21

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LIQUIDITY AND CAPITAL RESOURCES

The Company’s principal sources of cash to fund liquidity needs are: (i) cash provided by operating activities and (ii) borrowings available under the Credit Facility.  The Company’s primary uses of funds consist of working capital requirements, capital expenditures and payment of principal and interest on its debt.

At December 31, 2009, the Company had cash and cash equivalents of $682,000 compared to $3.5 million at December 31, 2008, working capital was $96.6 million at December 31, 2009 compared to $82.7 million at December 31, 2008 and the current ratio was 2.25 to 1 at December 31, 2009 compared to 1.55 to 1 at December 31, 2008.

Borrowings under the Company’s Credit Facility decreased to $24.6 million at December 31, 2009 compared to $89.3 million at December 31, 2008.  The decrease was primarily attributable to an increase in cash from operations that was used to pay down the amounts outstanding under the Credit Facility due to the Company’s inventory reduction efforts, receipt of an income tax refund, reduction of discretionary expenses and other expense reduction efforts.

The Company believes that availability under the Credit Facility and cash flows from operations is sufficient to fund the Company’s operations.  However, due to the tightening of the credit markets, the Company believes that if needed other available sources of liquidity could be limited.  If circumstances were to adversely change, the Company would seek to improve its liquidity by taking actions such as to further lower its inventory and reduce expenses. However, there can be no assurance that any such efforts would be successful or that the results of any such efforts would be adequate. Finally, the combined effects of the economic downturn and credit crisis have had a significant impact on the Company’s retail partners and in certain cases resulted in bankruptcies and eventual liquidation. The Company closely monitors the creditworthiness of its customers. Based upon the evaluation of changes in customers’ creditworthiness, the Company may modify credit limits and/or terms of sale.  The Company has not been materially affected by the bankruptcy or liquidation of any of its customers to date. However, notwithstanding the Company’s efforts to monitor its customers’ financial condition, the Company may be materially affected in the future.

In 2009, Wal-Mart Stores, Inc. (including Sam’s Club) accounted for 18% of the Company’s sales.  A material reduction of product orders by Wal-Mart Stores, Inc. could have significant adverse effects on the Company’s business and operating results and ultimately the Company’s liquidity, including the loss of predictability and volume production efficiencies associated with such a large customer.

Credit facility

The Company has a $130.0 million secured credit facility that matures on January 31, 2011 (the “Credit Facility”).  Borrowings under the Credit Facility are secured by all assets of the Company.  On March 31, 2009, the Company entered into a waiver and amendment to the Credit Facility (the “Amendment”).  Pursuant to the Amendment, the Company’s lenders waived the Company’s non-compliance with the financial covenants required by the Credit Facility at December 31, 2008. The Amendment modified the Credit Facility in certain ways including, as follows: (i) changed the maturity date to January 31, 2011, (ii) added certain asset categories to the borrowing base, (iii) increased the applicable margin rates (including a minimum LIBOR of 1.75%), (iv) revised the minimum Consolid ated EBITDA (as defined in the Credit Facility) and fixed charge coverage covenants and added both a minimum net sales for 2009 only and maximum capital expenditures covenant, (v) eliminated the requirement of maximum leverage and minimum interest coverage ratios, (vi) eliminated the $50.0 million accordion feature, (vii) revised the minimum excess availability amount and (viii) placed restrictions on dividends and acquisitions. The Amendment also provided for a lock-box arrangement with the collateral agent for the benefit of its lenders; as such, the Company classified the indebtedness as a current liability in its consolidated balance sheets as of December 31, 2009 and 2008.

On October 13, 2009, the Company entered into an agreement with its lenders to reduce the minimum net sales requirement for the quarter ended September 30, 2009 from $114.8 million to $107.0 million.

 

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On October 30, 2009, the Company entered into an agreement with its lenders to amend the Credit Facility to, among other things: (i) reduce the minimum required availability to $15.0 million for all fiscal quarters beginning with the fiscal quarter ended September 30, 2009, (ii) eliminate the orderly liquidation value of the Company’s trademarks from the borrowing base and (iii) reduce the total commitment to $130.0 million.

On February 12, 2010, the Company entered into an agreement with its lenders to amend the Credit Facility to, among other things: (i) permit the Company to purchase, from time to time, in the aggregate, up to $15.0 million principal amount of the Company’s 4.75% Convertible Notes and (ii) eliminate the requirement for the Company to obtain a consent from the lenders prior to consummating a Permitted Acquisition (as defined in the Credit Facility).

At December 31, 2009, the Company had $1.2 million of open letters of credit and $24.6 million of borrowings outstanding under the Credit Facility.  Interest rates on outstanding borrowings at December 31, 2009 ranged from 5.75% to 6.25%.  Availability under the Credit Facility at December 31, 2009 was $49.9 million (net of $15.0 million of minimum required availability).  The Company has interest rate swap and collar agreements with an aggregate notional amount of $55.2 million at December 31, 2009.  The Company entered into these agreements to effectively fix the interest rate on a portion of its borrowings under the Credit Facility.

The Company was in compliance with its financial covenants at December 31, 2009.  The Company’s Consolidated EBITDA (as defined by the Credit Facility) for the year ended December 31, 2009 was $33.3 million compared to the minimum Consolidated EBITDA required by the Credit Facility of $25.5 million.  Capital expenditures for the year ended December 31, 2009 were $2.3 million compared to the maximum capital expenditures permitted by the Credit Facility of $6.0 million.  Net sales for the three months ended December 31, 2009 were $128.1 million compared to the minimum net sales required by the Credit Facility of $116.9 million.   The fixed charge coverage ratio was 3.29 to 1.00 compared to the minimum fixed charge coverage ratio of 1.40 to 1.00.

The borrowing base at December 31, 2009 under the Credit facility is determined as the sum of (1) 85% of eligible receivables and 85% of the orderly liquidation value of eligible inventory, less (2) reserves.

Non-GAAP financial measure

Consolidated EBITDA is a non-GAAP financial measure within the meaning of Regulation G promulgated by the Securities and Exchange Commission.  The following is a reconciliation of the net income (loss) as reported to Consolidated EBITDA:

		Three Months Ended December 31,								Year Ended  December 31,
		2009				2008				2009				2008
		(in thousands)
Net income (loss) as reported		$	5,048			$	(36,795	)		$	2,715			$	(47,755	)
Add back:
Provision (benefit) for income taxes			1,311				(5,993	)			1,880				(14,249	)
Interest expense			4,124				3,371				13,185				11,577
Depreciation and amortization			4,855				2,829				13,511				10,782
Restructuring expenses			143				10,410				(56	)			17,992
Goodwill and intangible asset impairment			―				29,400				―				29,400
Stock option expense			611				957				2,099				2,800
Consolidated EBITDA		$	16,092			$	4,179			$	33,334			$	10,547

 

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Convertible Notes

The Company has outstanding $75.0 million aggregate principal amount of 4.75% Convertible Senior Notes due on July 2011 (the “Notes”).  The Notes are convertible into shares of the Company’s common stock at a conversion price of $28.00 per share, subject to adjustment in certain events.  The Notes bear interest at 4.75% per annum, payable semiannually in arrears on January 15 and July 15 of each year, and are unsubordinated except with respect to the Company’s debt outstanding under its Credit Facility.  The Company may not redeem the Notes at any time prior to maturity.  The Notes are convertible at the option of the holder anytime prior to the close of business on the business day prior to the maturity date. & #160;Upon conversion, the Company may elect to deliver either shares of the Company’s common stock, cash or a combination of cash and shares of the Company’s common stock in satisfaction of the Company’s obligations upon conversion of the Notes.  If the Notes are not converted prior to the maturity date the Company is required to pay the holders of the Notes the principal amount of the Notes in cash upon maturity.

Dividends

In February 2009, the Company suspended paying cash dividends on its outstanding common shares.

Operating activities

Cash provided by operating activities was $64.0 million in 2009 compared to $6.9 million in 2008.  The increase was primarily attributable to improved operating results and working capital during the 2009 period and the income tax refund related to the carry-back of fiscal 2008 losses.  The increase in working capital was primarily attributable to a reduction of inventory and accounts receivable in 2009 compared to the 2008 period.

Investing activities

Cash used in investing activities was $1.9 million in 2009 compared to $24.8 million in 2008. In 2009, investing activities included capital expenditures of $2.3 million.  In 2008, investing activities included cash paid by the Company of $16.3 million to acquire the business and certain assets of Mikasa® and capital expenditures of $8.9 million related primarily to the Company’s new West Coast distribution center located in Fontana, California and the Company’s new office space in Medford, Massachusetts.  The Company’s 2010 planned capital expenditures are estimated not to exceed $8.0 million.

Financing activities

Cash used in financing activities was $64.8 million in 2009 compared to cash provided by financing activities of $17.2 million in 2008.  In 2009, net repayments under the Company’s Credit Facility were $64.7 million.  In 2008, the Company received net cash proceeds from borrowings under the Credit Facility of $20.6 million.

Contractual obligations

As of December 31, 2009, the Company’s contractual obligations were as follows (in thousands):

		Payment due by period
		Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Operating leases		$	117,607			$	12,476			$	24,643			$	24,567			$	55,921
Long-term debt			75,000				―				75,000				―				―
Minimum royalty payments			19,259				6,463				11,130				606				1,060
Interest on long-term debt			7,126				3,563				3,563				―				―
Post retirement benefits			3,296				148				296				296				2,556
Capitalized leases			263				169				94				―				―
Total		$	222,551			$	22,819			$	114,726			$	25,469			$	59,537

 

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of the Company.  The Company is exposed to market risk associated with changes in interest rates.  The Company’s Credit Facility bears interest at variable rates and, therefore, the Company is subject to increases and decreases in interest expense resulting from fluctuations in interest rates.  The Company has entered into interest rate swap agreements with an aggregate notional amount of $50.0 million and interest rate collar agreements with an aggregate notional amount of $40.2 million to manage interest rate exposure in connection with these variable interest rate borrowings. There have been no changes in interest rates that would have a material impact on the consolidat ed financial position, results of operations or cash flows of the Company for the year ended December 31, 2009.

Item 8. Financial Statements and Supplementary Data

The Company’s Consolidated Financial Statements as of and for the year ended December 31, 2009 in Item 15 commencing on page F-1 are incorporated herein by reference.

The following table sets forth certain unaudited consolidated quarterly statement of operations data for the eight quarters ended December 31, 2009. This information is unaudited, but in the opinion of management, it has been prepared substantially on the same basis as the audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the unaudited consolidated quarterly results of operations. The consolidated quarterly data should be read in conjunction with the Company’s audited consolidated financial statements and the notes to such statements appearing elsewhere in this Annual Report. The results of operations for any quarter are not necessarily indi cative of the results of operations for any future period:

		Year ended December 31, 2009
		First quarter(1)				Second quarter(1)				Third quarter(1)				Fourth quarter(1)
		(in thousands, except per share data)
Net sales		$	90,214			$	85,334			$	111,422			$	128,070
Gross profit			32,066				32,228				41,644				51,263
Income (loss) from operations			(3,373	)			1,434				7,599				9,949
Net income (loss)			(5,959	)			(1,253	)			4,879				5,048
Basic income (loss) per common share		$	(0.50	)		$	(0.10	)		$	0.41			$	0.42
Diluted income (loss) per common share		$	(0.50	)		$	(0.10	)		$	0.40			$	0.41
		Year ended December 31, 2008(3)
		First quarter(2)				Second quarter				Third quarter(2)				Fourth quarter(2)
		(in thousands, except per share data)
Net sales		$	98,194			$	92,399			$	140,624			$	156,718
Gross profit			38,589				37,111				54,528				54,172
Income (loss) from operations			(8,784	)			(6,945	)			3,365				(39,549	)
Net loss			(6,357	)			(3,552	)			(1,051	)			(36,795	)
Basic and diluted loss per common share		$	(0.53	)		$	(0.30	)		$	(0.09	)		$	(3.07	)

Notes:

(1)	The Company recognized restructuring and fixed asset impairment expenses of $824,000, $(663,000), $671,000 and $1.8 million in the first, second, third and fourth quarters of 2009, respectively.

(2)	The Company recognized restructuring expenses of $2.9 million, $4.6 million and $10.5 million in the first, third and fourth quarters of 2008, respectively, and a non-cash goodwill and intangible asset impairment of $29.4 million in the fourth quarter of 2008.

(3)	Certain amounts have been adjusted in 2008 to reflect the provisions of ASC Topic No. 470-20 on a retrospective basis. See Note F of the Notes to the Consolidated Financial Statements included in Item 15 for further information regarding the provisions of ASC Topic No. 470-20.

 

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A.  Controls and Procedures

(a)           Evaluation of Disclosure Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial and accounting officer, respectively) have concluded, based on their evaluation as of December 31, 2009, that the Company’s controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed by it under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Ch ief Executive Officer and Chief Financial Officer of the Company, as appropriate, to allow timely decisions regarding required disclosure.

(b)	Changes in Internal Controls

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2009.  Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principle executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009 using the criteria set forth in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2009 is effective.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2009 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report.

 

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Lifetime Brands, Inc.

We have audited Lifetime Brands Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Lifetime Brands Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations o f management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Lifetime Brands, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009 based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Lifetime Brands, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009 of Lifetime Brands, Inc. and our report dated March 17, 2010 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Jericho, New York

March 17, 2010

 

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Item 9B. Other Information

Not applicable

PART III

Items 10, 11, 12, 13 and 14

The information required under these items is contained in the Company’s 2010 Proxy Statement, which will be filed with the Securities and Exchange Commission within 120 days after the close of the Company’s fiscal year covered by this Annual Report on Form 10-K and is herein incorporated by reference.

 

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)           See list of Financial Statements and Financial Statement Schedule on page F-1.

(b)             Exhibits*:

Exhibit

No.          Description

3.1	Second Restated Certificate of Incorporation of the Company (incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005)**

3.2	Amended and Restated By-Laws of the Company (incorporated by reference to the Registrant’s Form 8-K dated November 1, 2007)**

4.1	Indenture dated as of June 27, 2006, Lifetime Brands, Inc. as issuer, and HSBC Bank USA, National Association as trustee, $75,000,000 4.75% Convertible Senior Notes due 2011 (incorporated by reference to the Registrant’s registration statement No. 333-137575 on Form S-3)**

10.1	License agreement dated December 14, 1989 between the Company and Farberware, Inc. (incorporated by reference to the Registrant’s registration statement No. 33-40154 on Form S-1)**

10.2	Evan Miller employment agreement dated July 1, 2003 (incorporated by reference to the Registrant’s Form 10-Q dated September 30, 2003)**

10.3	Employment agreement dated May 2, 2006 between Lifetime Brands, Inc. and Jeffrey Siegel (incorporated by reference to the Registrant’s Form 8-K dated May 2, 2006)**

10.4	Lease agreement dated as of May 10, 2006 between AG Metropolitan Endo, L.L.C and Lifetime Brands, Inc. for the property located at 1000 Stewart Avenue in Garden City, New York (incorporated by reference to the Registrant’s Form 8-K dated May 10, 2006)**

10.5	Amended 2000 Long-Term Incentive Plan (incorporated by reference to the Registrant’s Form 8-K dated June 8, 2006)**

10.6	Amended 2000 Incentive Bonus Compensation Plan (incorporated by reference to the Registrant’s Form 8-K dated June 8, 2006)**

10.7

Second Amended and Restated Credit Agreement among Lifetime Brands, Inc., Lenders party thereto, Citibank, N.A. and Wachovia Bank, National Association, as Co-Documentation Agents, JP Morgan Chase Bank, N.A., as Syndication Agent, and HSBC Bank USA, National Association, as Administrative Agent (incorporated by reference to the Registrant’s Form 8-K dated October 31, 2006)**

10.8	First Amendment to the Lease Agreement dated as of May 10, 2006 between AG Metropolitan Endo, L.L.C and Lifetime Brands, Inc. for the property located at 1000 Stewart Avenue in Garden City, New York (incorporated by reference to the Registrant’s Form 10-Q dated September 30, 2006)**

10.9	Employment agreement dated June 28, 2007 between Lifetime Brands, Inc. and Laurence Winoker (incorporated by reference to the Registrant’s Form 8-K dated July 3, 2007)**

10.10

Shares Subscription Agreement by and among Lifetime Brands, Inc., Ekco, S.A.B. and Mr. José Ramón Elizondo Anaya and Mr. Miguel Ángel Huerta Pando, dated as of June 8, 2007 (incorporated by reference to the Registrant’s Form 8-K dated June 11, 2007)**

 

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10.11

Lease Agreement between Granite Sierra Park LP and Lifetime Brands, Inc. dated June 29, 2007 (incorporated by reference to the Registrant’s Form 8-K dated June 29, 2007)**

10.12

Evan Miller Amendment of Employment Agreement dated June 29, 2007 (incorporated by reference to the Registrant’s Form 8-K dated June 29, 2007)**

10.13

Amendment No.1 dated September 5, 2007 to the Shares Subscription Agreement by and among Lifetime Brands, Inc., Ekco, S.A.B. and Mr. José Ramón Elizondo Anaya and Mr. Miguel Ángel Huerta Pando, dated as of June 8, 2007 (incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008)**

10.14

Amendment to the Lifetime Brands, Inc. 2000 Long-Term Incentive Plan dated November 1, 2007 (incorporated by reference to the Registrant’s Form 8-K dated November 1, 2007)**

10.15

Amendment No. 2 to Second Amended and Restated Credit Agreement by and among Lifetime Brands, Inc., Lenders party hereto, Citibank, N.A. and Wachovia Bank, National Association, as Co-Documentation Agents, JP Morgan Chase Bank, N.A., as Syndication Agent, and HSBC Bank USA, National Association, as Administrative Agent (incorporated by reference to the Registrant’s Form 8-K/A dated April 17, 2008)**

10.16

Asset Purchase Agreement between Mikasa, Inc. and Lifetime Brands, Inc. dated June, 6 2008 (incorporated by reference to the Registrant’s Form 10-Q dated June 30, 2008)**

10.17

Amendment No. 2 dated September 25, 2008 to the Shares Subscription Agreement by and among Lifetime Brands, Inc., Ekco, S.A.B. and Mr. José Ramón Elizondo Anaya and Mr. Miguel Ángel Huerta Pando, dated as of June 8, 2007 (incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008)**

10.18

Amendment to the Company’s Second Amended and Restated Credit Agreement, Amendment No. 3, dated September 29, 2008  (incorporated by reference to the Registrant’s Form 8-K dated September 29, 2008)**

10.19

Forbearance Agreement and Amendment No. 4, dated as of February 12, 2009, by and among Lifetime Brands, Inc., the several financial institutions party hereto and HSBC Bank USA, National Association, as Administrative Agent for the Lenders (incorporated by reference to the Registrant’s Form 8-K dated February 12, 2009)**

10.20

Amendment to Forbearance Agreement and Amendment No. 4, dated as of March 6, 2009, by and among Lifetime Brands, Inc., the several financial institutions party hereto and HSBC Bank USA, National Association, as Administrative Agent for the Lenders (incorporated by reference to the Registrant’s Form 8-K dated March 6, 2009)**

10.21

Waiver and Amendment No. 5 to Second Amended and Restated Credit Agreement, dated as of March 31, 2009, by and among Lifetime Brands, Inc., the several financial institutions party hereto and HSBC Bank USA, National Association, as Administrative Agent for the Lenders (incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008)**

10.22

Amendment of the Lifetime Brands, Inc. 2000 Long-Term Incentive Plan dated June 11, 2009 (incorporated by reference to the Registrant’s Form 8-K dated June 11, 2009)**

10.23

Amended and Restated Employment Agreement, dated August 10, 2009 by and between Lifetime Brands, Inc. and Ronald Shiftan (incorporated by reference to the Registrant’s Form 8-K dated August 10, 2009)**

10.24

Amendment of Employment Agreement, dated August 10, 2009 by and between Lifetime Brands, Inc. and Jeffrey Siegel (incorporated by reference to the Registrant’s Form 8-K dated August 10, 2009)**

10.25

Waiver to the Second Amended and Restated Credit Agreement, dated as of October 13, 2009, by and among Lifetime Brands, Inc., the several financial institutions party hereto and HSBC Bank USA, National Association, as Administrative Agent and Co-Collateral Agent for the Lenders (incorporated by reference to the Registrant’s Form 8-K dated October 13, 2009)**

 

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10.26

Amendment No. 6 to Second Amended and Restated Credit Agreement, dated as of October 30, 2009, by and among Lifetime Brands, Inc., the several financial institutions party hereto and HSBC Bank USA, National Association, as Administrative Agent for the Lenders (incorporated by reference to the Registrant’s Form 8-K dated October 30, 2009)**

10.27

Termination of Lease and Sublease Agreement Dated December 1, 2009 by and between Crispus Attucks Association of York, Pennsylvania, Inc. and Lifetime Brands, Inc. (incorporated by reference to the Registrant’s Form 8-K dated December 1, 2009)**

14.1	Code of Conduct dated March 25, 2004, as amended on June 7, 2007 (incorporated by reference to the Registrant’s Form 8-K dated June 7, 2007)**

18.1	Letter from Ernst & Young LLP stating an acceptable change in accounting method for the impairment of  goodwill dated October 28, 2008 (incorporated by reference to the Registrant’s Form 10-Q dated September, 30 2008)**

21.1	Subsidiaries of the registrant***

23.1	Consent of Ernst & Young LLP***

31.1	Certification by Jeffrey Siegel, Chief Executive Officer and President, pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002***

31.2	Certification by Laurence Winoker, Senior Vice President – Finance, Treasurer and Chief Financial Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002***

32.1	Certification by Jeffrey Siegel, Chief Executive Officer and President, and Laurence Winoker, Senior Vice President – Finance, Treasurer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002****

99.1	Grupo Vasconia, S.A.B. (formerly Ekco, S.A.B.), Report of Independent Registered Accounting Firm ***

Notes to exhibits:

*

The Company will furnish a copy of any of the exhibits listed above upon payment of $5.00 per exhibit to cover the cost of the Company furnishing the exhibit.

**

Incorporated by reference.

***

Filed herewith.

****

This exhibit is being “furnished” pursuant to Item 601(b)(32) of SEC Regulation S-K and is not deemed “filed” with the Securities and Exchange Commission and is not incorporated by reference in any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934.

(c)	Financial Statement Schedules — the response to this portion of Item 15 is submitted as a separate section of this report.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Lifetime Brands, Inc.
	/s/ Jeffrey Siegel
	Jeffrey Siegel Chairman of the Board of Directors, Chief Executive Officer, President and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature		Title	Date
/s/ Jeffrey Siegel		Chairman of the Board of Directors,	March 17, 2010
Jeffrey Siegel		Chief Executive Officer, President and Director
/s/ Ronald Shiftan		Vice Chairman of the Board of Directors,	March 17, 2010
Ronald Shiftan		Chief Operating Officer and Director
/s/ Laurence Winoker		Senior Vice President – Finance,	March 17, 2010
Laurence Winoker		Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ Craig Phillips		Senior Vice-President – Distribution,	March 17, 2010
Craig Phillips		and Director
/s/ David Dangoor		Director	March 17, 2010
David Dangoor
/s/ Michael Jeary		Director	March 17, 2010
Michael Jeary
/s/ John Koegel		Director	March 17, 2010
John Koegel
/s/ Cherrie Nanninga		Director	March 17, 2010
Cherrie Nanninga
/s/ William Westerfield		Director	March 17, 2010
William Westerfield

 

32

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Item 15

LIFETIME BRANDS, INC.

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

The following consolidated financial statements of Lifetime Brands, Inc. are filed as part of this report under Item 8 – Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2009 and 2008	F-3
Consolidated Statements of Operations for the Years ended             December 31, 2009, 2008 and 2007	F-4
Consolidated Statements of Stockholders’ Equity for the Years ended             December 31, 2009, 2008 and 2007	F-5
Consolidated Statements of Cash Flows for the Years ended             December 31, 2009, 2008 and 2007	F-6
Notes to Consolidated Financial Statements	F-7
The following consolidated financial statement schedule of Lifetime Brands, Inc. required pursuant to Item 15(a) is submitted herewith:
Schedule II – Valuation and Qualifying Accounts	S-1
All other financial schedules are not required under the related instructions or are inapplicable, and therefore have been omitted.
The unaudited supplementary data regarding quarterly results of operations are incorporated by reference to the information set forth in Item 8 – Financial Statements and Supplementary Data.

 
 

 

F-1

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Lifetime Brands, Inc.

We have audited the accompanying consolidated balance sheets of Lifetime Brands, Inc. (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009.  Our audits also included the financial statement schedule listed in the Index at Item 15(a).  These financial statements and schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.  The financial statements of Grupo Vasconia, S.A.B. and Subsidiaries (a corporation in which the Company has a 30.12% interest), have been audited by other auditors whose report has been furni shed to us, and our opinion on the consolidated financial statements, insofar as it relates to the amounts included for Grupo Vasconia, S.A.B. and Subsidiaries, is based solely on the report of the other auditors.  In the consolidated financial statements, the Company’s investment in Grupo Vasconia, S.A.B. and Subsidiaries is stated at $20.3 million at December 31, 2009 and the Company’s equity in the net income of Grupo Vasconia, S.A.B. and Subsidiaries is stated at $2.2 million for the year then ended.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lifetime Brands, Inc. at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Notes A and F to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board Accounting Standards Codification Topic No. 470-20, Debt with Conversion and Other Options, effective January 1, 2009.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Lifetime Brands, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 17, 2010 expressed an unqualified opinion thereon.

	/s/ ERNST & YOUNG LLP
Jericho, New York March 17, 2010

 

F-2

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LIFETIME BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands-except share data)

		December 31,
ASSETS		2009				2008
CURRENT ASSETS						(as adjusted see Note F)
Cash and cash equivalents		$	682			$	3,478
Accounts receivable, less allowances of $16,557 at 2009 and $14,651 at 2008			61,552				67,562
Inventory (Note N)			103,931				141,612
Income taxes receivable (Note J)			―				11,597
Prepaid expenses and other current assets			7,685				8,429
TOTAL CURRENT ASSETS			173,850				232,678
PROPERTY AND EQUIPMENT, net (Note N)			41,623				49,908
OTHER INTANGIBLES, net  (Note D)			37,641				38,420
INVESTMENT IN GRUPO VASCONIA, S.A.B. (Note C)			20,338				17,784
OTHER ASSETS			3,271				2,991
TOTAL ASSETS		$	276,723			$	341,781
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term borrowings (Note E)		$	24,601			$	89,300
Accounts payable			21,895				24,151
Accrued expenses (Note N)			29,827				35,902
Deferred income tax liabilities (Note J)			207				403
Income taxes payable (Note J)			680				225
TOTAL CURRENT LIABILITIES			77,210				149,981
DEFERRED RENT & OTHER LONG-TERM LIABILITIES (Note N)			20,527				23,054
DEFERRED INCOME TAXES (Note J)			4,447				3,373
CONVERTIBLE NOTES (Note F)			70,527				67,864
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, shares authorized: 25,000,000; shares issued and outstanding: 12,015,273 in 2009 and 11,989,724 in 2008			120				120
Paid-in capital			129,655				127,497
Accumulated deficit			(18,949	)			(21,515	)
Accumulated other comprehensive loss			(6,814	)			(8,593	)
TOTAL STOCKHOLDERS’ EQUITY			104,012				97,509
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	276,723			$	341,781

See notes to consolidated financial statements.

 

F-3

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LIFETIME BRANDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands – except per share data)

		Year ended December 31,
		2009				2008				2007
						(as adjusted see Note F)				(as adjusted see Note F)
Net sales		$	415,040			$	487,935			$	493,725
Cost of sales			257,839				303,535				288,997
Distribution expenses			43,329				57,695				53,493
Selling, general and administrative expenses			95,647				131,226				128,527
Goodwill and intangible asset impairment (Note D)			―				29,400				―
Restructuring expenses (Note B)			2,616				17,992				1,924
Income (loss) from operations			15,609				(51,913	)			20,784
Interest expense			(13,185	)			(11,577	)			(10,623	)
Other income, net			―				―				3,935
Income (loss) before income taxes and equity in earnings of Grupo Vasconia, S.A.B.			2,424				(63,490	)			14,096
Income tax benefit (provision) (Note J)			(1,880	)			14,249				(6,567	)
Equity in earnings of Grupo Vasconia, S.A.B., net of taxes (Note C)			2,171				1,486				―
NET INCOME (LOSS)		$	2,715			$	(47,755	)		$	7,529
BASIC INCOME (LOSS) PER COMMON SHARE (Note I)		$	0.23			$	(3.99	)		$	0.58
DILUTED INCOME (LOSS) PER COMMON SHARE (Note I)		$	0.22			$	(3.99	)		$	0.57

See notes to consolidated financial statements.

 

F-4

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LIFETIME BRANDS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

 

		Common stock								Paid-in				Retained earnings (accumulated				Accumulated other comprehensive
		Shares				Amount				capital				deficit)				income (loss)				Total
BALANCE AT DECEMBER 31, 2006			13,283			$	133			$	111,165			$	50,235			$	78			$	161,611
Adoption of accounting principle (Note F)											7,862				(637	)							7,225
BALANCE AT DECEMBER 31, 2006 (as adjusted)			13,283				133				119,027				49,598				78				168,836
Comprehensive income:
Net income (as adjusted see Note F)															7,529								7,529
Derivative fair value adjustment, net of taxes of $170 (Note G)																			(203	)			(203	)
Total comprehensive income																							7,326
Tax benefit on exercise of stock options											161												161
Stock option expense (Note H)											2,197												2,197
Purchase and retirement of common stock			(1,363	)			(14	)							(22,658	)							(22,672	)
Exercise of stock options			32				1				244												245
Stock issued for acquisition			5								133												133
Shares issued to directors			7								95												95
Dividends															(3,219	)							(3,219	)
BALANCE AT DECEMBER 31, 2007			11,964				120				121,857				31,250				(125	)			153,102
Comprehensive loss:
Net loss (as adjusted see Note F)															(47,755	)							(47,755	)
Grupo Vasconia, S.A.B. translation adjustment (Note C)																			(6,587	)			(6,587	)
Derivative fair value adjustment (Note G)																			(1,881	)			(1,881	)
Total comprehensive loss																							(56,223	)
Tax benefit on exercise of stock options											7												7
Stock option expense (Note H)											2,800												2,800
Exercise of stock options			2								10												10
Shares issued to directors			24								57												57
Tax valuation allowance (Note F)											2,766				(2,766	)							-
Dividends															(2,244	)							(2,244	)
BALANCE AT DECEMBER 31, 2008			11,990				120				127,497				(21,515	)			(8,593	)			97,509
Comprehensive income:
Net income															2,715								2,715
Grupo Vasconia, S.A.B. translation adjustment (Note C)																			456				456
Derivative hedge de-designation (Note G)																			780				780
Derivative fair value adjustment (Note G)																			543				543
Total comprehensive income																							4,494
Stock option expense (Note H)											2,099												2,099
Exercise of stock options			46								59												59
Retirement of shares (Note H)			(21	)											(149	)							(149	)
BALANCE AT DECEMBER 31, 2009			12,015			$	120			$	129,655			$	(18,949	)		$	(6,814	)		$	104,012

See notes to consolidated financial statements.

 

F-5

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LIFETIME BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

		Year ended December 31,
		2009				2008				2007
						(as adjusted see Note F)				(as adjusted see Note F)
OPERATING ACTIVITIES
Net income (loss)		$	2,715			$	(47,755	)		$	7,529
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for doubtful accounts			(420	)			1,458				79
Depreciation and amortization			11,472				10,782				9,659
Amortization of debt discount			2,663				2,435				2,226
Deferred rent			673				1,999				1,060
Deferred income taxes			734				(3,554	)			1,908
Stock compensation expense			2,099				2,857				2,292
Undistributed earnings of Grupo Vasconia, S.A.B.			(1,953	)			(1,132	)			―
Gain on sale of property			―				―				(3,760	)
Goodwill and intangible asset impairment			―				29,400				―
Fixed asset impairment			789				3,912				1,635
Changes in operating assets and liabilities (excluding the effects of business acquisitions)
Accounts receivable			6,430				(3,990	)			(4,593	)
Inventory			37,680				26,154				19,925
Prepaid expenses, other current assets and other assets			(271	)			(908	)			1,220
Accounts payable, accrued expenses and other liabilities			(10,324	)			1,142				(5,270	)
Income taxes receivable			11,263				(11,597	)			―
Income taxes payable			438				(4,295	)			(2,343	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			63,988				6,908				31,567
INVESTING ACTIVITIES
Purchases of property and equipment, net			(2,344	)			(8,859	)			(19,023	)
Business acquisitions			―				(16,312	)			(10,543	)
Investment in Grupo Vasconia, S.A.B.			―				―				(22,950	)
Net proceeds from sale of property			408				362				8,832
NET CASH USED IN INVESTING ACTIVITIES			(1,936	)			(24,809	)			(43,684	)
FINANCING ACTIVITIES
Proceeds (repayments) from borrowings, net			(64,699	)			20,600				42,200
Cash dividends paid			―				(2,995	)			(3,303	)
Payment of capital lease obligations			(225	)			(414	)			(456	)
Proceeds from the exercise of stock options			59				10				245
Excess tax benefits from stock option expense			17				6				125
Purchases of common stock			―				―				(22,672	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			(64,848	)			17,207				16,139
INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS			(2,796	)			(694	)			4,022
Cash and cash equivalents at beginning of year			3,478				4,172				150
CASH AND CASH EQUIVALENTS AT END OF YEAR		$	682			$	3,478			$	4,172

See notes to consolidated financial statements.

 

F-6

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE A — SIGNIFICANT ACCOUNTING POLICIES

Organization and business

Lifetime Brands, Inc. (the “Company”) designs, markets and distributes a broad range of consumer products used in the home, including food preparation, tabletop and home décor products and markets its products under a number of brand names and trademarks, which are either owned or licensed.  The Company markets and sells its products wholesale to retailers throughout North America and directly to the consumer through its Pfaltzgraff®, Mikasa® and Lifetime Sterling™ Internet websites and Pfaltzgraff® mail order catalogs.

Up until December 31, 2008, the Company also operated retail outlet stores under the Pfaltzgraff® and Farberware® names.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Revenue recognition

Wholesale sales are recognized when title is transferred to the customer.  Internet and catalog sales are recognized upon delivery to the customer. The retail outlet store sales in 2008 were recognized at the time of sale. Shipping and handling fees that are billed to customers in sales transactions are included in net sales and amounted to $3.5 million, $4.4 million, and $4.8 million for the years ended December 31, 2009, 2008 and 2007, respectively.  Net sales exclude taxes that are collected from customers and remitted to the taxing authorities.

Distribution expenses

Distribution expenses consist primarily of warehousing expenses, handling costs of products sold and freight-out expenses.  Freight-out expenses amounted to $6.9 million, $8.7 million, and $8.4 million for the years ended December 31, 2009, 2008 and 2007, respectively.

Advertising expenses

Advertising expenses are expensed as incurred and are included in selling, general and administrative expenses. Advertising expenses were $880,000, $1.6 million and $1.6 million for the years ended December 31, 2009, 2008 and 2007, respectively.

Accounts receivable

The Company periodically reviews the collectibility of its accounts receivable and establishes allowances for estimated losses that could result from the inability of its customers to make required payments.  A considerable amount of judgment is required to assess the ultimate realization of these receivables including assessing the initial and on-going creditworthiness of the Company’s customers. The Company also maintains an allowance for anticipated customer deductions. The allowances for deductions are primarily based on contracts the Company has with its customers.  However, in certain cases the Company does not have a formal contract and/or customer deductions are non-contractual.  To evaluate the reasonableness of non-contractual customer deductions, the Company analyzes currently available in formation and historical trends of deductions. If the financial conditions of the Company’s customers or economic conditions were to deteriorate, resulting in an impairment of their ability to make payments or sell the Company’s products at reasonable sales prices, or the Company’s estimate of  non-contractual deductions was determined to be inaccurate, revisions to allowances may be required, which could adversely affect the Company’s financial condition. Historically, the Company’s allowances have been appropriate and have not resulted in material unexpected charges.

 

F-7

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE  A — SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventory

Inventory consists principally of finished goods sourced from third-party suppliers. Inventory also includes finished goods, work in process and raw materials related to the Company’s manufacture of sterling silver products. Inventory is priced by the lower of cost (first-in, first-out basis) or market method. The Company estimates the selling price of its inventory on a product by product basis based on the current selling environment and considering the various available channels of distribution (e.g. wholesale: specialty store, off-price retailers etc. or the Internet and catalog).  If the estimated selling price is lower than the inventory’s cost, the Company reduces the value of inventory to the estimated selling price.  If the Company is inaccurate in its estimates of selling prices, it could repor t material fluctuations in gross margin. Historically, the Company’s adjustments to inventory have been appropriate and have not resulted in material unexpected charges. Consistent with the seasonality of the Company’s business, inventory generally increases, beginning late in the second quarter of the year, and reaches a peak at the end of the third quarter or early in the fourth quarter, and declines thereafter.

Property and equipment

Property and equipment is stated at cost.  Property and equipment, other than leasehold improvements, is depreciated using the straight-line method over the estimated useful lives of the assets.  Building and improvements are being depreciated over 30 years and machinery, furniture, and equipment over periods ranging from 3 to 10 years.  Leasehold improvements are amortized over the term of the lease or the estimated useful lives of the improvements, whichever is shorter. Advances paid towards the acquisition of property and equipment and the cost of property and equipment not ready for use before the end of the period are classified as construction in progress.

Cash equivalents

The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents.

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Concentration of credit risk

The Company’s cash and cash equivalents are potentially subject to concentration of credit risk. The Company maintains cash with several financial institutions that, in some cases, is in excess of Federal Deposit Insurance Corporation insurance limits.

Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company’s customer base and their dispersion across North America.

During the years ended December 31, 2009, 2008 and 2007, Wal-Mart Stores, Inc. (including Sam’s Clubs) accounted for 18%, 20% and 21% of sales, respectively.  No other customer accounted for 10% or more of the Company’s sales during the periods. For the years ended December 31, 2009, 2008 and 2007, the Company’s ten largest customers accounted for 64%, 60% and 62% of sales, respectively.

 

F-8

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE  A — SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair value of financial instruments

The Company estimated that the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable are a reasonable estimate of their fair value because of their short-term nature.  The Company estimated that the carrying amounts of borrowings outstanding under its revolving Credit Facility approximate fair value since such borrowings bear interest at variable market rates. The fair value of the Company’s $75.0 million 4.75% Convertible Senior Notes at December 31, 2009 and 2008 was $66.8 million and $39.4 million, respectively, based on Level 2 observable inputs consisting of the most recent quoted price for the Notes obtained from the FINRA Trade Reporting and Compliance Engine™ system at December 31, 2009 and 2008.

Fair value measurements

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 820, Fair Value Measurements and Disclosures, provides enhanced guidance for using fair value to measure assets and liabilities and establishes a common definition of fair value, provides a framework for measuring fair value under U.S. generally accepted accounting principles and expands disclosure requirements about fair value measurements.  Fair value measurements included in the Company’s consolidated financial statements relate to the Company’s convertible notes, annual intangible asset impairment test  and derivatives, described in Notes A, D and G, respectively.

Derivatives

The Company accounts for derivative instruments in accordance with ASC Topic No. 815, Derivatives and Hedging.  ASC Topic No. 815 requires that all derivative instruments be recognized on the balance sheet at fair value as either an asset or a liability. Changes in the fair value of derivatives that qualify as hedges and have been designated as part of a hedging relationship for accounting purposes have no net impact on earnings to the extent the derivative is considered perfectly effective in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged, until the hedged item is recognized in earnings. For derivatives that do not qualify or are not designated as hedging instruments for accounting purposes, changes in fair value are recorded in operations.

Goodwill, intangible assets and long-lived assets

Goodwill and intangible assets deemed to have indefinite lives, are not amortized but instead are subject to an annual impairment assessment in accordance with the provisions of ASC Topic No. 350, Intangibles-Goodwill and Other. As more fully described in Note D, the results of the Company’s 2009 assessment did not indicate an impairment of the Company’s indefinite-lived intangible assets.

Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment in accordance with ASC Topic No. 360, Property, Plant and Equipment, whenever events or changes in circumstances indicate that such amounts may have been impaired. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit or material adverse changes in the business climate that indicate that the carrying amount of an asset may be impaired. When impairment indicators are present, the Company compares the carrying value of the asset to the estimated undiscounted future cash flows expected to be generated by the assets.  If the assets are considered to be impaired, the impairment to be recog nized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company considered indicators of impairment of its long-lived assets and determined that, other than the impairment charges related to the Company’s restructuring activities described in Note B, no such indicators were present at December 31, 2009.

 

F-9

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE  A — SIGNIFICANT ACCOUNTING POLICIES (continued)

Income taxes

The Company accounts for income taxes using the asset and liability method in accordance with ASC Topic No. 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

The Company applies the provisions of ASC Topic No. 740 for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the Company’s financial statements. In accordance with this provision, tax positions must meet a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position.

Stock options

The Company accounts for its stock options in accordance with ASC Topic No. 718-20, Awards Classified as Equity, which requires the measurement of compensation expense for all share-based compensation granted to employees and non-employee directors at fair value on the date of grant and recognition of compensation expense over the related service period for awards expected to vest.  The Company uses the Black-Scholes option valuation model to estimate the fair value of its stock options. The Black-Scholes option valuation model requires the input of highly subjective assumptions including the expected stock price volatility of the Company’s common stock.  Changes in these subjective input assumptions can materially affect the fair value estimate of the C ompany’s stock options.

New accounting pronouncements

In May 2008, the FASB issued ASC Topic No. 470-20, Debt with Conversion and Other Options, which requires the issuer of certain convertible debt instruments that may be settled in cash, or other assets, on conversion (including partial cash settlement), to separately account for the liability (debt) and equity (conversion option) components in a manner that reflects the issuer’s non-convertible debt borrowing rate with the resulting debt discount amortized as additional non-cash interest expense over the life of the convertible debt.  The provisions of ASC Topic No. 470-20 were effective for the Company on January 1, 2009 and the effects on the Company’s consolidated financial statements as a result of the adoption are described in Note F.

In May 2009, the FASB issued ASC Topic No. 855, Subsequent Events.  ASC Topic No. 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued.  ASC Topic No. 855 is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of ASC Topic No. 855 did not have a material impact on the Company’s consolidated financial statements.

Subsequent events

The Company has evaluated subsequent events through the date of the filing of its consolidated financial statements with the Securities and Exchange Commission.

 

F-10

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE B — RESTRUCTURING

The restructuring and impairment charges discussed below are included in restructuring expenses in the accompanying consolidated statements of operations for the years ended December 31, 2009, 2008 and 2007.

December 2007 store closings

In December 2007, management of the Company commenced a plan to close 30 underperforming Farberware® and Pfaltzgraff® factory outlet stores. All 30 stores were closed by the end of the first quarter of 2008.  In connection with these store closings the Company incurred restructuring related costs consisting of the following:

		Year Ended December 31,
		2008				2007
		(in thousands)
Store lease obligations		$	2,300			$	―
Consulting fees			393				289
Employee related expenses			141				―
Other related costs			153				―
Total		$	2,987			$	289

There were no costs associated with these store closings recognized during the year ended December 31, 2009. The remaining store lease obligations that were included in accrued expenses at December 31, 2008 related to these store closings of $566,000 were paid in the first quarter of 2009.

The Company also recorded a non-cash fixed asset impairment charge of $1.6 million at December 31, 2007 related to these store closings. No impairment charges were recognized in connection with these store closings during the years ended December 31, 2009 and 2008.

September 2008 restructuring initiative

In September 2008, management of the Company commenced a plan to: (i) close its 53 remaining Farberware® and Pfaltzgraff® retail outlet stores due to continued poor performance, (ii) vacate its York, Pennsylvania distribution center and consolidate the distribution with the Company’s main East and West Coast distribution centers and (iii) vacate certain excess showroom space. In connection with these restructuring activities the Company incurred restructuring related costs consisting of the following:

		Year Ended December 31,
		2009				2008
		(in thousands)
Store lease obligations		$	1,263			$	7,662
Consulting fees			—				1,766
Employee related expenses			(206	)			1,354
Other related costs			411				318
Total		$	1,468			$	11,100

 

F-11

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE B — RESTRUCTURING (continued)

The following is a roll-forward of the amounts included in accrued expenses related to the September 2008 restructuring initiative (in thousands):

		Balance December 31, 2008				Accrual adjustments				Charges				Payments				Balance December 31, 2009
Lease obligations		$	7,578			$	(439	)		$	1,702			$	(8,494	)		$	347
Consulting fees			354				—				—				(354	)			—
Employee related expenses			1,168				(289	)			83				(955	)			7
Other related costs			224				—				411				(537	)			98
Total		$	9,324			$	(728	)		$	2,196			$	(10,340	)		$	452

The adjustments in the table above reflect decisions by the Company not to vacate certain leased space that the Company had expected to vacate and not to terminate the employment of certain employees, whose employment the Company had expected to terminate. The amounts were included in the Company’s restructuring charges for the year ended December 31, 2008.

During the years ended December 31, 2009 and 2008, the Company recorded non-cash asset impairment charges of $789,000 and $3.9 million, respectively, related to these restructuring activities. The non-cash impairment charge for the year ended December 31, 2009 reflects an adjustment reducing the non-cash impairment charge recognized in 2008 by $1.2 million as the result of decisions by the Company not to vacate certain leased space that the Company had expected to vacate.

Pursuant to ASC Topic No. 205-20, Presentation of Financial Statements- Discontinued Operations, the Company has not accounted for its retail outlet store operations as discontinued operations since the Company believes that the operations and cash flows of the retail outlet store operations would not be eliminated from the on-going operations of the Company as a result of these store closings. Specifically, the Company determined that the migration of customers from the Company’s retail outlet stores to the Company’s Internet, catalog and wholesale businesses would not be insignificant. For this purpose, the Company concluded that the migration of sales from the retail outlet stores to the Internet, catalog and wholesale businesses of greater than 5% would be signifi cant.

Third quarter 2009 restructuring activities

During the third quarter of 2009, management of the Company commenced a plan to realign the management structure of certain of its divisions and eliminate a portion of the workforce at its Puerto Rico sterling silver manufacturing facility.  In connection with these restructuring activities, the Company recorded $363,000 of restructuring expenses consisting of employee related expenses, of which $136,000 of these expenses were unpaid and included in accrued expenses at December 31, 2009.

 

F-12

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE C — INVESTMENT IN GRUPO VASCONIA, S.A.B.

In December 2007, the Company acquired approximately a 30% interest in Grupo Vasconia, S.A.B. (“Vasconia”) for $23.0 million in cash. The Company accounts for its investment in Vasconia using the equity method of accounting. Accordingly, the Company has recorded its proportionate share of Vasconia’s net income (reduced for amortization expense related to the customer relationships acquired) for the years ended December 31, 2009 and 2008 in the accompanying consolidated statements of operations.  The Company’s proportionate share of Vasconia’s net income has been translated from Mexican Pesos (“MXP”) to U.S. Dollars (“USD”) using the average daily exchange rate during the years ended December 31, 2009 and 2008.  During the year ended December 31, 2009, the Company received a cash dividend of $218,000 from Vasconia. Included in prepaid expenses and other currents assets at December 31, 2009 and 2008, are amounts due from Vasconia of $202,000 and $371,000, respectively.

Summarized financial statement information for Vasconia as of and for the years ended December 31, 2009 and 2008 is as follows:

		Year Ended December 31,
		2009								2008
		(in thousands)
Income Statement		USD				MXP				USD				MXP
Net Sales		$	94,633			$	1,276,126			$	110,026			$	1,219,151
Gross Profit			26,251				353,500				28,212				313,739
Income from operations			11,803				159,531				11,662				129,518
Net Income			8,306				111,709				6,270				63,014

		December 31,
		2009								2008
		(in thousands)
Balance Sheet		USD				MXP				USD				MXP
Current assets		$	48,422			$	630,250			$	46,320			$	619,962
Non-current assets			23,698				308,447				22,371				325,351
Current liabilities			11,624				151,295				17,583				251,799
Non-current liabilities			3,711				48,297				3,981				55,264

 

F-13

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE D — INTANGIBLE ASSETS AND GOODWILL

The Company performed its 2009 annual impairment tests for its indefinite-lived intangible assets in accordance with ASC Topic No. 350, Intangibles- Goodwill and Other, as of October 1, 2009.  The test involved the assessment of the fair market value of the Company’s indefinite-lived intangible assets which was based on Level 2 observable inputs using a discounted cash flow approach assuming a discount rate of 14% and an annual growth rate of 3%. The results of the assessment indicated that the fair value of the Company’s indefinite-lived intangibles exceeded the carrying amount by approximately $29.0 million.  Accordingly, the Company concluded that no impairment to the carrying value of the Company’s indefinite-lived intangibles existed at December 31, 2009.

In 2008, due primarily to the significant decline in the Company’s market capitalization, the Company recognized non-cash impairment charges of $29.4 million consisting of the write-off of all recorded goodwill of $27.4 million and a reduction of the carrying amount of the Company’s indefinite-lived intangibles of $2.0 million.

Intangible assets, all of which are included in the wholesale segment, consist of the following (in thousands):

			Year Ended December 31,
			2009												2008
			Gross				Accumulated Amortization				Net				Gross				Accumulated Amortization				Net
Indefinite-lived intangible assets:
	Trade names		$	25,530			$	―			$	25,530			$	25,530			$	―			$	25,530
Finite-lived  intangible assets:
	Licenses			15,847				(5,685	)			10,162				15,847				(5,123	)			10,724
	Trade names			2,477				(1,185	)			1,292				2,477				(1,103	)			1,374
	Customer relationships			586				(421	)			165				586				(321	)			265
	Patents			584				(92	)			492				584				(57	)			527
Total			$	45,024			$	(7,383	)		$	37,641			$	45,024			$	(6,604	)		$	38,420

The weighted-average amortization periods for the Company’s finite-lived intangible assets as of December 31, 2009 are as follows:

 

		Years
Trade names			30
Licenses			33
Customer relationships			3
Patents			17

Estimated amortization expense for each of the five succeeding fiscal years is as follows (in thousands):

Year ending December 31
2010		$	717
2011			631
2012			591
2013			591
2014			591

Amortization expense for the years ended December 31, 2009, 2008 and 2007 was $775,000, $978,000, and $915,000, respectively.

 

F-14

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE E — CREDIT FACILITY

The Company has a $130.0 million secured credit facility that matures on January 31, 2011 (the “Credit Facility”).  Borrowings under the Credit Facility are secured by all assets of the Company.

On March 31, 2009, the Company entered into a waiver and amendment to the Credit Facility (the “Amendment”).  Pursuant to the Amendment, the Company’s lenders waived the Company’s non-compliance with the financial covenants required by the Credit Facility at December 31, 2008. The Amendment modified the Credit Facility in certain ways including, as follows: (i) changed the maturity date to January 31, 2011, (ii) added certain asset categories to the borrowing base, (iii) increased the applicable margin rates (including a minimum LIBOR of 1.75%), (iv) revised the minimum Consolidated EBITDA (as defined in the Credit Facility) and fixed charge coverage covenants and added both a minimum net sales for 2009 only and maximum capital expenditures covenant, (v) eliminated the requirement of maximum leverage a nd minimum interest coverage ratios, (vi) eliminated the $50.0 million accordion feature, (vii) revised the minimum excess availability amount and (viii) placed restrictions on dividends and acquisitions.  The Company was in compliance with its financial covenants at December 31, 2009.  The Amendment also provided for a lock-box arrangement with the collateral agent for the benefit of its lenders; as such, the Company has classified the indebtedness as a current liability in its consolidated balance sheets as of December 31, 2009 and 2008.

On October 13, 2009, the Company entered into an agreement with its lenders to reduce the minimum net sales requirement for the quarter ended September 30, 2009 from $114.8 million to $107.0 million.

On October 30, 2009, the Company entered into an agreement with its lenders to further amend the Credit Facility to, among other things: (i) reduce the minimum required availability to $15.0 million for all fiscal quarters beginning with the fiscal quarter ended September 30, 2009, (ii) eliminate the orderly liquidation value of the Company’s trademarks from the borrowing base and (iii) reduce the total commitment to $130.0 million.

On February 12, 2010, the Company entered into an agreement with its lenders to further amend the Credit Facility to, among other things: (i) permit the Company to purchase, from time to time, in the aggregate, up to $15.0 million principal amount of the Company’s 4.75% Convertible Notes and (ii) eliminate the requirement for the Company to obtain a consent from the lenders prior to consummating a Permitted Acquisition (as defined in the Credit Facility).

At December 31, 2009, the Company had $1.2 million of open letters of credit and $24.6 million of borrowings outstanding under the Credit Facility.  Interest rates on outstanding borrowings at December 31, 2009 ranged from 5.75% to 6.25%.  Availability under the Credit Facility at December 31, 2009 was $49.9 million (net of $15.0 million of minimum required availability).  The Company has interest rate swap and collar agreements with an aggregate notional amount of $55.2 million at December 31, 2009 (see Note G).  The Company entered into these agreements to effectively fix the interest rate on a portion of its borrowings under the Credit Facility.

 
 

 

F-15

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE F — CONVERTIBLE NOTES

The Company has outstanding $75.0 million aggregate principal amount of 4.75% Convertible Senior Notes due July 15, 2011 (the “Notes”). The Notes are convertible into shares of the Company’s common stock at a conversion price of $28.00 per share, subject to adjustment in certain events. The Notes bear interest at 4.75% per annum, payable semiannually in arrears on January 15th and July 15th of each year and are unsubordinated except with respect to the Company’s debt outstanding under its Credit Facility.  The Company may not redeem the Notes at any time prior to maturity.

The Notes are convertible at the option of the holder anytime prior to the close of business on the business day prior to the maturity date.  Upon conversion, the Company may elect to deliver either shares of the Company’s common stock, cash or a combination of cash and shares of the Company’s common stock in satisfaction of the Company’s obligations upon conversion of the Notes.  At any time prior to the 26th trading day preceding the maturity date, the Company may irrevocably elect to satisfy in cash the Company’s conversion obligation with respect to the principal amount of the Notes to be converted after the date of such election, with any remaining amount to be satisfied in shares of the Company’s common stock.  The election would be in the Company’s sole discretion without the consent of the holders of the Notes. The conversion rate of the Notes may be adjusted upon the occurrence of certain events that would dilute the Company’s outstanding common stock.  In addition, holders that convert their Notes in connection with certain fundamental changes, such as a change in control, may be entitled to a make whole premium in the form of an increase in the conversion rate. If the Notes are not converted prior to the maturity date the Company is required to pay the holders of the Notes the principal amount of the Notes in cash upon maturity. The Company has reserved 2,678,571 shares of common stock for issuance upon conversion of the Notes.

As part of the issuance of the Notes, the Company incurred $3.1 million in underwriter’s discounts and other offering expenses.   The offering costs are being amortized to interest expense over the term of the Notes. At December 31, 2009 the unamortized balance of these costs is $917,000 and is included in other assets in the consolidated balance sheet.

 

Effective January 1, 2009, the Company adopted the provisions of ASC Topic No. 470-20 on a retrospective basis as though the provisions were in effect at the date of issuance of the Notes in June 2006.  As a result of the adoption, the Company reclassified $7.9 million (net of taxes of $2.8 million) from convertible notes to additional paid-in-capital and recorded a debt discount of $12.8 million to be amortized to interest expense over the term of the Notes.  In 2008, the Company recorded a full valuation allowance against all of its deferred taxes.  Accordingly, the Company increased additional paid in capital and accumulated deficit by $2.8 million to reflect th e valuation allowance in the 2008 period in the accompanying statement of stockholders' equity.

 

F-16

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE F — CONVERTIBLE NOTES (continued)

The following tables set forth the effects of the retrospective adoption of ASC Topic No. 470-20 on the Company’s consolidated balance sheet at December 31, 2008, consolidated statements of operations and cash flows for the years ended December 31, 2008, and 2007 (in thousands, except per share data):

Selected balance sheet data:

		December 31, 2008,
		As reported				As adjusted
Convertible notes		$	75,000			$	67,864
Paid-in-capital			116,869				127,497
Accumulated deficit			(18,023	)			(21,515	)

Selected statement of operations and cash flow data:

		Year Ended December 31, 2008,
		As reported				As adjusted
Statement of Operations
Interest expense		$	(9,142	)		$	(11,577	)
Loss before income taxes and equity in earnings of Grupo Vasconia, S.A.B.			(61,055	)			(63,490	)
Income tax benefit			10,540				14,249
Net loss			(49,029	)			(47,755	)
Basic and diluted loss per common share			(4.09	)			(3.99	)
Statement of Cash Flows
Amortization of debt discount			―				2,435
Deferred income taxes			155				(3,554	)

		Year Ended December 31, 2007,
		As reported				As adjusted
Statement of Operations
Interest expense		$	(8,397	)		$	(10,623	)
Income before income taxes			16,322				14,096
Income tax provision			(7,430	)			(6,567	)
Net income			8,892				7,529
Basic income per common share			0.69				0.58
Diluted income per common share			0.68				0.57
Statement of Cash Flows
Amortization of debt discount			―				2,226
Deferred income taxes			2,771				1,908

 

F-17

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE F — CONVERTIBLE NOTES (continued)

At December 31, 2009 and December 31, 2008, the carrying amounts of the debt and equity components of the Notes were as follows (in thousands):

		December 31,
		2009				2008
Carrying amount of equity component, net of tax		$	10,628			$	10,628
Principal amount of liability component		$	75,000			$	75,000
Unamortized discount			(4,473	)			(7,136	)
Carrying amount of debt component		$	70,527			$	67,864

At December 31, 2009 the remaining period over which the debt discount will be amortized is 1.5 years.  The effective interest rate of the liability component was 9.02% at the date of issuance. Total interest recognized related to the Notes, including amortization of the debt discount and offering costs, was $6.8 million, $6.6 million and $6.4 million for the years ended December 31, 2009, 2008 and 2007, respectively.

NOTE G — DERIVATIVES

The Company has interest rate swap agreements with an aggregate notional amount of $50.0 million and interest rate collar agreements with an aggregate notional amount of $40.2 million to manage interest rate exposure related to its variable interest rate borrowings under the Credit Facility. The agreements expire in November 2010 through January 2011.

An interest rate swap agreement with a notional amount of $15.0 million and the interest rate collar agreements were designated as cash flow hedges at inception, with the effective portion of the fair value gains or losses on these agreements recorded as a component of accumulated other comprehensive loss. During November 2009, the interest rate collar agreements were de-designated as a cash flow hedge as a result of reductions and projected future reductions in the Company’s borrowings hedged by the interest rate collar agreements.  Accordingly, the Company reclassified a portion of the loss included in other comprehensive loss related to the interest rate collar agreements of $780,000, representing the ineffective portion of the hedge, to interest expense. In addition, beginning in December 2009 and through the termin ation of the interest rate collar agreements, the Company will amortize the remaining loss of $382,000 included in other comprehensive loss and recognize the fair value gains or losses related to the interest rate collar agreements in interest expense. The effect of recording the cash flow hedges at fair value resulted in an unrealized gain of $543,000 at December 31, 2009 and unrealized losses of $1.9 million and $203,000 (net of taxes of $170,000) for the years ended December 31, 2008 and 2007, respectively.

Interest rate swap agreements with an aggregate notional amount of $35.0 million were not designated as hedges at inception and the fair value gains or losses from these swap agreements are recognized in interest expense. The effect of recording these interest rate swap agreements and the interest rate collar agreements (beginning with December 31, 2009) at fair value resulted in unrealized gains of $143,000 and $148,000 for the years ended December 31, 2009 and 2008, respectively, and an unrealized loss of $358,000 for the year ended December 31, 2007.

The fair value of the above derivatives have been obtained from the counterparties to the agreements and are based on Level 2 observable inputs using proprietary models and estimates about relevant future market conditions. The aggregate fair value of the Company’s derivative instruments was a liability of $1.8 million and $2.5 million at December 31, 2009 and 2008, respectively, and is included in accrued expenses and deferred rent & other long-term liabilities.

 

F-18

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE H — CAPITAL STOCK

Long-term incentive plan

In June 2009, the shareholders of the Company approved an amendment to the Company’s 2000 Long-Term Incentive Plan (the “Plan”) to increase the shares available for grant by 1,000,000 shares to 3,500,000 shares.  These shares of the Company’s common stock may be subject to outstanding awards granted to directors, officers, employees, consultants and service providers and affiliates in the form of stock options or other equity-based awards.  The Plan authorizes the Board of Directors of the Company, or a duly appointed committee thereof, to issue incentive stock options, non-qualified options, and other stock-based awards.  Options that have been granted under the Plan expire over a range of five to ten years from the date of grant and vest over a range of up to five years from the d ate of grant. As of December 31, 2009, there were 1,215,729 shares available for grant under the Plan.  All stock options granted through December 31, 2009 under the Plan have exercise prices equal to the market values of the Company’s common stock on the dates of grant.

In February 2009, two key executives of the Company irrevocably and voluntarily cancelled their options to purchase a total of 600,000 shares of the Company’s common stock, which had a nominal fair value, in order to increase the shares available for grant under the Plan.

Stock options

A summary of the Company’s stock option activity and related information for the three years ended December 31, 2009, is as follows:

 

		Options		Weighted- Average exercise price				Weighted- average remaining contractual life (years)		Aggregate intrinsic value
Options outstanding, December 31, 2006		1,410,900		$	22.78
Grants		516,500		21.65
Exercises		(32,000	)	7.64
Cancellations		(86,500	)	23.48
Options outstanding, December 31, 2007		1,808,900		22.69
Grants		286,000		7.15
Exercises		(1,750	)	5.50
Cancellations		(56,500	)	26.67
Options outstanding, December 31, 2008		2,036,650		20.41
Grants		632,000		3.43
Exercises		(12,650	)	5.43
Cancellations		(869,333	)	25.28
Options outstanding, December 31, 2009		1,786,667		12.14				6.51			$	3,091,570
Options exercisable, December 31, 2009		693,858		15.44				5.03			$	474,197

 

 

F-19

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE H — CAPITAL STOCK (continued)

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that would have been received by the option holders had all option holders exercised their stock options on December 31, 2009. The intrinsic value is calculated for each in-the-money stock option as the difference between the closing price of the Company’s common stock on December 31, 2009 and the exercise price.

The total intrinsic value of stock options exercised for the years ended December 31, 2009, 2008 and 2007 was $12,000, $10,000, and $417,000, respectively. The intrinsic value of a stock option that is exercised is calculated as the difference between the quoted market price of the Company’s common stock at the date of exercise and the exercise price of the stock option multiplied by the number of shares exercised.

The Company recognized stock option expense of $2.1 million, $2.8 million, and $2.2 million for the years ended December 31, 2009, 2008 and 2007, respectively. Total unrecognized compensation cost related to unvested stock options at December 31, 2009, before the effect of income taxes, was $3.8 million and is expected to be recognized over a weighted-average period of 2.37 years.

The Company values stock options using the Black-Scholes option valuation model. The Black-Scholes option valuation model, as well as other available models, was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.  The Black-Scholes option valuation model requires the input of highly subjective assumptions including the expected stock price volatility.

Because the Company’s stock options have characteristics significantly different from those of traded options, changes in the subjective input assumptions can materially affect the fair value estimate of the Company’s stock options.

The weighted-average per share grant date fair value of stock options granted during the years ended December 31, 2009, 2008 and 2007 was $1.92, $5.05 and $8.26, respectively.

The fair value for these stock options was estimated at the date of grant using the following weighted-average assumptions:

		2009					2008					2007
Historical volatility			73	%				50	%				40	%
Expected term (years)			4.4					4.8					5.2
Risk-free interest rate			1.92	%				2.41	%				4.56	%
Expected dividend yield			0.00	%				5.20	%				1.18	%

Cash dividends

The Company did not pay cash dividends on its outstanding shares of common stock during the year ended December 31, 2009. During the years ended December 31, 2008 and 2007, the Company paid a total annual cash dividend of $0.25 per share.

Preferred stock

The Company is authorized to issue 100 shares of Series A Preferred Stock and 2,000,000 shares of Series B Preferred Stock, none of which is outstanding at December 31, 2009.

 

F-20

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE H — CAPITAL STOCK (continued)

Restricted stock

In 2009, 2008 and 2007, the Company issued 33,335, 22,586 and 7,280 restricted shares, respectively, of the Company’s common stock to its Board of Directors representing payment of a portion of their annual retainer.  The total fair value of the restricted shares, based on the number of shares granted and the quoted market price of the Company’s common stock on the date of grant, was $150,000, $172,500 and $150,000, respectively. The shares vest 100% one year from the date of grant.

 

Escrow shares

In 2009, the Company received back 20,436 shares of its common stock valued at $149,000 that previously had been held in escrow in connection with its 2006 acquisition of certain assets of Syratech Corporation.  See Note L.

  

NOTE I — INCOME (LOSS) PER COMMON SHARE

Basic income (loss) per common share has been computed by dividing net income (loss) by the weighted-average number of shares of the Company’s common stock outstanding.  Diluted income (loss) per common share adjusts net income (loss) and basic income (loss) per common share for the effect of all potentially dilutive shares of the Company’s common stock.  The calculations of basic and diluted income (loss) per common share for the years ended December 31, 2009, 2008 and 2007 are as follows:

 

 

			2009				2008			2007
			(in thousands - except per share amounts)
Net income (loss) - Basic			$	2,715			$	(47,755	)		$	7,529
	Interest expense, net, 4.75% Convertible Senior Notes			―				―				―
Net income (loss) – Diluted			$	2,715			$	(47,755	)		$	7,529
Weighted-average shares outstanding – Basic				12,009				11,976				12,969
Effect of dilutive securities:
	Stock options			66				―				130
	4.75% Convertible Senior Notes			―				―				―
Weighted-average shares outstanding – Diluted				12,075				11,976				13,099
Basic income (loss) per common share			$	0.23			$	(3.99	)		$	0.58
Diluted income (loss) per common share			$	0.22			$	(3.99	)		$	0.57

The computations of diluted income (loss) per common share for the years ended December 31, 2009, 2008 and 2007 excludes options to purchase 1,435,348, 2,036,650 and 1,544,000 shares of the Company’s common stock, respectively, due to their antidilutive effect. The computations of diluted income (loss) per common share for the years ended December 31, 2009, 2008 and 2007 also excludes 2,678,571 shares of the Company’s common stock issuable upon the conversion of the Company’s 4.75% Convertible Senior Notes and related interest expense, due to their antidilutive effect.

 

F-21

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE J — INCOME TAXES

The provision (benefit) for income taxes consists of:

			Year Ended December 31,
			2009				2008				2007
			(in thousands)
Current:
	Federal		$	162			$	(11,478	)		$	3,891
	State and local			984				1,388				768
Deferred				734				(4,159	)			1,908
Income tax provision (benefit)			$	1,880			$	(14,249	)		$	6,567

The Company has carried back the prior year loss for Federal tax purposes.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income tax asset (liability) are as follows:

 

		December 31,
		2009				2008
		(in thousands)
Deferred income tax assets:
Deferred rent expense		$	2,424			$	2,117
Grupo Vasconia, S.A.B. translation adjustment			2,403				2,553
Stock options			1,413				919
Inventory			1,603				2,614
Depreciation and amortization			672				―
Operating loss carry-forward			617				1,209
AMT credit			633				709
Accounts receivable allowances			176				852
Accrued bonuses			389				313
Derivatives			619				1,054
Other			990				4,033
Total deferred income tax asset		$	11,939			$	16,373
Deferred income tax liability:
Depreciation and amortization			―				(31	)
Indefinite-lived intangibles			(4,273	)			(3,776	)
Convertible Debt			(1,727	)			(2,765	)
Grupo Vasconia, S.A.B. equity in earnings			(383	)			(198	)
Inventory			―				(1,303	)
Other			―				(211	)
Total deferred income tax liability			(6,383	)			(8,284	)
Net deferred income tax asset			5,556				8,089
Valuation allowance			(10,210	)			(11,865	)
Net deferred income tax liability		$	(4,654	)		$	(3,776	)

 

 

F-22

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE J — INCOME TAXES (continued)

As of December 31, 2009, the Company has utilized the Federal net operating loss carry forward generated in the prior year.  Additionally, the Company has various state net operating loss carry forwards of $12.4 million that will begin to expire in 2014. The Company has credit carryforwards of $633,000 that do not expire.  Management has determined that it is not more likely than not that these assets will be realized and a valuation allowance has been established.  In accordance with ASC Topic No. 740, Income Taxes, the Company has offset its total deferred tax asset with certain deferred tax liabilitie s that are expected to reverse in the carry forward period.

The provision (benefit) for income taxes differs from the amounts computed by applying the applicable Federal statutory rates as follows:

 

		Year Ended December 31,
		2009				2008				2007
Provision (benefit) for Federal income taxes at
at the statutory rate			35.0	%			(35.0	)%			35.0	%
Increases (decreases):
State and local income taxes, net of Federal income tax benefit			37.9				(3.3	)			5.9
Non-deductible stock options			11.5				0.5				3.4
Non-deductible expenses			6.4				1.1				0.8
Valuation allowance			(19.3	)			19.4				―
Other			6.1				(5.1	)			1.5
Provision (benefit) for income taxes			77.6	%			(22.4	)%			46.6	%

 

The estimated value of the Company’s tax positions at December 31, 2009, 2008 and 2007 is a liability of $335,000, $498,000 and $1.4 million, respectively, and consists of the following:

 

		Year Ended December 31,
		2009				2008				2007
		(in thousands)
Balance at January 1		$	498			$	1,437			$	1,704
Additions based on tax positions related to the current year											36
Additions for tax positions of prior years			28				303				9
Reductions for tax position of prior years			191				1,242				312
Balance at December 31		$	335			$	498			$	1,437

The Company had approximately $69,000, net of federal benefit, accrued at December 31, 2009 for the payment of interest.  The Company’s policy for recording interest and penalties is to record such items as a component of income taxes.

If the Company’s tax positions are sustained by the taxing authorities in favor of the Company, the Company’s liability would be reduced by $335,000, of which $335,000 would impact the Company’s tax provision.  On a quarterly basis, the Company evaluates its tax positions and revises its estimates accordingly. The Company believes that it is reasonably possible that $335,000 of its tax positions will be resolved within the next twelve months.

The Company has identified the following jurisdictions as “major” tax jurisdictions:  U.S. Federal, California, Massachusetts, Pennsylvania, New York and New Jersey.  As of December 31, 2009, the Company has settled their Federal tax examination for the periods 2006 through 2008.  The Company is no longer subject to U.S. Federal income tax examinations for the years prior to 2008.  The periods subject to examination for the Company’s major state jurisdictions are the years ended 2006 through 2008.

 

F-23

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 

NOTE K — BUSINESS SEGMENTS

Segment information

The Company operates in two reportable business segments; the wholesale segment, which is the Company’s primary business that designs, markets and distributes its products to retailers and distributors, and the direct-to-consumer segment, through its Pfaltzgraff®, Mikasa® and Lifetime Sterling™ Internet websites and the Company’s Pfaltzgraff® mail-order catalogs.

As more fully described in Note B, the Company ceased operating its Pfaltzgraff® and Farberware® retail outlet stores by December 31, 2008.  The results of operations of certain of these stores were included in the direct-to-consumer segment during 2008.

The Company has segmented its operations in a manner that reflects how management reviews and evaluates the results of its operations.  While both segments distribute similar products, the segments are distinct due to their different types of customers and the different methods used to sell, market and distribute the products. Management evaluates the performance of the wholesale and direct-to-consumer segments based on net sales and income (loss) from operations. Such measures give recognition to specifically identifiable operating costs such as cost of sales, distribution expenses and selling, general and administrative expenses. Certain general and administrative expenses, such as senior executive salaries and benefits, stock compensation, director fees and accounting, legal and consulting fees, are not allocated to the sp ecific segments and are reflected as unallocated corporate expenses.  Assets in each segment consist of assets used in its operations and acquired intangible assets.  Assets in the unallocated corporate category consist of cash and tax related assets that are not allocated to the segments.

		Year Ended December 31,
		2009				2008				2007
		(in thousands)
Net sales:
Wholesale		$	389,078			$	403,591			$	416,890
Direct-to-consumer			25,962				84,344				76,835
Total net sales		$	415,040			$	487,935			$	493,725
Income (loss) from operations:
Wholesale (1)		$	30,581			$	(11,979	)		$	42,968
Direct-to-consumer (2)			(3,637	)			(28,998	)			(10,010	)
Unallocated corporate expenses			(11,335	)			(10,936	)			(12,174	)
Total income (loss) from operations		$	15,609			$	(51,913	)		$	20,784
Depreciation and amortization:
Wholesale		$	11,252			$	9,975			$	8,178
Direct-to-consumer			220				807				1,481
Total depreciation and amortization		$	11,472			$	10,782			$	9,659

 

F-24

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE K — BUSINESS SEGMENTS (continued)

Segment information (continued)

		Year Ended December 31,
		2009				2008				2007
		(in thousands)
Assets:
Wholesale		$	273,589			$	321,284			$	337,156
Direct-to-consumer			2,452				5,422				22,163
Unallocated/ corporate/ other			682				15,075				12,096
Total assets		$	276,723			$	341,781			$	371,415
Capital expenditures:
Wholesale		$	1,684			$	8,538			$	17,412
Direct-to-consumer			660				321				1,611
Total capital expenditures		$	2,344			$	8,859			$	19,023

Notes:

(1)	In 2009, income from operations for the wholesale segment includes $600,000 for restructuring and impairment expenses.  In 2008, loss from operations for the wholesale segment included non-cash goodwill and intangible asset impairment charges totaling $29.4 million. See Notes B and D.

(2)	In 2009, 2008 and 2007, loss from operations for the direct-to-consumer segment includes $2.0 million, $18.0 million and $1.9 million of restructuring and non-cash fixed asset impairment charges, respectively.  See Note B.

Product category information – net sales

The following table sets forth the net sales by the major product categories included within the Company’s wholesale operating segment:

		Year Ended December 31,
		2009				2008				2007
		(in thousands)
Food Preparation		$	217,476			$	232,211			$	247,336
Tabletop			113,479				111,769				97,995
Home Décor			53,360				57,650				68,856
Other			4,763				1,961				2,703
Total		$	389,078			$	403,591			$	416,890

 

F-25

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE L — COMMITMENTS AND CONTINGENCIES

Operating leases

The Company has lease agreements for its corporate headquarters, distribution centers, showrooms and sales offices that expire through 2022. These leases generally provide for, among other things, annual base rent escalations, and additional rent for real estate taxes and other costs.

In December 2009, in connection with the Company’s restructuring activities described in Note B, the Company entered into an agreement pursuant to which, among other things, the Company was released from its lease obligations for the space the Company leased in the Greenway Tech Center in York, Pennsylvania that had served as the headquarters of the Company’s retail operations.

Future minimum payments under non-cancelable operating leases are as follows (in thousands):

Year ending December 31
2010		$	12,476
2011			12,195
2012			12,448
2013			12,319
2014			12,248
Thereafter			55,921
Total		$	117,607

Rental and related expenses under operating leases were $13.5 million, $23.0 million and $18.3 million for the years ended December 31, 2009, 2008 and 2007, respectively.

Capital leases

The Company has entered into various capital lease arrangements for the leasing of equipment that is primarily utilized in its distribution centers. These leases expire through 2011 and the future minimum lease payments due under the leases are as follows (in thousands):

Year ending December 31
2010		$	169
2011			94
Total minimum lease payments			263
Less: amounts representing interest			(19	)
Present value of minimum lease payments		$	244

The current and non-current portions of the Company’s capital lease obligations at December 31, 2009 of $154,000 and $90,000, respectively, and at December 31, 2008 of $230,000 and $239,000, respectively, are included in accrued expenses, and deferred rent & other long-term liabilities, respectively.

 

F-26

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE L — COMMITMENTS AND CONTINGENCIES (continued)

Royalties

The Company has license agreements that require the payment of royalties on sales of licensed products, which expire through 2023.  Future minimum royalties payable under these agreements are as follows (in thousands):

Year ending December 31
2010		$	6,463
2011			5,423
2012			5,707
2013			300
2014			306
Thereafter			1,060
Total		$	19,259

Legal proceedings

The Company is a defendant in various lawsuits and from time-to-time regulatory proceedings which may require the recall of its products, arising in the ordinary course of its business. Management does not expect the outcome of any of these matters, individually or collectively, to have a material adverse effect on the Company’s financial condition.

In October 2007, Syratech Corporation (“Syratech”) commenced an action against the Company and the Company’s wholly-owned subsidiary, Syratech Acquisition Corporation, in the New York State Supreme Court, New York County, asserting a single cause of action for breach of contract.  Syratech alleged that the Company breached the parties’ asset purchase agreement by failing to file and make effective a registration statement for shares of the Company’s common stock issued to Syratech for its assets.  In November 2009, the Company entered into a settlement agreement and the action was dismissed.  Pursuant to the settlement agreement, the Company paid Syratech $425,000.

In March 2008, the Environmental Protection Agency (“EPA”) announced that the San Germán Ground Water Contamination site in Puerto Rico was added to the Superfund National Priorities List due to contamination present in the local drinking water supply. Wallace Silversmiths de Puerto Rico, Ltd. (“Wallace”), a wholly-owned subsidiary of the Company, received a Notice of Potential Liability and Request for Information Pursuant to 42 U.S.C. Sections 9607(a) and 9604(e) of the Comprehensive Environmental Response, Compensation, Liability Act regarding the San Germán Ground Water Contamination Superfund Site, San Germán, Puerto Rico dated May 29, 2008 from the EPA.  The EPA requested that Wallace provide information regarding Wallace’s occupation of the facility located in San Germá n, Puerto Rico and contamination of the ground water supply.  By letter dated June 18, 2008, the Company responded to the EPA’s Request for Information on behalf of Wallace.  The Company has engaged environmental consultants to investigate the environmental condition of the property and preliminary discussions with the EPA have been initiated.  At this time, it is not possible for the Company to evaluate the outcome.

 

F-27

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE M — RETIREMENT PLANS

401(k) plan

The Company maintains a defined contribution retirement plan for eligible employees under Section 401(k) of the Internal Revenue Code. Participants can make voluntary contributions up to the Internal Revenue Service limit of $16,500 ($22,000 for employees 50 years or over) for 2009. During 2008 and 2007, the Company matched 50% of employee contributions up to 4% of an employee’s eligible compensation.  Effective January 1, 2009 the Company suspended its matching contribution as an expense savings measure.  The Company made matching contributions to the 401(k) plan of $777,000 and $778,000 in 2008 and 2007, respectively.

Retirement benefit obligations

As part of the acquisition of the business and certain assets of Syratech in April 2006, the Company assumed certain obligations for retirement benefits to be payable to certain former executives of Syratech.  The obligations under these agreements are unfunded. At December 31, 2009 and 2008, the total unfunded retirement benefit obligation was $3.3 million and $3.2 million, respectively, and is included in accrued expenses, and deferred rent & other long-term liabilities. During the years ended December 31, 2009 and 2008, the Company paid retirement benefits related to these obligations of $153,000 and $148,000, respectively.  The Company expects to pay a total of $148,000 in retirement benefits related to these obligations during the year ending December 31, 2010.

NOTE N — OTHER

Inventory

The components of inventory are as follows:

		December 31,
		2009				2008
		(in thousands)
Finished goods		$	101,270			$	137,378
Work in process			1,635				2,197
Raw materials			1,026				2,037
Total		$	103,931			$	141,612

 

F-28

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE N — OTHER (continued)

Property and equipment

Property and equipment consist of:

		December 31,
		2009				2008
		(in thousands)
Machinery, furniture and equipment		$	64,927			$	63,868
Leasehold improvements			24,283				24,469
Building and improvements			1,716				1,708
Construction in progress			123				1,301
Land			115				115
			91,164				91,461
Less:  accumulated depreciation and amortization			(49,541	)			(41,553	)
Total		$	41,623			$	49,908

Depreciation and amortization expense on property and equipment for the years ended December 31, 2009, 2008 and 2007 was $9.4 million, $9.8 million and $8.7 million, respectively.

Included in machinery, furniture and equipment and accumulated depreciation at December 31, 2009 are $2.1 million and $1.7 million, respectively, related to assets recorded under capital leases.  Included in machinery, furniture and equipment and accumulated depreciation at December 31, 2008 are $2.1 million and $1.6 million, respectively, related to assets recorded under capital leases.

As more fully described in Note B, the Company recorded non-cash impairment charges in connection with its restructuring activities of $789,000, $3.9 million and $1.6 million in 2009, 2008 and 2007, respectively.

 

In November 2007, the Company sold its former corporate headquarters in Westbury, New York, for net proceeds of $8.8 million.  The Company recognized a gain of $3.7 million on the sale which is included in other income, net for the year ended December 31, 2007.

Accrued expenses

Accrued expenses consist of:

		December 31,
		2009				2008
		(in thousands)
Customer allowances and rebates		$	10,693			$	5,956
Compensation			4,948				1,924
Interest			2,666				2,272
Vendor invoices			3,020				6,066
Royalties			1,801				2,021
Derivative liability			1,695				―
Commissions			737				1,218
Freight			704				2,245
Restructuring costs			588				9,890
Other			2,975				4,310
Total		$	29,827			$	35,902

 

F-29

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LIFETIME BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE N — OTHER (continued)

Deferred rent & other long-term liabilities

Deferred rent & other long-term liabilities consist of:

		December 31,
		2009				2008
		(in thousands)
Deferred rent liability		$	10,998			$	11,135
Mikasa® contingent consideration			6,215				6,215
Retirement benefit obligations			3,148				3,003
Derivative liability			76				2,462
Long-term portion of capital lease obligations			90				239
Total		$	20,527			$	23,054

Supplemental cash flow information

		Year Ended December 31,
		2009				2008				2007
		(in thousands)
Supplemental disclosure of cash flow information:
Cash paid for interest		$	8,804			$	8,635			$	6,167
Cash paid for taxes			380				6,138				6,392
Non-cash investing activities:
Grupo Vasconia, S.A.B. translation adjustment		$	388			$	(6,587	)		$	―
Liabilities assumed in business acquisition			―				3,264				―
Common stock issued in connection with business acquisition			―				―				133
Equipment acquired under capital lease obligations			―				―				34
Capitalized tenant improvement allowances			―				―				7,039

 

F-30

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LIFETIME BRANDS, INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

 

 

COL. A			COL. B				COL. C					COL. D					COL. E
Description			Balance at beginning of period				Additions charged to costs and expenses					Deductions (describe)					Balance at end of period
Year ended December 31, 2009
Deducted from asset accounts:
Allowance for doubtful accounts			$	1,853			$	1,204				$	1,624		(a)		$	1,433
Reserve for sales returns and allowances				12,798				22,180		(c)			19,854		(b)			15,124
			$	14,651			$	23,384				$	21,478				$	16,557
Year ended December 31, 2008
Deducted from asset accounts:
Allowance for doubtful accounts			$	395			$	1,614				$	156		(a)		$	1,853
Reserve for sales returns and allowances				16,005				23,160		(c)			26,367		(b)			12,798
			$	16,400			$	24,774				$	26,523				$	14,651
Year ended December 31, 2007
Deducted from asset accounts:
Allowance for doubtful accounts			$	395			$	(79	)			$	(79	)	(a)		$	395
Reserve for sales returns and allowances				11,702				19,970		(c)			15,667		(b)			16,005
			$	12,097			$	19,891				$	15,588				$	16,400

 

 

(a) Uncollectible accounts written off, net of recoveries.

(b) Allowances granted.

(c) Charged to net sales.

 

 

S-1

 

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Exhibit 21.1

Subsidiaries of the Registrant

Name of subsidiary		State/Country of Incorporation		Ownership
Outlet Retail Stores, Inc.		Delaware		100%
Pfaltzgraff Factory Stores, Inc.		Delaware		100%
Syratech Acquisition Corp.		Delaware		100%
TMC Acquisition Inc.		Delaware		100%
Wallace Silversmiths de Puerto Rico Ltd.		Cayman Islands		100%
Lifetime Brands, Inc. (HK) Limited		Hong Kong		100%
Lifetime Brands Global Sourcing (Shanghai) Consultancy Limited		China		100%
LTB de Mexico, S.A. de C.V.		Mexico		99.99%

 

 

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-105382, 333-146017 and 333-162734) and the Registration Statement on Form S-3 (No. 333-137575) of Lifetime Brands, Inc. of our reports dated March 17, 2010, with respect to the consolidated financial statements and schedule of Lifetime Brands, Inc., and the effectiveness of internal control over financial reporting of Lifetime Brands, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2009.

/s/ ERNST & YOUNG LLP

Jericho, New York

March 17, 2010

 

 

 

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Exhibit 31.1

CERTIFICATION

 

I, Jeffrey Siegel, certify that:

 

1.	I have reviewed this Annual Report on Form 10-K of Lifetime Brands, Inc. (“the registrant”);

2.

Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;

3.	Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-14 and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))) for the registrant and have:

a.

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;

b.

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a.

all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

March 17, 2010

/s/ Jeffrey Siegel

Jeffrey Siegel

Chief Executive Officer and President

 

 

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Exhibit 31.2

CERTIFICATION

I, Laurence Winoker, certify that:

 

1.	I have reviewed this Annual Report on Form 10-K of Lifetime Brands, Inc. (“the registrant”);

2.

Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;

3.	Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-14 and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))) for the registrant and have:

a.

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;

b.

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a.

all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

March 17, 2010

/s/ Laurence Winoker

Laurence Winoker

Senior Vice President – Finance, Treasurer and Chief Financial Officer

 

 

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Exhibit 32.1

Certification by Jeffrey Siegel, Chief Executive Officer and President, and Laurence Winoker, Senior Vice President – Finance, Treasurer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

I, Jeffrey Siegel, Chief Executive Officer and President, and I, Laurence Winoker, Senior Vice President – Finance, Treasurer and Chief Financial Officer, of Lifetime Brands, Inc., a Delaware corporation (the “Company”), each hereby certifies that:

(1)

The Company’s Annual report on Form 10-K for the year ended December 31, 2009 (the “Form 10-K”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)

The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jeffrey Siegel		/s/ Laurence Winoker
Jeffrey Siegel Chief Executive Officer and President		Laurence Winoker Senior Vice President- Finance, Treasurer and Chief Financial Officer
Date: March 17, 2010		Date: March 17, 2010

A signed original of this written statement required by Section 1350 has been provided to Lifetime Brands, Inc. and will be retained by Lifetime Brands, Inc. and furnished to the Securities and Exchange Commission or its staff, upon request.

 

 

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Exhibit 99.1