What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-06 compared with 2020-05-21 · 317 added, 238 removed, 605 unchanged (48% of the section changed)

6 unchanged sentences

Cash and cash equivalents $ 63,537 $ 11,370

Accounts receivable, less allowances of $ 13,272 at March 31, 2020 and $ 9,681 at December 31, 2019

Accounts receivable, less allowances of $ 13,040 at June 30, 2020 and $ 9,681 at December 31, 2019

111,361 128,639

8 unchanged sentences

OTHER ASSETS 2,743 4,071

DEFERRED INCOME TAXES 1,485 —

TOTAL ASSETS $ 753,802 $ 770,023

17 unchanged sentences

Common stock, $ 0.01 par value, shares authorized:

50,000,000 at March 31, 2020 and December 31, 2019;

50,000,000 at June 30, 2020 and December 31, 2019;

shares issued and outstanding:

21,485,682 at March 31, 2020 and 21,255,660 at December 31, 2019

21,768,740 at June 30, 2020 and 21,255,660 at December 31, 2019

Paid-in capital 265,630 263,386

10 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Net sales $ 150,140 $ 142,536 $ 295,210 $ 292,462

5 unchanged sentences

Goodwill and other impairments — — 20,100 —

Loss from operations

Income (loss) from operations

4,296 ( 12,545 ) ( 20,949 ) ( 14,832 )

Interest expense ( 4,230 ) ( 5,044 ) ( 8,966 ) ( 9,966 )

Mark to market loss on interest rate derivatives ( 2,251 ) —

Loss before income taxes and equity in earnings (losses)

Mark to market (loss) gain on interest rate derivatives

( 164 ) 350 ( 2,415 ) 350

Income tax benefit

Equity in earnings (losses), net of taxes

Loss before income taxes and equity in losses

( 98 ) ( 17,239 ) ( 32,330 ) ( 24,448 )

Income tax (provision) benefit

( 3,031 ) 5,795 698 8,253

Equity in losses, net of taxes

( 848 ) ( 69 ) ( 509 ) ( 185 )

$ ( 3,977 ) $ ( 11,513 ) $ ( 32,141 ) $ ( 16,380 )

BASIC LOSS PER COMMON SHARE

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Other comprehensive (loss) income, net of taxes:

$ ( 3,977 ) $ ( 11,513 ) $ ( 32,141 ) $ ( 16,380 )

Other comprehensive loss, net of taxes:

Translation adjustment ( 2,514 ) ( 2,953 ) ( 6,972 ) ( 1,647 )

1 unchanged sentence

Effect of retirement benefit obligations 19 12 39 25

Other comprehensive (loss) income, net of taxes

Other comprehensive loss, net of taxes

( 2,394 ) ( 1,959 ) ( 9,709 ) ( 44 )

7 unchanged sentences

capital Retained Earnings Accumulated other

comprehensive loss

comprehensive

Shares Amount

3 unchanged sentences

Translation adjustment — — — — 1,306 1,306

Derivative fair value adjustment — — — — 596 596

Net change in cash flow hedges — — — — 596 596

Effect of retirement benefit obligations — — — — 13 13

7 unchanged sentences

BALANCE AT MARCH 31, 2019 20,927 $ 209 $ 259,304 $ 49,499 $ ( 32,701 ) $ 276,311

Comprehensive (loss) income:

— — — ( 11,513 ) — ( 11,513 )

Translation adjustment — — — — ( 2,953 ) ( 2,953 )

Net change in cash flow hedges — — — — 982 982

Effect of retirement benefit obligations — — — — 12 12

Total comprehensive loss ( 13,472 )

Restricted shares issued to directors 61 1 ( 1 ) — — —

Net issuance of restricted shares to employees 250 3 ( 3 ) — — —

Stock compensation expense — — 1,186 — — 1,186

Net exercise of stock options 34 — 133 — — 133

Shares effectively repurchased for required employee withholding taxes ( 17 ) — ( 158 ) — — ( 158 )

Dividends (1) — — — ( 896 ) — ( 896 )

BALANCE AT JUNE 30, 2019 21,255 $ 213 $ 260,461 $ 37,090 $ ( 34,660 ) $ 263,104

Common stock Paid-in

capital Retained Earnings (Accumulated deficit) Accumulated other

comprehensive loss

comprehensive

Shares Amount

13 unchanged sentences

BALANCE AT MARCH 31, 2020 21,486 $ 215 $ 264,405 $ ( 21,923 ) $ ( 41,770 ) $ 200,927

(1) Cash dividends declared per share of common stock were $ 0.0425 and $ 0.0425 in the three months ended March 31, 2019 and 2020, respectively.

Comprehensive (loss) income:

— — — ( 3,977 ) — ( 3,977 )

Translation adjustment — — — — ( 2,514 ) ( 2,514 )

Net change in cash flow hedges — — — — 101 101

Effect of retirement benefit obligations — — — — 19 19

Total comprehensive income

Net issuance of restricted shares to employees 309 3 ( 3 ) — — —

Stock compensation expense — — 1,415 — — 1,415

Shares effectively repurchased for required employee withholding taxes ( 26 ) — ( 187 ) — — ( 187 )

Dividends (1) — — — ( 913 ) — ( 913 )

BALANCE AT JUNE 30, 2020 21,769 $ 218 $ 265,630 $ ( 26,813 ) $ ( 44,164 ) $ 194,871

(1) Cash dividends declared per share of common stock were $ 0.085 and $ 0.085 in the six months ended June 30, 2019 and 2020, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

OPERATING ACTIVITIES

4 unchanged sentences

Amortization of financing costs 878 876

Mark to market loss on interest rate derivatives 2,251 —

Mark to market loss (gain) on interest rate derivatives

2,415 ( 350 )

Non-cash lease expense 2,020 1,156

1 unchanged sentence

Stock compensation expense 2,746 2,100

Undistributed equity in (earnings) losses, net of taxes

Changes in operating assets and liabilities (excluding the effects of business acquisitions):

Undistributed equity in losses, net of taxes

SKU Rationalization — 8,500

Changes in operating assets and liabilities:

Accounts receivable 12,661 33,798

4 unchanged sentences

NET CASH PROVIDED BY OPERATING ACTIVITIES

33,687 17,469

INVESTING ACTIVITIES

6 unchanged sentences

Repayments of term loan ( 7,583 ) ( 1,375 )

Payments for capital leases ( 25 ) ( 6 )

Payments for finance lease obligations ( 50 ) ( 12 )

Payments of tax withholding for stock based compensation ( 486 ) ( 390 )

Proceeds from the exercise of stock options — 133

Cash dividends paid ( 937 ) ( 1,786 )

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

NET CASH USED IN FINANCING ACTIVITIES

( 12,339 ) ( 472 )

Effect of foreign exchange on cash ( 323 ) 85

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

73,913 ( 1,504 )

INCREASE IN CASH AND CASH EQUIVALENTS

Cash and cash equivalents at beginning of period 11,370 7,647

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

June 30, 2020

NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

13 unchanged sentences

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

The Company’s business and working capital needs are highly seasonal, with a majority of sales occurring in the third and fourth quarters.

9 unchanged sentences

These incentives and promotions typically include arrangements such as cooperative advertising, buydowns, volume rebates and discounts.

These arrangements and returns are reflected as reductions of revenue at the time of sale.

These arrangements and an estimate for products expected to be returned are reflected as reductions of revenue at the time of sale.

See Note 2 – Revenue to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.

1 unchanged sentence

Cost of sales consists primarily of costs associated with the production and procurement of product, inbound freight costs, purchasing costs, royalties, tooling, and other product procurement related charges.

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

June 30, 2020

In 2019 the Company implemented programs to improve the productivity of its inventory and simplify its U.S.

In connection therewith, it initiated a stock keeping unit rationalization (“SKU Rationalization”) initiative to identify inventory to discontinue from active status, consistent with the objectives of these programs.

During the three months ended June 30, 2019, the Company recorded an $ 8.5 million charge to cost of sales associated with the SKU Rationalization initiative.

The inventory charge, which was recognized in cost of sales during the three months ended June 30, 2019, represented approximately 8 % of the Company's consolidated inventory at June 30, 2019.

Distribution expenses

2 unchanged sentences

Accounts receivable

The Company periodically reviews the collectability of its accounts receivable and establishes allowances for estimated losses that could result from the inability of its customers to make required payments, taking into consideration customer credit history and financial condition, industry and market segment information, credit reports, and economic trends and conditions such as the impacts of the COVID-19 pandemic in the first quarter of 2020.

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.

6 unchanged sentences

The sale of accounts receivable, under the Receivables Purchase Agreement with HSBC, is excluded from the Company’s unaudited condensed consolidated balance sheets at the time of sale and the related sale expense is included in selling, general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations.

Pursuant to this agreement, the Company sold to HSBC $ 37.9 million and $ 25.1 million of receivables during the three months ended March 31, 2020 and 2019, respectively.

Charges of $ 0.2 million and $ 0.1 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019, respectively.

At March 31, 2020 and 2019, $ 23.2 million and $ 17.3 million, respectively, of receivables sold were outstanding and due to HSBC from customers.

Pursuant to this agreement, the Company sold to HSBC $ 36.0 million a nd $ 73.9 million of receivables during the three and six months ended June 30, 2020, respectively, and $ 24.1 million and $ 49.2 million of receivables during the three and six months ended June 30, 2019, respectively.

Charges of $ 0.1 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the three months ended June 30, 2020 and June 30, 2019.

Charges of $ 0.3 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the six months ended June 30, 2020 and June 30, 2019.

At June 30, 2020 and 2019, $ 20.8 million and $ 14.8 million , respectively, of receivables sold were outstanding and due to HSBC from customers.

Inventory consists principally of finished goods sourced from third-party suppliers.

4 unchanged sentences

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and transportation.

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

The components of inventory were as follows (in thousands):

4 unchanged sentences

Total $ 168,928 $ 173,427

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

Fair value of financial instruments

5 unchanged sentences

The change in the fair value of hedges is included in accumulated other comprehensive loss and is subsequently recognized in the Company’s unaudited condensed consolidated statements of operations to mirror the location of the hedged items impacting earnings.

Changes to the fair value of derivatives that do not qualify as hedging instruments for accounting purposes are recorded in the Company’s unaudited condensed statements of operations.

Changes to the fair value of derivatives that do not qualify as hedging instruments for accounting purposes are recorded in the Company’s unaudited condensed consolidated statements of operations.

Goodwill, intangible assets and long-lived assets

10 unchanged sentences

Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results.

In addition, sustained declines in the Company's stock price and related market capitalization could impact key assumptions in the overall estimated fair values of its reporting units and could result in non-cash impairment charges that could be material to the Company's consolidated balance sheet or results of operations.

In addition, sustained declines in the Company's stock price and

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

related market capitalization could impact key assumptions in the overall estimated fair values of its reporting units and could result in non-cash impairment charges that could be material to the Company's consolidated balance sheet or results of operations.

Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting unit, an impairment charge will be recorded to reduce the reporting unit to fair value.

1 unchanged sentence

These tests can include the relief from royalty model or other valuation models.

Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit or material adverse changes in the business climate that indicate that the carrying amount of an asset may be impaired.

When impairment indicators

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

are present, the recoverability of the asset is measured by comparing the carrying value of the asset to the estimated undiscounted future cash flows expected to be generated by the asset.

If the carrying amount of the asset is not recoverable, the impairment to be recognized is measured by the amount by which the carrying amount of each long-lived asset exceeds the fair value of the asset.

Impairment indicators include, among other conditions, cash flow deficits, historical 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 group may be impaired.

When impairment indicators are present, the recoverability of the asset group is measured by comparing the carrying value of the asset group to the estimated undiscounted future cash flows expected to be generated by the asset group.

If the carrying amount of the asset group is not recoverable, the impairment to be recognized is measured by the amount by which the carrying amount of the long-lived asset group exceeds the fair value of the asset group.

See Note 5 – Intangible Assets to the unaudited condensed consolidated financial statements included in this Quarterly Report for additional information.

16 unchanged sentences

Restructuring expenses

During the three months ended March 31, 2020 the Company did not incur any restructuring expenses.

Costs associated with restructuring activities are recorded at fair value when a liability has been incurred.

A liability has been incurred at the point of closure for any remaining operating lease obligations and at the communication date for severance.

During the three and six months ended June 30, 2020, the Company's international segment incurred $ 0.3 million of restructuring expenses related to severance associated with the strategic reorganization of the international segment’s product development and sales workforce.

The strategic reorganization is the result of the Company's efforts for product development efficiencies and a country tailored international sales approach.

As of June 30, 2020, $ 0.2 million of severance was accrued.

The Company does not expect to incur any additional restructuring charges for these strategic reorganization efforts for the remainder of 2020.

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

During the three and six months ended June 30, 2019, the Company incurred $ 0.1 million and $ 0.4 million, respectively, of Filament restructuring charges, primarily related to severance.

During the three and six months ended June 30, 2019, the Company incurred $ 0.1 million and $ 0.4 million of restructuring expenses, primarily related to severance, for the integration of its legal entities operating in Europe.

In 2018, the Company finalized its integration plans for its European operations and took further steps to consolidate its operations.

New accounting pronouncements

1 unchanged sentence

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles and improve consistent application of and simplify U.S.

GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles and simplifies the application of U.S.

GAAP for other areas of Topic 740 by clarifying and amending the existing guidance.

The guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020.

5 unchanged sentences

The ASU also provides updated guidance regarding the impairment of available-for-sale debt securities and includes additional disclosure requirements.

The new guidance is effective for public business entities that meet the definition of a

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

Smaller Reporting Company as defined by the Securities and Exchange Commission for interim and annual periods beginning after December 15, 2022.

The new guidance is effective for public business entities that meet the definition of a Smaller Reporting Company as defined by the Securities and Exchange Commission for interim and annual periods beginning after December 15, 2022.

Early adoption is permitted.

Management is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to account for contract modifications, hedging relationships and other transactions that reference LIBOR or another reference rate that is expected to be discontinued as a result of reference rate reform.

The ASU is effective for all entities as of March 12, 2020 through December 31, 2022 and should be applied on a prospective basis.

Management is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

On April 10, 2020, the FASB staff issued a question-and-answer document to address stakeholder questions on the application of the lease accounting guidance for lease concessions related to the effects of the COVID-19 pandemic (the “Question-and-Answer Document”).

The guidance will allow concessions related to the timing of payments, where the total consideration has not changed, to not be accounted for as lease modifications.

The guidance allows concessions related to the timing of payments, where the total consideration has not changed, to not be accounted for as lease modifications.

Instead, any such concessions can be accounted for as if no change was made to the contract or as variable lease payments.

The Company is currently assessing the impact of the question-and-answer document, and will adopt the guidance in the second quarter of 2020, to the extent applicable.

The Company adopted the guidance on April 1, 2020 and elected to account for COVID-19 related rent concessions that did not result in a substantial increase in the rights of the lessor or the obligations of the lessee not as lease modifications.

See Note 3 – Leases for additional information on the Company’s adoption of this guidance.

NOTE 2 — REVENUE

4 unchanged sentences

Sales arrangements with delivery terms that are not FOB Shipping Point are not recognized upon shipment and the transfer of control for revenue recognition is evaluated based on the associated shipping terms and customer obligations.

Shipping and handling fees that are billed to customers in sales transactions are included in net sales and amounted to $ 0.7 million for each of the three months ended March 31, 2020 and 2019, respectively.

Shipping and handling fees that are billed to customers in sales transactions are included in net sales and amounted to $ 1.0 million and $ 1.7 million for the three

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

and six months ended June 30, 2020, respectively, and $ 0.6 million and $ 1.3 million for the three and six months ended June 30, 2019, respectively.

Net sales exclude taxes that are collected from customers and remitted to the taxing authorities.

1 unchanged sentence

These incentives and promotions typically include arrangements such as cooperative advertising, buydowns, volume rebates and discounts.

These arrangements represent forms of variable consideration and an estimate of sales returns are reflected as reductions in net sales in the Company’s condensed consolidated statements of operations.

These arrangements represent forms of variable consideration and an estimate of sales returns are reflected as reductions in net sales in the Company’s unaudited condensed consolidated statements of operations.

These estimates are based on historical experience and other known factors or as the most likely amount in a range of possible outcomes.

On a quarterly basis, variable consideration is assessed on a portfolio approach in estimating the extent to which the components of variable consideration are constrained.

Payment terms vary by customer, but generally range from 30 to 90 days or at the point of sale for the Company’s retail direct sales.

Payment terms vary by customer, but generally range from 30 to 90 days or at the point of sale for the Company’s retail direct sale s.

As a result of the COVID-19 pandemic, many of the Company's customers which operate retail locations have temporarily closed their stores voluntarily or as mandated by government stay at home orders.

2 unchanged sentences

The Company incurs certain direct incremental costs to obtain contracts with customers, such as sales-related co mmissions, where the recognition period for the related revenue is less than one year.

These costs are expensed as incurred and recorded within selling, general and administrative expenses in the condensed consolidated statements of operations.

These costs are expensed as incurred and recorded within selling, general and administrative expenses in the unaudited condensed consolidated statements of operations.

Incidental items that are immaterial in the context of the contract are expensed as incurred.

The following tables present the Company’s net sales disaggregated by segment, product category and geographic region for the three months ended March 31, 2020 and 2019 (in thousands):

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

Three Months Ended

The following tables present the Company’s net sales disaggregated by segment, product category and geographic region for the three and six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Kitchenware $ 84,418 $ 65,625 $ 163,692 $ 134,892

11 unchanged sentences

Total net sales $ 150,140 $ 142,536 $ 295,210 $ 292,462

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

NOTE 3 — LEASES

1 unchanged sentence

Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet.

In response to the COVID-19 pandemic, the Company has negotiated COVID-19-related rent concessions for several of its leased properties.

The finalization of these concessions did not take place until after the period end date of March 31, 2020.

Consistent with updated guidance from the FASB in April 2020, the Company is currently assessing the impact of the Question-And-Answer document, and will adopt the guidance in the second quarter of 2020, to the extent applicable.

In addition, the Company continues to assess and hold ongoing conversations with landlords for various properties in seeking commercially reasonable lease concessions given the current environment.

The components of lease expense for the three months ended March 31, 2020 and 2019 were as follows (in thousands):

In response to the COVID-19 pandemic, the Company negotiated COVID-19 related rent concessions for several of its leased properties.

The majority of these rent concessions were in the form of deferred rent payments for one or more months.

For these rent concessions the Company elected to account for these as if no changes to the lease were made and continued to recognize the straight-line lease expense for these leases in accordance with the FASB Question-and-Answer Document.

COVID-19 related deferred rent payments as of June 30, 2020, totaled $ 1.0 million and were recorded in accrued expenses in the unaudited condensed consolidated balance sheet as of June 30, 2020.

In addition, there were a limited number of rent concessions obtained by the Company in the form of rent abatement and changes in lease terms.

These lease modifications were accounted for as a resolution to a contingency that fixes previously variable lease payments which resulted in the remeasurement of the right-of-use asset and lease liability.

The remeasurement of the right-of-use and lease liability did not have a material effect on our consolidated financial statements or results of operations.

The Company continues to assess and hold ongoing conversations with landlords for various properties in seeking commercially reasonable lease concessions given the current environment.

The components of lease expense for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):

Three Months Ended

Six Months EndedJune 30,

2020 2019 2020 2019

Operating lease expenses:

Fixed $ 4,491 $ 4,907 $ 9,305 $ 9,131

Supplemental cash flow information for lease related liabilities and assets for the three months ended March 31, 2020 and 2019 was as follows (in thousands):

Three Months Ended

Supplemental cash flow information for lease related liabilities and assets for the six months ended June 30, 2020 and 2019 were as follows (in thousands):

Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases $ 7,285 $ 7,975

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

Three Months Ended

Six Months Ended

Right-of-use assets obtained in exchange for new lease obligations:

Operating leases $ 12 $ 115,488

The aggregate future lease payments for operating leases as of March 31, 2020 were as follows (in thousands):

2020 (excluding the three months ending March 31, 2020)

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

The aggregate future lease payments for operating leases as of June 30, 2020 were as follows (in thousands):

2020 (excluding the six months ending June 30, 2020)

Thereafter 54,209

2 unchanged sentences

Present value of lease payments $ 116,855

The Company expects to make payments related to the deferrals obtained as a result of COVID-19-related rent concessions of $ 0.4 million in 2020 and $ 0.6 million in 2021, per the updated terms of the applicable lease agreements.

Average lease terms and discount rates were as follows:

March 31, 2020

June 30, 2020

Operating leases:

1 unchanged sentence

Weighted-average discount rate 6.2 %

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

NOTE 4 — INVESTMENTS

4 unchanged sentences

The Company accounts for its investment in Vasconia using the equity method of accounting and records its proportionate share of Vasconia’s net income in the Company’s condensed consolidated statements of operations.

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 three months ended March 31, 2020 and 2019 in the accompanying unaudited condensed consolidated statements of operations.

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 three and six months ended June 30, 2020 and 2019 in the accompanying unaudited condensed consolidated statements of operations.

The value of the Company's investment balance has been translated from Mexican Pesos ("MXN") to U.S.

Dollars ("USD") using the spot rates of MXN 23.77 and MXN 18.91 at March 31, 2020 and December 31, 2019, respectively.

The Company's proportionate share of Vasconia's net income (loss) has been translated from MXN to USD using the following exchange rates:

Dollars ("USD") using the spot rates of MXN 23.07 and MXN 18.91 at June 30, 2020 and December 31, 2019, respectively.

The Company's proportionate share of Vasconia's net loss has been translated from MXN to USD using the following exchange rates:

Three Months Ended

Six Months Ended

2020 2019 2020 2019

Average exchange rate (USD to MXN) 23.31

The effect of the translation of the Company’s investment, as well as the translation of Vasconia's balance sheet, resulted in a decrease to the investment of $ 1.5 million and $ 0.3 million during the three months ended March 31, 2020 and 2019, respectively.

19.91 - 23.31

19.11 - 19.24

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

The effect of the translation of the Company’s investment, as well as the translation of Vasconia's balance sheet, resulted in a decrease to the investment of $ 4.0 million and $ 1.5 million during the six months ended June 30, 2020 and 2019, respectively.

These translation effects are recorded in accumulated other comprehensive loss.

Summarized income statement information for the three months ended March 31, 2020 and 2019 for Vasconia in USD and MXN is as follows (in thousands):

Summarized income statement information for the three and six months ended June 30, 2020 and 2019 for Vasconia in USD and MXN is as follows (in thousands):

Three Months Ended

2 unchanged sentences

6,062 141,304 9,291 177,552

(Loss) income from operations

Income from operations

1,414 32,948 2,805 53,601

Net income (loss)

( 1,994 ) ( 46,459 ) ( 178 ) ( 3,407 )

The Company recorded equity in earnings (losses) of Vasconia, net of taxes, of $ 0.3 million and $( 0.1 ) million for the three months ended March 31, 2020 and 2019, respectively.

Six Months Ended

USD MXN USD MXN

Net Sales $ 60,367 $ 1,299,048 $ 78,534 $ 1,506,175

11,469 248,961 17,229 330,273

Income from operations

864 22,000 4,698 90,027

( 572 ) ( 18,156 ) ( 511 ) ( 9,813 )

The Company recorded equity in losses of Vasconia, net of taxes, of $ 0.6 million and $ 0.3 million for the three and six months ended June 30, 2020, respectively.

The Company recorded equity in losses of Vasconia, net of taxes, of $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2019, respectively.

Included within the Company's unaudited condensed consolidated balance sheets were the following amounts due to and due from Vasconia (in thousands):

Vasconia due to and due from balances Balance Sheet

Location March 31, 2020 December 31, 2019

Location June 30, 2020 December 31, 2019

Amounts due from Vasconia Prepaid expenses and other current assets $ 91 $ 63

Amounts due to Vasconia Accrued expenses and Accounts payable ( 23 ) ( 77 )

As of March 31, 2020 and December 31, 2019, the fair value (based upon the quoted stock price) of the Company’s investment in Vasconia was $ 27.5 million and $ 34.7 million, respectively.

The carrying value of the Company’s investment in Vasconia was $ 20.2 million and $ 21.3 million as of March 31, 2020 and December 31, 2019, respectively.

Table of Con t e n t s

As of June 30, 2020 and December 31, 2019, the fair value (based upon the quoted stock price) of the Company’s investment in Vasconia was $ 28.3 million and $ 34.7 million, respectively.

The carrying value of the Company’s investment in Vasconia was $ 17.0 million and $ 21.3 million as of June 30, 2020 and December 31, 2019, respectively.

Lifetime Brands Do Brasil Participacoes Ltda., a 100 % owned subsidiary of Lifetime Brands, Inc., was dissolved on May 5, 2020.

The subsidiary held a note receivable relating to the 2016 sale of its 40 % equity interest in GS International S/A (“GSI”), a wholesale distributor of branded housewares products in Brazil, which was accounted for as an equity method investment.

The final installment due on the note receivable was received prior to dissolution of the subsidiary.

Foreign currency translation losses of $ 0.2 million, which were previously recorded as a component of stockholder’s equity within accumulated other comprehensive loss, were recognized in earnings upon dissolution of this subsidiary for the period ended June 30, 2020.

The Company included this loss within equity in losses, net of taxes.

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

June 30, 2020

NOTE 5 — INTANGIBLE ASSETS

Intangible assets consisted of the following as of March 31, 2020 and December 31, 2019 (in thousands):

March 31, 2020 December 31, 2019

Intangible assets consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

Gross Impairment Accumulated

10 unchanged sentences

Total $ 347,581 $ ( 20,100 ) $ ( 76,966 ) $ 250,515 $ 393,558 $ ( 42,990 ) $ ( 70,097 ) $ 280,471

As a result of the economic downturn caused by the COVID-19 pandemic, the Company concluded that a triggering event had occurred and performed an interim impairment test of goodwill and certain intangible assets as of March 31, 2020

Pursuant to the applicable authoritative literature, the Company performed an interim impairment test of the goodwill in the U.S.

reporting unit by comparing its fair value with its carrying value.

The analysis was performed by using a discounted cash flow and market multiple method.

Based upon the analysis performed, the Company recognized a non-cash goodwill impairment charge of $ 19.1 million during the three months ended March 31, 2020.

The goodwill impairment charge resulted from, among other factors, the uncertain market conditions arising from the COVID-19 pandemic, which impacted the Company's market capitalization, as well as a reduction of forecasted future cash flows associated with the effects of the COVID-19 pandemic.

The fair value of the U.S.

reporting unit was approximately 3.9 % below its carrying value.

Management’s projections used to estimate the cash flows included organic net sales growth and net sales growth through new customer channels as well as continued operating efficiencies in future periods.

Changes in any of the significant assumptions used in the valuation of the reporting unit could materially affect the expected cash flows, and such impacts could potentially result in a material non-cash impairment charge.

Indefinite-lived trade names

As a result of the economic decline caused by the COVID-19 pandemic, the Company determined its indefinite-lived trade names had indicators for impairment.

As a result, the Company bypassed the optional qualitative impairment analysis for its indefinite-lived trade names and performed an interim quantitative impairment analysis by comparing the fair value of the indefinite-lived trade names to their respective carrying values.

In the first quarter of 2020, as a result of the economic downturn caused by the COVID-19 pandemic, the Company concluded that a triggering event had occurred and performed an interim impairment test of goodwill and certain intangible assets as of March 31, 2020.

The Company performed the first quarter 2020 interim impairment test of goodwill by comparing its fair value with its carrying value.

The analysis was performed by using a discounted cash flow method and market multiple method.

For goodwill, the outcome of the valuation is largely dependent upon estimates made by the Company with respect to significant assumptions, including projected net sales, projected earnings before interest, tax, depreciation and amortization (“EBITDA”), terminal growth rates, and the cost of capital under the discounted cash flow method

For its indefinite-lived trade names the Company performed a quantitative impairment analysis by comparing the fair value of the indefinite-lived trade names to their respective carrying values in the first quarter of 2020.

The Company values its indefinite-lived trade names using a relief-from-royalty approach, which assumes the value of the trade name is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the trade name and instead licensed the trade name from another company.

As a result of the impairment testing performed in connection with the COVID-19 pandemic triggering event, the Company determined that certain of its indefinite-lived intangible assets in the U.S.

segment were impaired.

As a result, the Company recorded a $ 1.0 million non-cash impairment charge during the three months ended March 31, 2020.

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

In addition, several of the Company's other indefinite-lived trade names tested for impairment as of March 31, 2020 were determined to either be recorded at fair value or with fair values within 10 % of the associated carrying values.

While the Company believes the estimates and assumptions used as inputs in calculating the fair value of its indefinite-lived intangible assets are reasonable and were based on facts and circumstances known at that time, it is possible new events may occur or actual events may result in differing forecasted cash flows, revenue and earnings that differ from those that formed the basis of the Company’s estimates and assumptions.

The Company believes the circumstances and global disruption caused by COVID-19 will affect its sales, operating results, cash flows and financial condition.

Significant assumptions used in the Company’s fair value analysis included future net sales for the related brands, royalty rates, and the cost of capital.

Based upon these analyses performed, the Company recognized a non-cash goodwill impairment charge of $ 19.1 million, and a $ 1.0 million non-cash impairment charge for certain of its indefinite-lived intangible assets in the U.S.

segment in the first quarter of 2020.

The Company has determined that as of June 30, 2020 a triggering event has not occurred which would require an interim impairment test to be performed.

The Company believes the circumstances and global disruption caused by COVID-19 may have an adverse effect on its sales, operating results, cash flows and financial condition.

In addition, there are some inherent estimates and assumptions used in determining fair value of indefinite-lived intangible assets and reporting units that are outside the control of management, such as interest rates, cost of capital, tax rates, industry growth, credit ratings, foreign exchange rates, labor inflation and tariffs including the current trade negotiations with China.

1 unchanged sentence

Although management cannot predict when improvements in macroeconomic conditions will occur, if consumer confidence and consumer spending decline significantly in the future or if commercial and industrial economic activity or the market capitalization experiences a sustained deterioration significantly from current levels, it is reasonably likely the Company will be required to record impairment charges in the future.

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

NOTE 6 — DEBT

1 unchanged sentence

(“JPMorgan”), includes a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $ 150.0 million, which facility will mature on March 2, 2023, and a loan agreement (the “Term Loan” and together with the ABL Agreement, the “Debt Agreements”) which provides for a senior secured term loan credit facility in the original principal amount of $ 275.0 million, which matures on February 28, 2025.

The Term Loan facility will be repaid in quarterly payments, which commenced June 30, 2018, of principal equal to 0.25 % of the original aggregate principal amount of the Term Loan facility.

The Term Loan requires the Company to make an annual prepayment of principal based upon excess cash flow (“Excess Cash Flow”), if any.

This estimated amount is recorded in current maturity of term loan on the unaudited condensed consolidated balance sheets.

The Company paid a prepayment amount of $ 6.9 million in April 2020.

Additionally, the Term Loan facility requires quarterly payments, which commenced June 30, 2018, of principal equal to 0.25 % of the original aggregate principal amount of the Term Loan facility.

Per the Debt Agreements, when an Excess Cash Flow payment is made by the Company, the payment is first applied to satisfy the future quarterly required payments in order of maturity.

The maximum borrowing amount under the ABL Agreement may be increased to up to $ 200.0 million if certain conditions are met.

1 unchanged sentence

The Incremental Facilities may not exceed the sum of (i) $ 50.0 million plus (ii) an unlimited amount so long as, in the case of (ii) only, the Company’s secured net leverage ratio, as defined in and computed pursuant to the Term Loan, is no greater than 3.75 to 1.00, subject to certain limitations and for the period defined pursuant to the Term Loan.

As of March 31, 2020 and December 31, 2019, the total availability under the ABL Agreement was as follows (in thousands):

March 31, 2020

As of June 30, 2020 and December 31, 2019, the total availability under the ABL Agreement was as follows (in thousands):

June 30, 2020

December 31, 2019

8 unchanged sentences

The current and non-current portions of the Company’s Term Loan facility included in the condensed consolidated balance sheets were as follows (in thousands):

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Current portion of Term Loan facility:

1 unchanged sentence

Excess Cash Flow principal payment 15,000 7,145

Unamortized debt issuance costs ( 1,478 ) ( 1,482 )

Estimated unamortized debt issuance costs ( 1,473 ) ( 1,482 )

Total Current portion of Term Loan facility $ 13,527 $ 8,413

Non-current portion of Term Loan facility:

Term Loan facility payment $ 259,847 $ 260,293

Unamortized debt issuance costs ( 5,637 ) ( 6,012 )

Term Loan facility payment, net of current portion $ 247,605 $ 260,293

Estimated unamortized debt issuance costs ( 5,268 ) ( 6,012 )

Total Non-current portion of Term Loan facility $ 242,337 $ 254,281

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

The Company’s payment obligations under its Debt Agreements are unconditionally guaranteed by its existing and future U.S.

7 unchanged sentences

The respective margins are based upon the Company’s total leverage ratio, as defined in and computed pursuant to the ABL Agreement.

Interest rates on outstanding borrowings under the ABL Agreement at March 31, 2020 ranged from 1.8 % to 4.0 %.

In addition, the Company pays a commitment fee on the unused portion of the ABL Agreement.

The interest rate on outstanding borrowings under the ABL Agreement at June 30, 2020 was 1.8 %.

In addition, the Company pays a commitment fee of 0.375 % on the unused portion of the ABL Agreement.

The Term Loan facility bears interest, at the Company’s option, at one of the following rates:

(i) alternate base rate, defined, for any day, as the greater of (x) the prime rate, (y) a federal funds and overnight bank funding based rate plus 0.5 % or (z) one-month LIBOR, but not less than 1.0 %, plus 1.0 %, which alternate base rate shall not be less than 2 %, plus a margin of 2.5 % or (ii) LIBOR, but not less than 1.0 %, plus a margin of 3.5 %.

The interest rate on outstanding borrowings under the Term Loan at March 31, 2020 was 4.5 %.

The interest rate on outstanding borrowings under the Term Loan at June 30, 2020 was 4.5 %.

The Debt Agreements provide for customary restrictions and events of default.

1 unchanged sentence

Further, the ABL Agreement provides that during any period (a) commencing on the last day of the most recently ended four consecutive fiscal quarters on or prior to the date availability under the ABL Agreement is less than the greater of $ 15.0 million and 10 % of the aggregate commitment under the ABL Agreement at any time and (b) ending on the day after such availability has exceeded the greater of $ 15.0 million and 10 % of the aggregate commitment under the ABL Agreement for forty-five ( 45 ) consecutive days, the Company is required to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 as of the last day of any period of four consecutive fiscal quarters.

The Company was in compliance with the covenants of the Debt Agreements at March 31, 2020.

The Company was in compliance with the covenants of the Debt Agreements at June 30, 2020.

The Company expects that it will continue to borrow, subject to availability, and repay funds under the ABL Agreement based on working capital and other corporate needs.

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

NOTE 7 — DERIVATIVES

Interest Rate Swap Agreements

The Company is a party to interest rate swap agreements, with an aggregate notional value of $ 94.0 million at March 31, 2020.

The Company is a party to interest rate swap agreements, with an aggregate notional value of $ 75.0 million at June 30, 2020.

The interest rate swaps are designated as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings.

1 unchanged sentence

The notional amounts are reduced over these periods.

In June 2019, the Company entered into additional interest rate swap agreements, with an aggregate notional value of $ 25.0 million at March 31, 2020.

These are non-designated interest rate swaps that serve as economic hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings and expire in February 2025.

The Company's net total outstanding notional value of interest rate swaps was $ 119.0 million at March 31, 2020.

The Company entered into additional interest rate swap agreements, with an aggregate notional value of $ 25.0 million at June 30, 2020, that do not meet the criteria for hedge accounting treatment.

As a result, these interest rate swap agreements are considered non-designated interest rate swaps that serve as economic hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings and expire in February 2025.

The Company's total outstanding notional value of interest rate swaps was $ 100.0 million at June 30, 2020.

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

Foreign Exchange Contracts

6 unchanged sentences

The Company does not hedge the translation of foreign currency profits into USD, as the Company regards this as an accounting exposure rather than an economic exposure.

The aggregate gross notional value of foreign exchange contracts at March 31, 2020 was $ 2.1 million.

These foreign exchange contracts have been designated as hedges in order to apply hedge accounting.

The Company's foreign exchange contracts, that had been designed as hedges in order to apply hedge accounting, matured in April 2020.

As of June 30, 2020 the Company did not have any outstanding foreign exchange contracts.

The Company is exposed to market risks as well as changes in foreign currency exchange rates as measured against the USD and each other, and to changes to the credit risk of derivative counterparties.

3 unchanged sentences

All foreign currency forward contracts that the Company enters into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure.

The Company does not enter into such contracts for speculative purposes and as of March 31, 2020, the Company does not have any foreign currency forward contract derivatives that are not designated as hedges.

The Company does not enter into such contracts for speculative purposes and as of June 30, 2020, the Company does not have any foreign currency forward contract derivatives that are not designated as hedges.

The fair values of the Company’s derivative financial instruments included in the condensed consolidated balance sheets are presented as follows (in thousands):

Derivatives designated as hedging instruments Balance Sheet

Location March 31, 2020 December 31, 2019

Location June 30,

December 31, 2019

Interest rate swaps Prepaid expenses $ — $ 427

4 unchanged sentences

Derivatives not designated as hedging instruments Balance Sheet

Location March 31, 2020

Location June 30,

December 31, 2019

2 unchanged sentences

The fair values of the interest rate swaps have been obtained from the counterparties to the agreements and were based on Level 2 observable inputs using proprietary models and estimates about relevant future market conditions.

The fair values of the

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

foreign exchange contracts were based on Level 2 observable inputs using quoted market prices for similar assets in an active market.

The fair values of the foreign exchange contracts were based on Level 2 observable inputs using quoted market prices for similar assets in an active market.

The counterparties to the derivative financial instruments are major international financial institutions.

1 unchanged sentence

The Company does not anticipate non-performance by any of its counterparties.

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

The amounts of gains and losses related to the Company’s derivative financial instruments designated as hedging instruments are recognized in other comprehensive loss, net of taxes, as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

Derivatives designated as hedging instruments 2020 2019 2020 2019

3 unchanged sentences

Realized gains and losses on the interest rate swaps are reclassified into earnings as the interest expense on the debt is recognized.

The Company had no terminated or matured interest rate swaps during the three months ended March 31, 2020.

The Company had no terminated or matured interest rate swaps during the three and six months ended June 30, 2020.

Realized gains and losses on foreign exchange contracts that are reported in other comprehensive income (loss) are reclassified into cost of sales as the underlying inventory purchased is sold.

During the three months ended March 31, 2020, the Company reclassified $ 0.1 million of cash flow hedges in other comprehensive losses to earnings.

During the three months ended June 30, 2020, the Company reclassified $ 0.2 million of cash flow hedges in other comprehensive losses to earnings.

This was comprised of $ 0.3 million related to realized interest rate swap losses and a gain of $ 0.1 million related to foreign exchange contracts recognized in cost of sales.

During the six months ended June 30, 2020, the Company reclassified $ 0.4 million of cash flow hedges in other comprehensive losses to earnings.

This was comprised of $ 0.6 million related to realized interest rate swap losses and a gain of $ 0.2 million related to foreign exchange contracts recognized in cost of sales.

During the three months ended June 30, 2019, the Company reclassified $ 0.1 million related to realized interest rate swap losses and a gain of $ 0.1 million related to foreign exchange contracts recognized in cost of sales.

During the six months ended June 30, 2019, the Company reclassified $ 0.1 million related to realized interest rate swap losses and a gain of $ 0.1 million related to foreign exchange contracts recognized in cost of sales.

Interest and mark to market losses related to the Company’s derivative financial instruments not designated as hedging instruments that were recognized in earnings are as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

Derivatives not designated as hedging instruments Location of gain (loss) 2020 2019 2020 2019

Interest rate swaps Mark to market loss on interest rate derivatives $ ( 2,266 ) —

Table of Con t e n t s

Interest rate swaps Mark to market (loss) gain on interest rate derivatives

$ ( 164 ) 350 $ ( 2,415 ) 350

Interest expense ( 87 ) — ( 102 ) —

$ ( 251 ) $ 350 $ ( 2,517 ) $ 350

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

June 30, 2020

NOTE 8 — STOCK COMPENSATION

On June 25, 2020, the shareholders of the Company approved an amendment and restatement of the Company’s Amended and Restated 2000 Long Term Incentive Plan (the “Plan”).

The amendment and restatement of the Plan revised the terms and conditions of the Plan to, among other things, increase the shares available for grant under the Plan by 850,000 shares.

As of June 30, 2020, there were 746,809 shares available for the grant of awards under the Plan.

Option Awards

A summary of the Company’s stock option activity and related information for the three months ended March 31, 2020 is as follows:

A summary of the Company’s stock option activity and related information for the six months ended June 30, 2020 is as follows:

Options Weighted-

1 unchanged sentence

life (years) Aggregate

(in thousands)

Options outstanding, January 1, 2020

1,508,325 $ 13.43

Grants 37,500 6.36

Cancellations ( 3,750 ) 12.86

Expirations ( 229,175 ) 13.14

Options outstanding, March 31, 2020

Options outstanding, June 30, 2020

1,312,900 13.28 5.3 $ 14

Options exercisable, March 31, 2020

Options exercisable, June 30, 2020

999,919 $ 14.28 4.2 $ —

1 unchanged sentence

Weighted-average years expected to be recognized over 1.5

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 March 31, 2020.

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 March 31, 2020 and the exercise price.

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 June 30, 2020 and the exercise price.

Restricted Stock

A summary of the Company’s restricted stock activity and related information for the three months ended March 31, 2020 is as follows:

A summary of the Company’s restricted stock activity and related information for the six months ended June 30, 2020 is as follows:

Shares Weighted-

5 unchanged sentences

Cancellations ( 5,613 ) 9.54

Non-vested restricted shares, March 31, 2020

Non-vested restricted shares, June 30, 2020

834,071 $ 7.61

1 unchanged sentence

Weighted-average years expected to be recognized over 1.4

The total fair value of restricted stock that vested during the three months ended March 31, 2020 was $ 0.8 million.

The total fair value of restricted stock that vested during the six months ended June 30, 2020 was $ 1.8 million.

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

Performance shares

1 unchanged sentence

The number of shares of common stock earned will be determined based on the attainment of specified performance goals at the end of the performance period, as determined by the Compensation Committee of the Board of Directors.

The shares are subject to the terms and conditions of the Company’s Amended and Restated 2000 Long Term Incentive Plan (the “Plan”).

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

A summary of the Company’s performance-based award activity and related information for the three months ended March 31, 2020 is as follows:

The shares are subject to the terms and conditions of the Company’s Plan.

A summary of the Company’s performance-based award activity and related information for the six months ended June 30, 2020 is as follows:

average grant

1 unchanged sentence

405,059 $ 12.43

Grants 106,275 6.36

Vested ( 62,215 ) 18.45

Cancellations ( 14,524 ) 17.39

Non-vested performance-based awards, March 31, 2020

Non-vested performance-based awards, June 30, 2020

434,595 $ 9.92

2 unchanged sentences

(1) Represents the target number of shares to be issued for each performance-based award.

The total fair value of performance-based awards that vested during the three months ended March 31, 2020 was $ 0.4 million.

At March 31, 2020, there were 185,326 shares available for awards that could be granted under the Plan, assuming maximum performance of performance-based awards.

The total fair value of performance-based awards that vested during the six months ended June 30, 2020 was $ 0.4 million.

The Company recorded stock compensation expense as follows (in thousands):

Three Months Ended

Six Months Ended

Stock Compensation Expense Components 2020 2019 2020 2019

4 unchanged sentences

Total Stock Compensation Expense $ 1,420 $ 1,193 $ 2,746 $ 2,100

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

NOTE 9 — LOSS PER COMMON SHARE

2 unchanged sentences

Anti-dilutive securities are not included in the computation of diluted earnings per share under the treasury stock method.

The calculations of basic and diluted loss per common share for the three months ended March 31, 2020 and 2019 are as follows:

The calculations of basic and diluted loss per common share for the three and six months ended June 30, 2020 and 2019 are as follows:

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(in thousands, except per share amounts)

5 unchanged sentences

Antidilutive Securities 2,088 2,148 2,100 1,882

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

NOTE 10— INCOME TAXES

Income tax benefit of $ 3.7 million and $ 2.5 million for the three months ended March 31, 2020 and 2019, respectively, represent taxes on both U.S.

The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to pre-tax income or loss for the reporting period.

For the three and six months ended June 30, 2020, the Company has used a discrete effective tax rate method to calculate taxes.

Management determined that since minimal changes in estimated pre-tax income or loss would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the three and six months ended June 30, 2020.

Income tax expense of $ 3.0 million and benefit of $ 0.7 million for the three and six months ended June 30, 2020, respectively, represent taxes on both U.S.

and foreign earnings at a combined effective income tax provision rate of 3,092.9 % and benefit rate of 2.2 %, respectively.

The effective tax rate for the three and six months ended June 30, 2020 differs from the federal statutory income tax rate of 21.0% primarily due to non-deductible goodwill impairment and other significant permanent items recorded year-to-date, partially offset by the benefit of losses in foreign jurisdictions.

Income tax benefit of $ 5.8 million and $ 8.3 million for the three and six months ended June 30, 2019, respectively, represent taxes on both U.S.

and foreign earnings at combined effective income tax benefit rates of 33.6 % and 33.8 %, respectively.

The effective tax rate for the three months ended March 31, 2020 differs from the federal statutory income tax rate of 21.0% primarily due to the impact of the non-deductible portion of the goodwill impairment charge.

The effective rate for the three months ended March 31, 2019 differs from the federal statutory income tax rate of 21.0% primarily due to state and local taxes and a benefit related to rate changes, partially offset by non-deductible expenses.

The effective tax rate for the three and six months ended June 30, 2019 differs from the federal statutory rate of 21.0% primarily due to state and local taxes and the impact of non-deductible expenses.

The Company has identified the following jurisdictions as “major” tax jurisdictions:

1 unchanged sentence

The Company’s 2015 U.S.

Federal income tax return and New York State tax returns for years 2014-2016 remain under audit with no material assessments as of March 31, 2020.

Federal income tax return audit was completed with no assessments.

The Company's New York State tax returns for years 2014-2016 remain under audit with no material assessments as of June 30, 2020.

The Company evaluates its tax positions on a quarterly basis and revises its estimates accordingly.

There were no material changes to the Company’s uncertain tax positions, interest, or penalties during the three-month periods ended March 31, 2020 and March 31, 2019.

There were no material changes to the Company’s uncertain tax positions, interest, or penalties during the three-month periods ended June 30, 2020 and June 30, 2019.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law and the new legislation contains several key tax provisions, including the five-year net operating loss carryback, an adjusted business interest limitation, and payroll tax deferral.

1 unchanged sentence

The Company has assessed the applicability of the CARES Act and determined there is no material impact to the Company.

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

NOTE 11 – BUSINESS SEGMENTS

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(in thousands)

2 unchanged sentences

Total net sales $ 150,140 $ 142,536 $ 295,210 $ 292,462

Loss from operations

Income (loss) from operations

$ 13,152 $ ( 4,678 ) $ ( 728 ) $ ( 292 )

1 unchanged sentence

Unallocated corporate expenses ( 5,039 ) ( 4,999 ) ( 9,670 ) ( 10,625 )

Loss from operations

Income (loss) from operations

$ 4,296 $ ( 12,545 ) $ ( 20,949 ) $ ( 14,832 )

3 unchanged sentences

Total depreciation and amortization $ 6,061 $ 6,290 $ 12,295 $ 12,649

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

2020 December 31,

4 unchanged sentences

Total Assets $ 753,802 $ 770,023

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

NOTE 12 — CONTINGENCIES

21 unchanged sentences

The EPA has also issued notices of potential liability to a number of other entities affiliated with the Site, which used the contaminants of concern.

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

In December 2018, the Company, WSPR, and other identified Potentially Responsible Parties affiliated with the Site entered into tolling agreements to extend the statute of limitations for potential claims for the recovery of response costs for the initial operable unit under Section 107 of CERCLA.

6 unchanged sentences

Accordingly, based on the above uncertainties and variables, it is not possible at this time for the Company to estimate its share of liability, if any, related to this matter.

However, in the event of one or more adverse determinations related to this matter, it is possible that the ultimate liability resulting from this matter and the impact on the Company’s results of operations could be material.

However, in the event of one or more adverse determinations related to this matter, it is

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

possible that the ultimate liability resulting from this matter and the impact on the Company’s results of operations could be material.

Customs and Border Protection matter

5 unchanged sentences

Since being notified of the investigation, the Company has obtained a significant amount of evidence that, the Company believes, supports that the imported products were properly classified as specified sets.

The Company's counsel filed a lead Protest and Application for Further Review with CBP on February 5, 2020.

By letter dated March 18, 2020, the Company’s counsel requested that CBP suspend the matter until the protest is reviewed and decided by Customs Headquarters based on the sufficiency of the evidence presented.

CBP has confirmed that the protest is under review.

The Company's counsel filed a Lead Protest and Application for Further Review with CBP on February 5, 2020 (the "Lead Protest") relating to a single shipment made during the investigation period.

CBP approved the Company’s Lead Protest on June 8, 2020 stating that the specified set requirement was fulfilled with respect to the protested shipment based on information provided by the Company.

Based on this decision, no additional duties will be owed for the seven tableware collections imported in this shipment.

The Company is now in the process of compiling a complete set of supporting documents for the remaining three protests (for the remaining 29 tableware collections that were imported by the Company under the protested shipments) for submission to the CBP.

If the CBP approves these additional claims and accepts the evidence presented as it did with the Lead Protest, then no additional duties will be owed for the remaining protested shipments.

Because the period of investigation covers a five year period, the company is compiling supporting documentation packages for all tableware collections imported during this period.

In the event CBP accepts the evidence presented, then no additional duties or penalties will be owed.

6 unchanged sentences

The Company believes that other current litigation is routine in nature and incidental to the conduct of the Company’s business and that none of this litigation, individually or collectively, would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

NOTE 13 — OTHER

Cash dividends

Dividends declared in the three months ended March 31, 2020 were as follows:

Dividends declared in the six months ended June 30, 2020 were as follows:

Dividend per share Date declared Date of record Payment date

$ 0.0425 3/10/2020 11/16/2020 12/16/2020

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

$ 0.0425 6/25/2020 8/3/2020 8/17/2020

On February 14, 2020, the Company paid dividends of $ 0.9 million to shareholders of record on January 31, 2020.

On March 10, 2020, the Board of Directors declared a quarterly dividend of $ 0.0425 per share payable on May 15, 2020 to

shareholders of record on May 1, 2020.

In 2020, the Company declared dividends as follows:

• On March 10, 2020, the Board of Directors declared a quarterly dividend of $ 0.0425 per share payable on May 15, 2020 to shareholders of record on May 1, 2020.

Subsequently, the Company issued a press release on April 23, 2020, announcing that the Board of Directors unanimously approved the rescheduling of the May quarterly dividend.

Accordingly, shareholders of record as of November 16, 2020 will be eligible to receive $ 0.0425 per share on December 16, 2020.

In the three months ended March 31, 2020, the Company reduced retained earnings for the accrual of $ 0.9 million relating to the dividend payable on December 16, 2020.

Accordingly, shareholders of record as of November 16, 2020 will be eligible to receive a dividend of $ 0.0425 per share on December 16, 2020.

• On June 25, 2020, the Board of Directors declared a quarterly dividend of $ 0.0425 per share payable on August 17, 2020 to shareholders of record on August 3, 2020.

• On August 4, 2020, the Board of Directors declared a quarterly dividend of $ 0.0425 per share payable on November 16, 2020 to shareholders of record on November 2, 2020.

In the three months ended June 30, 2020, the Company reduced retained earnings for the accrual of $ 0.9 million relating to the dividend payable on August 17, 2020.

For the six months ended June 30, 2020, the Company reduced retained earnings for the accrual of $ 1.8 million relating to the dividend payable on August 17, 2020 and December 16, 2020 .

Supplemental cash flow information

Three Months Ended

Six Months Ended

(in thousands)

3 unchanged sentences

Non-cash investing activities:

Translation (loss) gain adjustment

Translation loss adjustment

$ ( 7,207 ) $ ( 1,647 )

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

Components of accumulated other comprehensive loss, net

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(in thousands)

1 unchanged sentence

Balance at beginning of period $ ( 38,477 ) $ ( 32,421 ) $ ( 34,019 ) $ ( 33,727 )

Translation (loss) income during period

Translation loss during period

( 2,749 ) ( 2,953 ) ( 7,207 ) ( 1,647 )

Amounts reclassified from accumulated other comprehensive loss (1)

Translation Adjustment ( 2,514 ) ( 2,953 ) ( 6,972 ) ( 1,647 )

Balance at end of period $ ( 40,991 ) $ ( 35,374 ) $ ( 40,991 ) $ ( 35,374 )

Accumulated deferred (losses) gains on cash flow hedges:

Accumulated deferred gains on cash flow hedges:

Balance at beginning of period $ ( 1,713 ) $ 757 $ 1,164 $ 161

1 unchanged sentence

Settlement of cash flow hedge (2)

240 ( 52 ) 359 ( 23 )

Change in unrealized (losses) gains

10 unchanged sentences

$ ( 44,164 ) $ ( 34,660 ) $ ( 44,164 ) $ ( 34,660 )

(1) Amounts are recorded in selling, general and administrative expense on the unaudited condensed consolidated statements of operations.

(1) Amount is recorded in equity in losses on the unaudited condensed consolidated statements of operations.

(2) Amounts reclassified are recorded in interest expense and cost of sales on the unaudited condensed consolidated statement of operations.

Table of Con t e n t s

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

SUBSEQUENT EVENTS

On March 11, 2020, the World Health Organization declared the novel strain of COVID-19 a global pandemic and recommended containment and mitigation measures worldwide.

The pandemic has significantly impacted economic conditions globally, with economic impacts accelerating in the U.S.

during the second half of March, as federal, state and local governments reacted to the public health crisis, creating significant uncertainties in the economy.

As of the date of this filing, the Company has been impacted by the economic decline resulting, among others, from brick-and-mortar customer closures and reduced demand from these customers.

Despite labor concerns due to COVID-19, the Company’s global distribution facility capacity and supply chain remain fully operational.

The Company cannot reasonably estimate the length or severity of this pandemic, however, as a result of these developments the Company believes that there could be a material adverse impact on its future sales, results of operations, and cash flows in the remainder of fiscal 2020, including the potential impairment of certain intangible and other long-lived assets.

In response to the evolving impact of the COVID-19 global pandemic, the Company announced a number of cost reduction actions in April 2020 including a reduction in cash compensation to certain of the Company’s senior executives and the Company’s Board of Directors.

In addition, the Company has furloughed a number of employees as a precautionary measure in the event of a prolonged economic downturn.

In addition to these cost reductions announced in April, the Company has taken actions to safeguard its liquidity position.

In March 2020, the Company borrowed $ 43.1 million under the ABL Agreement to provide additional liquidity and financial flexibility in light of current economic conditions and uncertainties arising in connection with the COVID-19 pandemic.

In addition, the Board of Directors has authorized the postponement of the Company's quarterly cash dividend, which was to be paid on May 15, 2020, to shareholders of record on May 1, 2020.

On April 23, 2020, the Company announced a new record date of November 16, 2020, with the dividend payable on December 16, 2020.

(3) Amounts are recorded in selling, general and administrative expense on the unaudited condensed consolidated statements of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements