See accompanying independent registered public accounting firm review report and notes to unaudited condensed
consolidated financial statements.
See accompanying independent registered public accounting firm review report and notes to unaudited condensed
See accompanying independent registered public accounting firm review report and notes to unaudited condensed
consolidated financial statements.
See accompanying independent registered public accounting firm review report and notes to unaudited condensed
consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
NOTE A BASIS OF
PRESENTATION AND SUMMARY 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, Fred and Friends, Built NY, Lifetime Sterling and The English Table internet websites.
Basis of presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, which consist only of normal recurring accruals,
considered necessary for a fair presentation have been included. These condensed consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and footnotes thereto included in the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Operating results for the three and nine month periods ended September 30, 2016 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2016.
The Companys business and working capital needs are highly seasonal, with a majority of sales occurring in
the third and fourth quarters. In 2015 and 2014, net sales for the third and fourth quarters accounted for 59% and 60% 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.
Revenue recognition
The Company sells products wholesale, to retailers and distributors, and retail, directly to the consumer. 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 primarily to retail customers in sales transactions are
included in net sales and amounted to $302,000 and $313,000 for the three months ended September 30, 2016 and 2015, respectively, and $1.0 million for the nine months ended September 30, 2016 and the nine months ended September 30,
2015. 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 wholesale 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 Companys condensed consolidated statements of operations.
Cost of sales
Cost of sales consists primarily of costs
associated with the production and procurement of product, inbound freight costs, purchasing costs, royalties and other product procurement related charges.
- 6 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
Distribution expenses
Distribution expenses consist primarily of warehousing expenses and freight-out expenses.
In September 2016, the Company identified and corrected an error in the accumulated depreciation balance relating to certain leasehold improvements at one of
its U.S. warehouses. Accordingly, distribution expense for the three and nine months ended September 30, 2016 includes $1.3 million of additional depreciation expense to properly reflect the accumulated depreciation balance of these assets as
of September 30, 2016.
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 Companys 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.
In order to reduce accounts receivable balances and improve cash flows, on September 30, 2016 the
Company entered into an uncommitted Receivables Purchase Agreement among the Company and HSBC Bank USA, National Association (HSBC), as Purchaser (the Receivables Purchase Agreement). Under the Receivables Purchase Agreement,
the Company may offer to sell certain eligible accounts receivable (the Receivables) to HSBC, which may accept such offer, and purchase the offered Receivables. Under the Receivables Purchase Agreement, following each purchase of
Receivables, the outstanding aggregate purchased Receivables shall not exceed $25.0 million. HSBC will assume the credit risk of the Receivables sold and the Company will be responsible for all non-credit risk matters. The Company will service the
Receivables, and as such servicer, collect and otherwise enforce the Receivables on behalf of HSBC. The term of the agreement is for 364 days and shall automatically be extended for annual successive terms unless terminated. Either party may
terminate the agreement at any time upon sixty days prior written notice to the other party. The Company did not sell any Receivables pursuant to this agreement during the nine months ended September 30, 2016. Subsequent to
September 30, 2016, the Company sold $16.1 million of Receivables pursuant to this agreement.
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 Companys 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 inventorys cost, the Company reduces the value of the inventory to its net realizable value.
- 7 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
The components of inventory are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Finished goods
|
|
$
|
168,908
|
|
|
$
|
133,618
|
|
Work in process
|
|
|
1,547
|
|
|
|
1,754
|
|
Raw materials
|
|
|
882
|
|
|
|
1,518
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
171,337
|
|
|
$
|
136,890
|
|
|
|
|
|
|
|
|
|
|
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, term loan and short term loan approximate fair value since such borrowings bear interest at
variable market rates.
Derivatives
The Company
accounts for derivative instruments in accordance with Accounting Standard Codification (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 hedged item is recognized in earnings. If a 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.
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
. If, after assessing qualitative factors, the Company determines that it is not more likely than not that the fair value of a
reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary and the Companys goodwill is considered to be unimpaired. However, if based on the Companys qualitative assessment it concludes
that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if the Company elects to bypass the qualitative assessment, the Company will proceed with performing the two-step process. The first step
in the two-step process compares the carrying value of each reporting unit that has goodwill with the estimated fair value of the respective reporting unit. Should the carrying value of a reporting unit be in excess of the estimated fair value of
that reporting unit, the second step must be performed. The second step represents a hypothetical purchase price allocation as if the Company had acquired the reporting unit on that date. 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 relief from royalty model or other valuation models.
- 8 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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 recoverability of the asset is measured by comparing the carrying value of the
asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the
fair value of the asset.
Employee healthcare
The
Company self-insures certain portions of its health insurance plans. 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 claims IBNR, 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 December 2015, the Company commenced an in-depth
review of its U.S. Wholesale business segment, which included the evaluation of the segments efficiency and effectiveness, with the objective of developing a plan to restructure its operations as appropriate. The Company expanded this
restructuring plan in the first quarter of 2016 to focus on specific actions required to achieve the plans objectives. During the nine months ended September 30, 2016, the Company recorded $1.7 million of restructuring expense related to
the execution of this plan.
At September 30, 2016, $29,000 was accrued related to severance expense from the restructuring plan. The Company expects
the remaining severance will be paid in the fourth quarter of 2016. The Company expects to incur $606,000 of additional U.S. Wholesale restructuring charges, related to severance and consulting, in the fourth quarter of 2016.
Adoption of New Accounting Pronouncements
Effective
January 1, 2016, the Company adopted Accounting Standards Update (ASU) 2015-03,
Simplifying the Presentation of Debt Issuance Costs
and ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated
with Line-of-Credit Arrangements.
This guidance requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. ASU 2015-15 clarifies that the SEC staff would not object to an entity
deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the
line-of-credit arrangement. In connection with the adoption of this standard, debt issuance costs associated with the Companys Term Loan are presented as a deduction from the Term loan balance as of September 30, 2016 and
December 31, 2015. The retrospective adoption of this pronouncement results in a reduction of Other assets of $621,000, a reduction of the Current maturity of Credit Agreement Term Loan of $354,000 and a reduction of Credit Agreement Term Loan
of $267,000 on the condensed consolidated statement of financial position as of December 31, 2015. The debt issuance costs associated with the Companys Revolving Credit Facility are presented as Other assets as of September 30, 2016
and December 31, 2015.
- 9 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
Effective January 1, 2016, the Company adopted ASU 2015-05,
Customers Accounting for Fees Paid
in a Cloud Computing Arrangement
, which provides guidance about whether a cloud computing arrangement includes a software license. The Company will apply the guidance prospectively to all arrangements entered into or materially modified after
January 1, 2016. The adoption of this standard did not have a significant impact on our condensed consolidated financial statements.
Effective
January 1, 2016, the Company adopted ASU 2015-16,
Simplifying the Accounting for Measurement-Period Adjustments
, which eliminates the requirement to restate prior period financial statements for measurement period adjustments. The
Company will apply the new guidance prospectively to adjustments to provisional amounts that occur after the January 1, 2016 effective date. The adoption of this standard did not have a significant impact on our condensed consolidated financial
statements.
Accounting Pronouncements to be Adopted in Future Periods
In August 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-15,
Statement of Cash Flows: Classification of Certain Cash
Receipts and Cash Payments
, which reduces the diversity in practice on how certain transactions are classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods
within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the effect of adopting this pronouncement.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting.
This standard will require all income tax effects
of awards to be recognized in the income statement when the awards vest or are settled. The standard will also allow an employer to repurchase more of an employees shares than is currently allowed for tax withholding purposes without
triggering liability accounting, and will allow companies to make a policy election to account for forfeitures as they occur. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those years.
Early adoption is permitted. The Company is evaluating the effect of adopting this pronouncement.
In February 2016, the FASB issued ASU 2016-02,
Leases,
which requires a lessee, in most leases, to initially recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The guidance is
effective for fiscal years beginning after December 15, 2018, and interim periods within with those years. Early adoption is permitted. The Company is evaluating the effect of adopting this pronouncement.
In July 2015, the FASB issued ASU 2015-11,
Inventory: Simplifying the Measurement of Inventory
, which affects reporting entities that measure inventory
using either the first-in, first-out or average cost method. Specifically, the guidance requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of
business, less reasonably predictable cost of completion, disposal, and transportation. The guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company is evaluating the effect of
adopting this pronouncement, but the adoption is not expected to have a material impact on the Companys condensed consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, to clarify the principles of recognizing revenue and create common
revenue recognition guidance under U.S. GAAP and International Financial Reporting Standards. Following the FASBs finalization of a one year deferral of this standard, the ASU is now effective for fiscal years and interim periods within those
fiscal years beginning after December 15, 2017, with early adoption permitted for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2016. This ASU can be adopted either retrospectively to each
reporting period presented or as a cumulative effect adjustment as of the date of the adoption. The Company is currently determining its implementation approach and assessing the impact, if any, on its condensed consolidated financial
statements.
- 10 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
NOTE B ACQUISITIONS
On September 16, 2016, the Company acquired the Amco Houseworks
®
, Chicago
Metallic and Swing-A-Way
®
kitchenware and bakeware brands, together with their related inventory, from Focus Products Group
International, LLC (Focus). The assets and operating results of the Focus brands are reflected in the Companys unaudited condensed consolidated financial statements in accordance with ASC Topic No. 805,
Business
Combinations
, commencing from the acquisition date. The purchase price was allocated based on the Companys preliminary estimate of the fair values of the assets acquired including, inventory ($3.5 million) and customer relationships and
trade names ($5.3 million). Customer relationships and trade names are amortized on a straight-line basis over their estimated useful lives of 15 years.
On October 6, 2016, the Company acquired the Copco
®
product line from Wilton Industries, Inc,
for cash in the amount of $12.3 million. The product line includes thermal and hydration beverageware, tea kettles and kitchen organization products. The estimated fair values of the assets acquired will be determined in the fourth quarter of
2016.
NOTE C INVESTMENTS
The Company owns
approximately a 30% interest in Grupo Vasconia S.A.B. (Vasconia), an integrated manufacturer of aluminum products and one of Mexicos largest housewares companies. Shares of Vasconias capital stock are traded on the Bolsa
Mexicana de Valores, the Mexican Stock Exchange. 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 Vasconias net income in the
Companys statement of operations. Accordingly, the Company has recorded its proportionate share of Vasconias net income (reduced for amortization expense related to the customer relationships acquired) for the three and nine month
periods ended September 30, 2016 and 2015 in the accompanying condensed consolidated statements of operations. The value of the Companys investment balance has been translated from Mexican Pesos (MXN) to U.S. Dollars
(USD) using the spot rates of MXN 19.54 and MXN 17.38 at September 30, 2016 and December 31, 2015, respectively. The Companys proportionate share of Vasconias net income has been translated from MXN to USD using the
average exchange rates of MXN 18.73 and MXN 16.41 during the three months ended September 30, 2016 and 2015, respectively, and MXN 17.79 to MXN 18.27 and MXN 14.94 to MXN 16.41 during the nine months ended September 30, 2016 and 2015. The
effect of the translation of the Companys investment resulted in a decrease to the investment of $2.5 million and $5.1 million during the nine months ended September 30, 2016 and 2015, respectively (also see Note L). These translation
effects are recorded in accumulated other comprehensive income (loss). Included within prepaid expenses and other current assets at September 30, 2016 and December 31, 2015 are amounts due from Vasconia of $182,000 and $55,000,
respectively. Included within accrued expenses and accounts payable at September 30, 2016 and December 31, 2015 are amounts due to Vasconia of $130,000 and $28,000, respectively.
- 11 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
A summarized statement of income information for Vasconia in USD and MXN is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
USD
|
|
|
MXN
|
|
|
USD
|
|
|
MXN
|
|
Net sales
|
|
$
|
34,416
|
|
|
$
|
644,788
|
|
|
$
|
42,759
|
|
|
$
|
701,631
|
|
Gross profit
|
|
|
5,736
|
|
|
|
107,474
|
|
|
|
7,755
|
|
|
|
127,258
|
|
Income from operations
|
|
|
630
|
|
|
|
11,798
|
|
|
|
2,134
|
|
|
|
35,012
|
|
Net income (loss)
|
|
|
(215
|
)
|
|
|
(4,020
|
)
|
|
|
1,210
|
|
|
|
19,859
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
USD
|
|
|
MXN
|
|
|
USD
|
|
|
MXN
|
|
Net Sales
|
|
$
|
109,594
|
|
|
$
|
2,002,137
|
|
|
$
|
139,748
|
|
|
$
|
2,169,538
|
|
Gross Profit
|
|
|
18,601
|
|
|
|
339,808
|
|
|
|
27,838
|
|
|
|
431,333
|
|
Income from operations
|
|
|
3,626
|
|
|
|
65,933
|
|
|
|
8,742
|
|
|
|
135,210
|
|
Net Income
|
|
|
521
|
|
|
|
9,274
|
|
|
|
4,774
|
|
|
|
73,981
|
|
The Company recorded equity in losses of Vasconia, net of taxes, of $138,000 and $459,000 for the three and nine months ended
September 30, 2016, respectively. The Company recorded equity in losses of Vasconia, net of taxes, of $0.5 million and $0.2 million for the three and nine months ended September 30, 2015, respectively. Due to the requirement to record tax
benefits for foreign currency translation losses through other comprehensive income (loss), with a corresponding adjustment to deferred tax liabilities, equity in losses for the three and nine months ended September 30, 2016 includes deferred
tax expense of $0.1 million and $0.5 million, respectively. Equity in earnings for the three and nine month periods ended 2015 include deferred tax expense of $0.8 million and $1.3 million, respectively.
As of September 30, 2016 and December 31, 2015, the fair value (based upon Vasconias quoted stock price) of the Companys investment in
Vasconia was $31.4 million and $35.9 million, respectively. The carrying value of the Companys investment in Vasconia was $22.3 million and $24.7 million as of September 30, 2016 and December 31, 2015, respectively.
During the nine months ended September 30, 2016 the Company sold its 40% equity interest in GS Internacional S/A (GSI), a wholesale
distributor of branded housewares products in Brazil. The Company initially acquired GSI in December 2011 and accounted for this investment using the equity method of accounting; however, impairment losses in 2014 reduced the investment balance to
zero. Upon the sale of its equity interest in GSI the Company recognized a net gain of $189,000. This gain is included within Equity in earnings (losses), net of tax, and represents the net consideration received of R$2.3 million (approximately
$567,000) reduced by currency translation losses of $378,000 which were reclassified out of Other comprehensive income (loss).
The Company evaluated the
disclosure requirements of ASC Topic No. 860,
Transfers and Servicing
, and determined that at September 30, 2016, 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.
- 12 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
NOTE D INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Goodwill
|
|
$
|
18,101
|
|
|
$
|
|
|
|
$
|
18,101
|
|
|
$
|
18,101
|
|
|
$
|
|
|
|
$
|
18,101
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
7,616
|
|
|
|
|
|
|
|
7,616
|
|
|
|
7,616
|
|
|
|
|
|
|
|
7,616
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
15,847
|
|
|
|
(8,805
|
)
|
|
|
7,042
|
|
|
|
15,847
|
|
|
|
(8,462
|
)
|
|
|
7,385
|
|
Trade names
|
|
|
32,621
|
|
|
|
(8,540
|
)
|
|
|
24,081
|
|
|
|
29,724
|
|
|
|
(6,818
|
)
|
|
|
22,906
|
|
Customer relationships
|
|
|
53,477
|
|
|
|
(13,877
|
)
|
|
|
39,600
|
|
|
|
50,823
|
|
|
|
(10,806
|
)
|
|
|
40,017
|
|
Other
|
|
|
1,266
|
|
|
|
(783
|
)
|
|
|
483
|
|
|
|
1,202
|
|
|
|
(634
|
)
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
128,928
|
|
|
$
|
(32,005
|
)
|
|
$
|
96,923
|
|
|
$
|
123,313
|
|
|
$
|
(26,720
|
)
|
|
$
|
96,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company performed its annual impairment test for its indefinite-lived trade names as of October 1, 2016. The Company
elected to first perform a qualitative assessment to determine if it is more likely than not that the fair value of the Companys indefinite-lived trade names are less than the carrying values. The Company considered events and circumstances
that could affect the significant inputs used to determine the fair value of the indefinite-lived trade names. Based on the qualitative assessment the Company determined it is not more likely than not that the fair values of the Companys
indefinite-lived trade names are less than the carrying values.
NOTE E DEBT
Credit Agreement
The Companys Credit Agreement,
which expires in January 2019, provides for, among other things, a Revolving Credit Facility commitment totaling $175.0 million ($40.0 million of which is available for multi-currency borrowings) and a Term Loan facility.
At September 30, 2016 and December 31, 2015, borrowings outstanding under the Revolving Credit Facility were $128.7 million and $65.6 million,
respectively, and open letters of credit were $2.4 million and $1.4 million, respectively. At September 30, 2016, availability under the Revolving Credit Facility was approximately $43.9 million. The borrowing capacity under the Revolving
Credit Facility depends, in part, on eligible levels of accounts receivable and inventory that fluctuate regularly and certain trademark values based upon periodic appraisals, and may be lower in the first and second quarters when the Companys
inventory level is lower due to seasonality.
The Companys payment obligations under the Revolving Credit Facility are unconditionally guaranteed by
each of its existing U.S. subsidiaries and will be unconditionally guaranteed by each of its future U.S. subsidiaries. Certain payment obligations under the Revolving Credit Facility are also direct obligations of its foreign subsidiary borrowers
designated as such under the Credit Agreement and, subject to limitations on such guaranties, are guaranteed by the foreign subsidiary borrowers, as well as by the Company. The obligations of the Company under the Revolving Credit Facility and any
hedging arrangements and cash management services and the guarantees by its domestic subsidiaries in respect of those obligations are secured by substantially all of the assets and stock (but in the case of foreign subsidiaries, limited to 65% of
the capital stock in first-tier foreign
- 13 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
subsidiaries and not including the stock of subsidiaries of such first-tier foreign subsidiaries) owned by the Company and the U.S. subsidiary guarantors, subject to certain exceptions. Such
security interests consist of a first-priority lien, subject to certain permitted liens, with respect to the assets of the Company and its domestic subsidiaries pledged as collateral in favor of lenders under the Revolving Credit Facility.
As of September 30, 2016 and December 31, 2015, $12.0 million and $35.0 million, respectively, was outstanding under the Term Loan. At
September 30, 2016 and December 31, 2015, unamortized debt issuance costs were $179,000 and $621,000. In May 2015 the credit agreement was amended to provide for a $10.0 million prepayment of the Term Loan, if such amount was greater than
the payment that would have been required pursuant to the agreements original terms (50% of the Companys excess cash flow for the 2015 fiscal year). In April 2016, the Company made a prepayment of $15.2 million in accordance with the
amended terms. In connection therewith, the Company wrote-off debt issuance costs of $0.3 million.
Interest rates on outstanding borrowings at
September 30, 2016 ranged from 2.50% to 5.06%. In addition, the Company pays a commitment fee of 0.375% on the unused portion of the Revolving Credit Facility.
The Credit Agreement provides for customary restrictions and events of default. Restrictions include limitations on additional indebtedness, acquisitions,
investments and payment of dividends, among other things. Further, the Credit Agreement provides that at any time any Term Loan is outstanding or at any time no Term Loan is outstanding and availability under the Revolving Credit Facility is less
than $17.5 million and continuing until availability of at least $20.0 million is maintained for three consecutive months, the Company is required to maintain a minimum fixed charge coverage ratio of 1.20 to 1.00 for each of four consecutive fiscal
quarter periods. The Credit Agreement also provides that when the Term Loan is outstanding, the Company is required to maintain a Senior Leverage Ratio within defined parameters not to exceed 4.00 to 1.00 for the fiscal quarter ending
September 30, 2016; and 3.75 to 1.00 for each fiscal quarter ending thereafter. For any fiscal quarter of the Company ending on September 30
th
, the maximum Senior Leverage Ratio is
increased by an additional 0.25:1.00 in excess of the applicable level otherwise provided.
Pursuant to the Credit Agreement, as of September 30,
2016, the maximum additional permitted indebtedness other than certain subordinated indebtedness was $43.9 million. The Company was in compliance with the financial covenants of the Credit Agreement at September 30, 2016.
In August 2016, the Company amended the Credit Agreement, among other things, to allow the sale of certain accounts receivable by the Company to other
financial institutions (subject to approval of the Credit Agreements administrative agent) and revise the definition of EBITDA to provide that non-recurring charges shall not exceed $5.0 million during the term of the Credit Agreement (the
previous limit was $2.0 million).
Other Credit Agreements
A subsidiary of the Company has a credit facility (HSBC Facility or Short term loan) with HSBC Bank (China) Company Limited, Shanghai
Branch (HSBC) for up to RMB 18.0 million ($2.9 million). The HSBC Facility is subject to annual renewal and may be used to fund general working capital needs of the Companys subsidiary which is a trading company in the
Peoples Republic of China. Borrowings under the HSBC Facility are guaranteed by the Company and are granted at the sole discretion of HSBC. At September 30, 2016 and December 31, 2015, borrowings of RMB 787,000 ($118,000) and RMB
1.6 million ($252,000), respectively, were outstanding under the HSBC Facility. Outstanding borrowings at September 30, 2016 carried an interest rate of 5.0%.
- 14 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
NOTE F DERIVATIVES
The Company is a party to interest rate swap agreements with an aggregate notional value of $15.8 million and $20.1 million, at September 30, 2016 and
December 31, 2015, respectively, to manage interest rate exposure in connection with its variable interest rate borrowings. The hedge periods of these agreements commenced in March 2013 and expire in June 2018 and the notional amounts
amortize over these periods. 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 is recorded as a component of accumulated
other comprehensive income (loss).
The Company has also entered into certain foreign exchange contracts, primarily to offset the earnings impact related
to fluctuations in foreign currency exchange rates associated with sales and inventory purchases denominated in foreign currencies. The aggregate gross notional values of foreign exchange contracts at September 30, 2016 and December 31,
2015 were $20.6 million and $5.5 million, respectively. These foreign exchange contracts have not been designated as hedges as required in order to apply hedge accounting. The changes in the fair values of these contracts are recorded in earnings
immediately.
The fair values of the Companys derivative financial instruments included in the condensed consolidated balance sheets are presented
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
Derivatives designated as hedging instruments
|
|
Balance Sheet
Location
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Interest rate swaps
|
|
Accrued Expenses
|
|
$
|
29
|
|
|
$
|
10
|
|
|
|
Deferred rent & other long-term liability
|
|
|
30
|
|
|
|
25
|
|
|
|
|
|
|
|
|
Assets
|
|
Derivatives not designated as hedging instruments
|
|
Balance Sheet
Location
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Foreign exchange contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
575
|
|
|
$
|
261
|
|
The fair values of the derivatives have been obtained from the counterparties to the agreements and were based on Level 2
observable inputs using proprietary models and estimates about relevant future market conditions.
The amounts of the gains and losses related to the
Companys derivative financial instruments designated as hedging instruments are presented as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in Other comprehensive income (loss) on Derivatives
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
Derivatives designated as hedging instruments
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Interest rate swaps
|
|
$
|
33
|
|
|
$
|
(34
|
)
|
|
$
|
(14
|
)
|
|
$
|
(71
|
)
|
- 15 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
No amounts recorded in accumulated other comprehensive income (loss) are expected to be reclassified to
interest expense in the next twelve months.
The amounts of the gains and losses related to the Companys derivative financial instruments not
designated as hedging instruments are presented as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain Recognized in Earnings on Derivatives
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
Derivatives not designated as hedging instruments
|
|
Location of Gain Recognized
in Earnings on Derivatives
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Foreign exchange contracts
|
|
Selling, general and administrative expense
|
|
$
|
403
|
|
|
$
|
161
|
|
|
$
|
1,271
|
|
|
$
|
283
|
|
NOTE G
STOCK COMPENSATION
Option Awards
A summary of the Companys stock
option activity and related information for the nine months ended September 30, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted-
average
exercise
price
|
|
|
Weighted-
average
remaining
contractual
life (years)
|
|
|
Aggregate
intrinsic value
|
|
Options outstanding, January 1, 2016
|
|
|
2,242,202
|
|
|
$
|
14.28
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
56,850
|
|
|
|
15.69
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
(140,693
|
)
|
|
|
8.65
|
|
|
|
|
|
|
|
|
|
Cancellations
|
|
|
(29,750
|
)
|
|
|
15.48
|
|
|
|
|
|
|
|
|
|
Expirations
|
|
|
(218,100
|
)
|
|
|
27.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, September 30, 2016
|
|
|
1,910,509
|
|
|
|
13.16
|
|
|
|
4.9
|
|
|
$
|
3,303,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, September 30, 2016
|
|
|
1,564,076
|
|
|
$
|
12.45
|
|
|
|
4.4
|
|
|
$
|
3,253,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2016. The intrinsic value is calculated for each in-the-money stock option as the difference between the closing price of the Companys common stock
on September 30, 2016 and the exercise price.
The total intrinsic value of stock options exercised for the nine month periods ended
September 30, 2016 and 2015 was $0.9 million and $0.6 million, respectively. The intrinsic value of a stock option that is exercised is calculated at the date of exercise.
Total unrecognized stock option compensation expense at September 30, 2016, before the effect of income taxes, was $1.8 million and is expected to be
recognized over a weighted-average period of 1.8 years.
- 16 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
Restricted Stock
A summary of the Companys restricted stock activity and related information for the nine months ended September 30, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Restricted
Shares
|
|
|
Weighted-
average
grant date
fair value
|
|
Nonvested restricted shares, January 1, 2016
|
|
|
101,435
|
|
|
$
|
14.77
|
|
Grants
|
|
|
109,170
|
|
|
|
15.64
|
|
Vested
|
|
|
(44,639
|
)
|
|
|
14.84
|
|
Cancellations
|
|
|
(2,325
|
)
|
|
|
14.93
|
|
|
|
|
|
|
|
|
|
|
Nonvested restricted shares, September 30, 2016
|
|
|
163,641
|
|
|
$
|
15.33
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation expense remaining
|
|
$
|
2,090,000
|
|
|
|
|
|
Weighted-average years expected to be recognized over
|
|
|
2.8
|
|
|
|
|
|
The total fair value of restricted stock that vested during the nine months ended September 30, 2016 was $682,000.
Performance shares
Each performance award represents the
right to receive up to 150% of the target number of shares of common stock. The number of shares of common stock earned will be determined based on the attainment of specified performance goals by the end of the performance period, as determined by
the Compensation Committee. The shares are subject to the terms and conditions of the Plan.
A summary of the Companys performance-based award
activity and related information for the nine months ended September 30, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Performance-
based awards
(1)
|
|
|
Weighted-
average
grant date
fair value
|
|
Nonvested performance-based awards, January 1, 2016
|
|
|
66,150
|
|
|
$
|
14.84
|
|
Grants
|
|
|
82,000
|
|
|
|
15.69
|
|
Cancellations
|
|
|
(2,041
|
)
|
|
|
14.94
|
|
|
|
|
|
|
|
|
|
|
Nonvested performance-based awards, September 30, 2016
|
|
|
146,109
|
|
|
$
|
15.32
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation expense remaining
|
|
$
|
1,526,000
|
|
|
|
|
|
Weighted-average years expected to be recognized over
|
|
|
1.8
|
|
|
|
|
|
(1)
|
Represents the target number of shares to be issued for each performance-based award.
|
The Company recognized
total stock compensation expense of $0.8 million for the three months ended September 30, 2016, of which $0.4 million represents stock option compensation expense and $0.4 million represents restricted stock and performance based compensation
expense. For the nine months ended September 30, 2016 the Company recognized total stock compensation expense of $2.1 million, of which $1.0 million represents stock option compensation expense, $1.1 million represents restricted stock and
performance based compensation expense and $32,000 represents stock awards granted in 2016.
- 17 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
The Company recognized total stock compensation expense of $0.8 million for the three months ended
September 30, 2015, of which $0.5 million represents stock option compensation expense and $0.3 million represents restricted stock and performance based compensation expense. For the nine months ended September 30, 2015 the Company
recognized total stock compensation expense of $2.3 million, of which $1.7 million represents stock option compensation expense, $0.5 million represents restricted stock and performance based compensation expense and $53,000 represents stock awards
granted in 2015.
At September 30, 2016, there were 410,504 shares available for awards that could be granted under the Companys Amended and
Restated 2000 Long-Term Incentive Plan.
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 Companys common stock outstanding
during the relevant period. Diluted income per common share adjusts net income and basic income per common share for the effect of all potentially dilutive shares of the Companys common stock. The calculations of basic and diluted income per
common share for the three and nine month periods ended September 30, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands, except per share amounts)
|
|
Net income basic and diluted
|
|
$
|
6,452
|
|
|
$
|
5,104
|
|
|
$
|
973
|
|
|
$
|
1,272
|
|
Weighted-average shares outstanding basic
|
|
|
14,266
|
|
|
|
13,912
|
|
|
|
14,129
|
|
|
|
13,824
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
365
|
|
|
|
395
|
|
|
|
365
|
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding diluted
|
|
|
14,631
|
|
|
|
14,307
|
|
|
|
14,494
|
|
|
|
14,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share
|
|
$
|
0.45
|
|
|
$
|
0.37
|
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share
|
|
$
|
0.44
|
|
|
$
|
0.36
|
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The computation of diluted income per common share for the three September 30, 2016 excludes options to purchase 523,375
shares. The computation of diluted income per common share for the nine months ended September 30, 2016 excludes options to purchase 1,543,387 shares and 89,164 restricted shares. The computation of diluted income per common share for the three
and nine months ended September 30, 2015 excludes options to purchase 682,900 shares and 1,732,076 shares, respectively. These shares were excluded due to their antidilutive effects.
NOTE I INCOME TAXES
On a quarterly basis, the
Company evaluates its tax positions and revises its estimates accordingly. The estimated value of the Companys uncertain tax positions at September 30, 2016 is a gross liability of tax and interest of $172,000. The Company believes that
$70,000 of its tax positions will be resolved within the next twelve months.
The Company has identified the following jurisdictions as major
tax jurisdictions: U.S. Federal, California, Massachusetts, New York, New Jersey and the United Kingdom. The Company is no longer subject to U.S. Federal income tax examinations for the years prior to 2014. At September 30, 2016, the periods
subject to examination for the Companys major state jurisdictions are the years ended 2012 through 2015.
- 18 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
The Companys policy for recording interest and penalties is to record such items as a component of
income taxes. Interest and penalties were not material to the Companys financial position, results of operations or cash flows as of and for the three and nine month periods ended September 30, 2016 and 2015.
The Companys effective tax rate for the nine months ended September 30, 2016 was 14.9% as compared to 31.6% for the 2015 period. The Companys
effective tax rate for the nine months ended September 30, 2016 reflects the enactment of lower corporate income tax rates in the United Kingdom, from 18% to 17%, effective April 1, 2020, as well as a lower blended state income tax rate as compared
to the prior year.
NOTE J BUSINESS SEGMENTS
The Company operates in three reportable business segments: U.S. Wholesale, International and Retail Direct. The U.S. Wholesale segment is the Companys
primary domestic business that designs, markets and distributes its products to retailers and distributors. The International segment consists of certain business operations conducted outside the U.S. The Retail Direct segment is where the Company
markets and sells a limited selection of its products directly to consumers through its Pfaltzgraff, Mikasa, Fred and Friends, Built NY and Lifetime Sterling internet websites.
The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its operations. While the three
segments distribute similar products, the segments are distinct due to the different methods the Company uses to sell, market and distribute the products. Management evaluates the performance of the U.S. Wholesale, International and Retail Direct
segments based on net sales and income (loss) from operations. Such measures give recognition to specifically identifiable operating costs such as cost of sales, distribution expenses and selling, general and administrative expenses. Certain general
and administrative expenses, such as senior executive salaries and benefits, stock compensation, director fees and accounting, legal and consulting fees, are not allocated to the specific segments and are reflected as unallocated corporate expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
|
|
$
|
139,607
|
|
|
$
|
130,588
|
|
|
$
|
314,613
|
|
|
$
|
311,710
|
|
International
|
|
|
26,736
|
|
|
|
28,812
|
|
|
|
71,969
|
|
|
|
76,641
|
|
Retail Direct
|
|
|
3,781
|
|
|
|
3,798
|
|
|
|
12,517
|
|
|
|
13,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
170,124
|
|
|
$
|
163,198
|
|
|
$
|
399,099
|
|
|
$
|
401,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
|
|
$
|
14,367
|
|
|
$
|
13,464
|
|
|
$
|
15,846
|
|
|
$
|
20,094
|
|
International
|
|
|
1,024
|
|
|
|
608
|
|
|
|
1,037
|
|
|
|
(3,060
|
)
|
Retail Direct
|
|
|
(97
|
)
|
|
|
(377
|
)
|
|
|
(54
|
)
|
|
|
(784
|
)
|
Unallocated corporate expenses
|
|
|
(4,512
|
)
|
|
|
(3,933
|
)
|
|
|
(11,550
|
)
|
|
|
(9,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
10,782
|
|
|
$
|
9,762
|
|
|
$
|
5,279
|
|
|
$
|
6,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
(1)
|
|
$
|
3,386
|
|
|
$
|
2,164
|
|
|
$
|
7,837
|
|
|
$
|
6,609
|
|
International
|
|
|
1,264
|
|
|
|
1,312
|
|
|
|
3,804
|
|
|
|
3,982
|
|
Retail Direct
|
|
|
32
|
|
|
|
34
|
|
|
|
103
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
(1)
|
|
$
|
4,682
|
|
|
$
|
3,510
|
|
|
$
|
11,744
|
|
|
$
|
10,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 19 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
U.S. Wholesale
|
|
$
|
336,901
|
|
|
$
|
269,143
|
|
International
|
|
|
117,639
|
|
|
|
115,128
|
|
Retail Direct
|
|
|
369
|
|
|
|
443
|
|
Unallocated/ Corporate/ Other
|
|
|
12,995
|
|
|
|
13,617
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
467,904
|
|
|
$
|
398,331
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The three and nine months ended September 30, 2016 includes a $1.3 million charge to correct prior years depreciation of certain assets within the U.S. Wholesale segment.
|
NOTE K
CONTINGENCIES
Wallace Silversmiths
de Puerto Rico, Ltd. (WSPR), 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, WSPR 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, and Liability Act (CERCLA). In July 2011, WSPR received a letter from the EPA requesting access to the property
that it leases from PRIDCO to conduct an environmental investigation, and the Company granted such access. In February 2013, the EPA requested access to conduct a further environmental investigation at the property. PRIDCO agreed to such access
and the Company consented. EPA conducted a further investigation during 2013 and, in April 2015, notified the Company and PRIDCO that the results from vapor intrusion sampling may warrant implementation of measures to mitigate potential exposure to
sub-slab soil gas. The Company reviewed the information provided by the EPA and requested that PRIDCO, as the property owner, find and implement a solution acceptable to the EPA. While WSPR did not cause the sub-surface condition that resulted
in the potential for vapor intrusion, in order to protect the health of its employees and continue its business operations, it has nevertheless implemented corrective action measures to prevent vapor intrusion such as sealing floors of the building
and conducting periodic air monitoring to address potential exposure. On August 13, 2015, the EPA released its remedial investigation and feasibility study (RI/FS) for the Site. On December 11, 2015, the EPA issued the Record
of Decision (ROD) for OU-1, electing to implement its preferred remedy which consists of soil vapor extraction and dual-phase extraction/
in-situ
treatment. This selected remedy includes soil vapor extraction (SVE) to
address soil (vadose zone) source areas at the Site, impermeable cover as necessary for the implementation of SVE, dual phase extraction in the shallow saprolite zone, and
in-situ
treatment as needed to address residual sources. The
EPAs estimated capital cost for its selected remedy is $7.3 million. The EPA also designated a second operable unit under which the EPA will conduct further investigations to determine the nature and extent of groundwater contamination, as
well as a determination by EPA on the necessity of any further response actions to address groundwater contamination. WSPR never used the primary contaminant of concern and did not take up its tenancy at the Site until after the EPA had discovered
the contamination in the local water supply. The EPA has also issued notices of potential liability to a number of other entities affiliated with the Site, which used the contaminants of concern.
Accordingly, based on the above uncertainties and variables, it is not possible at this time for the Company to estimate its share of liability, if any,
related to this matter. However, in the event of one or more adverse determinations related to this matter, it is possible that the ultimate liability resulting from this matter and the impact on the Companys results of operations could be
material.
- 20 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
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 Companys business and that none such litigation, individually or collectively, would have a material adverse effect on the Companys consolidated financial
position, results of operations or cash flows.
NOTE L
OTHER
Cash dividends
Dividends declared in the nine months
ended September 30, 2016 are as follows:
|
|
|
|
|
|
|
Dividend per share
|
|
Date declared
|
|
Date of record
|
|
Payment date
|
$ 0.0425
|
|
March 3, 2016
|
|
May 2, 2016
|
|
May 16, 2016
|
$ 0.0425
|
|
June 9, 2016
|
|
August 1, 2016
|
|
August 15, 2016
|
$ 0.0425
|
|
August 4, 2016
|
|
November 1, 2016
|
|
November 15, 2016
|
On February 15, 2016, May 16, 2016 and August 15, 2016 the Company paid cash dividends of $594,000,
$602,000 and $608,000 respectively. In the three months ended September 30, 2016, the Company reduced retained earnings for the accrual of $619,000 relating to the dividend payable on November 15, 2016.
On November 3, 2016, the Board of Directors declared a quarterly dividend of $0.0425 per share payable on February 15, 2017 to shareholders of
record on February 1, 2017.
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
2,998
|
|
|
$
|
3,636
|
|
Cash paid for taxes
|
|
|
6,361
|
|
|
|
6,883
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
$
|
7,140
|
|
|
$
|
4,681
|
|
- 21 -
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
Components of accumulated other comprehensive loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Accumulated translation adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(17,716
|
)
|
|
$
|
(9,187
|
)
|
|
$
|
(12,961
|
)
|
|
$
|
(7,680
|
)
|
Translation loss during period
|
|
|
(2,007
|
)
|
|
|
(3,174
|
)
|
|
|
(7,140
|
)
|
|
|
(4,681
|
)
|
Amounts reclassified from accumulated other comprehensive loss:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(19,723
|
)
|
|
$
|
(12,361
|
)
|
|
$
|
(19,723
|
)
|
|
$
|
(12,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deferred losses on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(67
|
)
|
|
$
|
(55
|
)
|
|
$
|
(20
|
)
|
|
$
|
(18
|
)
|
Derivative fair value adjustment, net of taxes of $22 and $22 for the three month periods ended
September 30, 2016 and 2015, respectively, and $10 and $47 for the nine month periods ended September 30, 2016 and 2015, respectively
|
|
|
33
|
|
|
|
(34
|
)
|
|
|
(14
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(34
|
)
|
|
$
|
(89
|
)
|
|
$
|
(34
|
)
|
|
$
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated effect of retirement benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(1,177
|
)
|
|
$
|
(2,184
|
)
|
|
$
|
(1,204
|
)
|
|
$
|
(2,224
|
)
|
Amounts reclassified from accumulated other comprehensive loss:
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial losses, net of taxes of $9 and $13 for the three month periods ended
September 30, 2016 and 2015, respectively, and $27 and $40 for the nine month periods ended September 30, 2016 and 2015, respectively
|
|
|
14
|
|
|
|
20
|
|
|
|
41
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(1,163
|
)
|
|
$
|
(2,164
|
)
|
|
$
|
(1,163
|
)
|
|
$
|
(2,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss at end of period
|
|
$
|
(20,920
|
)
|
|
$
|
(14,614
|
)
|
|
$
|
(20,920
|
)
|
|
$
|
(14,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amount is recorded in equity in earnings (losses) on the condensed consolidated statements of operations.
|
(2)
|
Amounts are recorded in selling, general and administrative expense on the condensed consolidated statements of operations.
|
- 22 -
Review Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Lifetime Brands, Inc.:
We have reviewed the condensed consolidated balance sheet of Lifetime Brands, Inc. as of September 30, 2016, and the related condensed consolidated
statements of operations and comprehensive income (loss) for the three and nine-month periods ended September 30, 2016 and 2015, and the related condensed consolidated statements of cash flows for the nine month periods ended September 30,
2016 and 2015. These financial statements are the responsibility of the Companys management.
We conducted our review in accordance with the
standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet
of Lifetime Brands, Inc. as of December 31, 2015, and the related consolidated statements of operations, comprehensive income (loss), stockholders equity, and cash flows for the year then ended (not presented herein) and we expressed an
unqualified audit opinion on those consolidated financial statements in our report dated March 14, 2016. 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 Companys investment in Grupo Vasconia, S.A.B. and Subsidiaries is stated at $24.7 million at December 31, 2015, and the
Companys equity in the net income of Grupo Vasconia, S.A.B. and Subsidiaries is stated at $0.6 million for the year ended December 31, 2015. In our opinion, the accompanying condensed consolidated balance sheet of Lifetime Brands, Inc. as
of December 31, 2015, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ ERNST & YOUNG LLP
Jericho, New York
November 9, 2016
- 23 -