which were presented under Mexican Financial Reporting Standards. Note 23
shows the effects of the adoption of IFRS. This had no effect on our opinion.
Paragraph of other issues
These consolidated financial statements have been translated into English solely for the convenience of readers of this language. In all
cases, where there are any disagreements between the English and Spanish versions, the Spanish version shall be considered
authoritative and controlling.
CASTILLO MIRANDA Y COMPAÑÍA, S. C.
Mexico, City
February 28, 2014
Bernardo Soto Peñafiel, CPA
2
Officers and Directors
Offices
Jeffrey Siegel
Chairman of the Board of Directors
Chief Executive Officer
ronald Shiftan
Vice Chairman of the Board of Directors
Chief Operating Officer
CorPorate headQUarterS
1000 Stewart Avenue
Garden City, NY 11530
(516) 683-6000
Corporate Information
CorPorate CoUnSel
Samuel B. Fortenbaugh III
New York, NY 10111
Code of ethiCS
A copy of the Company’s Code of Ethics
will be furnished to any stockholder, without
charge, upon written request to the Senior Vice
President - Finance of the Company.
indePendent regiStered
PUBliC aCCoUnting firM
Ernst & Young LLP
Jericho, NY 11753
tranSfer agent & regiStrar
Computershare
P.O. Box 43006
Providence, RI 02940-3006
annUal Meeting
The Annual Meeting of Shareholders will
be held at 10:30 a.m. on
Thursday, June 19, 2014,
at the Corporate Headquarters.
daniel Siegel
President
Craig PhilliPS
Senior Vice President – Distribution
and Director
laUrenCe WinoKer
Senior Vice President – Finance
Treasurer and Chief Financial Officer
Sara Shindel
General Counsel and Secretary
daVid e. r. dangoor
Director
MiChael Jeary
Director
John Koegel
Director
Cherrie nanninga
Director
denniS e. reaVeS
Director
MiChael J. regan
Director
WilliaM U. WeSterfield
Director