LIFETIME BRANDS, INC - Quarter Report: 2011 March (Form 10-Q)

T		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended March 31, 2011   or
£		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Delaware		11-2682486
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

 

 

 

Large accelerated filer  £	Accelerated filer	R
Non-accelerated filer    £ (Do not check if a smaller reporting company)	Smaller reporting company	£

 

 
 

 

 

Part I.	Financial Information	Page No.
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets – March 31, 2011 (unaudited) and December 31, 2010	2
	Unaudited Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2011 and 2010	3
	Unaudited Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2011 and 2010	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
	Report of Independent Registered Public Accounting Firm	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
Part II.	Other Information
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 6.	Exhibits	21
Signatures		22

 

 

 

 

		March 31, 2011				December 31, 2010
		(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,534			$	3,351
Accounts receivable, less allowances of $8,403 at 2011 and $12,611 at 2010			60,964				72,795
Inventory (Note A)			103,904				99,935
Deferred income taxes (Note G)			1,124				1,124
Prepaid expenses and other current assets			5,257				5,048
Income taxes receivable (Note G)			745				―
TOTAL CURRENT ASSETS			173,528				182,253
PROPERTY AND EQUIPMENT, net			35,296				36,093
INTANGIBLE ASSETS, net (Note C)			30,667				30,818
INVESTMENT IN GRUPO VASCONIA, S.A.B. (Note B)			25,738				24,068
OTHER ASSETS			4,197				4,354
TOTAL ASSETS		$	269,426			$	277,586
LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES
Revolving Credit Facility (Note D)		$	7,000			$	4,100
Accounts payable			21,846				19,414
Accrued expenses			22,595				31,962
Income taxes payable (Note G)			―				5,036
TOTAL CURRENT LIABILITIES			51,441				60,512
DEFERRED RENT & OTHER LONG-TERM LIABILITIES			14,452				14,482
DEFERRED INCOME TAXES (Note G)			1,408				1,429
REVOLVING CREDIT FACILITY (Note D)			10,000				10,000
TERM LOAN (Note D)			40,000				40,000
4.75% CONVERTIBLE SENIOR NOTES (Note D)			23,786				23,557
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, shares authorized: 100 shares of Series         A and 2,000,000 shares of Series B; none issued and outstanding			―				―
Common stock, $.01 par value, shares authorized: 25,000,000; shares     issued and outstanding: 12,066,543 in 2011 and 12,064,543 in 2010			121				121
Paid-in capital			132,108				131,350
Retained earnings			62				1,312
Accumulated other comprehensive (loss)			(3,952	)			(5,177	)
TOTAL STOCKHOLDERS’ EQUITY			128,339				127,606
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	269,426			$	277,586

		Three Months Ended March 31,
		2011				2010
Net sales		$	91,773			$	88,736
Cost of sales			58,383				53,952
Distribution expenses			10,940				10,133
Selling, general and administrative expenses			22,473				22,124
Income (loss) from operations			(23	)			2,527
Interest expense (Note D)			(1,979	)			(2,429	)
Income (loss) before income taxes and equity in earnings of Grupo Vasconia, S.A.B.			(2,002	)			98
Income tax benefit (provision) (Note G)			588				(39	)
Equity in earnings of Grupo Vasconia, S.A.B., net of taxes (Note B)			465				670
NET INCOME (LOSS)		$	(949	)		$	729
BASIC AND DILUTED INCOME (LOSS)  PER COMMON SHARE (NOTE F)		$	(0.08	)		$	0.06
Cash dividends declared per common share		$	0.025			$	―

 

 

 

 

		Three Months Ended
		March 31,
		2011				2010
OPERATING ACTIVITIES
Net income (loss)		$	(949	)		$	729
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for doubtful accounts			(16	)			(1,236	)
Depreciation and amortization			1,995				2,542
Amortization of debt discount			229				705
Deferred rent			(3	)			233
Stock compensation expense			748				659
Undistributed earnings of Grupo Vasconia, S.A.B.			(465	)			(670	)
Changes in operating assets and liabilities:
Accounts receivable			11,847				7,453
Inventory			(3,969	)			2,120
Prepaid expenses, other current assets and other assets			(52	)			(350	)
Accounts payable, accrued expenses and other liabilities			(7,242	)			(6,232	)
Income taxes receivable			(745	)			―
Income taxes payable			(5,036	)			(726	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES			(3,658	)			5,227
INVESTING ACTIVITIES
Purchases of property and equipment, net			(1,047	)			(578	)
NET CASH USED IN INVESTING ACTIVITIES			(1,047	)			(578	)
FINANCING ACTIVITIES
Proceeds (repayments) of bank borrowings, net			2,900				(4,531	)
Proceeds from the exercise of stock options			9				6
Excess tax benefits from the exercise of stock options			6				10
Payment of capital lease obligations			(27	)			(62	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			2,888				(4,577	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(1,817	)			72
Cash and cash equivalents at beginning of period			3,351				682
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	1,534			$	754

 

See accompanying independent registered public accounting firm review report and notes to unaudited condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		March 31,				December 31,
		2011				2010
		(in thousands)
Finished goods		$	99,572			$	96,375
Work in process			2,156				1,890
Raw materials			2,176				1,670
Total		$	103,904			$	99,935

 

 

 

 

 

 

 

 

 

 

		Three Months Ended March 31,
		2011								2010
		(in thousands)
		USD				MXN				USD				MXN
Net Sales		$	28,571			$	345,477			$	25,138			$	321,125
Gross Profit			8,083				97,737				7,329				93,621
Income from operations			3,325				40,206				3,534				45,146
Net Income			2,131				25,768				2,316				29,592

 

 

 

		March 31, 2011												December 31, 2010
		Gross				Accumulated Amortization				Net				Gross				Accumulated Amortization				Net
Indefinite-lived intangible assets:
Trade names		$	19,433			$	―			$	19,433			$	19,433			$	―			$	19,433
Finite-lived intangible assets:
Licenses			15,847				(6,299	)			9,548				15,847				(6,186	)			9,661
Trade names			2,477				(1,288	)			1,189				2,477				(1,267	)			1,210
Customer relationships			586				(538	)			48				586				(530	)			56
Patents			584				(135	)			449				584				(126	)			458
Total		$	38,927			$	(8,260	)		$	30,667			$	38,927			$	(8,109	)		$	30,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		March 31, 2011				December 31, 2010
Carrying amount of equity component, net of tax		$	8,262			$	8,262
Principal amount of debt component		$	24,100			$	24,100
Unamortized discount			(314	)			(543	)
Carrying amount of debt component		$	23,786			$	23,557

 

 

		Options				Weighted- average exercise price				Weighted- average remaining contractual life (years)				Aggregate intrinsic value
Options outstanding, January 1, 2011			2,219,200			$	12.46
Grants			150,000				11.73
Exercises			(2,000	)			4.60
Cancellations			(1,200	)			22.46
Options outstanding, March 31, 2011			2,366,000				12.41				6.07			$	12,277,235
Options exercisable, March 31, 2011			1,056,750				13.48				5.01			$	6,047,333

 

 

 

 

 

 

 

 

 

		Three Months Ended March 31,
		2011				2010
		(in thousands, except per share amounts)
Net income (loss) ― Basic		$	(949	)		$	729
Interest expense, 4.75% Convertible Senior Notes, net of tax			―				―
Net income (loss) ― Diluted		$	(949	)		$	729
Weighted-average shares outstanding ― Basic			12,066				12,015
Effect of dilutive securities:
Stock options			―				306
4.75% Convertible Senior Notes			―				―
Weighted-average shares outstanding ― Diluted			12,066				12,321
Basic and Diluted income (loss) per common share		$	(0.08	)		$	0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Three Months Ended March 31,
		2011				2010
		(in thousands)
Net sales
Wholesale		$	84,903			$	82,110
Retail Direct			6,870				6,626
Total net sales		$	91,773			$	88,736
Income (loss) from operations
Wholesale		$	2,914			$	5,021
Retail Direct			(104	)			(130	)
Unallocated corporate expenses			(2,833	)			(2,364	)
Total income (loss) from operations		$	(23	)		$	2,527
Depreciation and amortization
Wholesale		$	(1,975	)		$	(2,519	)
Retail Direct			(20	)			(23	)
Total depreciation and amortization		$	(1,995	)		$	(2,542	)

 

 

 

 

 

 

 

 

 

 

 

		Three Months Ended March 31,
		2011				2010
		(in thousands)
Supplemental disclosure of cash flow information:
Cash paid for interest		$	1,233			$	2,418
Cash paid for taxes			4,526				755
Non-cash investing activities:
Grupo Vasconia, S.A.B. foreign currency translation adjustment		$	(1,225	)		$	(946	)

 

 

		Three Months Ended March 31,
		2011				2010
		(in thousands)
Net income (loss)		$	(949	)		$	729
Derivative fair value adjustment, net of taxes of $36 for the period ended 2010			―				57
Grupo Vasconia, S.A.B. foreign currency translation adjustment			1,225				580
Derivative hedge de-designation			―				110
Total comprehensive income		$	276			$	1,476

 

 

 

 

 

/s/ ERNST & YOUNG LLP

 

 

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

·	General economic factors and political conditions;

 

·	Liquidity;

 

·	Competition;

 

·	Customers;

 

·	Supply chain;

 

·	Intellectual property;

 

·	Regulatory matters;

 

·	Technology; and

 

·	Personnel.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Three Months Ended March 31,
		2011				2010
Net sales			100.0	%			100.0	%
Cost of sales			63.6				60.9
Distribution expenses			11.9				11.4
Selling, general and administrative expenses			24.5				24.9
Income (loss) from operations			―				2.8
Interest expense			(2.2	)			(2.7	)
Income (loss) before income taxes and equity in earnings of Grupo Vasconia, S.A.B.			(2.2	)			0.1
Income tax benefit (provision)			0.6				―
Equity in earnings of Grupo Vasconia, S.A.B., net of taxes			0.5				0.8
Net income (loss)			(1.1	) %			0.9	%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated EBITDA for the four quarters ended March 31, 2011
(in thousands)
Three months ended March 31, 2011		$	2,720
Three months ended December 31, 2010			17,544
Three months ended September 30, 2010			13,529
Three months ended June 30, 2010			6,117
Total for the four quarters		$	39,910

 

 

 

 

		Three Months Ended March 31,
		2011				2010
		(in thousands)
Net income (loss) as reported		$	(949	)		$	729
Subtract out:
Undistributed earnings of Grupo Vasconia, S.A.B			(465	)			(670	)
Add back:
Income tax (benefit) provision			(588	)			39
Interest expense			1,979				2,429
Depreciation and amortization			1,995				2,542
Stock compensation expense			748				659
Consolidated EBITDA		$	2,720			$	5,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of March 31, 2011, 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, 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 Chief Executive Officer and Chief Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosure.

 

 

 

 

 

 

 

 

 

 

10.1	Compensation Committee Charter (as amended by the Board of Directors of Lifetime Brands, Inc. effective as of May 3, 2011).
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.

 

 

 

 

 

 

 

	Lifetime Brands, Inc
	/s/ Jeffrey Siegel		May 6, 2011
	Jeffrey Siegel
	Chief Executive Officer and President
	(Principal Executive Officer)
	/s/ Laurence Winoker		May 6, 2011
	Laurence Winoker
	Senior Vice President – Finance, Treasurer and Chief Financial Officer
	(Principal Financial and Accounting Officer)