LIFETIME BRANDS, INC 10-Q

Item 1. Financial Statements LIFETIME BRANDS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) September 30, 2023 December 31, 2022 (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,318 $ 23,598 Accounts receivable, less allowances of $ 16,810 at September 30, 2023 and $ 14,606 at December 31, 2022 153,456 141,195 Inventory 217,696 222,209 Prepaid expenses and other current assets 12,139 13,254 Income taxes receivable 1,254 — TOTAL CURRENT ASSETS 390,863 400,256 PROPERTY AND EQUIPMENT, net 16,824 18,022 OPERATING LEASE RIGHT-OF-USE ASSETS 71,834 74,869 INVESTMENTS 3,963 12,516 INTANGIBLE ASSETS, net 202,872 213,887 OTHER ASSETS 5,312 6,338 TOTAL ASSETS $ 691,668 $ 725,888 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Current maturity of term loan $ 13,866 $ — Accounts payable 57,188 38,052 Accrued expenses 69,320 77,602 Income taxes payable — 224 Current portion of operating lease liabilities 13,585 14,028 TOTAL CURRENT LIABILITIES 153,959 129,906 OTHER LONG-TERM LIABILITIES 14,796 14,995 INCOME TAXES PAYABLE, LONG-TERM 1,589 1,591 OPERATING LEASE LIABILITIES 72,808 76,420 DEFERRED INCOME TAXES 9,560 9,607 REVOLVING CREDIT FACILITY 29,305 10,424 TERM LOAN 183,234 242,857 STOCKHOLDERS’ EQUITY Preferred stock, $ 1.00 par value, shares authorized: 100 shares of Series A and 2,000,000 shares of Series B; none issued and outstanding — — Common stock, $ 0.01 par value, shares authorized: 50,000,000 at September 30, 2023 and December 31, 2022; shares issued and outstanding: 21,814,236 at September 30, 2023 and 21,779,799 at December 31, 2022 218 218 Paid-in capital 276,813 274,579 (Accumulated deficit) retained earnings ( 15,333 ) 1,145 Accumulated other comprehensive loss ( 35,281 ) ( 35,854 ) TOTAL STOCKHOLDERS’ EQUITY 226,417 240,088 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 691,668 $ 725,888 See accompanying notes to unaudited condensed consolidated financial statements. - 2 - Table of Contents LIFETIME BRANDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net sales $ 191,669 $ 186,590 $ 483,540 $ 520,621 Cost of sales 120,718 118,757 302,756 334,553 Gross margin 70,951 67,833 180,784 186,068 Distribution expenses 17,125 18,641 49,742 55,239 Selling, general and administrative expenses 40,214 36,462 113,984 114,208 Restructuring expenses — — 856 — Wallace facility remediation expense — 5,140 — 5,140 Income from operations 13,612 7,590 16,202 11,481 Interest expense ( 5,246 ) ( 4,581 ) ( 16,110 ) ( 12,080 ) Mark to market (loss) gain on interest rate derivatives ( 98 ) 637 ( 135 ) 1,990 Gain on early retirement of debt — — 1,520 — Income before income taxes and equity in losses 8,268 3,646 1,477 1,391 Income tax provision ( 3,015 ) ( 1,845 ) ( 2,909 ) ( 3,420 ) Equity in losses, net of taxes ( 1,047 ) ( 8,159 ) ( 9,687 ) ( 7,409 ) NET INCOME (LOSS) $ 4,206 $ ( 6,358 ) $ ( 11,119 ) $ ( 9,438 ) BASIC INCOME (LOSS) PER COMMON SHARE $ 0.20 $ ( 0.30 ) $ ( 0.52 ) $ ( 0.44 ) DILUTED INCOME (LOSS) PER COMMON SHARE $ 0.20 $ ( 0.30 ) $ ( 0.52 ) $ ( 0.44 ) See accompanying notes to unaudited condensed consolidated financial statements. - 3 - Table of Contents LIFETIME BRANDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income (loss) $ 4,206 $ ( 6,358 ) $ ( 11,119 ) $ ( 9,438 ) Other comprehensive (loss) income, net of taxes: Translation adjustment ( 1,242 ) ( 2,686 ) 1,556 ( 7,109 ) Net change in cash flow hedges 435 354 ( 1,018 ) 1,912 Effect of retirement benefit obligations 12 29 35 87 Other comprehensive (loss) income, net of taxes ( 795 ) ( 2,303 ) 573 ( 5,110 ) Comprehensive income (loss) $ 3,411 $ ( 8,661 ) $ ( 10,546 ) $ ( 14,548 ) See accompanying notes to unaudited condensed consolidated financial statements. - 4 - Table of Contents LIFETIME BRANDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) (unaudited) Common stock Paid-in capital Retained earnings (accumulated deficit) Accumulated other comprehensive loss Total Shares Amount BALANCE AT DECEMBER 31, 2022 21,780 $ 218 $ 274,579 $ 1,145 $ ( 35,854 ) $ 240,088 Net loss — — — ( 8,805 ) — ( 8,805 ) Other comprehensive income, net of taxes — — — — 420 420 Performance shares issued to employees 120 1 ( 1 ) — — — Net issuance of restricted shares granted to employees 185 2 ( 2 ) — — — Stock compensation expense — — 866 — — 866 Shares effectively repurchased for required employee withholding taxes ( 74 ) ( 1 ) ( 438 ) — — ( 439 ) Stock repurchase ( 320 ) ( 3 ) — ( 2,536 ) — ( 2,539 ) Dividends (1) — — — ( 930 ) — ( 930 ) BALANCE AT MARCH 31, 2023 21,691 $ 217 $ 275,004 $ ( 11,126 ) $ ( 35,434 ) $ 228,661 Net loss — — — ( 6,520 ) — ( 6,520 ) Other comprehensive income, net of taxes — — — — 948 948 Net issuance of restricted shares granted to employees and directors 141 1 ( 1 ) — — — Stock compensation expense — — 1,010 — — 1,010 Shares effectively repurchased for required employee withholding taxes ( 18 ) — ( 98 ) — — ( 98 ) Dividends (1) — — — ( 950 ) — ( 950 ) BALANCE AT JUNE 30, 2023 21,814 $ 218 $ 275,915 $ ( 18,596 ) $ ( 34,486 ) $ 223,051 Net income — — — 4,206 — 4,206 Other comprehensive loss, net of taxes — — — — ( 795 ) ( 795 ) Stock compensation expense — — 898 — — 898 Dividends (1) — — — ( 943 ) — ( 943 ) BALANCE AT SEPTEMBER 30, 2023 21,814 $ 218 $ 276,813 $ ( 15,333 ) $ ( 35,281 ) $ 226,417 (1) Cash dividends declared per share of common stock were $ 0.1275 and $ 0.1275 in the nine months ended September 30, 2023 and 2022, respectively. - 5 - Table of Contents Common stock Paid-in capital Retained earnings Accumulated other comprehensive loss Total Shares Amount BALANCE AT DECEMBER 31, 2021 22,018 $ 220 $ 271,556 $ 17,419 $ ( 33,549 ) $ 255,646 Net income — — — 380 — 380 Other comprehensive income, net of taxes — — — — 521 521 Performance shares issued to employees 167 2 ( 2 ) — — — Net issuance of restricted shares granted to employees 207 2 ( 2 ) — — — Stock compensation expense — — 1,151 — — 1,151 Net exercise of stock options 22 — 233 — — 233 Shares effectively repurchased for required employee withholding taxes ( 45 ) — ( 568 ) — — ( 568 ) Stock repurchase ( 51 ) ( 1 ) ( 670 ) — ( 671 ) Dividends (1) — — — ( 960 ) — ( 960 ) BALANCE AT MARCH 31, 2022 22,318 $ 223 $ 271,698 $ 16,839 $ ( 33,028 ) $ 255,732 Net loss — — — ( 3,460 ) — ( 3,460 ) Other comprehensive loss, net of taxes ( 3,328 ) ( 3,328 ) Net issuance of restricted shares granted to employees and directors 54 1 ( 1 ) — — — Stock compensation expense — — 1,280 — — 1,280 Net exercise of stock options 3 — — — — — Shares effectively repurchased for required employee withholding taxes ( 30 ) ( 1 ) ( 369 ) — — ( 370 ) Stock repurchase ( 286 ) ( 2 ) 671 ( 4,197 ) ( 3,528 ) Dividends (1) — — — ( 958 ) — ( 958 ) BALANCE AT JUNE 30, 2022 22,059 $ 221 $ 273,279 $ 8,224 $ ( 36,356 ) $ 245,368 Net loss — — — ( 6,358 ) — ( 6,358 ) Other comprehensive loss, net of taxes ( 2,303 ) ( 2,303 ) Net issuance of restricted shares granted to employees and directors ( 1 ) — — — — — Stock compensation expense — — 1,023 — — 1,023 Shares effectively repurchased for required employee withholding taxes ( 1 ) — — — — — Stock repurchase ( 53 ) ( 1 ) ( 1 ) ( 477 ) ( 479 ) Dividends (1) — — — ( 952 ) — ( 952 ) BALANCE AT SEPTEMBER 30, 2022 22,004 $ 220 $ 274,301 $ 437 $ ( 38,659 ) $ 236,299 (1) Cash dividends declared per share of common stock were $ 0.1275 and $ 0.1275 in the nine months ended September 30, 2023 and 2022, respectively. See accompanying notes to unaudited condensed consolidated financial statements. - 6 - Table of Contents LIFETIME BRANDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine Months Ended September 30, 2023 2022 OPERATING ACTIVITIES Net loss $ ( 11,119 ) $ ( 9,438 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 14,616 14,535 Amortization of financing costs 1,397 1,305 Mark to market loss (gain) on interest rate derivatives 135 ( 1,990 ) Non-cash lease adjustment ( 1,617 ) ( 1,055 ) Provision (recovery) for doubtful accounts 2,193 ( 140 ) Deferred income taxes 5 — Stock compensation expense 2,770 3,565 Undistributed losses from equity investment, net of taxes 9,687 7,409 Contingent consideration fair value adjustments ( 50 ) — Gain on early retirement of debt ( 1,520 ) — Changes in operating assets and liabilities (excluding the effects of business acquisitions) Accounts receivable ( 14,279 ) 38,765 Inventory 4,828 ( 3,694 ) Prepaid expenses, other current assets and other assets 1,784 ( 177 ) Accounts payable, accrued expenses and other liabilities 9,615 ( 66,062 ) Income taxes receivable ( 1,254 ) ( 2,583 ) Income taxes payable ( 230 ) ( 525 ) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 16,961 ( 20,085 ) INVESTING ACTIVITIES Purchases of property and equipment ( 1,765 ) ( 1,975 ) Acquisition — ( 17,956 ) NET CASH USED IN INVESTING ACTIVITIES ( 1,765 ) ( 19,931 ) FINANCING ACTIVITIES Proceeds from revolving credit facility 69,954 264,184 Repayments of revolving credit facility ( 51,123 ) ( 230,365 ) Repayments of term loan ( 44,866 ) ( 6,216 ) Payment of financing costs ( 433 ) ( 882 ) Payments for finance lease obligations ( 20 ) ( 24 ) Payments of tax withholding for stock based compensation ( 537 ) ( 938 ) Proceeds from the exercise of stock options — 233 Payments for stock repurchase ( 2,539 ) ( 4,678 ) Cash dividends paid ( 2,832 ) ( 2,887 ) NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 32,396 ) 18,427 Effect of foreign exchange on cash ( 80 ) ( 463 ) DECREASE IN CASH AND CASH EQUIVALENTS ( 17,280 ) ( 22,052 ) Cash and cash equivalents at beginning of period 23,598 27,982 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,318 $ 5,930 See accompanying notes to unaudited condensed consolidated financial statements. - 7 - LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES Organization and business Lifetime Brands, Inc. (“the Company”) designs, sources and sells branded kitchenware, tableware and other products used in the home and markets its products under a number of widely-recognized brand names and trademarks, which are either owned or licensed by the Company or through retailers’ private labels and their licensed brands. The Company’s products, which are targeted primarily towards consumers purchasing moderately priced kitchenware, tableware and housewares, are sold through virtually every major level of trade. The Company generally markets several lines within each of its product categories under more than one brand. The Company sells its products directly to retailers (who may resell the Company’s products through their websites) and, to a lesser extent, to distributors. The Company also sells a limited selection of its products directly to consumers through its own websites. Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, which consist of normal recurring accruals and non-recurring adjustments, considered necessary for a fair presentation have been included. 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, 2022. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The Company’s business and working capital needs are seasonal, with a majority of sales occurring in the third and fourth quarters. In 2022 and 2021, net sales for the third and fourth quarters accounted for 54 % and 56 % of total annual net sales, respectively. The current market conditions and shifts in both consumer and retailer purchasing patterns has impacted the seasonality of the Company's net sales compared to historical trends. In anticipation of the pre-holiday shipping season, inventory levels increase primarily in the June through October time period. In 2023, the Company's inventory trends may deviate from historical trends due to a change in inventory strategy to react to the current market conditions impacting the Company and retailers. The Company’s current estimates contemplate current and expected future conditions, as applicable, however it is reasonably possible that actual conditions could differ from expectations, which could materially affect the Company’s results of operations and financial position. Revenue recognition The Company sells products wholesale, to retailers and distributors, and retail, directly to the consumer. Wholesale sales and retail sales are primarily recognized at the point in time the customer obtains control of the products, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products. The Company offers various sales incentives and promotional programs to its customers in the normal course of business. These incentives and promotions typically include arrangements such as cooperative advertising, buydowns, volume rebates and discounts. These arrangements and an estimate 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. - 8 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) Cost of sales Cost of sales consist primarily of costs associated with the production and procurement of product, inbound freight costs, purchasing costs, royalties, and other product procurement related charges. Distribution expenses Distribution expenses consist primarily of warehousing expenses and freight-out expenses. Handling costs of products sold are included in cost of sales. Accounts receivable The Company periodically reviews the collectability of its accounts receivable and establishes allowances for estimated credit 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 expectations of current and future economic conditions. 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 with customers. However, in certain cases, the Company does not have a formal contract and, therefore, customer deductions are non-contractual. To evaluate the reasonableness of non-contractual customer deductions, the Company analyzes currently available information and historical trends of deductions. Receivable purchase agreement The Company has an uncommitted Receivables Purchase Agreement with HSBC Bank USA, National Association (“HSBC”) as Purchaser (the “Receivables Purchase Agreement”). 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. The Company did not sell receivables to HSBC during the three and nine months ended September 30, 2023. Pursuant to the Receivable Purchase Agreement, the Company sold to HSBC $ 30.0 million and $ 109.8 million of receivables during the three and nine months ended September 30, 2022, respectively. Charges of $ 0.2 million and $ 0.5 million, respectively, related to the sale of the receivables were included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2022. At September 30, 2023 and 2022, zero and $ 20.2 million, respectively, of receivables sold were outstanding and due to HSBC from customers. At September 30, 2023, $ 24.8 million of accounts receivables were available for sale to HSBC, net of applicable charges. 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 using the lower of cost (first-in, first-out basis) or net realizable value. The Company estimates the selling price of its inventory on a product-by-product basis based on the current selling environment. If the estimated selling price is lower than the inventory’s cost, the Company reduces the value of the inventory to its net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and transportation. The components of inventory were as follows (in thousands): September 30, 2023 December 31, 2022 Finished goods $ 208,775 $ 213,450 Work in process 165 70 Raw materials 8,756 8,689 Total $ 217,696 $ 222,209 - 9 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) Fair value of financial instruments The Company determined that the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable are reasonable estimates of their fair values because of their short-term nature. The Company determined that the carrying amounts of borrowings outstanding under its ABL Agreement and Term Loan (each as defined in NOTE 7 — DEBT to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q) approximate fair value since such borrowings bear interest at variable market rates. Derivatives The Company accounts for derivative instruments in accordance with Accounting Standard Codification (“ASC”) Topic 815, Derivatives and Hedging ( “ASC 815” ) . ASC 815 requires that all derivative instruments be recognized on the balance sheet at fair value as either an asset or liability. Changes in the fair value of derivatives that qualify as hedges and have been designated as part of a hedging relationship for accounting purposes have no net impact on earnings until the hedged item is recognized in earnings. The changes in the fair value of hedges are included in accumulated other comprehensive loss and are subsequently recognized in the Company’s unaudited condensed consolidated statements of operations to mirror the location of the hedged items impacting earnings. Changes in 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 Goodwill and intangible assets deemed to have indefinite lives are not amortized but, instead, are subject to an annual impairment assessment. Additionally, if events or conditions were to indicate the carrying value of a reporting unit may not be recoverable, the Company would evaluate goodwill and other intangible assets for impairment at that time. As it relates to the goodwill assessment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment testing described in the Financial Accounting Standards Board's (“FASB”) Accounting Standards Update No. (“ASU”) Topic 350, Intangibles – Goodwill and Other. If, after assessing qualitative factors, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative test is unnecessary and the Company’s goodwill is considered to be unimpaired. However, if based on the Company’s qualitative assessment it concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if the Company elects to bypass the qualitative assessment, the Company will proceed with performing the quantitative impairment test. The Company reviews goodwill and other intangibles that have indefinite lives for impairment annually as of October 1 or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is based upon the best information available, including estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value. The significant assumptions used under the income approach, or discounted cash flow method, are projected net sales, projected earnings before interest, tax, depreciation and amortization (“EBITDA”), terminal growth rates, and the cost of capital. Projected net sales, projected EBITDA and terminal growth rates were determined to be significant assumptions because they are three primary drivers of the projected cash flows in the discounted cash flow fair value model. Cost of capital was also determined to be a significant assumption as it is the discount rate used to calculate the current fair value of those projected cash flows. For the guideline public company method, significant assumptions relate to the selection of appropriate guideline companies and related valuation multiples used in the market analysis. 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. 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. - 10 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) The Company also evaluates qualitative factors to determine whether impairment indicators exist for its indefinite lived intangibles and performs quantitative tests if required. These tests can include the relief from royalty model or other valuation models. The significant assumptions used in the relief from royalty model are future net sales for the related brands, royalty rates and the cost of capital to determine the fair value of the indefinite lived intangibles. Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit or material adverse changes in the business climate that indicate that the carrying amount of an asset may be impaired. When impairment indicators are present, the recoverability of the asset is measured by comparing the carrying value of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the 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. See NOTE 6 — INTANGIBLE ASSETS to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. Leases The Company determines if an arrangement is a lease at the inception of a contract. Operating lease right-of-use (“ROU”) assets are included in operating lease right-of-use assets on the condensed consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the current portion of operating lease liability and operating lease liabilities, respectively, on the condensed consolidated balance sheets. Finance leases are included in property and equipment, net, accrued expenses and other long-term liabilities. The Company’s finance leases are not material to the Company’s condensed consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The operating lease ROU asset may also include any lease payments made, adjusted for any prepaid or accrued rent payments, lease incentives, and initial direct costs incurred. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For certain equipment leases, the Company applies a portfolio approach to effectively account for any ROU assets and lease liabilities. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. Employee healthcare The Company self-insures certain portions of its health insurance plan. The Company maintains an accrual for estimated unpaid claims and claims incurred but not yet reported (“IBNR”). Although management believes that it uses the best information available to estimate IBNR claims, actual claims may vary significantly from estimated claims. Restructuring expenses Costs associated with restructuring activities are recorded at fair value when a liability has been incurred. Generally, a liability has been incurred at the communication date for severance. Charges associated with lease terminations, related to restructuring activities, are recognized at the effective date of the lease modification. In the fourth quarter of 2022, the Company's U.S. segment incurred $ 0.4 million of restructuring expense in connection with the reorganization the U.S. segment’s sales management structure. At September 30, 2023, the accrual balance was $ 0.1 million, and the remaining payments are expected to be paid within fiscal year 2023. - 11 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) During the nine months ended September 30, 2023, the Company incurred $ 0.8 million of unallocated corporate expense related to the termination payment with its Executive Chairman, Jeffrey Siegel (the “Executive Chairman”). On November 1, 2022, the Company entered into a transition agreement with its Executive Chairman which terminated his employment with the Company, effective March 31, 2023. The employment agreement provided for a one-time termination payment. The one-time payment of $ 1.4 million was recognized over the remaining employment period with $ 0.6 million recognized in the fourth quarter of 2022. The termination payment was paid on April 7, 2023. Adoption of new accounting pronouncements Effective January 1, 2023, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses, to include historical experience, current conditions and reasonable and supportable forecasts. The Company adopted this guidance on a modified retrospective basis and the adoption did not have a material impact on the Company’s condensed consolidated financial statements. New accounting pronouncements All recent accounting pronouncements were assessed and either determined to not be applicable or are expected to have a minimal effect on the Company’s financial position, results of operations, and disclosures. NOTE 2 — REVENUE The Company sells products wholesale, to retailers and distributors, and sells products retail, directly to consumers. Wholesale sales and retail sales are recognized at the point in time the customer obtains control of the products in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the customer, the customer must have the significant risks and rewards of ownership, and where acceptance is not a formality, the customer must have accepted the product or service. The Company’s principal terms of sale are Free On Board (“FOB”) Shipping Point, or equivalent, and, as such, the Company primarily transfers control and records revenue for product sales upon shipment. 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 $ 0.8 million and $ 1.7 million for the three and nine months ended September 30, 2023, respectively and $ 1.2 million and $ 3.2 million for the three and nine months ended September 30, 2022, respectively. Net sales exclude taxes that are collected from customers and remitted to the taxing authorities. The Company offers various sales incentives and promotional programs to its wholesale customers from time to time in the normal course of business. These incentives and promotions typically include arrangements such as cooperative advertising, buydowns, volume rebates and discounts. These arrangements, which 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 sale s. 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 unaudited condensed consolidated statements of operations. Incidental items that are immaterial in the context of the contract are expensed as incurred. - 12 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) The following tables present the Company’s net sales disaggregated by segment, product category and geographic region for the three and nine months ended September 30, 2023 and 2022 (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 U.S. segment Kitchenware $ 97,656 $ 92,587 $ 267,403 $ 291,062 Tableware 48,881 44,515 99,029 101,035 Home Solutions 32,856 35,716 81,425 84,130 Total U.S. segment 179,393 172,818 447,857 476,227 International segment 12,276 13,772 35,683 44,394 Total net sales $ 191,669 $ 186,590 $ 483,540 $ 520,621 United States $ 166,917 $ 163,304 $ 421,458 $ 454,356 United Kingdom 8,129 8,676 24,420 27,515 Rest of World 16,623 14,610 37,662 38,750 Total net sales $ 191,669 $ 186,590 $ 483,540 $ 520,621 NOTE 3 — ACQUISITIONS S ’ well On March 2, 2022, the Company acquired certain assets of Can't Live Without It, LLC. (dba S’well Bottle and which the Company refers to as “S’well”). The Company paid cash consideration of $ 18.0 million. The transaction also includes up to $ 5.0 million in contingent consideration, subject to the acquired brand reaching certain milestones. The purchase price was comprised of the following (in thousands): Cash paid (1) $ 17,956 Value of contingent consideration 650 Total purchase price $ 18,606 (1) Reflects final working capital adjustment of $21k pursuant to the terms of the Asset Purchase Agreement. The value of contingent consideration represents the present value of estimated contingent payments of $ 0.7 million, related to the attainment of certain net sales contribution targets for the year 2024. Acquisition related costs of $ 0.9 million were recorded within selling, general and administrative expenses in the unaudited condensed consolidated statements of operations. The purchase price was allocated based on the Company’s final estimate of the fair values of the assets acquired and liabilities assumed at the acquisition date, as follows (in thousands): - 13 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) Purchase Price Allocation Accounts receivable $ 2,280 Inventory 4,005 Fixed assets 40 Intangible assets 13,000 Goodwill 2,966 Accounts payable and accrued expenses ( 3,685 ) Total allocated value $ 18,606 The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations (“ASC Topic 805”), which established a new basis of accounting for all identifiable assets acquired and liabilities assumed at fair value. The goodwill and intangible assets are included in the U.S. segment. The trade name intangible asset is amortized on a straight-line basis over its estimated useful life of 12 years (see NOTE 6 — INTANGIBLE ASSETS). The goodwill recognized results from such factors as assembled workforce and the value of other synergies expected from combining operations with the Company. The associated goodwill is deductible for tax purposes over 15 years. A credit of $( 0.1 ) million is included in Selling, general and administrative expenses for the nine months ended September 30, 2023 to reflect the change in fair value of a contingent consideration obligation acquired by the Company in connection with its acquisition of S'well. There was no such adjustment in the three months ended September 30, 2023. NOTE 4 — LEASES The Company has operating leases for corporate offices, distribution facilities, a manufacturing plant, and certain vehicles. The components of lease expense for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating lease expenses (1) : Fixed lease expense $ 4,256 $ 4,463 $ 12,662 $ 13,392 Variable lease expense 1,444 1,187 4,194 3,532 Total $ 5,700 $ 5,650 $ 16,856 $ 16,924 (1) Expenses are recorded within distribution expenses and selling, general and administrative expenses on the unaudited condensed consolidated statement of operations. Supplemental cash flow information for lease related liabilities and assets for the nine months ended September 30, 2023 and 2022 were as follows (in thousands): Nine Months Ended September 30, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 14,279 $ 14,447 - 14 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) Nine Months Ended September 30, 2023 2022 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 5,582 $ 2,477 The aggregate future lease payments for operating leases as of September 30, 2023 were as follows (in thousands): Operating 2023 (excluding the nine months ended September 30, 2023) $ 4,500 2024 18,853 2025 18,614 2026 18,236 2027 14,110 2028 12,724 Thereafter 18,002 Total lease payments 105,039 Less: Interest ( 18,646 ) Present value of lease payments $ 86,393 Average lease terms and discount rates were as follows: September 30, 2023 Operating leases: Weighted-average remaining lease term (years) 6.1 Weighted-average discount rate 6.4 % NOTE 5 — INVESTMENTS As of September 30, 2023, the Company owned 24.7 % of the outstanding capital stock of Grupo Vasconia S.A.B. (“Vasconia”), an integrated manufacturer of aluminum products and one of Mexico’s largest housewares companies. Shares of Vasconia’s capital stock are traded on the Bolsa Mexicana de Valores, the Mexican Stock Exchange. The Quotation Key is VASCONI. The Company accounts for its investment in Vasconia using the equity method of accounting and records its proportionate share of 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 and nine months ended September 30, 2023 and 2022 in the accompanying unaudited condensed consolidated statements of operations. The Company’s equity in losses, net of taxes, for the three and nine months ended September 30, 2023 and 2022 included the following: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Vasconia equity in losses, net of taxes $ ( 707 ) $ ( 1,991 ) $ ( 2,853 ) $ ( 1,241 ) Impairment on investment in Vasconia ( 340 ) ( 6,168 ) ( 6,834 ) ( 6,168 ) Equity in losses, net of taxes $ ( 1,047 ) $ ( 8,159 ) $ ( 9,687 ) $ ( 7,409 ) 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 17.41 and MXN 19.47 at September 30, 2023 and December 31, 2022, respectively. - 15 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Average exchange rate (USD to MXN) 17.06 20.22 17.06 - 18.66 20.02 - 20.50 The effect of the translation of the Company’s investment, as well as the translation of Vasconia’s balance sheet, resulted in an increase to the investment of $ 1.1 million and a decrease of $ 0.5 million during the nine months ended September 30, 2023 and 2022, respectively. These translation effects are recorded in accumulated other comprehensive loss. Summarized income statement information for the three and nine months ended September 30, 2023 and 2022 for Vasconia in USD and MXN is as follows (in thousands): Three Months Ended September 30, 2023 2022 USD MXN USD MXN Net sales $ 38,745 $ 660,991 $ 56,488 $ 1,142,171 Gross profit 10,994 187,559 4,405 89,061 Loss from operations ( 1,060 ) ( 18,081 ) ( 5,459 ) ( 110,380 ) Net loss ( 2,858 ) ( 48,771 ) ( 8,009 ) ( 161,936 ) Nine Months Ended September 30, 2023 2022 USD MXN USD MXN Net sales $ 121,537 $ 2,164,683 $ 187,001 $ 3,785,921 Gross profit 29,330 520,224 29,629 600,976 Loss from operations ( 1,874 ) ( 33,464 ) ( 256 ) ( 3,974 ) Net loss ( 11,544 ) ( 205,204 ) ( 4,875 ) ( 98,366 ) 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 September 30, 2023 December 31, 2022 Amounts due from Vasconia Prepaid expenses and other current assets $ 42 $ 48 Amounts due to Vasconia Accrued expenses and Accounts payable ( 220 ) ( 16 ) The fair value (based on Level 1 inputs using the quoted stock price) of the Company’s investment in Vasconia declined in 2023. As a result of the decline in the quoted stock price, the continued decline in the operating results of Vasconia and the recent downgrade in Vasconia’s debt rating, the Company determined the decline in fair value was other than temporary. The Company reduced its investment by $ 0.3 million during the three months ended September 30, 2023 to its fair value, and recognized the non-cash impairment charge within equity in losses in the unaudited condensed consolidated statement of operations. The carrying value of the Company’s investment in Vasconia, after the recorded impairment, was $ 4.0 million as of September 30, 2023. For the nine months ended September 30, 2023, the Company has recognized non-cash impairment charges of $ 6.8 million. As of December 31, 2022, the fair value (based on Level 1 inputs using the quoted stock price) of the Company’s investment in Vasconia was $ 15.0 million, respectively. The carrying value of the Company’s investment in Vasconia was $ 12.5 million as of December 31, 2022. - 16 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) NOTE 6 — INTANGIBLE ASSETS Intangible assets consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands): September 30, 2023 December 31, 2022 Gross Accumulated Amortization Net Gross Accumulated Amortization Net Goodwill (1) $ 33,237 $ — $ 33,237 $ 33,237 $ — $ 33,237 Indefinite-lived intangible assets: Trade names (1) 49,600 — 49,600 49,600 — 49,600 Finite-lived intangible assets: Licenses 15,847 ( 11,996 ) 3,851 15,847 ( 11,654 ) 4,193 Trade names (2) 54,802 ( 22,790 ) 32,012 54,785 ( 20,030 ) 34,755 Customer relationships (2) 143,157 ( 61,119 ) 82,038 143,157 ( 53,586 ) 89,571 Other (2) 5,858 ( 3,724 ) 2,134 5,856 ( 3,325 ) 2,531 Total $ 302,501 $ ( 99,629 ) $ 202,872 $ 302,482 $ ( 88,595 ) $ 213,887 (1) The gross and net value at September 30, 2023 and December 31, 2022 reflect a reduction of $ 91.7 million in impairment charges on goodwill and $ 1.0 million in impairment charges on indefinite-lived intangible assets. (2) The gross value and accumulated amortization at September 30, 2023 reflect a reduction of $ 44.1 million and $( 29.3 ) million, respectively, for the net $ 14.8 million previous impairment charge on finite-lived intangible assets within the international segment and a $ 6.5 million reduction in gross value for previous impairment charges on finite-lived intangible assets within the U.S. segment. In the third quarter of 2023, the Company observed a sustained decline in the market valuation of the Company's common stock over a twelve month period and an increase in the risk free interest rate. Based on these factors and considering the limited excess fair value over carrying value observed in the last annual impairment test on October 1, 2022, the Company concluded that a triggering event had occurred and performed an interim impairment test of goodwill and certain intangible assets as of September 30, 2023. Goodwill 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 determined that the fair value of the Company's U.S. reporting unit exceeded its carrying value, and therefore goodwill was not impaired. As of September 30, 2023, the fair value of the U.S. reporting unit exceeded the carrying value of goodwill by 4 %. Indefinite-lived trade names The Company performed an interim quantitative impairment analysis of its indefinite-lived trade names by comparing the fair value of the indefinite-lived trade names to their respective carrying values. 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. The Company determined that the fair value of all its indefinite-lived trade names were above their respective carrying values, and therefore its indefinite-lived intangible assets were not impair ed. In connection with the interim impairment analysis, the Company determined that one trade name, previously estimated to contribute to cash flows indefinitely, has a definite life. Accordingly, the trade name will be reclassified from indefinite-lived to finite-lived or amortizable intangible assets as of October 1, 2023. The trade name will be amortized over an estimated useful life of 15 years. As of September 30, 2023, the fair value of the Company’s indefinite-lived trade name exceeded the respective carrying value by 7 %. - 17 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) NOTE 7 — DEBT On August 26, 2022, the Company entered into Amendment No. 2 (the “Amendment”) to the Company’s credit agreement, dated as of March 2, 2018 (as amended, the “ABL Agreement”) among the Company, as a Borrower, certain subsidiaries of the Company, as Borrowers and/or Loan Parties, JPMorgan Chase Bank, N.A., as Administrative Agent and a Lender, HSBC Bank USA, National Association and Wells Fargo Bank, National Association, as Co-Documentation Agents and Lenders, and Manufacturers and Traders Trust Company. The ABL Agreement provides for a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $ 200.0 million, which facility will mature on August 26, 2027 (subject to an earlier springing maturity date that is 90 days prior to the Term Loan maturity date of February 28, 2025 if the Company’s Term Loan has not been repaid or refinanced by such date). The Company’s loan agreement, dated as of March 2, 2018, (the “Term Loan” and together with the ABL Agreement, the “Debt Agreements”) provides for a senior secured term loan credit in the original principal amount of $ 275.0 million, which matures on February 28, 2025. On December 29, 2022, the Company entered into Amendment No. 1 to the Term Loan, which replaces the LIBOR-based interest rates with SOFR-based interest rates and modifies the provisions for determining the alternative rate of interest upon the occurrence of certain events relating to the availability of interest rate benchmarks. The Term Loan requires the Company to make an annual prepayment of principal based upon a percentage of the Company's excess cash flow, (“Excess Cash Flow”), if any. The percentage applied to the Company’s excess cash flow is based on the Company’s Total Net Leverage Ratio (as defined in the Debt Agreements). When an Excess Cash Flow payment is required, each lender has the option to decline a portion or all of the prepayment amount payable to it. An estimate of the amount of the Excess Cash Flow payment is recorded in current maturity of term loan on the unaudited condensed consolidated balance sheets. Additionally, the Term Loan requires quarterly payments, which commenced on June 30, 2018, of principal equal to 0.25 % of the original aggregate principal amount of the Term Loan, which payments are to be adjusted from time to time to account for prepayments made. Per the Term Loan, when the Company makes an Excess Cash Flow payment, the payment is first applied to satisfy the next eight (8) scheduled future quarterly required payments of the Term Loan in order of maturity and then to the remaining scheduled installments on a pro rata basis. The quarterly principal payments have been satisfied through maturity of the Term Loan by the annual Excess Cash Flow payments made to date. The maximum borrowing amount under the ABL Agreement may be increased to up to $ 250.0 million if certain conditions are met but limited to $ 220.0 million pursuant to the Term Loan. One or more tranches of additional term loans (the “Incremental Term Facilities”) may be added under the Term Loan if certain conditions are met. The Incremental Facilities may not exceed the sum of (i) $ 50.0 million plus (ii) an unlimited amount so long as, in the case of (ii) only, the Company’s secured net leverage ratio, as defined in and computed on a pro forma basis pursuant to the Term Loan, after giving effect to such increase, is no greater than 3.75 to 1.00, subject to certain limitations and for the period defined pursuant to the Term Loan but not to mature earlier than the maturity date of the then existing term loans. As of September 30, 2023 and December 31, 2022, the total availability under the ABL Agreement was as follows (in thousands): September 30, 2023 December 31, 2022 Maximum aggregate principal allowed $ 200,000 $ 189,411 Outstanding borrowings under the ABL Agreement ( 29,305 ) ( 10,424 ) Standby letters of credit ( 2,974 ) ( 2,765 ) Total availability under the ABL Agreement $ 167,721 $ 176,222 Availability under the ABL Agreement is limited to the lesser of the $ 200.0 million commitment thereunder and the borrowing base and therefore depends on the valuation of certain current assets comprising the borrowing base. The borrowing capacity under the ABL Agreement will depend, in part, on eligible levels of accounts receivable and inventory that fluctuate regularly. Due to the seasonality of the Company’s business, this means that the Company may have greater borrowing availability during the third and fourth quarters of each year. Consequently, the $ 200.0 million commitment thereunder may not represent actual borrowing capacity. On June 8, 2023, the Company completed the repurchase of $ 47.2 million in principal amount of the Term Loan, for $ 95 per $ 100 of principal. The repurchase was executed by way of a reverse Dutch auction, pursuant to and in accordance with the - 18 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) terms and conditions provided for in the Term Loan. In connection therewith, debt issuance costs of $ 0.5 million were written off and fees of $ 0.4 million were incurred. The gain on the early retirement of the Term Loan was $ 1.5 million, net of fees and expenses. The current and non-current portions of the Company’s Term Loan included in the condensed consolidated balance sheets were as follows (in thousands): September 30, 2023 December 31, 2022 Current portion of Term Loan: Estimated Excess Cash Flow principal payment $ 15,000 $ — Estimated unamortized debt issuance costs ( 1,134 ) — Total Current portion of Term Loan $ 13,866 $ — Non-current portion of Term Loan: Term Loan, net of current portion $ 183,684 $ 245,911 Estimated unamortized debt issuance costs ( 450 ) ( 3,054 ) Total Non-current portion of Term Loan $ 183,234 $ 242,857 The estimated Excess Cash Flow principal payment recorded at September 30, 2023 represents the Company’s estimate for the 2024 Excess Cash Flow Payment. There was no Excess Cash Flow payment due in 2023. The Company’s payment obligations under its Debt Agreements are unconditionally guaranteed by its existing and future U.S. subsidiaries with certain minor exceptions. Certain payment obligations under the ABL Agreement are also direct obligations of its foreign subsidiary borrowers designated as such under the ABL Agreement and, subject to limitations on such guaranty, are guaranteed by the foreign subsidiary borrowers, as well as by the Company. The obligations of the foreign subsidiary borrowers under the ABL Agreement are secured by security interests in substantially all of the assets of, and stock in, such foreign subsidiary borrowers, subject to certain limitations. The obligations of the Company under the Debt Agreements and any hedging arrangements and cash management services and the guarantees by its domestic subsidiaries in respect of those obligations are secured by security interests in substantially all of the assets and stock (but in the case of foreign subsidiaries, limited to 65 % of the capital stock in first-tier foreign subsidiaries and not including the stock of subsidiaries of such first-tier foreign subsidiaries) owned by the Company and the U.S. subsidiary guarantors, subject to certain exceptions. Such security interests consist of (1) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and certain of its subsidiaries (the “ABL Collateral”) pledged as collateral in favor of lenders under the ABL Agreement and a second-priority lien in the ABL Collateral in favor of the lenders under the Term Loan (2) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and certain of its subsidiaries (the “Term Loan Collateral”) pledged as collateral in favor of lenders under the Term Loan and a second-priority lien in the Term Loan Collateral in favor of the lenders under the ABL Agreement. Borrowings under the revolving credit facility bear interest, at the Company’s option, at one of the following rates: (i) an alternate base rate, defined, for any day, as the greater of the prime rate, a federal funds and overnight bank funding based rate plus 0.5 % or one-month Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus 1.0 % as of a specified date in advance of the determination, but in each case not less than 1.0 %, plus a margin of 0.25 % to 0.50 %, or (ii) Adjusted Term SOFR, which is the Term SOFR Rate for the selected 1, 3 or 6 month interest period plus 0.10 % (or Euro Interbank Offered Rate “EURIBOR” for borrowings denominated in Euro; or Sterling Overnight Index Average “SONIA” for borrowings denominated in Pounds Sterling), but in each case not less than zero, plus a margin of 1.25 % to 1.50 %. The respective margins are based upon average quarterly availability, as defined in and computed pursuant to the ABL Agreement. In addition, the Company pays a commitment fee of 0.20 % to 0.25 % per annum based on the average daily unused portion of the aggregate commitment under the ABL Agreement. The interest rate on outstanding borrowings under the ABL Agreement at September 30, 2023 was between 6.44 % and 8.75 %. The Company paid a commitment fee of 0.25 % during the nine months ended September 30, 2023. - 19 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) The Term Loan 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 Adjusted Term SOFR, but not less than 1.0 %, plus 1.0 %, plus a margin of 2.5 % or (ii) SOFR for the applicable interest period, multiplied by any statutory reserve rate, but not less than 1.0 %, plus a margin of 3.5 %. The interest rate on outstanding borrowings under the Term Loan at September 30, 2023 was 8.93 %. The Debt Agreements provide for customary restrictions and events of default. Restrictions include limitations on additional indebtedness, liens, acquisitions, investments and payment of dividends, among other things. 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 $ 20.0 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 $ 20.0 million and 10 % of the aggregate commitment under the ABL Agreement for 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 September 30, 2023. 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 . NOTE 8 — DERIVATIVES Interest Rate Swap Agreements The Company’s total outstanding notional value of interest rate swaps was $ 25.0 million at September 30, 2023. These non-designated interest rate swaps were entered into in June 2019 and serve 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 and expire in February 2025. The Company’s interest rate swaps that were 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 expired in March 2023. The Company has no designated interest rate swaps at September 30, 2023. Foreign Exchange Contracts The Company is party from time to time to certain foreign exchange contracts, primarily to offset the earnings impact related to fluctuations in foreign currency exchange rates associated with inventory purchases denominated in foreign currencies. Fluctuations in the value of certain foreign currencies as compared to the USD may positively or negatively affect the Company’s revenues, gross margins, operating expenses, and retained earnings, all of which are expressed in USD. Where the Company deems it prudent, the Company engages in hedging programs using foreign currency forward contracts aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings. The Company purchases foreign currency forward contracts with terms less than 18 months to protect against currency exchange risks associated with the payment of merchandise purchases to foreign suppliers. 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 September 30, 2023 was $ 8.8 million. These foreign exchange contracts have been designated as hedges in order to apply hedge accounting. 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. The Company attempts to minimize these risks primarily by using foreign currency forward contracts and by maintaining counterparty credit limits. These hedging activities provide only limited protection against currency exchange and credit risk. Factors that could influence the effectiveness of the Company’s hedging programs include those impacting currency markets and the availability of hedging instruments and liquidity of the credit markets. 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 - 20 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) not enter into such contracts for speculative purposes, and as of September 30, 2023, these foreign exchange contracts have been designated as hedges in to order to apply hedge accounting. 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 September 30, 2023 December 31, 2022 Interest rate swaps Prepaid expenses and other current assets $ — $ 122 Foreign exchange contracts Prepaid expenses and other current assets 152 — Other Assets 33 — Accrued expenses 39 260 Derivatives not designated as hedging instruments Balance Sheet Location September 30, 2023 December 31, 2022 Interest rate swaps Other assets $ 1,156 $ 1,292 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 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. The Company is exposed to credit risk for the net exchanges under these agreements, but not for the notional amounts. As of September 30, 2023, the Company did not anticipate non-performance by any of its counterparties. The amounts of gains and losses, realized and unrealized, related to the Company’s derivative financial instruments designated as hedging instruments are recognized in other comprehensive (loss) income, net of taxes, as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Derivatives designated as hedging instruments 2023 2022 2023 2022 Interest rate swaps $ — $ 87 $ ( 120 ) $ 570 Foreign exchange contracts 435 267 ( 898 ) 1,342 $ 435 $ 354 $ ( 1,018 ) $ 1,912 Realized gains and losses on the interest rate swaps that are reported in other comprehensive (loss) income are reclassified into earnings as the interest expense on the debt is recognized. The Company’s interest rate swaps that were designated as hedging instruments had an aggregate notional value of $ 25.0 million and matured during the three months ended March 31, 2023. Realized gains and losses on foreign exchange contracts that are reported in other comprehensive (loss) income are reclassified into cost of sales as the underlying inventory purchased is sold. During the three months ended September 30, 2023, the Company reclassified $ 0.2 million of cash flow hedges in accumulated other comprehensive losses to earnings. This was a loss of $ 0.2 million related to foreign exchange contracts recognized in cost of sales. During the nine months ended September 30, 2023, the Company reclassified $ 0.8 million of cash flow hedges in accumulated other comprehensive losses to earnings. This was comprised of a gain of $ 0.1 million related to realized interest rate swap and a gain of $ 0.7 million related to foreign exchange contracts recognized in cost of sales. At September 30, 2023, the estimated amount of existing net losses expected to be reclassified into earnings within the next 12 months was $ 0.2 million. During the three months ended September 30, 2022, the Company reclassified $ 0.3 million of cash flow hedges in accumulated other comprehensive losses to earnings. This was comprised of $ 0.03 million related to realized interest rate swap losses and a gain of $ 0.3 million related to foreign exchange contracts recognized in cost of sales. During the nine months ended September 30, 2022, the Company reclassified $ 0.3 million of cash flow hedges in accumulated other comprehensive losses to earnings. This was comprised of a $ 0.3 million related to realized interest rate swap losses and a gain of $ 0.6 million related to foreign exchange contracts recognized in cost of sales. - 21 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) Interest and mark to market (losses) gains 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 September 30, Nine Months Ended September 30, Derivatives not designated as hedging instruments Location of gain (loss) 2023 2022 2023 2022 Interest rate swaps Mark to market (loss) gain on interest rate derivatives $ ( 98 ) $ 637 $ ( 135 ) $ 1,990 Interest expense 218 18 579 ( 165 ) $ 120 $ 655 $ 444 $ 1,825 NOTE 9 — STOCK COMPENSATION As of September 30, 2023, there were 622,812 shares available for the grant of awards under the Company's Amended and Restated 2000 Long Term Incentive Plan ( “ Plan ” ), assuming maximum performance of performance-based awards. Option Awards A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2023 is as follows: Options Weighted- average exercise price Weighted- average remaining contractual life (years) Aggregate intrinsic value (in thousands) Options outstanding, January 1, 2023 1,065,750 $ 13.66 Grants 50,000 5.92 Cancellations ( 4,375 ) 11.27 Expirations ( 111,875 ) 13.38 Options outstanding, September 30, 2023 999,500 13.31 4.4 $ — Options exercisable, September 30, 2023 883,875 $ 13.85 3.8 $ — Total unrecognized stock option expense remaining (in thousands) $ 405 Weighted-average years expected to be recognized over 1.7 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 September 30, 2023. 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 September 30, 2023 and the exercise price. On March 8, 2023, the exercise period for the Executive Chairman’s outstanding vested stock options were extended to remain exercisable until ninety days following termination of his service on the Company's Board of Directors (the “ Board ” ). The outstanding stock options remain subject to original expiration dates of such awards. The Company recorded $ 0.1 million of stock compensation expense in connection with this extension during the three months ended March 31, 2023. - 22 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) Restricted Stock A summary of the Company’s restricted stock activity and related information for the nine months ended September 30, 2023 is as follows: Restricted Shares Weighted- average grant date fair value Non-vested restricted shares, January 1, 2023 484,143 $ 11.79 Grants 333,300 5.37 Vested ( 212,162 ) 11.20 Cancellations ( 6,783 ) 11.07 Non-vested restricted shares, September 30, 2023 598,498 $ 8.44 Total unrecognized compensation expense remaining (in thousands) $ 3,967 Weighted-average years expected to be recognized over 1.5 The total fair value of restricted stock that vested during the nine months ended September 30, 2023 was $ 1.2 million. Performance shares Each performance award represents the right to receive up to 150 % of the target number of shares of common stock. The number of shares of common stock earned will be determined based on the attainment of specified performance goals at the end of the performance period, as determined by the Compensation Committee of the Board. 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 nine months ended September 30, 2023 is as follows: Performance- based stock awards (1) Weighted- average grant date fair value Non-vested performance-based awards, January 1, 2023 400,302 $ 11.56 Grants 191,075 5.92 Achieved performance over target (2) 16,942 6.36 Vested ( 119,739 ) 6.36 Cancellations ( 858 ) 14.18 Non-vested performance-based awards, September 30, 2023 487,722 $ 10.44 Total unrecognized compensation expense remaining (in thousands) (3) $ 1,030 Weighted-average years expected to be recognized over 1.9 (1) Represents the target number of shares to be issued for each performance-based award. (2) Represents the number of shares earned over target for performance-based awards granted in 2020 based on performance goals attained. These awards vested in the nine months ended September 30, 2023. (3) The performance metric for the performance-based awards granted in 2022 is not probable of achievement. Therefore, no compensation expense has been recorded on these awards. The total fair value of performance-based awards that vested during the nine months ended September 30, 2023 was $ 0.7 million. - 23 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) Cash-settled performance-based awards Each cash-settled performance-based award represents the right to receive up to 150 % of the target number of deferred stock units with payment in cash equivalent to the value of one share of the Company's common stock. The number of deferred stock units 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. The cash-settled performance-based awards are subject to the terms and conditions of the Company’s Plan. A summary of the Company’s cash-settled performance-based awards activity and related information for the nine months ended September 30, 2023 is as follows: Cash-settled performance-based awards (1) Weighted- average fair value Non-vested cash-settled performance-based awards, January 1, 2023 85,776 $ 7.59 Cancellations ( 1,790 ) 5.63 Non-vested cash-settled performance-based awards, September 30, 2023 83,986 $ 5.63 Total unrecognized compensation expense remaining (in thousands) (2) $ — Weighted-average years expected to be recognized over 0.0 (1) Represents the target number of units to be settled in cash. (2) The performance metric for the cash-settled performance-based awards granted in 2022 is not probable of achievement. Therefore, no compensation expense has been recorded on these awards. The Company recorded stock compensation expense as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Stock Compensation Expense Components 2023 2022 2023 2022 Equity based stock option expense $ 46 $ 51 $ 225 $ 231 Restricted and performance-based stock awards expense 852 972 2,549 3,223 Stock compensation expense for equity based awards $ 898 $ 1,023 $ 2,774 $ 3,454 Liability based stock option expense — ( 11 ) ( 4 ) ( 17 ) Cash-settled performance-based awards expense — 14 — 128 Total Stock Compensation Expense $ 898 $ 1,026 $ 2,770 $ 3,565 - 24 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) NOTE 10 — 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 during the relevant period. 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. 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 income (loss) per common share for the three and nine months ended September 30, 2023 and 2022 are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands, except per share amounts) Net income (loss) – Basic and Diluted $ 4,206 $ ( 6,358 ) $ ( 11,119 ) $ ( 9,438 ) Weighted-average shares outstanding – Basic 21,216 21,522 21,188 21,602 Effect of dilutive securities: Stock options and other stock awards 77 — — — Weighted-average shares outstanding – Diluted 21,293 21,522 21,188 21,602 Basic income (loss) per common share $ 0.20 $ ( 0.30 ) $ ( 0.52 ) $ ( 0.44 ) Diluted income (loss) per common share $ 0.20 $ ( 0.30 ) $ ( 0.52 ) $ ( 0.44 ) Antidilutive Securities (1) 1,237 1,682 1,600 1,675 (1) Stock options and other stock awards that have been excluded from the denominator as their inclusion would have been anti-dilutive. - 25 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) NOTE 11— INCOME TAXES Income tax provision of $ 3.0 million and $ 2.9 million for the three and nine months ended September 30, 2023, respectively, represent taxes on both U.S. and foreign earnings at a combined effective income tax provision rate of 36.5 % and 197.0 %, respectively. The effective tax rate for the three months ended September 30, 2023 differs from the federal statutory income tax rate of 21.0 % primarily due to foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. The effective tax rate for the nine months ended September 30, 2023 differs from the federal statutory income tax rate of 21.0 % primarily due to the impact of non-deductible expenses, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. Income tax provision of $ 1.8 million and $ 3.4 million for the three and nine months ended September 30, 2022, respectively, represent taxes on both U.S. and foreign earnings at a combined effective income tax provision rate of 50.6 % and 245.9 %, respectively. The effective tax rate for the three and nine months ended September 30, 2022 differs from the federal statutory income tax rate of 21.0 % primarily due to foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. The Company has identified the following jurisdictions as “major” tax jurisdictions: U.S. Federal, California, Massachusetts, New Jersey, New York and the United Kingdom. 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 September 30, 2023 and September 30, 2022. - 26 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) NOTE 12 – BUSINESS SEGMENTS The Company has two reportable segments, U.S. and International. The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its operations. The U.S. segment includes the Company’s primary domestic business that designs, markets and distributes its products to retailers, distributors and directly to consumers through its own websites. The International segment consists of certain business operations conducted outside the U.S.. Management evaluates the performance of the U.S. and International segments based on net sales and income 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 fees and consulting fees, are not allocated to the specific segments and are reflected as unallocated corporate expenses. Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands) Net sales U.S. $ 179,393 $ 172,818 $ 447,857 $ 476,227 International 12,276 13,772 35,683 44,394 Total net sales $ 191,669 $ 186,590 $ 483,540 $ 520,621 Income from operations U.S. $ 21,480 $ 19,548 $ 39,170 $ 41,404 International ( 2,995 ) ( 2,501 ) ( 7,716 ) ( 9,691 ) Unallocated corporate expenses ( 4,873 ) ( 9,457 ) ( 15,252 ) ( 20,232 ) Income from operations $ 13,612 $ 7,590 $ 16,202 $ 11,481 Depreciation and amortization U.S. $ 4,549 $ 4,321 $ 13,813 $ 13,568 International 272 277 803 967 Total depreciation and amortization $ 4,821 $ 4,598 $ 14,616 $ 14,535 September 30, 2023 December 31, 2022 (in thousands) Assets U.S. $ 596,787 $ 608,496 International 87,309 93,794 Unallocated corporate 7,572 23,598 Total Assets $ 691,668 $ 725,888 - 27 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) NOTE 13 — CONTINGENCIES Wallace EPA Matter Wallace Silversmiths de Puerto Rico, Ltd. (“WSPR”), a wholly-owned subsidiary of the Company, operates a manufacturing facility in San Germán, Puerto Rico that is leased from the Puerto Rico Industrial Development Company (“PRIDCO”). In March 2008, the U.S. Environmental Protection Agency (the “EPA”) announced that the San Germán Ground Water Contamination site in Puerto Rico (the “Site”) had been added to the Superfund National Priorities List due to contamination present in the local drinking water supply. In May 2008, WSPR received from the EPA a Notice of Potential Liability and Request for Information pursuant to 42 U.S.C. Sections 9607(a) and 9604(e) of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). In July 2011, WSPR received a letter from the EPA requesting access to the property that it leases from PRIDCO to conduct an environmental investigation, and the Company granted such access. In February 2013, the EPA requested access to conduct a further environmental investigation at the property. PRIDCO agreed to such access and the Company consented. The EPA conducted a further investigation during 2013 and, in April 2015, notified the Company and PRIDCO that the results from vapor intrusion sampling may warrant the implementation of measures to mitigate potential exposure to sub-slab soil gas. The Company reviewed the information provided by the EPA and requested that PRIDCO, as the property owner, find and implement a solution acceptable to the EPA. While WSPR did not cause the sub-surface condition that resulted in the potential for vapor intrusion, in order to protect the health of its employees and continue its business operations, it has nevertheless implemented corrective action measures to prevent vapor intrusion, such as sealing the floors of the building and conducting periodic air monitoring to address potential exposure. On August 13, 2015, the EPA released its remedial investigation and feasibility study (“RI/FS”) for the Site. On December 11, 2015, the EPA issued the Record of Decision (“ROD”) for an initial operable unit (“OU-1”), electing to implement its preferred remedy which consists of soil vapor extraction and dual-phase extraction/in-situ treatment. This selected remedy includes soil vapor extraction (“SVE”) to address soil (vadose zone) source areas at the Site, impermeable cover as necessary for the implementation of SVE, dual phase extraction in the shallow saprolite zone, and in-situ treatment as needed to address residual sources. The EPA’s total net present worth estimated cost for its selected remedy is $ 7.3 million. In February 2017, the EPA indicated that it planned to expand its field investigation for the RI/FS to a second operable unit (“OU-2”) to determine the nature and extent of the groundwater contamination at and from the Site and to determine the nature of the remedial action needed to address the contamination. The EPA requested access to the property occupied by WSPR to install monitoring wells and to undertake groundwater sampling as part of this expanded investigation. WSPR consented to the EPA’s access request, provided that the EPA received PRIDCO’s consent as the property owner. WSPR never used the primary contaminant of concern and did not take up its tenancy at the Site until after the EPA had discovered the contamination in the local water supply. The EPA has also issued notices of potential liability to a number of other entities affiliated with the Site, which used the contaminants of concern. In December 2018, the Company, WSPR, and other identified potentially responsible parties affiliated with the Site entered into tolling agreements with the U.S. government 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. The tolling agreements have been extended multiple times and currently expire in November 2025. The tolling agreements do not constitute in any way an admission or acknowledgment of any fact, conclusion of law, or liability by the parties to the agreements. The EPA released its proposed plan for OU-2 in July 2019, and on September 30, 2019, the EPA issued the ROD OU-2. The EPA elected to implement its preferred remedy consisting of in-situ treatment of groundwater and a monitored natural attenuation program including monitoring of the plume fringe at the Site. The EPA’s estimated total net present worth cost for its selected remedy for OU-2 is $ 17.3 million, and the EPA is currently leading remediation of OU-2. In August 2021, WSPR received a Notice of Liability for the Site from the Department of Justice on behalf of the EPA, and in September 2021, WSPR responded with a good faith offer to conduct additional testing and remedial design work for OU-1. Since that time, WSPR has been actively participating in negotiations among the U.S. Government (the Department of Justice and the EPA) and other potentially responsible parties with respect to the remedial work at OU-1. While the U.S. Government and the potentially responsible parties (including WSPR) all signed the Consent Decree as of July 19, 2023, several procedural steps remain before the Consent Decree is effective. On July 26, 2023, the U.S. Government filed a complaint in United States - 28 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) District Court for the District of Puerto Rico for the purpose of seeking judicial approval of the Consent Decree, which is required for the Consent Decree to be effective. As required by applicable regulations, the U.S. Government simultaneously lodged the Consent Decree for public comment. No comments were received during the public comment period. On September 6, 2023, at the conclusion of the public comment period, the U.S. Government filed a Motion to Enter the Consent Decree. The Consent Decree will be effective once the Court grants the U.S. Government’s Motion. The Company has reserved $ 5.6 million to cover probable and estimable liabilities with respect to the above remedial design and remedial action for the initial operable unit. However, it is not possible at this time for the Company to estimate its share of its ultimate liability for the Site. 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. U.S. Customs and Border Protection matter By letter dated August 26, 2019, the Company was advised that U.S. Customs and Border Protection ("CBP") had commenced an investigation, pursuant to 19 U.S.C. §1592, regarding the Company’s tariff classification of certain tableware and kitchenware. The issue centers on whether such merchandise meets the criteria for reduced duty rates as specified sets as those terms are defined in Chapter 69, Note 6(b), Harmonized Tariff System of the United States. The period of investigation is stated to be from August 26, 2014 to the present. 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 (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 also compiled and submitted to CBP a complete set of supporting documents for three additional protests (for the remaining 29 tableware collections that were imported by the Company under the protested shipments). One of the additional protests was approved on October 15, 2020; the other two remain pending. If the CBP approves these additional claims and accepts the evidence presented, 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. If CBP rejects the Company’s position, then the estimated amount of duties that could be owed is $ 0.6 million. In such event, it is reasonably possible that additional penalties could be assessed, depending upon the level of culpability found, of up to $ 1.2 million for negligence and up to $ 2.4 million for gross negligence. In the event penalties are assessed, the Company will have the opportunity to further contest CBP’s findings and seek cancellation or mitigation of such assessments. Accordingly, based on the above uncertainties and variables, the Company considers the potential losses related to this matter to be reasonably possible, but not probable. 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. Other The Company is, from time to time, involved in other legal proceedings. The Company believes that other current litigation is routine in nature and incidental to the conduct of the 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. - 29 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) NOTE 14 — OTHER Cash dividends Dividends declared in the nine months ended September 30, 2023 were as follows: Dividend per share Date declared Date of record Payment date $ 0.0425 3/8/2023 5/1/2023 5/15/2023 $ 0.0425 6/22/2023 8/1/2023 8/15/2023 $ 0.0425 8/2/2023 11/1/2023 11/15/2023 During the nine months ended September 30, 2023, the Company paid dividends of $ 2.8 million. This included payments made on February 15, 2023, May 15, 2023 and August 15, 2023 of $ 0.9 million, $ 0.9 million and $ 0.9 million to stockholders of record on February 1, 2023, May 1, 2023, and August 1, 2023 respectively, and payments of $ 0.1 million for dividends payable upon the vesting of restricted shares and performance shares. In the three months ended September 30, 2023, the Company reduced retained earnings for the accrual of $ 0.9 million relating to the dividend payable on November 15, 2023. On November 7, 2023, the Board declared a quarterly dividend of 0.0425 per share of common stock payable on February 15, 2024 to stockholders of record on February 1, 2024. Stock repurchase program On March 14, 2022, the Company announced that its Board authorized the repurchase of up to $ 20.0 million of the Company’s common stock, replacing the Company’s previously-authorized $ 10.0 million share repurchase program. The repurchase authorization permits the Company to effect the repurchases from time to time through open market purchases and privately negotiated transactions. During the nine months ended September 30, 2023, the Company repurchased 320,204 shares for a total cost of $ 2.5 million and thereafter retired the shares. No repurchases were effected during the three months ended September 30, 2023. As of September 30, 2023, the remaining dollar amount available for repurchases under the Board authorized plan was $ 11.1 million. Supplemental cash flow information Nine Months Ended September 30, 2023 2022 (in thousands) Supplemental disclosure of cash flow information: Cash paid for interest $ 15,204 $ 10,804 Cash paid for taxes, net of refunds 4,388 6,527 - 30 - Table of Contents LIFETIME BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (unaudited) Components of accumulated other comprehensive loss, net Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands) Accumulated translation adjustment: Balance at beginning of period $ ( 33,274 ) $ ( 36,175 ) $ ( 36,072 ) $ ( 31,752 ) Translation adjustment during period ( 1,242 ) ( 2,686 ) 1,556 ( 7,109 ) Balance at end of period $ ( 34,516 ) $ ( 38,861 ) $ ( 34,516 ) $ ( 38,861 ) Accumulated deferred (losses) gains on cash flow hedges: Balance at beginning of period $ ( 530 ) $ 1,636 $ 923 $ 78 Change in unrealized gains (losses) 254 624 ( 257 ) 2,201 Amounts reclassified from accumulated other comprehensive loss: Settlement of cash flow hedge (1) 181 ( 270 ) ( 761 ) ( 289 ) Net change in cash flow hedges, net of taxes of $ 0 , $ 92 , $( 2 ), $ 505 435 354 ( 1,018 ) 1,912 Balance at end of period $ ( 95 ) $ 1,990 $ ( 95 ) $ 1,990 Accumulated effect of retirement benefit obligations: Balance at beginning of period $ ( 682 ) $ ( 1,817 ) $ ( 705 ) $ ( 1,875 ) Amounts reclassified from accumulated other comprehensive loss: (2) Amortization of actuarial loss, net of taxes of $( 4 ), $( 10 ), $( 12 ), $( 29 ) 12 29 35 87 Balance at end of period $ ( 670 ) $ ( 1,788 ) $ ( 670 ) $ ( 1,788 ) Total accumulated other comprehensive loss at end of period $ ( 35,281 ) $ ( 38,659 ) $ ( 35,281 ) $ ( 38,659 ) (1) Amounts reclassified are recorded in interest expense and cost of sales on the unaudited condensed consolidated statement of operations. (2) Amounts are recorded in selling, general and administrative expense on the unaudited condensed consolidated statements of operations. - 31 - Table of Contents