NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
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, Fred and Friends, Built NY, 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 based compensation expense, estimates for unpaid healthcare claims, derivative valuations, accruals related to the
Companys 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 wholly-owned 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. Income and losses resulting from translation are recorded as a component of accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions, including the
unrealized gain or loss on the fair value of foreign exchange contracts not designated as hedges and the realized gain or loss on all foreign exchange contracts, whether or not designated as hedges, are recognized in selling, general and
administrative expenses in the consolidated statements of operations. Foreign currency gain/loss included within selling, general and administrative expenses was a $4.2 million gain in 2016, a $714,000 loss in 2015, and a $1.4 million loss
in 2014.
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 $2.6 million in 2016, $2.4 million in 2015 and $2.1 million in
2014. Net sales exclude taxes that are collected from customers and remitted to the taxing authorities.
F-8
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
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 Companys 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.
Distribution expenses
Distribution expenses consist primarily of warehousing expenses and
freight-out
expenses.
Freight-out
expenses were $11.0 million, $11.3 million and $11.4 million for the years ended December 31, 2016, 2015 and 2014, respectively. Handling costs of products sold are included in cost
of sales.
In 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 year ended December 31, 2016 includes $1.2 million of additional depreciation expense to properly reflect the accumulated depreciation balance of these assets as of
December 31, 2016.
Advertising expenses
Advertising expenses are expensed as incurred and are included in selling, general and administrative expenses. Advertising expenses were $3.7 million,
$3.9 million and $4.2 million for the years ended December 31, 2016, 2015, and 2014, 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 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.
The sale of accounts receivable, under the Companys Receivable Purchase Agreement with HSBC, are reflected as a reduction of accounts
receivable in the Companys consolidated balance sheet at the time of sale and any related expense is included in selling, general and administrative expenses in the Companys consolidated statements of operations.
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.
F-9
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
Property and equipment
Property and equipment is stated at cost. Property and equipment, other than leasehold improvements, are 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 Companys 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 Companys customer base.
During the years
ended December 31, 2016, 2015, and 2014,
Wal-Mart
Stores, Inc., including Sams Club and, in the United Kingdom, Asda Superstore, (Walmart), accounted for 16% of net sales in each
period. During the year ended December 31, 2016, Costco Wholesale Corporation, (Costco), accounted for 10% of net sales. Sales to Walmart are included in the Companys U.S. Wholesale and International segments. Sales to Costco
are primarily included in the U.S. Wholesale segment. No other customers accounted for 10% or more of the Companys sales during these periods.
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
Companys consolidated financial statements relate to the Companys annual goodwill and other intangible asset impairment tests and derivatives, described in Notes E and G, 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 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
F-10
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
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.
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 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 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.
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 Companys 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.
F-11
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
Share-based compensation
The Company accounts for its share-based compensation arrangements in accordance with ASC Topic 718, Stock Compensation, which requires the
measurement of compensation expense for all share-based compensation granted to employees and
non-employee
directors at fair value on the date of grant and recognition of compensation expense over the related
service period for awards expected to vest.
The Company uses the Black-Scholes option valuation model to estimate the fair value of its stock options.
The Black-Scholes option valuation model requires the input of highly subjective assumptions including the expected stock price volatility of the Companys common stock and the risk-free interest rate. Changes in these subjective input
assumptions can materially affect the fair value estimate of the Companys stock options on the date of the option grant.
Performance share awards
are initially valued at the Companys closing stock price on the date of grant. 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. Compensation expense for performance awards is recognized over the vesting period, and will vary
based on remeasurement during the performance period. If the performance metrics are not probable of achievement during the performance period, compensation expense is reversed. The awards are forfeited if the performance metrics are not achieved as
of the end of the performance period. The performance share awards vest in full at the end of a three year period.
The Company bases the estimated fair
value of restricted stock awards on the date of grant. The estimated fair value is determined based on the closing price of the Companys common stock on the date of grant multiplied by the number of shares awarded. Compensation expense is
recognized on a straight-line basis over the vesting period, reduced by an estimated forfeiture 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 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 2016 to focus on specific actions required to
achieve the plans objectives. The Company recorded $2.4 million and $437,000 of restructuring expenses during the years ended December 31, 2016 and 2015, respectively, related to the execution of this plan. The expense for the 2016
period includes severance of approximately $0.7 million and consulting expense of approximately $1.6 million.
As of December 31, 2016,
$525,000 was accrued related to severance and consulting expenses from the restructuring plan. The Company does not expect to incur additional charges related to the execution of this plan.
F-12
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
In May 2014, the Company commenced a plan to consolidate its customer service and call center functions and
eliminated certain employee positions in connection with this consolidation. The Company recorded $125,000 of restructuring expenses during the year ended December 31, 2014 related to the execution of this plan. The Company does not anticipate
that it will incur any further restructuring expenses related to this plan.
Adopted 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 December 31, 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 the Credit
Agreement Term Loan of $354,000 and a reduction of the Credit Agreement Term Loan of $267,000 on the consolidated balance sheet as of December 31, 2015. The debt issuance costs associated with the Companys Revolving Credit Facility are
presented as other assets as of December 31, 2016 and 2015.
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 the Companys 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 the Companys consolidated financial statements.
In August 2014, the FASB issued ASU
2014-15,
Disclosures of Uncertainties about an Entitys Ability to
continue as a Going Concern
, which requires an entitys management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entitys ability to continue as a going concern
within one year after the date that financial statements are issued. The standard also requires footnote disclosures if management concludes that substantial doubts exists or that its future plans alleviate substantial doubt that was raised. The
Company adopted ASU
No. 2014-15
for the year ended December 31, 2016, with no impact to its financial statements and concluded that there were no conditions or events that raise substantial doubt
about the Companys ability to continue as a going concern.
Accounting pronouncements to be adopted in future periods
In January 2017, the Financial Accounting Standards Board (FASB) issued ASU
2017-04,
Simplifying the
Test for Goodwill Impairment
, to simplify the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. Under this standard, an entity should perform its annual or interim goodwill impairment test by
comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value. The loss recognized should not exceed
the total amount of goodwill allocated to that reporting unit. This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual
goodwill impairment tests performed on testing dates after January 1, 2017. The Company is evaluating if it will early adopt this pronouncement.
F-13
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
In January 2017, the FASB issued ASU
2017-01,
Clarifying the
Definition of a Business
, to assist with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for fiscal years beginning after December 15, 2017, and
interim periods within those years. Early adoption is permitted for transactions not reported in financial statements that have been issued or made available for issuance.
In August 2016, the 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 when adopted, this pronouncement is not expected to have a
material impact on the Companys 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 standard supersedes existing revenue recognition guidance and replaces it with a five step revenue model with a core principle that an entity recognizes revenue to reflect the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In March 2016, the FASB issued Accounting Standards Update
No. 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
which clarifies the implementation guidance on principal
versus agent considerations
The Company intends to adopt the new guidance on January 1, 2018, with a cumulative-effect adjustment to opening
retained earnings under the modified retrospective approach. Currently, the Company recognizes revenue when title passes to customers and incentives and promotions are recognized as a reduction of revenue, which generally reflects the consideration
the Company expects to receive in exchange for the goods sold. The Companys implementation of
F-14
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
this ASU includes the evaluation of its customer agreements to identify terms or conditions that could be considered a performance obligation such that, if material to the terms of the contract,
consideration would be allocated to the performance obligation and could accelerate or defer the timing of recognizing revenue. The Company continues to evaluate the presentation of certain contract costs (whether presented gross or offset against
revenues) and its principal versus agent arrangements.
The Companys evaluation of the new guidance is not yet complete; however, based on the
nature of the Companys primary revenue sources and current policies, the Company does not expect a significant change in the timing and presentation of recognizing its revenue.
NOTE B ACQUISITIONS
Focus
In September 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) for cash in the amount of $8.8 million. The assets and operating results of the Focus brands are reflected in the Companys consolidated financial statements in accordance with ASC Topic No. 805,
Business Combinations
, commencing from the acquisition date. The consolidated statement of operations for the year ended December 31, 2016 includes $3.6 million of net sales attributable to the Focus brands. 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.
Copco
In October 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 assets and operating results of the Copco brands are reflected in the Companys
consolidated financial statements in accordance with ASC Topic No. 805,
Business Combinations
, commencing from the acquisition date. The consolidated statement of operations for the year ended December 31, 2016 includes
$3.9 million of net sales attributable to the Copco
®
brands. The purchase price was allocated based on the Companys preliminary estimate of the fair values of the assets acquired
including, inventory ($3.9 million) and customer relationships and trade names ($8.4 million). Customer relationships and trade names are amortized on a straight-line basis over their estimated useful lives of 15 and 10 years, respectively.
Kitchen Craft
In January 2014, the Company acquired 100%
of the share capital of Thomas Plant (Birmingham) Limited (Kitchen Craft) for cash in the amount of £37.4 million (approximately $61.3 million) and 581,432 shares of common stock of the Company with an intrinsic value of
£5.5 million ($9.0 million). The purchase price also included contingent cash consideration of up to £5.5 million ($9.0 million) which was to be payable in future years if Kitchen Craft achieved certain financial targets.
Kitchen Craft is a leading supplier of kitchenware products and accessories in the United Kingdom. The assets, liabilities and operating results of Kitchen Craft are reflected in the Companys consolidated financial statements in accordance
with ASC Topic No. 805,
Business Combinations
, commencing from the acquisition date.
In April 2015, the Company entered into a Deed of
Variation and Settlement with the sellers of Kitchen Craft to amend the calculation and financial targets of the contingent consideration included in the share purchase agreement, (the Amended Agreement). The maximum undiscounted
contingent consideration to be paid remains unchanged at £5.5 million. As a result of the Amended Agreement, in April 2015, a charge of £1.0 million (approximately $1.5 million) was recorded in selling, general and
administration expenses. Pursuant to the terms of the Amended Agreement, during the year ended December 31, 2016, the Company paid £2.1 million (approximately $3.2 million) to the sellers of Kitchen Craft. At December 31, 2016,
the fair value of the contingent consideration outstanding under the Amended Agreement is £0.6 million (approximately $0.7 million).
F-15
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
Kitchen Craft was the sponsor of a defined benefit pension plan (the Plan) for which service
costs accrual ceased prior to the acquisition. Pursuant to the share purchase agreement, the Company and the sellers agreed to take action to settle the Plans obligation through the purchase of a group annuity contract, to individual annuity
contracts and to terminate the Plan. The Plan was settled and terminated in the fourth quarter of 2015. There was no impact to the Companys consolidated statement of operations for the year ended December 31, 2015 in connection with
the 2015 settlement of the Plan.
The Companys net periodic benefit costs for the years ended December 31, 2015 and 2014 are described in Note
M.
The year ended December 31, 2014 includes the operations of Kitchen Craft for the period from January 15, 2014 to December 31, 2014.
The consolidated statement of operations for the year ended December 31, 2014 includes $67.6 million of net sales and $4.1 million of income from operations attributable to Kitchen Craft.
NOTE C SALE OF ACCOUNTS RECEIVABLE
In order to
improve its liquidity during seasonally high working capital periods, in 2016 the Company entered into an uncommitted Receivables Purchase Agreement with 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 credit risk of the Receivables purchased; provided, however, and the
Company will continue to 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. Pursuant to
this agreement, the Company sold $44.3 million of Receivables during the year ended December 31, 2016. A charge of $131,000 related to the sale of the Receivables is included in selling, general and administrative expenses in the
consolidated statement of operations for the year ended December 31, 2016.
At December 31, 2016, the Company held approximately
$3.3 million of restricted cash representing collections the Company received as servicer of the Receivables sold to HSBC. This restricted cash was held in trust at December 31, 2016 and restricted from being pledged by the Company. The
restricted cash was subsequently remitted to HSBC in accordance with the terms of the Receivables Purchase Agreement.
NOTE D 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 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 years ended December 31, 2016, 2015 and 2014 in the accompanying 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 rate of MXN 20.70 and MXN 17.38 at December 31, 2016 and 2015, respectively. The Companys
proportionate share of Vasconias net income has been translated from MXN to USD using the average exchange rates of MXN 18.02 to 19.85, MXN 14.94 to 16.76 and MXN 12.99 to 13.87, during the years ended December 31, 2016, 2015, and 2014,
respectively. The effect of the translation of the
F-16
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
Companys investment resulted in a decrease of the investment of $3.2 million, $4.9 million and $4.0 million during the years ended December 31, 2016, 2015 and 2014,
respectively. These translation effects are recorded in accumulated other comprehensive loss. The Company received cash dividends of $205,000, $226,000 and $230,000, from Vasconia during the years ended December 31, 2016, 2015 and 2014,
respectively. Included in prepaid expenses and other current assets at December 31, 2016 and 2015 was $83,000 and $55,000 due from Vasconia. Included within accounts payable and accrued expenses at December 31, 2016 and 2015 was $220,000
and $28,000 due to Vasconia.
Summarized income statement information for the years ended December 31, 2016, 2015, and 2014, as well as summarized
balance sheet information as of December 31, 2016 and 2015, for Vasconia in USD and MXN is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Income Statement
|
|
USD
|
|
|
MXN
|
|
|
USD
|
|
|
MXN
|
|
|
USD
|
|
|
MXN
|
|
Net Sales
|
|
$
|
149,533
|
|
|
$
|
2,795,009
|
|
|
$
|
178,832
|
|
|
$
|
2,824,399
|
|
|
$
|
188,863
|
|
|
$
|
2,514,294
|
|
Gross Profit
|
|
|
27,205
|
|
|
|
510,617
|
|
|
|
33,982
|
|
|
|
534,285
|
|
|
|
35,592
|
|
|
|
474,482
|
|
Income from operations
|
|
|
5,611
|
|
|
|
105,334
|
|
|
|
10,551
|
|
|
|
165,507
|
|
|
|
7,790
|
|
|
|
103,658
|
|
Net Income
|
|
|
3,491
|
|
|
|
68,230
|
|
|
|
7,353
|
|
|
|
117,194
|
|
|
|
5,328
|
|
|
|
71,732
|
|
Adjustments
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,131
|
|
|
|
15,679
|
|
Net Income as reported by Vasconia
(2)
|
|
$
|
3,491
|
|
|
$
|
68,230
|
|
|
$
|
7,353
|
|
|
$
|
117,194
|
|
|
$
|
6,459
|
|
|
$
|
87,411
|
|
(1)
|
Certain adjustments were identified and not recorded in Vasconias consolidated financial statements for the year ended December 31, 2013 and were
subsequently recorded by Vasconia in the year ended December 31, 2014. The Company recorded its proportionate share of the adjustments, approximately $0.3 million, net of tax, in the correct period in connection with its equity method of
accounting for its investment in Vasconia.
|
(2)
|
Vasconias consolidated financial statements for the year ended December 31, 2014 were included as Exhibit 99.1 to Amendment 1 to the Companys fiscal
year 2014 Form
10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Balance Sheet
|
|
USD
|
|
|
MXN
|
|
|
USD
|
|
|
MXN
|
|
Current assets
|
|
$
|
81,509
|
|
|
$
|
1,687,396
|
|
|
$
|
100,482
|
|
|
$
|
1,745,922
|
|
Non-current
assets
|
|
|
83,890
|
|
|
|
1,736,681
|
|
|
|
87,118
|
|
|
|
1,513,724
|
|
Current liabilities
|
|
|
31,303
|
|
|
|
648,028
|
|
|
|
38,983
|
|
|
|
677,355
|
|
Non-current
liabilities
|
|
|
49,408
|
|
|
|
1,022,842
|
|
|
|
56,339
|
|
|
|
978,910
|
|
The Company recorded equity in earnings of Vasconia, net of taxes, of $0.6 million, $0.6 million and
$0.2 million for the years ended December 31, 2016, December 31, 2015, and 2014, respectively. Equity in earnings in 2016, 2015 and 2014 includes deferred tax expense of $0.5 million, $1.3 million and $1.1 million,
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.
As of December 31, 2016, the fair value (based upon the quoted stock price) of the Companys investment in Vasconia was $29.0 million. The
carrying value of the Companys investment in Vasconia was $22.5 million.
F-17
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
During the year ended December 31, 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 and the Company recorded a total $6.0 million impairment charge, net of tax, in equity in earnings (losses), net of tax during the year ended December 31, 2014. 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 recognized upon the sale of the equity interest in GSI.
In February 2012, the Company entered into a joint venture, Grand Venture
Holdings Limited (Grand 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 percentages. The Company accounts for its investment in Grand Venture using the equity method of accounting and has recorded its proportionate share of Grand Ventures net loss as equity
in earnings (losses) in the Companys consolidated statements of operations. The Company recorded equity in losses of the joint venture of $11,000, $20,000 and $39,000 for the years ended December 31, 2016, 2015 and 2014, respectively. As
of December 31, 2016 and 2015, the carrying value of the Companys investment in Grand Venture was $256,000 and $246,000, respectively.
The
Company evaluated the disclosure requirements of ASC Topic No. 860,
Transfers and Servicing
, and determined that at December 31, 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.
NOTE E GOODWILL AND INTANGIBLE ASSETS
The Companys intangible assets, all of which are included in the U.S. Wholesale and International segments, consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Goodwill
|
|
$
|
14,201
|
|
|
$
|
|
|
|
$
|
14,201
|
|
|
$
|
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
|
|
|
|
(8,919
|
)
|
|
|
6,928
|
|
|
|
15,847
|
|
|
|
(8,462
|
)
|
|
|
7,385
|
|
Trade names
|
|
|
31,150
|
|
|
|
(8,286
|
)
|
|
|
22,864
|
|
|
|
29,724
|
|
|
|
(6,818
|
)
|
|
|
22,906
|
|
Customer relationships
|
|
|
49,372
|
|
|
|
(12,188
|
)
|
|
|
37,184
|
|
|
|
50,823
|
|
|
|
(10,806
|
)
|
|
|
40,017
|
|
Other
|
|
|
1,266
|
|
|
|
(840
|
)
|
|
|
426
|
|
|
|
1,202
|
|
|
|
(634
|
)
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
119,452
|
|
|
$
|
(30,233
|
)
|
|
$
|
89,219
|
|
|
$
|
123,313
|
|
|
$
|
(26,720
|
)
|
|
$
|
96,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the activities related to the Companys intangible assets for the years ended December 31, 2016, 2015
and 2014 consists of the following (in thousands):
F-18
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets
|
|
|
Goodwill
|
|
|
Total Intangible
Assets and
Goodwill
|
|
Goodwill and Intangible Assets, December 31, 2013
|
|
$
|
50,064
|
|
|
$
|
5,085
|
|
|
$
|
55,149
|
|
Acquisition of trade names
|
|
|
12,348
|
|
|
|
|
|
|
|
12,348
|
|
Acquisition of customer relationships
|
|
|
32,417
|
|
|
|
|
|
|
|
32,417
|
|
Acquisition of other intangible assets
|
|
|
618
|
|
|
|
|
|
|
|
618
|
|
Goodwill from Kitchen Craft acquisition
|
|
|
|
|
|
|
13,016
|
|
|
|
13,016
|
|
Impairment of trade names
|
|
|
(3,384
|
)
|
|
|
|
|
|
|
(3,384
|
)
|
Amortization
|
|
|
(6,567
|
)
|
|
|
|
|
|
|
(6,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and Intangible Assets, December 31, 2014
|
|
|
85,496
|
|
|
|
18,101
|
|
|
|
103,597
|
|
Amortization
|
|
|
(7,004
|
)
|
|
|
|
|
|
|
(7,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and Intangible Assets, December 31, 2015
|
|
|
78,492
|
|
|
|
18,101
|
|
|
|
96,593
|
|
Acquisition of trade names
|
|
|
5,159
|
|
|
|
|
|
|
|
5,159
|
|
Acquisition of customer relationships
|
|
|
8,878
|
|
|
|
|
|
|
|
8,878
|
|
Acquisition of other intangible assets
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
Foreign currency translation adjustment
|
|
|
(11,400
|
)
|
|
|
(3,900
|
)
|
|
|
(15,300
|
)
|
|
|
|
|
Amortization
|
|
|
(6,161
|
)
|
|
|
|
|
|
|
(6,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and Intangible Assets, December 31, 2016
|
|
$
|
75,018
|
|
|
$
|
14,201
|
|
|
$
|
89,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average amortization periods for the Companys finite-lived intangible assets as of December 31, 2016
are as follows:
|
|
|
|
|
|
|
Years
|
|
Trade names
|
|
|
14
|
|
Licenses
|
|
|
33
|
|
Customer relationships
|
|
|
13
|
|
Other
|
|
|
11
|
|
Estimated amortization expense for each of the five succeeding fiscal years is as follows (in thousands):
|
|
|
|
|
Year ending December 31,
|
|
|
|
|
2017
|
|
$
|
6,669
|
|
2018
|
|
|
6,669
|
|
2019
|
|
|
6,669
|
|
2020
|
|
|
6,654
|
|
2021
|
|
|
6,176
|
|
Amortization expense for the years ended December 31, 2016, 2015 and 2014 was $6.2 million, $7.0 million and
$6.6 million, respectively.
F-19
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
Annual indefinite-lived trade name impairment test
For the Companys 2016 and 2015 annual impairment tests for its indefinite-lived trade names as of October 1, 2016 and 2015, the Company elected to
first perform a qualitative assessment to determine if it was more likely than not that the fair values of the Companys indefinite-lived trade names were less than the carrying values. The Company considered events and circumstances that could
affect the significant inputs used to determine the fair values of the indefinite-lived trade names. Based on the qualitative assessment, the Company determined it was not more likely than not that the fair values of the Companys
indefinite-lived trade names were less than the carrying values as of October 1, 2016 and 2015.
In 2014, the Company performed quantitative
impairment test for its indefinite-lived trade names which involved the assessment of the fair market values of the Companys indefinite-lived trade names based on Level 3 unobservable inputs, using a relief from royalty approach, assuming
a discount rate of
14.0%-15.5%
and an average long term growth rate of
2.5%-3%. The
result of the impairment assessment of the Companys indefinite-lived trade
names indicated that the carrying values of the Elements
®
and Melannco
®
trade names exceeded their fair values as of October 1,
2014. The Companys home décor products category had experienced a decline in sales and profit in recent years. The Company believed the most significant factor resulting in the decline was the reduction in retail space allocated by
the Companys customers to the category which had also contributed to pricing pressure. As a result of these factors, the Company recorded an impairment charge of $3.4 million, related to these brands, in its consolidated statement of
operations for the year ended December 31, 2014.
Annual goodwill impairment test
The Company bypassed the optional qualitative impairment analysis for its three reporting units with goodwill for its October 1, 2016 impairment test.
Accordingly, the first step of the two step goodwill impairment test was performed. Under the first step, the estimated fair value of each of the reporting units was determined using the income approach or a combined income and market approach with
equal weighting. The significant assumptions used under the income approach, or discounted cash flow method, are projected net sales, projected earnings before interest, tax, depreciation and amortization (EBITDA), terminal growth rates,
and the cost of capital. Projected net sales, projected EBITDA and terminal growth rates were determined to be significant assumptions because they are three primary drivers of the projected cash flows in the discounted cash flow fair value model.
Cost of capital was also determined to be a significant assumption as it is the discount rate used to calculate the current fair value of those projected cash flows. The market approach is based on a market multiple (revenue and EBITDA) and requires
an estimate of appropriate multiples based on market date. Under the combined income and market approach, the resultant estimated fair value of two of the three reporting units exceeded their carrying value as of October 1, 2016.
For the Creative Tops reporting unit, which carried goodwill of $2.1 million, the market approach was not used as it was concluded that the selected
industry market data was not consistent with a business with the future growth expectations of this reporting unit. The reporting units fair value, as calculated under the income approach, was approximately 3% less than the carrying value. The
decline in fair value was due to the forecasted sales and profits for the reporting unit falling below expectations relative to the Companys previous projections and the macroeconomic conditions in Europe contributing to a decline in EBITDA.
With the assistance of a third party valuation specialist, the Company performed the second step of the impairment test by estimating the fair value of the assets and liabilities to determine the implied fair value of goodwill. The implied fair
value of goodwill was determined to be greater than the carrying value and no impairment charge was recorded. Changes in any of the significant assumptions used in the calculation of the fair value of the reporting unit or changes in the assumptions
used in the calculation of the fair value of the assets and liabilities of the reporting unit, could lead to a potentially material
non-cash
impairment charge.
The excess of fair value of the Kitchen Craft reporting unit, which carried goodwill of $9.7 million, was approximately 3% over its carrying value.
Macroeconomic conditions in Europe have contributed to a decline in EBITDA. Managements projections used to estimate the cash flows included increasing net sales and operational improvements designed to reduce costs. Changes in any of the
significant assumptions used can materially affect the
F-20
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
expected cash flows, and such impacts can result in the requirement to proceed to the second step of the test and potentially a material
non-cash
impairment charge could result. The Company is not currently aware of any negative changes in its assumptions that could lead to the fair value of the reporting unit being less than the carrying value.
As of December 31, 2016, the Company assessed the carrying value of goodwill and determined based on qualitative factors, no impairment existed.
NOTE F DEBT
Credit Agreement
In January 2014, the Company entered into the Second Amended and Restated Credit Agreement, which has been amended, with JPMorgan Chase Bank, N.A, as
Administrative Agent and
Co-Collateral
Agent, and HSBC Bank USA, National Association, as Syndication Agent and
Co-Collateral
Agent (the Credit Agreement).
The 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 December 31, 2016 and 2015, under the Revolving Credit Facility, borrowings outstanding were $86.2 million and $65.6 million,
respectively. At December 31, 2016 and 2015, open letters of credit were $2.4 million and $1.4 million, respectively and availability under the Revolving Credit Facility was approximately $76.5 million and $86.2 million,
respectively. The borrowing capacity under the Revolving Credit Facility depends, in part, on eligible levels of accounts receivable and inventory, each of which fluctuates based upon the seasonality of the business, and certain trademark values,
based upon periodic appraisals. Therefore, the actual borrowing capacity may be less than the $175.0 million commitment.
The Company classifies a
portion of the Revolving Credit Facility as a current liability if the Companys 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.
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 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 December 31, 2016 and 2015, $9.5 million and $35.0 million, respectively, was outstanding under the Term Loan and unamortized debt
issuance costs were $157,000 and $621,000, respectively. 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.
F-21
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
Interest rates on outstanding borrowings at December 31, 2016 ranged from 2.5% to 5.125%. 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 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 December 31, 2016 the maximum additional permitted indebtedness other than certain subordinated indebtedness was $78.9 million. The Company was in compliance with the financial covenants of the Credit Agreement at
December 31, 2016.
In August 2016, the Company amended the Credit Agreement to, among other things, allow the sale of certain accounts receivable by
the Company to other financial institutions (subject to the 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 ($2.6 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 December 31, 2016 and 2015, RMB 0.8 million ($113,000) and RMB 1.6 million
($252,000), respectively, was outstanding under the HSBC Facility. Outstanding borrowings at December 31, 2016 carried an interest rate of 5.0%.
NOTE G DERIVATIVES
The Company is a party to
interest rate swap agreements with an aggregate notional amount of $14.0 million 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 loss.
The Company has also entered into foreign exchange contracts, primarily to offset the
earnings impact related to fluctuations in foreign currency exchange rates associated with inventory purchases denominated in foreign currencies. The aggregate gross notional amount of foreign exchange contracts at December 31, 2016 was
$38.3 million. These foreign exchange contracts have not been designated as hedges as required in order to apply hedge accounting. The changes in the fair value of these contracts are recorded in earnings immediately.
F-22
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
The fair values of the Companys derivative financial instruments included in the consolidated balance
sheets are presented as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Derivatives designated as hedging instruments
|
|
Balance Sheet Location
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Interest rate swaps
|
|
Accrued expenses
|
|
$
|
4
|
|
|
$
|
10
|
|
|
|
Deferred rent &
other long-term
liabilities
|
|
|
3
|
|
|
|
25
|
|
|
|
|
|
|
|
|
December 31,
|
|
Derivatives not designated as hedging instruments
|
|
Balance Sheet Location
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses
and other current
assets
|
|
$
|
924
|
|
|
$
|
261
|
|
The fair value 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 recognized in other comprehensive (loss) income as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
Derivatives designated as hedging instruments
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
17
|
|
|
$
|
(2
|
)
|
|
$
|
13
|
|
No amounts recorded in accumulated other comprehensive 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 recognized in earnings as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
Location of
Gain or (Loss)
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Selling,
general and
administrative
expense
|
|
$
|
2,182
|
|
|
$
|
272
|
|
|
$
|
694
|
|
NOTE H CAPITAL STOCK
Long-term incentive plan
The Companys Amended and
Restated 2000 Long-Term Incentive Plan (the Plan) provides for the granting of awards of up to 4,850,000 shares of common stock. These shares of the Companys 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, restricted stock, performance based awards
F-23
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
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. Shares of restricted stock that have been granted under the Plan vest over a range of up to four years from the date of grant. Performance based awards that have been granted under the Plan vest after three years based upon the attainment
of specified performance goals. As of December 31, 2016, there were 414,352 shares available for the grant of awards.
Cash dividends
Dividends were declared in 2016 and 2015 as follows:
|
|
|
|
|
|
|
Dividend per share
|
|
Date declared
|
|
Date of record
|
|
Payment date
|
$0.0375
|
|
March 4, 2015
|
|
May 1, 2015
|
|
May 15, 2015
|
$0.0375
|
|
June 10, 2015
|
|
July 31, 2015
|
|
August 14, 2015
|
$0.0425
|
|
August 4, 2015
|
|
October 30, 2015
|
|
November 13, 2015
|
$0.0425
|
|
November 3, 2015
|
|
February 1, 2016
|
|
February 15, 2016
|
$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
|
$0.0425
|
|
November 3, 2016
|
|
February 1, 2017
|
|
February 15, 2017
|
On March 8, 2017, the Board of Directors declared a quarterly dividend of $0.0425 per share payable on May 15, 2017
to shareholders of record on May 1, 2017.
Stock repurchase program
On April 30, 2013, Lifetimes Board of Directors authorized the repurchase of up to $10.0 million of the Companys common stock. The
repurchase authorization permits the Company to effect repurchases from time to time through open market purchases and privately negotiated transactions. No shares were repurchased during the years ended December 31, 2016, 2015 and 2014.
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 has been issued or is outstanding at December 31, 2016.
Stock options
A summary of the Companys stock
option activity and related information for the three years ended December 31, 2016, is as follows:
F-24
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted-
average
exercise
price
|
|
|
Weighted-
average
remaining
contractual
life (years)
|
|
|
Aggregate
intrinsic
value
|
|
Options outstanding at December 31, 2013
|
|
|
2,371,650
|
|
|
$
|
12.75
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
394,400
|
|
|
|
18.83
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
(365,223
|
)
|
|
|
8.63
|
|
|
|
|
|
|
|
|
|
Cancellations
|
|
|
(32,200
|
)
|
|
|
12.23
|
|
|
|
|
|
|
|
|
|
Expirations
|
|
|
(42,000
|
)
|
|
|
26.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2014
|
|
|
2,326,627
|
|
|
|
14.19
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
89,600
|
|
|
|
13.99
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
(110,375
|
)
|
|
|
8.84
|
|
|
|
|
|
|
|
|
|
Cancellations
|
|
|
(37,750
|
)
|
|
|
15.57
|
|
|
|
|
|
|
|
|
|
Expirations
|
|
|
(25,900
|
)
|
|
|
26.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2015
|
|
|
2,242,202
|
|
|
|
14.28
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
66,850
|
|
|
|
15.44
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
(272,325
|
)
|
|
|
9.01
|
|
|
|
|
|
|
|
|
|
Cancellations
|
|
|
(30,750
|
)
|
|
|
15.39
|
|
|
|
|
|
|
|
|
|
Expirations
|
|
|
(230,577
|
)
|
|
|
27.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2016
|
|
|
1,775,400
|
|
|
|
13.44
|
|
|
|
4.7
|
|
|
|
8,305,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2016
|
|
|
1,469,967
|
|
|
$
|
12.85
|
|
|
|
4.2
|
|
|
$
|
7,667,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
in-the-money
stock options on December 31, 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 December 31, 2016
and the exercise price.
The total intrinsic values of those stock options that were exercised in the years ended December 31, 2016, 2015 and 2014
were $1,848,000, $639,000 and $3,103,000, 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 December 31, 2016, before the effect of income taxes, was $1.5 million and is expected to be
recognized over a weighted-average period of 1.8 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 Companys 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 Companys stock options. The weighted-average per share grant date fair value of stock options granted during the years ended December 31,
2016, 2015, and 2014 was $5.43, $4.68 and $9.73, respectively.
The fair values for these stock options were estimated at the dates of grant using the
following weighted-average assumptions:
F-25
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Historical volatility
|
|
|
39
|
%
|
|
|
39
|
%
|
|
|
58
|
%
|
Expected term (years)
|
|
|
6.0
|
|
|
|
5.2
|
|
|
|
6.0
|
|
Risk-free interest rate
|
|
|
1.37
|
%
|
|
|
1.67
|
%
|
|
|
1.95
|
%
|
Expected dividend yield
|
|
|
1.10
|
%
|
|
|
1.18
|
%
|
|
|
0.77
|
%
|
Restricted Stock
A
summary of the Companys restricted stock activity and related information for the three years ended December 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Restricted
Shares
|
|
|
Weighted-
average
grant date
fair value
|
|
Non-vested
restricted shares, December 31,
2013
|
|
|
22,459
|
|
|
$
|
13.26
|
|
Grants
|
|
|
26,511
|
|
|
|
15.86
|
|
Vested
|
|
|
(22,459
|
)
|
|
|
13.26
|
|
|
|
|
|
|
|
|
|
|
Non-vested
restricted shares, December 31,
2014
|
|
|
26,511
|
|
|
|
15.86
|
|
Grants
|
|
|
100,073
|
|
|
|
14.78
|
|
Vested
|
|
|
(24,649
|
)
|
|
|
15.97
|
|
Cancellations
|
|
|
(500
|
)
|
|
|
14.84
|
|
|
|
|
|
|
|
|
|
|
Non-vested
restricted shares, December 31,
2015
|
|
|
101,435
|
|
|
|
14.77
|
|
Grants
|
|
|
109,170
|
|
|
|
15.64
|
|
Vested
|
|
|
(46,306
|
)
|
|
|
14.79
|
|
Cancellations
|
|
|
(2,475
|
)
|
|
|
14.93
|
|
|
|
|
|
|
|
|
|
|
Non-vested
restricted shares, December 31,
2016
|
|
|
161,824
|
|
|
$
|
15.35
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation expense remaining
|
|
$
|
1,837,700
|
|
|
|
|
|
Weighted-average years expected to be recognized over
|
|
|
2.6
|
|
|
|
|
|
The total fair value of restricted stock that vested during the year ended December 31, 2016 was $712,000.
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 at 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 two years ended December 31, 2016 is as follows:
F-26
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Performance-
based
awards
(1)
|
|
|
Weighted-
average
grant date
fair value
|
|
Non-vested
performance-based awards, January 1,
2015
|
|
|
|
|
|
$
|
|
|
Grants
|
|
|
66,650
|
|
|
|
14.84
|
|
Cancellations
|
|
|
(500
|
)
|
|
|
14.84
|
|
|
|
|
|
|
|
|
|
|
Non-vested
performance-based awards, December 31,
2015
|
|
|
66,150
|
|
|
|
14.84
|
|
Grants
|
|
|
82,000
|
|
|
|
15.69
|
|
Cancellations
|
|
|
(2,188
|
)
|
|
|
14.94
|
|
|
|
|
|
|
|
|
|
|
Non-vested performance-based awards, December 31, 2016
|
|
|
145,962
|
|
|
$
|
15.32
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation expense remaining
|
|
$
|
1,313,200
|
|
|
|
|
|
Weighted-average years expected to be recognized over
|
|
|
1.6
|
|
|
|
|
|
(1)
|
Represents the target number of shares to be issued for each performance-based award.
|
The Company recognized total stock compensation expense of $2.9 million for the year ended December 31, 2016, of which $1.4 million represents
stock option compensation expense, $1.5 million represents restricted stock, including restricted stock granted to directors and performance based compensation expense, and $32,000 represents stock awards. The Company recognized total stock
compensation expense of $5.3 million for the year ended December 31, 2015, of which $2.2 million represents stock option compensation expense, $0.8 million represents restricted stock including restricted stock granted to
directors and performance based compensation expense, and $2.2 million represents stock awards. For the year ended December 31, 2014 the Company recognized total stock compensation expense of $4.5 million, of which $2.5 million
represents stock option compensation expense, $0.3 million represents restricted stock compensation expense and $1.7 million represents stock awards.
NOTE I 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.
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 years
ended December 31, 2016, 2015 and 2014, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands - except per share amounts)
|
|
Net income Basic and Diluted
|
|
$
|
15,720
|
|
|
$
|
12,278
|
|
|
$
|
1,544
|
|
Weighted-average shares outstanding Basic
|
|
|
14,174
|
|
|
|
13,850
|
|
|
|
13,519
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
375
|
|
|
|
416
|
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding Diluted
|
|
|
14,549
|
|
|
|
14,266
|
|
|
|
13,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share
|
|
$
|
1.11
|
|
|
$
|
0.89
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share
|
|
$
|
1.08
|
|
|
$
|
0.86
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
The computations of diluted income per common share for the years ended December 31, 2016, 2015 and 2014
excludes options to purchase 1,268,240, 1,467,857 and 2,004,836 shares of the Companys common stock, respectively. The computation of diluted income per common share for the year ended December 31, 2016 excludes 66,873 restricted shares.
These shares were excluded due to their antidilutive effect.
NOTE J INCOME TAXES
The components of income before income taxes, equity in earnings and extraordinary item are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Domestic
|
|
$
|
22,114
|
|
|
$
|
22,096
|
|
|
$
|
10,251
|
|
Foreign
|
|
|
(112
|
)
|
|
|
(3,765
|
)
|
|
|
3,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income before income taxes and equity in earnings
|
|
$
|
22,002
|
|
|
$
|
18,331
|
|
|
$
|
13,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes (before equity in earnings) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
8,000
|
|
|
$
|
5,584
|
|
|
$
|
4,709
|
|
State and local
|
|
|
498
|
|
|
|
1,879
|
|
|
|
1,284
|
|
Foreign
|
|
|
483
|
|
|
|
604
|
|
|
|
1,691
|
|
Deferred
|
|
|
(1,951
|
)
|
|
|
(1,440
|
)
|
|
|
(1,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
7,030
|
|
|
$
|
6,627
|
|
|
$
|
5,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Companys deferred income tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Deferred rent expense
|
|
$
|
3,706
|
|
|
$
|
4,028
|
|
Stock options
|
|
|
4,593
|
|
|
|
4,179
|
|
Inventory
|
|
|
1,190
|
|
|
|
1,298
|
|
Operating loss carry-forward
|
|
|
2,568
|
|
|
|
2,213
|
|
Accounts receivable allowances
|
|
|
463
|
|
|
|
217
|
|
Accrued compensation
|
|
|
944
|
|
|
|
867
|
|
Other
|
|
|
2,784
|
|
|
|
2,820
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
$
|
16,248
|
|
|
$
|
15,622
|
|
|
|
|
|
|
|
|
|
|
Significant components of the Companys net deferred income tax asset (liability) are as follows:
F-28
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
(1,268
|
)
|
|
$
|
(3,121
|
)
|
Intangibles
|
|
|
(9,815
|
)
|
|
|
(12,380
|
)
|
Equity in earnings
|
|
|
24
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
(11,059
|
)
|
|
|
(15,655
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset (liability)
|
|
|
5,189
|
|
|
|
(33
|
)
|
Valuation allowance
|
|
|
(2,396
|
)
|
|
|
(2,077
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset (liability)
|
|
$
|
2,793
|
|
|
$
|
(2,110
|
)
|
|
|
|
|
|
|
|
|
|
The Company has generated various state net operating loss carryforwards of which, $13.1 million remained at
December 31, 2016 that begin to expire in 2026. The Company has net operating losses in foreign jurisdictions of $5.8 million at December 31, 2016 that begin to expire in 2020. The reduction in the deferred tax liabilities is
primarily due to the enactment of lower corporate income tax rates in the United Kingdom, from 20% in 2016 to 17% in 2020. The valuation allowance which remained as of December 31, 2016 relates to certain state and foreign 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Provision for federal income taxes at the statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increases (decreases):
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local income taxes, net of Federal income tax benefit
|
|
|
3.6
|
|
|
|
5.3
|
|
|
|
4.9
|
|
Foreign rate differences
|
|
|
(7.9
|
)
|
|
|
(8.6
|
)
|
|
|
(2.7
|
)
|
Non-deductible
expenses
|
|
|
3.4
|
|
|
|
5.5
|
|
|
|
6.4
|
|
Other
|
|
|
(2.1
|
)
|
|
|
(1.0
|
)
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
32.0
|
%
|
|
|
36.2
|
%
|
|
|
42.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated values of the Companys gross uncertain tax positions at December 31, 2016, 2015 and 2014 are
liabilities of $109,000, $157,000 and $572,000, respectively, and consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Balance at January 1
|
|
$
|
(157
|
)
|
|
$
|
(572
|
)
|
|
$
|
(351
|
)
|
Additions based on tax positions related to the current year
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
Additions for tax positions of prior years
|
|
|
|
|
|
|
|
|
|
|
(221
|
)
|
Settlements
|
|
|
48
|
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
(109
|
)
|
|
$
|
(157
|
)
|
|
$
|
(572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
The Company had approximately $29,000 and $42,000, net of federal and state tax benefit, accrued at
December 31, 2016 and 2015, respectively, for the payment of interest. The Companys policy for recording interest and penalties is to record such items as a component of the provision for income taxes.
If the Companys tax positions are ultimately sustained, the Companys liability, including interest, would be reduced by $122,000 all of which
would impact the Companys 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 $54,000 of its tax positions will be
resolved within the next twelve months.
The Company is no longer subject to U.S. Federal income tax examinations for the years prior to 2014. 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, 2016, the periods subject to examination by
the Companys major state jurisdictions are the years ended 2012 through 2015.
NOTE K
BUSINESS SEGMENTS
Segment information
The Company has three reportable
segments, U.S. Wholesale, International and Retail Direct. The U.S. Wholesale segment includes 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 that in which the Company markets and sells a limited selection of its products to consumers through its Pfaltzgraff, Mikasa, Built NY, Fred &
Friends and Lifetime Sterling 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 have been 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.
F-30
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
|
|
$
|
470,981
|
|
|
$
|
458,593
|
|
|
$
|
441,293
|
|
International
|
|
|
101,070
|
|
|
|
108,000
|
|
|
|
125,230
|
|
Retail Direct
|
|
|
20,568
|
|
|
|
21,077
|
|
|
|
19,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
592,619
|
|
|
$
|
587,670
|
|
|
$
|
586,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
(1)
|
|
$
|
39,745
|
|
|
$
|
41,343
|
|
|
$
|
34,874
|
|
International
(2)
|
|
|
3,052
|
|
|
|
(1,600
|
)
|
|
|
3,759
|
|
Retail Direct
|
|
|
770
|
|
|
|
(596
|
)
|
|
|
(1,034
|
)
|
Unallocated corporate expenses
|
|
|
(16,490
|
)
|
|
|
(14,916
|
)
|
|
|
(16,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from operations
|
|
$
|
27,077
|
|
|
$
|
24,231
|
|
|
$
|
21,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
(3)
|
|
$
|
10,095
|
|
|
$
|
8,784
|
|
|
$
|
8,618
|
|
International
|
|
|
3,917
|
|
|
|
5,272
|
|
|
|
5,379
|
|
Retail Direct
|
|
|
136
|
|
|
|
147
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
14,148
|
|
|
$
|
14,203
|
|
|
$
|
14,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In 2016 and 2015, income from operations for the U.S. Wholesale segment includes $2.4 million and $0.4 million, respectively, of restructuring expenses related to the U.S. Wholesale restructuring plan as described in
Note A. The 2016 period also includes a $1.2 million charge to correct prior years depreciation of certain assets within the U.S. Wholesale segment. In 2014, income from operations for the U.S. Wholesale segment included a $3.4 million of
intangible asset impairment charge and $4.2 million related to the reduction in certain contingent consideration accruals.
|
(2)
|
In 2015, income from operations for the International segment includes a $1.0 million net charge related to the change in certain contingent consideration accruals.
|
(3)
|
The 2016 period includes a $1.2 million charge to correct prior years depreciation of certain assets within the U.S. Wholesale segment.
|
F-31
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
|
|
$
|
287,313
|
|
|
$
|
269,143
|
|
|
$
|
287,744
|
|
International
|
|
|
95,698
|
|
|
|
115,128
|
|
|
|
128,055
|
|
Retail Direct
|
|
|
501
|
|
|
|
443
|
|
|
|
535
|
|
Unallocated/ corporate/ other
|
|
|
16,342
|
|
|
|
13,617
|
|
|
|
5,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
399,854
|
|
|
$
|
398,331
|
|
|
$
|
421,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
|
|
$
|
2,767
|
|
|
$
|
4,087
|
|
|
$
|
5,431
|
|
International
|
|
|
424
|
|
|
|
1,004
|
|
|
|
650
|
|
Retail Direct
|
|
|
189
|
|
|
|
75
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
3,380
|
|
|
$
|
5,166
|
|
|
$
|
6,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,412
|
|
|
$
|
2,412
|
|
|
$
|
2,412
|
|
Acquisition activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
2,412
|
|
|
|
2,412
|
|
|
|
2,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
15,689
|
|
|
|
15,689
|
|
|
|
2,673
|
|
Acquisition activity
|
|
|
|
|
|
|
|
|
|
|
13,016
|
|
Foreign currency translation adjustment
|
|
|
(3,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
11,789
|
|
|
|
15,689
|
|
|
|
15,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
(1)
|
|
$
|
14,201
|
|
|
$
|
18,101
|
|
|
$
|
18,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
No goodwill is allocated to the Companys Retail Direct reportable segment.
|
F-32
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
Geographical information
The following table sets forth net sales and long-lived assets by the major geographic locations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
472,962
|
|
|
$
|
462,234
|
|
|
$
|
436,049
|
|
United Kingdom
|
|
|
74,991
|
|
|
|
81,347
|
|
|
|
93,432
|
|
Rest of World
|
|
|
44,666
|
|
|
|
44,089
|
|
|
|
56,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
592,619
|
|
|
$
|
587,670
|
|
|
$
|
586,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Long-lived assets, excluding intangible assets, at
period-end:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
43,431
|
|
|
$
|
49,369
|
|
United Kingdom
|
|
|
1,186
|
|
|
|
1,550
|
|
Rest of World
|
|
|
1,112
|
|
|
|
953
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,729
|
|
|
$
|
51,872
|
|
|
|
|
|
|
|
|
|
|
Product category information net sales
In 2016, in connection with the Companys U.S. Wholesale restructuring plan the Company realigned its product categories to best achieve the
Companys strategic plan and implementation of cost reduction initiatives. The revenue source categories disclosed below for the U.S. Wholesale operating segment reflect this realignment. Product categories in 2015 and 2014 have been
reclassified to conform to current year presentation for comparative purposes. The following table sets forth net sales by major product categories included within the Companys U.S. Wholesale operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Category:
|
|
|
|
|
Kitchenware
|
|
$
|
286,815
|
|
|
$
|
295,592
|
|
|
$
|
293,904
|
|
Tableware
|
|
|
135,901
|
|
|
|
125,445
|
|
|
|
117,546
|
|
Home Solutions
|
|
|
48,265
|
|
|
|
37,556
|
|
|
|
29,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
470,981
|
|
|
$
|
458,593
|
|
|
$
|
441,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
The following table sets forth net sales by major product categories included within the Companys
International operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Category:
|
|
|
|
|
|
|
|
|
|
|
|
|
Kitchenware
|
|
$
|
59,742
|
|
|
$
|
61,291
|
|
|
$
|
67,604
|
|
Tableware
|
|
|
41,328
|
|
|
|
46,709
|
|
|
|
57,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
101,070
|
|
|
$
|
108,000
|
|
|
$
|
125,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE L COMMITMENTS AND CONTINGENCIES
Operating leases
The Company has lease agreements for its
corporate headquarters, distribution centers, showrooms and sales offices that expire through 2029. 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,
|
|
2017
|
|
$
|
17,279
|
|
2018
|
|
|
13,478
|
|
2019
|
|
|
11,254
|
|
2020
|
|
|
10,145
|
|
2021
|
|
|
9,771
|
|
Thereafter
|
|
|
61,236
|
|
|
|
|
|
|
Total
|
|
$
|
123,163
|
|
|
|
|
|
|
Rent and related expenses under operating leases were $16.6 million, $17.4 million and $15.8 million for the
years ended December 31, 2016, 2015 and 2014, respectively. The Company received $108,000 in sublease rental income in 2016. No such sublease rental income was received in 2015 or 2014.
The Company leases one property from the trustees of an active retirement benefit plan in which former and current employees of the Company participate. Total
lease payments made to this related party in 2016 was $434,000. The lease agreement expires in 2020.
F-34
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
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,
|
|
2017
|
|
$
|
6,199
|
|
2018
|
|
|
5,939
|
|
2019
|
|
|
248
|
|
2020
|
|
|
218
|
|
2021
|
|
|
222
|
|
Thereafter
|
|
|
382
|
|
|
|
|
|
|
Total
|
|
$
|
13,208
|
|
|
|
|
|
|
Legal proceedings
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 the EPA on the
necessity of any further response actions to address groundwater contamination. In February 2017, the EPA indicated that it plans to expand its field investigation for the RI/FS for the second operable unit to further determine the nature and extent
of the groundwater contamination at and from the Site and to determine the nature of the remedial action needed to address the contamination. The EPA has requested access to the property occupied by WSPR to install monitoring wells and to undertake
groundwater sampling as part of this expanded investigation. WSPR has consented to EPAs access request, provided that the EPA receives PRIDCOs consent, as the property
F-35
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
owner. 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.
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 of this litigation, individually
or collectively, would have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows.
NOTE
M RETIREMENT PLANS
401(k) plan
The
Company maintains a defined contribution retirement plan for eligible employees under Section 401(k) of the Internal Revenue Code. Participants can make voluntary contributions up to the Internal Revenue Service limit of $18,000 ($24,000 for
employees 50 years or over) for 2016. Effective January 1, 2009, the Company suspended its matching contribution as an expense savings measure. The Companys United Kingdom-based subsidiaries also maintain defined contribution pension
plans.
Retirement benefit obligations
The Company
assumed retirement benefit obligations, which are paid to certain former executives of a business acquired in 2006. These obligations under the agreements with these former executives are unfunded and amounted to $6.9 million at
December 31, 2016 and $6.5 million at December 31, 2015.
The discount rate used to calculate the retirement benefit obligations was 3.76%
at December 31, 2016 and 3.96% at December 31, 2015. The retirement benefit obligations are included in accrued expenses and deferred rent and other long-term liabilities.
The Company expects to recognize $104,000 of actuarial losses included in accumulated other comprehensive loss in net periodic benefit cost in 2017.
Expected benefit payments for each of the next five fiscal years and in the aggregate for the five fiscal years thereafter are as follows (in thousands):
|
|
|
|
|
Year ending December 31,
|
|
2017
|
|
$
|
312
|
|
2018
|
|
|
410
|
|
2019
|
|
|
397
|
|
2020
|
|
|
383
|
|
2021
|
|
|
381
|
|
2022 through 2026
|
|
|
1,991
|
|
F-36
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
Kitchen Craft pension plan
Kitchen Craft was the sponsor of a defined benefit pension plan (the Plan) for which service costs accrual ceased prior to its acquisition in
January 2014. In October 2014, the Plan trustees secured, in full, all benefits payable or contingently payable under the Plan (subject to adjustment as determined by the UK pension authority in connection with its approval of the Plans
termination) through the purchase of a group annuity contract from a major
UK-based
insurance company. The share purchase agreement, pursuant to which the Company acquired Kitchen Craft, provides that any
additional contributions required in connection with the settlement and termination of the Plan shall be offset by future amounts owed to the sellers or, if those amounts are insufficient, reimbursed to the Company by the sellers. Accordingly, there
was no impact to the Companys statement of operations in the years ended December 31, 2016 and 2015. The settlement and termination of the Plan occurred in 2015.
The following table summarizes the changes in the projected benefit obligations and plan assets for the year ended December 31, 2015:
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Change in projected benefit obligations
|
|
|
|
|
Projected benefit obligations, beginning of year
|
|
$
|
13,796
|
|
Interest cost
|
|
|
|
|
Actuarial (gain) loss
|
|
|
(2,492
|
)
|
Benefits paid
|
|
|
(58
|
)
|
Annuity purchase
|
|
|
(11,008
|
)
|
Currency adjustment
|
|
|
(238
|
)
|
|
|
|
|
|
Projected benefit obligations, end of year
|
|
$
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
15,533
|
|
Actual return on plan assets
|
|
|
(1,903
|
)
|
Employer (refund) contributions
|
|
|
(2,295
|
)
|
Benefits paid
|
|
|
(58
|
)
|
Annuity purchase
|
|
|
(11,008
|
)
|
Currency adjustment
|
|
|
(269
|
)
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
$
|
|
|
|
|
|
|
|
|
|
Net Plan funding, end of year
|
|
$
|
|
|
|
|
|
|
|
No periodic pension costs were incurred during the years ended December 31, 2016 and 2015. The following table summarizes
the components of net period pension costs for the year ended December 31, 2014 (in thousands).
|
|
|
|
|
Components of net periodic pension cost
|
|
|
|
|
Expected return on plan assets
|
|
$
|
(390
|
)
|
Interest cost on projected benefit obligations
|
|
|
364
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
(26
|
)
|
|
|
|
|
|
The accumulated benefit obligations at December 31, 2016 and 2015 were $0. The amount in accumulated other comprehensive
income at December 31, 2014 was $623,000.
F-37
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
NOTE N OTHER
Inventory
The components of inventory are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Finished goods
|
|
$
|
132,564
|
|
|
$
|
133,618
|
|
Work in process
|
|
|
1,521
|
|
|
|
1,754
|
|
Raw materials
|
|
|
1,127
|
|
|
|
1,518
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
135,212
|
|
|
$
|
136,890
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
Property and equipment consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Machinery, furniture and equipment
|
|
$
|
89,545
|
|
|
$
|
88,914
|
|
Leasehold improvements
|
|
|
30,019
|
|
|
|
28,989
|
|
Building and improvements
|
|
|
1,622
|
|
|
|
1,604
|
|
Construction in progress
|
|
|
2,639
|
|
|
|
1,543
|
|
Land
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,925
|
|
|
|
121,150
|
|
Less: accumulated depreciation and amortization
|
|
|
(102,794
|
)
|
|
|
(96,273
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,131
|
|
|
$
|
24,877
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense of property and equipment for the years ended December 31, 2016, 2015 and 2014 was
$8.0 million, $7.2 million and $7.7 million, respectively
.
In 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 year ended December 31, 2016 includes $1.2 million of additional depreciation expense to properly reflect the accumulated depreciation balance of these assets as of December 31, 2016.
Included in machinery, furniture and equipment at each of December 31, 2016 and 2015 is $2.2 million and $2.3 million, respectively, related to
assets recorded under capital leases. Included in accumulated depreciation and amortization at December 31, 2016 and 2015 is $2.0 million and $2.1 million, respectively, related to assets recorded under capital leases.
F-38
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
Accrued expenses
Accrued expenses consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Customer allowances and rebates
|
|
$
|
10,787
|
|
|
$
|
10,474
|
|
Compensation and benefits
|
|
|
13,616
|
|
|
|
10,762
|
|
Interest
|
|
|
185
|
|
|
|
241
|
|
Vendor invoices
|
|
|
5,415
|
|
|
|
4,424
|
|
Royalties
|
|
|
2,095
|
|
|
|
2,330
|
|
Commissions
|
|
|
947
|
|
|
|
989
|
|
Freight
|
|
|
1,684
|
|
|
|
1,360
|
|
Professional fees
|
|
|
1,464
|
|
|
|
860
|
|
VAT
|
|
|
648
|
|
|
|
1,312
|
|
Contingent consideration related to acquisitions
|
|
|
738
|
|
|
|
3,193
|
|
HSBC collection receipts
(1)
|
|
|
3,335
|
|
|
|
|
|
Other
|
|
|
4,298
|
|
|
|
4,209
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,212
|
|
|
$
|
40,154
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Collections received on behalf of HSBC in connection with the Receivable Purchase Agreement.
|
Deferred
rent & other long-term liabilities
Deferred rent & other long-term liabilities consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Deferred rent liability
|
|
$
|
12,213
|
|
|
$
|
10,450
|
|
Retirement benefit obligations
|
|
|
6,629
|
|
|
|
6,349
|
|
Contingent consideration related to acquisitions
|
|
|
|
|
|
|
892
|
|
Compensation
|
|
|
|
|
|
|
719
|
|
Capital lease obligations
|
|
|
128
|
|
|
|
121
|
|
Derivative liability
|
|
|
3
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,973
|
|
|
$
|
18,556
|
|
|
|
|
|
|
|
|
|
|
F-39
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
4,171
|
|
|
$
|
4,909
|
|
|
$
|
5,035
|
|
Cash paid for taxes
|
|
|
6,384
|
|
|
|
8,963
|
|
|
|
4,912
|
|
|
|
|
|
Non-cash
investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
$
|
(23,061
|
)
|
|
$
|
(5,281
|
)
|
|
$
|
(4,736
|
)
|
Components of accumulated other comprehensive loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
|
|
|
|
Accumulated translation adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(12,961
|
)
|
|
$
|
(7,680
|
)
|
|
$
|
(2,944
|
)
|
Translation adjustment during period
|
|
|
(23,061
|
)
|
|
|
(5,281
|
)
|
|
|
(4,736
|
)
|
Amounts reclassified from accumulated other comprehensive loss:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
(35,644
|
)
|
|
$
|
(12,961
|
)
|
|
$
|
(7,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated effect of retirement benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(1,204
|
)
|
|
$
|
(2,224
|
)
|
|
$
|
(745
|
)
|
Net gain (loss) arising from retirement benefit obligations, net of tax
|
|
|
(202
|
)
|
|
|
941
|
|
|
|
(1,507
|
)
|
Amounts reclassified from accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of loss, net of tax
(2)
|
|
|
54
|
|
|
|
79
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
(1,352
|
)
|
|
$
|
(1,204
|
)
|
|
$
|
(2,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deferred gains (losses) on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(20
|
)
|
|
$
|
(18
|
)
|
|
$
|
(31
|
)
|
Derivative fair value adjustment, net of tax
|
|
|
17
|
|
|
|
(2
|
)
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
(3)
|
|
$
|
(3
|
)
|
|
$
|
(20
|
)
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amount is recorded in equity in earnings (losses) on the consolidated statements of operations.
|
(2)
|
Amount is recorded in selling, general and administrative expenses on the consolidated statements of operations.
|
(3)
|
No amounts were reclassified out of accumulated other comprehensive loss. Amounts reclassified would be recorded in interest expense on the consolidated statements of operations.
|
F-40