NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
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, Fitz and Floyd, Housewares Deals and Lifetime Sterling 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
Foreign currency denominated 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 $3.0 million loss in 2017, $4.2 million
gain in 2016 and a $714,000 loss in 2015.
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 $2.3 million in 2017, $2.6 million in 2016 and $2.4 million in 2015. 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, 2017
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 $11.5 million, $11.0 million and $11.3 million for the years ended December 31, 2017, 2016 and 2015, 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 $3.4 million,
$3.7 million and $3.9 million for the years ended December 31, 2017, 2016 and 2015, 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 net realizable value. 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. Net realizable value is the estimated selling price in the ordinary course of business,
less reasonably predicable cost of completion, disposal and transportation.
F-9
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
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, 2017, 2016 and 2015,
Wal-Mart
Stores, Inc., including Sams Club and, in the United Kingdom, Asda Superstore, (Walmart), accounted for 15%, 16% and 16% of net
sales, respectively. 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 that 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 of a hedging relationship for accounting purposes have no net impact on earnings to the extent the derivative is
F-10
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
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, 2017
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. Forfeitures are accounted for as they occur.
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 of the Board of Directors. 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 at the end of a three year period, as determined by the Compensation Committee.
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.
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 2016, to reduce costs and achieve synergies, the
Company began the process of integrating its legal entities operating in Europe. During the 2017, the Company recorded $1.0 million of restructuring expense related to the execution of this plan, primarily related to severance. The Company does
not expect to incur additional restructuring charges in 2018 related to this integration; however additional restructuring charges may be incurred in the future as additional integration initiatives are undertaken.
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. The Company does not expect to incur additional charges related to the U.S. Wholesale restructuring plan.
F-12
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
As of December 31, 2017 and 2016, $0 and $525,000 was accrued related to severance and consulting
expenses from the restructuring plans.
Adopted Accounting Pronouncements
Effective January 1, 2017, the Company adopted Accounting Standard Update (ASU)
2016-09,
Improvements to Employee Share-Based Payment Accounting.
This standard requires, on a prospective basis, all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. The standard also allows
an employer to repurchase more of an employees shares than is currently allowed for tax withholding purposes without triggering liability accounting, and allows companies to make a policy election to account for forfeitures as they occur. In
connection with the adoption of this standard, the Company adopted a policy to account for forfeitures as they occur on a modified retrospective basis. The change in policy of accounting for forfeitures resulted in a $46,000 decrease to retained
earnings, net of tax, which the company recorded as of January 1, 2017. Upon adoption of ASU
2016-09,
on a prospective basis, excess tax benefits from share-based award activity will be presented as an
operating activity in the Companys statement of cash flow.
Effective January 1, 2017, the Company adopted 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. This adoption did not have a material impact on the Companys condensed consolidated financial statements.
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, which the Company did not elect, is
permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
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
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.
F-13
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
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 adopted the new guidance on January 1, 2018, using the modified retrospective transition method and applying this approach to those contracts
that were not completed as of that date. The Company completed its evaluation of customer agreements and changes to its controls to support recognition and disclosures under the new guidance. The Company does not expect the adoption of the standard
to have a material impact on its consolidated financial statements.
NOTE B ACQUISITIONS
Fitz and Floyd
On August 31, 2017, the Company
acquired the Fitz and Floyd business, including the trade names and related working capital, from Fitz and Floyd Enterprises, LLC (Fitz) for cash in the amount of $9.1 million. The purchase price was funded by borrowings under the
Companys revolving credit facility.
The assets and operating results of the Fitz and Floyd business are reflected in the Companys condensed
consolidated financial statements in accordance with ASC Topic No. 805,
Business Combinations
, commencing from the acquisition date. The condensed consolidated statement of operations for the year ended December 31, 2017 includes
$7.7 million of net sales attributable to the Fitz and Floyd brands.
The purchase price was allocated based on the Companys estimate of the
fair values of the assets acquired and liabilities assumed, as follows (in thousands):
|
|
|
|
|
|
|
Purchase Price
Allocation
|
|
Accounts Receivable
|
|
$
|
3,115
|
|
Inventory
|
|
|
5,424
|
|
Other assets
|
|
|
458
|
|
Other liabilities
|
|
|
(2,056
|
)
|
Goodwill and other intangibles
|
|
|
2,131
|
|
|
|
|
|
|
Total allocated value
|
|
$
|
9,072
|
|
|
|
|
|
|
On the basis of estimated fair values, the excess of the purchase price over the net assets acquired of $2.1 million has
been allocated as follows: $1.7 million for customer relationships and trade names and $0.4 million for goodwill. The goodwill recognized results from such factors as assembled workforce and the value of other synergies expected from
combining operations with the Company. All the goodwill and other intangibles are included in the U.S. Wholesale segment. Customer relationships and trade names are amortized on a straight-line basis over their estimated useful lives (see Note E).
F-14
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
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 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 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.
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, that 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 $90.2 million and $44.3 million of Receivables during the years ended December 31, 2017 and 2016, respectively. A charge of $328,000 and $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 years ended December 31, 2017 and 2016, respectively.
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, 2017, 2016 and 2015 in the accompanying consolidated statements of operations. The value of the
Companys investment balance has been translated from
F-15
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Mexican Pesos (MXN) to U.S. Dollars (USD) using the spot rate of MXN 19.68 and MXN 20.70 at December 31, 2017 and 2016, respectively. The Companys proportionate
share of Vasconias net income has been translated from MXN to USD using the average exchange rates of MXN 17.81 to 20.30, MXN 18.02 to 19.85 and MXN 14.94 to 16.76, during the years ended December 31, 2017, 2016 and 2015, respectively.
The effect of the translation of the Companys investment resulted in increase of the investment of $1.0 during the year ended December 31, 2017 and a decrease of the investment of $3.2 million and $4.9 million during the years
ended December 31, 2016 and 2015, respectively. These translation effects are recorded in accumulated other comprehensive loss. The Company received cash dividends of $28,000, $205,000 and $226,000, from Vasconia during the years ended
December 31, 2017, 2016 and 2015, respectively. Included in prepaid expenses and other current assets at December 31, 2017 and 2016 was $64,000 and $83,000 due from Vasconia. Included within accounts payable and accrued expenses at
December 31, 2017 and 2016 was $0 and $220,000 due to Vasconia.
Summarized income statement information for the years ended December 31, 2017,
2016 and 2015, as well as summarized balance sheet information as of December 31, 2017 and 2016, for Vasconia in USD and MXN is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Income Statement
|
|
USD
|
|
|
MXN
|
|
|
USD
|
|
|
MXN
|
|
|
USD
|
|
|
MXN
|
|
Net sales
|
|
$
|
167,283
|
|
|
$
|
3,157,671
|
|
|
$
|
149,533
|
|
|
$
|
2,795,009
|
|
|
$
|
178,832
|
|
|
$
|
2,824,399
|
|
Gross profit
|
|
|
34,626
|
|
|
|
655,186
|
|
|
|
27,205
|
|
|
|
510,617
|
|
|
|
33,982
|
|
|
|
534,285
|
|
Income from operations
|
|
|
10,475
|
|
|
|
199,170
|
|
|
|
5,611
|
|
|
|
105,334
|
|
|
|
10,551
|
|
|
|
165,507
|
|
Net income
|
|
|
1,164
|
|
|
|
23,983
|
|
|
|
3,491
|
|
|
|
68,230
|
|
|
|
7,353
|
|
|
|
117,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Balance Sheet
|
|
USD
|
|
|
MXN
|
|
|
USD
|
|
|
MXN
|
|
Current assets
|
|
$
|
91,157
|
|
|
$
|
1,793,832
|
|
|
$
|
81,509
|
|
|
$
|
1,687,396
|
|
Non-current
assets
|
|
|
87,900
|
|
|
|
1,729,745
|
|
|
|
83,890
|
|
|
|
1,736,681
|
|
Current liabilities
|
|
|
50,766
|
|
|
|
998,993
|
|
|
|
31,303
|
|
|
|
648,028
|
|
Non-current
liabilities
|
|
|
39,147
|
|
|
|
770,352
|
|
|
|
49,408
|
|
|
|
1,022,842
|
|
The Company recorded equity in earnings of Vasconia, net of taxes, of $0.4 million, $0.6 million and
$0.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. Equity in earnings in 2017, 2016 and 2015 includes deferred tax benefit (expense) of $0.2 million, ($0.5) million and ($1.3) 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, 2017, the fair value (based upon the quoted stock price) of the Companys investment in Vasconia was $31.8 million. The
carrying value of the Companys investment in Vasconia was $23.8 million.
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. 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.
F-16
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
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 $8,000, $11,000 and $20,000 for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017 and 2016, the carrying value of the Companys investment in Grand Venture was $228,000 and $256,000,
respectively.
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,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Goodwill
|
|
$
|
15,772
|
|
|
$
|
|
|
|
$
|
15,772
|
|
|
$
|
14,201
|
|
|
$
|
|
|
|
$
|
14,201
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
7,616
|
|
|
|
|
|
|
|
7,616
|
|
|
|
7,616
|
|
|
|
|
|
|
|
7,616
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
15,847
|
|
|
|
(9,375
|
)
|
|
|
6,472
|
|
|
|
15,847
|
|
|
|
(8,919
|
)
|
|
|
6,928
|
|
Trade names
|
|
|
33,368
|
|
|
|
(11,109
|
)
|
|
|
22,259
|
|
|
|
31,150
|
|
|
|
(8,286
|
)
|
|
|
22,864
|
|
Customer relationships
|
|
|
52,961
|
|
|
|
(16,966
|
)
|
|
|
35,995
|
|
|
|
49,372
|
|
|
|
(12,188
|
)
|
|
|
37,184
|
|
Other
|
|
|
1,165
|
|
|
|
(800
|
)
|
|
|
365
|
|
|
|
1,266
|
|
|
|
(840
|
)
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
126,729
|
|
|
$
|
(38,250
|
)
|
|
$
|
88,479
|
|
|
$
|
119,452
|
|
|
$
|
(30,233
|
)
|
|
$
|
89,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the activities related to the Companys intangible assets for the years ended December 31, 2017, 2016
and 2015 consists of the following (in thousands):
F-17
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets
|
|
|
Goodwill
|
|
|
Total Intangible
Assets and
Goodwill
|
|
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
|
|
Acquisition of goodwill
|
|
|
|
|
|
|
434
|
|
|
|
434
|
|
Acquisition of trade names
|
|
|
1,134
|
|
|
|
|
|
|
|
1,134
|
|
Acquisition of customer relationships
|
|
|
563
|
|
|
|
|
|
|
|
563
|
|
Foreign currency translation adjustment
|
|
|
2,823
|
|
|
|
1,137
|
|
|
|
3,960
|
|
Amortization
|
|
|
(6,831
|
)
|
|
|
|
|
|
|
(6,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and Intangible Assets, December 31, 2017
|
|
$
|
72,707
|
|
|
$
|
15,772
|
|
|
$
|
88,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average amortization periods for the Companys finite-lived intangible assets as of December 31, 2017
are as follows:
|
|
|
|
|
|
|
Years
|
|
Trade names
|
|
|
14
|
|
Licenses
|
|
|
33
|
|
Customer relationships
|
|
|
13
|
|
Other
|
|
|
12
|
|
Estimated amortization expense for each of the five succeeding fiscal years is as follows (in thousands):
|
|
|
|
|
Year ending December 31,
|
|
|
|
2018
|
|
$
|
7,096
|
|
2019
|
|
|
7,096
|
|
2020
|
|
|
7,081
|
|
2021
|
|
|
6,604
|
|
2022
|
|
|
6,604
|
|
Amortization expense for the years ended December 31, 2017, 2016 and 2015 was $6.8 million, $6.2 million and
$7.0 million, respectively.
Annual indefinite-lived trade name impairment test
In 2017, 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
16.9-17.7%
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 fair values of the trade names exceeded their carrying values as of October 1,
2017.
F-18
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
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.
Annual
goodwill impairment test
The Company bypassed the optional qualitative impairment analysis for its three reporting units with goodwill for its
October 1, 2017 impairment test. Accordingly, the first step of the two step goodwill impairment test, as described above, was performed. Under the first step, the estimated fair value of each of the reporting units was determined using the
income approach and market approach. 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. Under the income approach, the resultant estimated fair
value of the three reporting units exceeded their carrying value as of October 1, 2017.
As of October 1, 2016, the fair value of the Creative
Tops reporting unit, which carried goodwill of $2.1 million, was approximately 3% below its carrying value. In 2016 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. Also, as of October 1, 2016, 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.
As of October 1, 2017, the fair
values of the Creative Tops and Kitchen Craft reporting units both exceeded their respective carrying values. Managements projections used to estimate the cash flows included increasing net sales and operational improvements designed to reduce
costs at the Companys international reporting units. The excess fair value calculated in 2017 was driven by realized cost savings and, to a larger extent, future cost savings from the combination of the operations expected to be completed in
the near term. The planned cost savings are in line with that of a market participant. Changes in any of the significant assumptions used in the valuation of the Companys reporting units can materially affect the 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, 2017, the Company
assessed the carrying value of goodwill and determined based on qualitative factors, no impairment existed.
F-19
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
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, 2017
and 2016, under the Revolving Credit Facility, borrowings outstanding were $94.7 million and $86.2 million, respectively. At December 31, 2017 and 2016, open letters of credit were $3.2 million and $2.4 million, respectively
and availability under the Revolving Credit Facility was approximately $58.0 million and $76.5 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, 2017 and 2016, $0 and
$9.5 million, respectively, was outstanding under the Term Loan and unamortized debt issuance costs were $0 and $157,000, respectively. In April 2017, the Company repaid the $7.0 million outstanding balance under the Term Loan. In
connection therewith, the Company
wrote-off
debt issuance costs of $0.1 million. In April 2016, the Company made a prepayment of $15.2 million in accordance with the amended terms. In connection
therewith, the Company
wrote-off
debt issuance costs of $0.3 million.
Interest rates on outstanding
borrowings at December 31, 2017 ranged from 2.5% to 5.5%. 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.
F-20
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Pursuant to the Credit Agreement, as of December 31, 2017 the maximum additional permitted
indebtedness other than certain subordinated indebtedness was $58.0 million. The Company was in compliance with the financial covenants of the Credit Agreement at December 31, 2017.
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 ($2.8 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, 2017 and 2016, RMB 0.5 million ($69,000) and RMB 0.8 million ($113,000),
respectively, was outstanding under the HSBC Facility. Outstanding borrowings at December 31, 2017 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 $5.3 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, 2017 was $34.9 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.
The fair values of the Companys derivative financial instruments included in the consolidated balance sheets are presented as follows (in thousands):
F-21
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Derivatives designated as hedging instruments
|
|
Balance Sheet Location
|
|
2017
|
|
|
2016
|
|
|
|
|
|
Interest rate swaps
|
|
Prepaid expenses
|
|
$
|
11
|
|
|
$
|
|
|
|
|
Accrued expenses
|
|
|
|
|
|
|
4
|
|
|
|
Deferred rent &
other long-term
liabilities
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
December 31,
|
|
Derivatives not designated as hedging instruments
|
|
Balance Sheet Location
|
|
2017
|
|
|
2016
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses
and other current
assets
|
|
$
|
|
|
|
$
|
924
|
|
|
|
|
|
|
|
Accrued Expenses
|
|
|
1,951
|
|
|
|
|
|
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 income (loss) as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
Derivatives designated as hedging instruments
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
17
|
|
|
$
|
17
|
|
|
$
|
(2
|
)
|
As of December 31, 2017, no amounts recorded in accumulated other comprehensive loss were expected to be reclassified to
interest expense in the next twelve months, however; in connection with the financing transaction described in Note O, the Company determined it is probable that the hedged forecast transaction will not occur and the net gain reported in accumulated
other comprehensive income related to the interest rate swap will be reclassified into interest expense.
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,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Selling,
general and
administrative
expense
|
|
$
|
(2,592
|
)
|
|
$
|
2,182
|
|
|
$
|
272
|
|
F-22
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
NOTE H CAPITAL STOCK
Cash dividends
Dividends were declared in 2017 and 2016
as follows:
|
|
|
|
|
|
|
Dividend per share
|
|
Date declared
|
|
Date of record
|
|
Payment date
|
$0.0425
|
|
March 3, 2016
|
|
May 2, 2016
|
|
May 16, 2016
|
$0.0425
|
|
June 9, 2016
|
|
August 1, 2016
|
|
August 15, 2016
|
$0.0425
|
|
August 4, 2016
|
|
November 1, 2016
|
|
November 15, 2016
|
$0.0425
|
|
November 3, 2016
|
|
February 1, 2017
|
|
February 15, 2017
|
$0.0425
|
|
March 8, 2017
|
|
May 1, 2017
|
|
May 15, 2017
|
$0.0425
|
|
June 22, 2017
|
|
August 1, 2017
|
|
August 15, 2017
|
$0.0425
|
|
August 4, 2017
|
|
November 1, 2017
|
|
November 15, 2017
|
$0.0425
|
|
November 7, 2017
|
|
February 1, 2018
|
|
February 15, 2018
|
On March 8, 2018, the Board of Directors declared a quarterly dividend of $0.0425 per share payable on May 15, 2018
to shareholders of record on May 1, 2018.
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, 2017, 2016 and 2015.
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, 2017.
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 5,287,500 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 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 four 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. In June 2017, the shareholders of the Company approved an amendment to the Companys Plan to revise the terms and conditions of Plan to increase the shares
available for grant under the plan by 437,500 shares and include and clarify several features that promote good governance. As of December 31, 2017, there were 619,369 shares available for the grant of awards.
F-23
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Stock options
A summary of the Companys stock option activity and related information for the three years ended December 31, 2017, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted-
average
exercise
price
|
|
|
Weighted-
average
remaining
contractual
life (years)
|
|
|
Aggregate
intrinsic
value
|
|
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
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
125,750
|
|
|
|
17.38
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
(300,000
|
)
|
|
|
11.34
|
|
|
|
|
|
|
|
|
|
Cancellations
|
|
|
(45,700
|
)
|
|
|
16.40
|
|
|
|
|
|
|
|
|
|
Expirations
|
|
|
(99,250
|
)
|
|
|
20.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2017
|
|
|
1,456,200
|
|
|
|
13.64
|
|
|
|
4.6
|
|
|
$
|
5,019,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2017
|
|
|
1,250,673
|
|
|
$
|
13.05
|
|
|
|
4.0
|
|
|
$
|
4,923,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017. 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, 2017
and the exercise price.
The total intrinsic values of those stock options that were exercised in the years ended December 31, 2017, 2016 and 2015
were $2,071,000, $1,848,000 and $639,000, 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, 2017, before the effect of income taxes, was $1.0 million and is expected to be
recognized over a weighted-average period of 2.1 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,
2017, 2016, and 2015 was $6.37, $5.43 and $4.68, respectively.
The fair values for these stock options were estimated at the dates of grant using the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Historical volatility
|
|
|
39
|
%
|
|
|
39
|
%
|
|
|
39
|
%
|
Expected term (years)
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
5.2
|
|
Risk-free interest rate
|
|
|
1.97
|
%
|
|
|
1.37
|
%
|
|
|
1.67
|
%
|
Expected dividend yield
|
|
|
0.98
|
%
|
|
|
1.10
|
%
|
|
|
1.18
|
%
|
F-24
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Restricted Stock
A summary of the Companys restricted stock activity and related information for the three years ended December 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Restricted
Shares
|
|
|
Weighted-
average
grant date
fair value
|
|
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
|
|
Grants
|
|
|
133,352
|
|
|
|
18.32
|
|
Vested
|
|
|
(69,795
|
)
|
|
|
15.39
|
|
Cancellations
|
|
|
(6,064
|
)
|
|
|
16.07
|
|
|
|
|
|
|
|
|
|
|
Non-vested
restricted shares, December 31,
2017
|
|
|
219,317
|
|
|
$
|
17.12
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation expense remaining
|
|
$
|
2,932,000
|
|
|
|
|
|
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, 2017 was $1.3 million.
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 of the Board of Directors. The shares are subject to the terms and conditions of the Plan.
F-25
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
A summary of the Companys performance-based award activity and related information for the three years
ended December 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Grants
|
|
|
87,000
|
|
|
|
18.45
|
|
Cancellations
|
|
|
(4,070
|
)
|
|
|
16.52
|
|
|
|
|
|
|
|
|
|
|
Non-vested
performance-based awards, December 31,
2017
|
|
|
228,892
|
|
|
$
|
16.49
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation expense remaining
|
|
$
|
1,727,000
|
|
|
|
|
|
Weighted-average years expected to be recognized over
|
|
|
1.7
|
|
|
|
|
|
(1)
|
Represents the target number of shares to be issued for each performance-based award.
|
On March 7, 2018, the Compensation Committee of the Board of Directors determined the performance goals set forth in the performance-based awards granted
in 2015 were attained and 58,888 shares vested.
The Company recognized total stock compensation expense of $3.4 million for the year ended
December 31, 2017, of which $1.1 million represents stock option compensation expense and $2.3 million represents restricted stock and performance based compensation expense. 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.
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, 2017, 2016 and 2015, are as follows:
F-26
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands - except per share amounts)
|
|
Net income Basic and Diluted
|
|
$
|
2,154
|
|
|
$
|
15,720
|
|
|
$
|
12,278
|
|
Weighted-average shares outstanding Basic
|
|
|
14,505
|
|
|
|
14,174
|
|
|
|
13,850
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and other stock awards
|
|
|
450
|
|
|
|
375
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding Diluted
|
|
|
14,955
|
|
|
|
14,549
|
|
|
|
14,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share
|
|
$
|
0.15
|
|
|
$
|
1.11
|
|
|
$
|
0.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share
|
|
$
|
0.14
|
|
|
$
|
1.08
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The computations of diluted income per common share for the years ended December 31, 2017, 2016 and 2015 excludes
1,190,261, 1,335,113 and 1,467,857, respectively, related to options to purchase shares and other stock awards. 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,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Domestic
|
|
$
|
17,728
|
|
|
$
|
22,114
|
|
|
$
|
22,096
|
|
Foreign
|
|
|
(6,949
|
)
|
|
|
(112
|
)
|
|
|
(3,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income before income taxes and equity in earnings
|
|
$
|
10,779
|
|
|
$
|
22,002
|
|
|
$
|
18,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes (before equity in earnings) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
7,041
|
|
|
$
|
8,000
|
|
|
$
|
5,584
|
|
State and local
|
|
|
957
|
|
|
|
498
|
|
|
|
1,879
|
|
Foreign
|
|
|
4
|
|
|
|
483
|
|
|
|
604
|
|
Deferred
|
|
|
1,030
|
|
|
|
(1,951
|
)
|
|
|
(1,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
9,032
|
|
|
$
|
7,030
|
|
|
$
|
6,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 22, 2017, the legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Act) was
enacted. The Tax Act revises the U.S. corporate income tax by, among other things, lowering the corporate income tax rate from 35% to 21%, adopting a quasi-territorial income tax system and imposing a
one-time
transition tax on foreign unremitted earnings, and setting limitations on deductibility of certain costs (e.g., interest expense).
F-27
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Due to the complexities involved in the accounting for the Tax Act, on December, 22, 2017, the Securities and
Exchange Commissions Staff Accounting Bulletin (SAB) 118 was issued to provide guidance to companies that have not yet completed their accounting for the Tax Act in the period of enactment. SAB 118 provides that the Company include
in its financial statements a reasonable estimate of the impact of the Tax Act on earnings to the extent such estimate has been determined. Accordingly, the U.S. provision for income tax for 2017 is based on the reasonable estimate guidance provided
by SAB 118.
For the year ended December 31, 2017, the Company accrued $338,000 of tax expense for the Tax Acts
one-time
transition tax on the Companys material wholly owned foreign subsidiaries accumulated, unremitted earnings. A reasonable estimate cannot yet be made for the impact of the
one-time
transition tax on the Companys equity investment in Grupo Vasconia due to the complexity of calculating accumulated foreign earnings and profits, foreign tax paid, and other tax components involved in
foreign tax credit calculations for prior years going back to 1986, including years prior to the Companys acquisition of its equity interest.
For
the year ended December 31, 2017, the Company accrued $3.0 million in provisional expense related to the net change in deferred tax assets stemming from the Tax Acts reduction of the U.S. federal tax rate from 35% to 21%.
The Tax Act also includes a provision to tax global intangible
low-taxed
income (GILTI) of foreign
subsidiaries and a base erosion anti-abuse tax (BEAT) that taxes certain payments between a U.S. corporation and its subsidiaries. The Company continues to analyze whether it will be subject to the GILTI and BEAT provisions effective
beginning January 1, 2018.
Pursuant to the SAB 118, the Company is allowed a measurement period of up to one year after the enactment date of the
Tax Act to finalize the recording of the related tax impacts. The Company will continue to calculate the impact of the U.S. Tax Act and will record any resulting tax adjustments during 2018.
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,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Deferred rent expense
|
|
$
|
2,212
|
|
|
$
|
3,706
|
|
Stock options
|
|
|
2,903
|
|
|
|
4,593
|
|
Inventory
|
|
|
970
|
|
|
|
1,190
|
|
Operating loss carry-forward
|
|
|
4,114
|
|
|
|
2,568
|
|
Accounts receivable allowances
|
|
|
264
|
|
|
|
463
|
|
Accrued compensation
|
|
|
623
|
|
|
|
944
|
|
Depreciation and amortization
|
|
|
247
|
|
|
|
|
|
Other
|
|
|
1,882
|
|
|
|
2,784
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
$
|
13,215
|
|
|
$
|
16,248
|
|
|
|
|
|
|
|
|
|
|
F-28
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Significant components of the Companys net deferred income tax asset (liability) are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
|
|
|
$
|
(1,268
|
)
|
Intangibles
|
|
|
(8,732
|
)
|
|
|
(9,815
|
)
|
Equity in earnings
|
|
|
(56
|
)
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
(8,788
|
)
|
|
|
(11,059
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
|
4,427
|
|
|
|
5,189
|
|
Valuation allowance
|
|
|
(3,024
|
)
|
|
|
(2,396
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
1,403
|
|
|
$
|
2,793
|
|
|
|
|
|
|
|
|
|
|
The Company has generated various state net operating loss carryforwards of which, $13.0 million remained at
December 31, 2017 that begin to expire in 2026 .The Company has net operating losses in foreign jurisdictions of $10.6 million at December 31, 2017 that begin to expire in 2020.
The valuation allowance as of December 31, 2017 increased from the prior year primarily due to foreign net operating losses that the Company does not
believe will more likely than not be realized.
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,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
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
|
|
|
5.9
|
|
|
|
3.6
|
|
|
|
5.3
|
|
Foreign rate differences
|
|
|
8.0
|
|
|
|
(7.9
|
)
|
|
|
(8.6
|
)
|
Non-deductible
expenses
|
|
|
3.7
|
|
|
|
3.4
|
|
|
|
5.5
|
|
Tax
Act-
revaluation of net deferred tax assets
|
|
|
27.7
|
|
|
|
|
|
|
|
|
|
Tax
Act-
transition tax
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
0.4
|
|
|
|
(2.1
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
83.8
|
%
|
|
|
32.0
|
%
|
|
|
36.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated values of the Companys gross uncertain tax positions at December 31, 2017, 2016, and 2015 are
liabilities of $161,000, $109,000 and $157,000, respectively, and consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(in thousands)
|
|
Balance at January 1
|
|
$
|
(109
|
)
|
|
$
|
(157
|
)
|
|
$
|
(572
|
)
|
Additions based on tax positions related to the current year
|
|
|
(82
|
)
|
|
|
|
|
|
|
(15
|
)
|
Reduction for tax positions of prior years
|
|
|
30
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
48
|
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
(161
|
)
|
|
$
|
(109
|
)
|
|
$
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
The Company had approximately $24,000 and $29,000, net of federal and state tax benefit, accrued at
December 31, 2017 and 2016, 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 $182,000, 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 $32,000 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, Georgia, Illinois, New York, New Jersey and the United Kingdom. At December 31, 2017, the periods subject to
examination by the Companys major state jurisdictions are generally for the years ended 2013 through 2016.
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, Fred
and Friends, Built NY, Fitz and Floyd, Housewares Deals 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, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
|
|
$
|
462,588
|
|
|
$
|
470,981
|
|
|
$
|
458,593
|
|
International
|
|
|
97,757
|
|
|
|
101,070
|
|
|
|
108,000
|
|
Retail Direct
|
|
|
19,131
|
|
|
|
20,568
|
|
|
|
21,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
579,476
|
|
|
$
|
592,619
|
|
|
$
|
587,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
(1)
|
|
$
|
39,764
|
|
|
$
|
39,745
|
|
|
$
|
41,343
|
|
International
(2)
|
|
|
(6,984
|
)
|
|
|
3,052
|
|
|
|
(1,600
|
)
|
Retail Direct
|
|
|
(423
|
)
|
|
|
770
|
|
|
|
(596
|
)
|
Unallocated corporate expenses
|
|
|
(17,177
|
)
|
|
|
(16,490
|
)
|
|
|
(14,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from operations
|
|
$
|
15,180
|
|
|
$
|
27,077
|
|
|
$
|
24,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
(3)
|
|
$
|
9,851
|
|
|
$
|
10,095
|
|
|
$
|
8,784
|
|
International
|
|
|
4,185
|
|
|
|
3,917
|
|
|
|
5,272
|
|
Retail Direct
|
|
|
153
|
|
|
|
136
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
14,189
|
|
|
$
|
14,148
|
|
|
$
|
14,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Wholesale
|
|
$
|
3,899
|
|
|
$
|
2,767
|
|
|
$
|
4,087
|
|
International
|
|
|
2,135
|
|
|
|
424
|
|
|
|
1,004
|
|
Retail Direct
|
|
|
277
|
|
|
|
189
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
6,311
|
|
|
$
|
3,380
|
|
|
$
|
5,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
(2)
|
2017 income from operations for the International segment includes $1.0 million of restructuring expenses related to the integration of entities in Europe. 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, 2017
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
U.S. Wholesale
|
|
$
|
281,398
|
|
|
$
|
287,313
|
|
International
|
|
|
105,984
|
|
|
|
95,698
|
|
Retail Direct
|
|
|
613
|
|
|
|
501
|
|
Unallocated/ corporate/ other
|
|
|
13,526
|
|
|
|
16,342
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
401,521
|
|
|
$
|
399,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
U.S. Wholesale
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,412
|
|
|
$
|
2,412
|
|
Acquisition activity
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
2,846
|
|
|
|
2,412
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
11,789
|
|
|
|
15,689
|
|
Foreign currency translation adjustment
|
|
|
1,137
|
|
|
|
(3,900
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
12,926
|
|
|
|
11,789
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
(1)
|
|
$
|
15,772
|
|
|
$
|
14,201
|
|
|
|
|
|
|
|
|
|
|
(1)
|
No goodwill is allocated to the Companys Retail Direct reportable segment.
|
F-32
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Geographical information
The following table sets forth net sales and long-lived assets by the major geographic locations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
460,788
|
|
|
$
|
472,962
|
|
|
$
|
462,234
|
|
United Kingdom
|
|
|
74,834
|
|
|
|
74,991
|
|
|
|
81,347
|
|
Rest of World
|
|
|
43,854
|
|
|
|
44,666
|
|
|
|
44,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
579,476
|
|
|
$
|
592,619
|
|
|
$
|
587,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Long-lived assets, excluding intangible assets, at
period-end:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
45,285
|
|
|
$
|
43,431
|
|
United Kingdom
|
|
|
2,779
|
|
|
|
1,186
|
|
Rest of World
|
|
|
729
|
|
|
|
1,112
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
48,793
|
|
|
$
|
45,729
|
|
|
|
|
|
|
|
|
|
|
Product category information net sales
The following table sets forth net sales by major product categories included within the Companys U.S. Wholesale operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Category:
|
|
(in thousands)
|
|
Kitchenware
|
|
$
|
276,574
|
|
|
$
|
286,815
|
|
|
$
|
295,592
|
|
Tableware
|
|
|
134,034
|
|
|
|
135,901
|
|
|
|
125,445
|
|
Home Solutions
|
|
|
51,980
|
|
|
|
48,265
|
|
|
|
37,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
462,588
|
|
|
$
|
470,981
|
|
|
$
|
458,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
The following table sets forth net sales by major product categories included within the Companys
International operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Category:
|
|
|
|
|
Kitchenware
|
|
$
|
59,686
|
|
|
$
|
59,742
|
|
|
$
|
61,291
|
|
Tableware
|
|
|
38,071
|
|
|
|
41,328
|
|
|
|
46,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
97,757
|
|
|
$
|
101,070
|
|
|
$
|
108,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
2018
|
|
$
|
16,800
|
|
2019
|
|
|
14,866
|
|
2020
|
|
|
14,038
|
|
2021
|
|
|
13,055
|
|
2022
|
|
|
13,481
|
|
Thereafter
|
|
|
76,538
|
|
|
|
|
|
|
Total
|
|
$
|
148,778
|
|
|
|
|
|
|
Rent and related expenses under operating leases were $16.8 million, $16.6 million and $17.4 million for the
years ended December 31, 2017, 2016 and 2015, respectively.
The Company leases one property from the trustees of an active retirement benefit plan
in which former employees of the Company participate. Total lease payments made to this related party in 2017 was $412,000. The lease agreement expires in 2020.
F-34
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
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,
|
|
2018
|
|
$
|
6,047
|
|
2019
|
|
|
292
|
|
2020
|
|
|
218
|
|
2021
|
|
|
222
|
|
2022
|
|
|
226
|
|
Thereafter
|
|
|
156
|
|
|
|
|
|
|
Total
|
|
$
|
7,161
|
|
|
|
|
|
|
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 the EPAs access request, provided that the EPA receives PRIDCOs consent, as the property 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.
F-35
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
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 2017. The
Company suspended its matching contribution in 2009 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 $7.3 million at December 31, 2017
and $6.9 million at December 31, 2016.
The discount rate used to calculate the retirement benefit obligations was 3.33% at December 31,
2017 and 3.76% at December 31, 2016. The retirement benefit obligations are included in accrued expenses and deferred rent and other long-term liabilities.
The Company expects to recognize $119,000 of actuarial losses included in accumulated other comprehensive loss in net periodic benefit cost in 2018.
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,
|
|
2018
|
|
$
|
422
|
|
2019
|
|
|
407
|
|
2020
|
|
|
392
|
|
2021
|
|
|
393
|
|
2022
|
|
|
435
|
|
2023 through 2027
|
|
|
1,944
|
|
F-36
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
NOTE N OTHER
Inventory
The components of inventory are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Finished goods
|
|
$
|
129,611
|
|
|
$
|
132,564
|
|
Work in process
|
|
|
1,548
|
|
|
|
1,521
|
|
Raw materials
|
|
|
1,277
|
|
|
|
1,127
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
132,436
|
|
|
$
|
135,212
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
Property and equipment consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Machinery, furniture and equipment
|
|
$
|
91,282
|
|
|
$
|
89,545
|
|
Leasehold improvements
|
|
|
32,591
|
|
|
|
30,019
|
|
Building and improvements
|
|
|
787
|
|
|
|
1,622
|
|
Construction in progress
|
|
|
3,122
|
|
|
|
2,639
|
|
Land
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,882
|
|
|
|
123,925
|
|
Less: accumulated depreciation and amortization
|
|
|
(104,817
|
)
|
|
|
(102,794
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,065
|
|
|
$
|
21,131
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense of property and equipment for the years ended December 31, 2017, 2016, and 2015 was
$6.6 million, $8.0 million and $7.2 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, 2017 and 2016 is $2.0 million and $2.2 million, respectively, related to
assets recorded under capital leases. Included in accumulated depreciation and amortization at December 31, 2017 and December 31, 2016 is $1.9 million and $2.0 million, respectively, related to assets recorded under capital
leases.
F-37
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Accrued expenses
Accrued expenses consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Customer allowances and rebates
|
|
$
|
11,662
|
|
|
$
|
10,787
|
|
Compensation and benefits
|
|
|
9,613
|
|
|
|
13,616
|
|
Interest
|
|
|
191
|
|
|
|
185
|
|
Vendor invoices
|
|
|
4,027
|
|
|
|
5,415
|
|
Royalties
|
|
|
1,744
|
|
|
|
2,095
|
|
Commissions
|
|
|
786
|
|
|
|
947
|
|
Freight
|
|
|
4,002
|
|
|
|
1,684
|
|
Professional fees
|
|
|
3,160
|
|
|
|
1,464
|
|
VAT
|
|
|
1,176
|
|
|
|
648
|
|
Contingent consideration related to acquisitions
|
|
|
|
|
|
|
738
|
|
HSBC collection receipts
(1)
|
|
|
|
|
|
|
3,335
|
|
Foreign exchange contracts
|
|
|
1,951
|
|
|
|
|
|
Other
|
|
|
5,809
|
|
|
|
4,298
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,121
|
|
|
$
|
45,212
|
|
|
|
|
|
|
|
|
|
|
|
(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,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Deferred rent liability
|
|
$
|
13,399
|
|
|
$
|
12,213
|
|
Retirement benefit obligations
|
|
|
6,829
|
|
|
|
6,629
|
|
Capital lease obligations
|
|
|
21
|
|
|
|
128
|
|
Derivative liability
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,249
|
|
|
$
|
18,973
|
|
|
|
|
|
|
|
|
|
|
F-38
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
3,791
|
|
|
$
|
4,171
|
|
|
$
|
4,909
|
|
Cash paid for taxes
|
|
|
12,936
|
|
|
|
6,384
|
|
|
|
8,963
|
|
|
|
|
|
Non-cash
investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
$
|
7,823
|
|
|
$
|
(23,061
|
)
|
|
$
|
(5,281
|
)
|
Components of accumulated other comprehensive loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
Accumulated translation adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(35,644
|
)
|
|
$
|
(12,961
|
)
|
|
$
|
(7,680
|
)
|
Translation adjustment during period
|
|
|
7,823
|
|
|
|
(23,061
|
)
|
|
|
(5,281
|
)
|
Amounts reclassified from accumulated other comprehensive loss:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
(27,821
|
)
|
|
$
|
(35,644
|
)
|
|
$
|
(12,961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deferred gains (losses) on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(3
|
)
|
|
$
|
(20
|
)
|
|
$
|
(18
|
)
|
Derivative fair value adjustment, net of tax
|
|
|
17
|
|
|
|
17
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
(2)
|
|
$
|
14
|
|
|
$
|
(3
|
)
|
|
$
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated effect of retirement benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(1,352
|
)
|
|
$
|
(1,204
|
)
|
|
$
|
(2,224
|
)
|
Net gain (loss) arising from retirement benefit obligations, net of tax
|
|
|
(228
|
)
|
|
|
(202
|
)
|
|
|
941
|
|
Amounts reclassified from accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of loss, net of tax
(3)
|
|
|
62
|
|
|
|
54
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
(1,518
|
)
|
|
$
|
(1,352
|
)
|
|
$
|
(1,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amount is recorded in equity in earnings (losses) on the consolidated statements of operations.
|
(2)
|
No amounts were reclassified out of accumulated other comprehensive loss. Amounts reclassified would be recorded in interest expense on the consolidated statements of operations.
|
(3)
|
Amount is recorded in selling, general and administrative expenses on the consolidated statements of operations.
|
F-39
LIFETIME BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
NOTE O Taylor Acquisition
On December 22, 2017, the Company entered into an Agreement providing for the acquisition of Taylor Holdco LLC, (Taylor) by the Company. At a
special meeting of shareholders held on February 28, 2018, stockholders approved the issuance of shares pursuant to the Agreement and the acquisition was completed on March 2, 2018.
The aggregate consideration for Taylor is approximately $297.3 million, $220.4 million of cash consideration and approximately 5.6 million
newly issued shares of the Companys common stock, with a value equal to $76.9 million, based on the market value of the Companys common stock as of March 2, 2018. The estimated cash portion of the consideration is subject to
adjustments as defined in the Agreement.
The acquisition will be accounted for as a business combination using the acquisition method of accounting in
accordance with FASB ASC Topic 805, which will establish a new basis of accounting for all identifiable assets acquired and liabilities assumed at fair value as of the date control is obtained.
In connection with the Companys acquisition of Taylor, on March 2, 2018 (1) the Company entered into a new credit agreement with JPMorgan Chase
Bank, N.A. (JPMorgan), as administrative agent, and the lenders and issuing banks party thereto, in the maximum aggregate principal amount of $150.0 million, which facility will mature on March 2, 2023, and (2) the Company
entered into a new loan agreement, the TLB Credit Agreement, with the Company, as the borrower and a guarantor, the other guarantors, JPMorgan, as administrative agent, Golub Capital LLC, as syndication agent, and the lenders party
thereto, providing for a senior secured term loan credit facility to the Company in the principal amount of $275.0 million, which will mature on February 28, 2025. The term loan facility will be repaid, commencing June 30, 2018, in
quarterly payments of principal equal to 0.25% of the original aggregate principal amount of the term loan facility. The maximum borrowing under the ABL Credit Agreement may be increased to up to $200.0 million, if certain conditions are met.
One or more tranches of additional term loans (the Incremental Facilities) may be added under the TLB Credit Agreement if certain conditions are met. The Incremental Facilities may not exceed the sum of (i) $50.0 million plus
(ii) an unlimited amount so long as, in the case of (ii) only, the Companys secured net leverage ratio, as defined in and computed pursuant to the TLB Credit Agreement, is no greater than 3.75 to 1.00 subject to certain limitations
and for the period defined pursuant to the TLB Credit Agreement.
The Company utilized the proceeds of borrowings under the revolving credit facility and
the proceeds of the term loan (i) to repay in full all existing indebtedness for borrowed money under its former Credit Agreement and (ii) to finance the acquisition of Taylor, the refinancing of certain indebtedness of Taylor and its
subsidiaries, and the payment of fees and expenses in connection with the foregoing.
F-40