Lifetime Brands, Inc. Reports Second Quarter 2012 Results

Lifetime Brands, Inc. (NasdaqGS: LCUT), a global provider of branded products used to prepare, serve and consume foods in the home, today reported its financial results for the quarter ended June 30, 2012.

Net sales for the three months ended June 30, 2012 were $94.9 million. Net sales grew by 5.0% compared to the corresponding period in 2011. Net sales increased primarily as a result of including the net sales of Creative Tops, acquired in November 2011, and increased net sales of Kitchenware products, offset by a decrease in net sales of Home Solutions products.

Gross margin for the three months ended June 30, 2012 was $35.4 million, or 37.3%, as compared to $34.0 million, or 37.7%, for the corresponding period in 2011. The decrease in the gross margin percentage primarily reflects a decline in the gross margin percentage of Home Solutions products.

Net income decreased to $0.6 million, or $0.04 per diluted share, from $2.1 million, or $0.17 per diluted share.

Adjusted net income for the quarter was $1.0 million, or $0.08 per diluted share, as compared to $1.7 million, or $0.14 per diluted share, in 2011. Adjusted net income in the 2012 period excludes a loss on early retirement of debt, related to the repayment of $10 million principal amount of the Company’s Term Loan, and an expense related to retirement benefit obligations. Adjusted net income in 2011 excludes the equity earnings from an entity that discontinued the sale of products in late 2011.

Jeffrey Siegel, Chairman, President and Chief Executive Officer said,

“The quarter was marked by continuing economic uncertainty, which restrained retail sales in most of our product categories. In response, our major retailer partners generally maintained conservative inventory positions.

“Despite this uncertainty, Lifetime achieved continued growth and margin expansion in our core Kitchenware categories; however, these gains were offset by a decline in net sales and gross margin in our Home Solutions product category.

“Within our Home Solutions products category, net sales of home décor products decreased, due to an industry-wide shift that resulted in many retailers reducing floor space allotted to home décor products. As previously noted, we are transitioning our home décor business to higher quality branded products designed to be sold under our Mikasa® and Pfaltzgraff® brands. While these new product lines have been well received by our key retailer partners, I do not foresee a significant turnaround in this category taking place in the next 12 to 18 months.

“There is good reason to be optimistic about the second half of the year, during which we expect to roll-out a number of new Kitchenware programs, including the roll-out of our new Guy Fieri ® cookware line and the launch of our new Savora™ line of kitchen tools & gadgets.

“We are very pleased with the progress of our non-U.S. businesses, especially with the significant growth achieved by our partner companies in Canada and Mexico. In early July, we brought Creative Tops onto our SAP enterprise system, a project that was completed on time and within budget.

“During the quarter, our strong liquidity position enabled us to repay $10 million of our second lien term loan. In July, we expanded our bank facility and refinanced the remaining balance of the second lien term loan with a new $35 million senior secured term loan. In addition to providing us with greater operating flexibility, the lower borrowing rate of our new term loan, on a pro-forma basis, reduces our annual interest expense by approximately $2.0 million.

“Overall, we believe Lifetime is well positioned to meet its business and financial goals for the year.”

On July 31, 2012, the Board of Directors declared a quarterly dividend of $0.025 per share payable on November 15, 2012 to shareholders of record on November 1, 2012.

Conference Call

The Company has scheduled a conference call for Tuesday, August 7, 2012 at 11:00 a.m. ET. The dial-in number for the conference call is (866) 202-3109 or (617) 213-8844, passcode #95620231. A replay of the call will also be available through August 14, 2012 and can be accessed by dialing (888) 286-8010 or (617) 801-6888, conference ID #83393356. A live webcast of the conference call will be broadcast in the Investor Relations section of the Company’s web site, www.lifetimebrands.com. For those who cannot listen to the live broadcast, an audio replay of the call will also be available on the site.

Non-GAAP Financial Measures

This earnings release contains non-GAAP financial measures. For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statements of income, balance sheets, or statements of cash flows of the Company; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Pursuant to the requirements of Regulation G, the Company has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures. These non-GAAP measures are provided because management of the Company uses these financial measures in evaluating the Company's on-going financial results and trends. Management uses this non-GAAP information as an indicator of business performance.

EBITDA is a non-GAAP measure that the Company defines as net income, adjusted to exclude undistributed equity earnings, an extraordinary item, income taxes, interest, depreciation and amortization, restructuring expenses, stock compensation expense, acquisition related expenses and loss on early retirement of debt, as shown in the table below.

Forward-Looking Statements

In this press release, the use of the words “believe,” "could,” “expect,” “may,” “positioned,” “project,” “projected,” “should,” “will,” “would” or similar expressions is intended to identify forward-looking statements that represent the Company’s current judgment about possible future events. The Company believes these judgments are reasonable, but these statements are not guarantees of any events or financial results, and actual results may differ materially due to a variety of important factors. Such factors might include, among others, the Company’s ability to comply with the requirements of its credit agreements; the availability of funding under such credit agreements; the Company’s ability to maintain adequate liquidity and financing sources and an appropriate level of debt; changes in general economic conditions which could affect customer payment practices or consumer spending; the impact of changes in general economic conditions on the Company’s customers; changes in demand for the Company’s products; shortages of and price volatility for certain commodities; significant changes in the competitive environment and the effect of competition on the Company’s markets, including on the Company’s pricing policies, financing sources and an appropriate level of debt.

Lifetime Brands, Inc.

Lifetime Brands is a provider of kitchenware, tabletop and other products used in the home. The Company markets its products under such well-known Kitchenware brands as Farberware®, KitchenAid®, CasaMōda®, Cuisinart®, Cuisine de France®, Guy Fieri®, Hoffritz®, Kizmos™, Misto®, Pedrini®, Roshco®, Sabatier®, Savora™ and Vasconia®; respected Tabletop brands such as Mikasa®, Pfaltzgraff®, Creative Tops®, Gorham®, International® Silver, Kirk Stieff®, Sasaki®, Towle® Silversmiths, Tuttle®, Wallace®, V&A® and Royal Botanic Gardens Kew®; and Home Solutions brands, including Elements®, Melannco®, Kamenstein® and Design for Living™.

The Company’s corporate website is www.lifetimebrands.com.
 
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands - except per share data)
(unaudited)
     
Three Months Ended Six Months Ended
June 30, June 30,
  2012       2011     2012       2011  
 
Net sales $ 94,939 $ 90,371 $ 203,980 $ 182,144
 
Cost of sales   59,565     56,325     128,146     114,708  
 
Gross margin 35,374 34,046 75,834 67,436
 
Distribution expenses 9,663 9,306 21,407 20,246
Selling, general and administrative expenses   23,558     20,389     49,042     42,862  
 
Income from operations 2,153 4,351 5,385 4,328
 

Interest expense
(1,675 ) (2,039 ) (3,373 ) (4,018 )
Loss on early retirement of debt   (348 )   -     (348 )   -  
 
Income before income taxes and equity in earnings 130 2,312 1,664 310
 

Income tax provision
(94 ) (1,108 ) (682 ) (520 )

Equity in earnings, net of taxes
  523     859     921     1,324  
 
NET INCOME $ 559   $ 2,063   $ 1,903   $ 1,114  
 

BASIC INCOME PER COMMON SHARE
$ 0.04   $ 0.17   $ 0.15   $ 0.09  
 

DILUTED INCOME PER COMMON SHARE
$ 0.04   $ 0.17   $ 0.15   $ 0.09  
 
 
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands - except share data)
(unaudited)
   

  June 30,  
December 31,
2012 2011
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,779 $ 2,972

Accounts receivable, less allowances of $2,943 at June 30, 2012 and $4,602 at December 31, 2011
56,755 77,749

Inventory
121,093 110,337
Prepaid expenses and other current assets 5,476 5,264

Income taxes receivable
504 -

Deferred income taxes
  3,239     2,475  
TOTAL CURRENT ASSETS 189,846 198,797
 
PROPERTY AND EQUIPMENT, net 32,602 34,324

INVESTMENTS
34,599 34,515

INTANGIBLE ASSETS, net
46,137 46,937
OTHER ASSETS   3,179     4,172  
TOTAL ASSETS $ 306,363   $ 318,745  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES

Revolving Credit Facility
$ - $ 15,000
Accounts payable 20,845 18,985
Accrued expenses 22,405 33,877

Income taxes payable
  -     2,100  
TOTAL CURRENT LIABILITIES 43,250 69,962
 
DEFERRED RENT & OTHER LONG-TERM LIABILITIES 15,930 14,598

DEFERRED INCOME TAXES
5,479 5,385

REVOLVING CREDIT FACILITY
63,376 42,625

TERM LOAN
30,000 40,000
 
STOCKHOLDERS’ EQUITY

Preferred stock, $.01 par value, shares authorized: 100 shares of Series A and 2,000,000 shares of Series B; none issued and outstanding
- -

Common stock, $.01 par value, shares authorized: 25,000,000; shares issued and outstanding: 12,531,076 at June 30, 2012 and 12,430,893 at December 31, 2011
126 124
Paid-in capital 139,129 137,467
Retained earnings 15,435 14,465
Accumulated other comprehensive loss   (6,362 )   (5,881 )
TOTAL STOCKHOLDERS’ EQUITY   148,328     146,175  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 306,363   $ 318,745  
 
 
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 
Six Months Ended
June 30,
2012   2011

OPERATING ACTIVITIES
Net income $ 1,903 $ 1,114

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for doubtful accounts (25 ) -
Depreciation and amortization 4,469 4,015
Amortization of debt discount - 464
Deferred rent (252 ) (21 )
Stock compensation expense 1,452 1,423
Undistributed equity earnings (506 ) (858 )
Loss on early retirement of debt (348 ) -

Changes in operating assets and liabilities (excluding the effects of business acquisitions)
Accounts receivable 21,368 13,871
Inventory (10,755 ) (10,571 )
Prepaid expenses, other current assets and other assets 1,129 643
Accounts payable, accrued expenses and other liabilities (8,846 ) (7,485 )
Income taxes payable   (2,603 )   (4,854 )
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES   6,986     (2,259 )
 

INVESTING ACTIVITIES
Purchases of property and equipment   (2,030 )   (2,066 )
NET CASH USED IN INVESTING ACTIVITIES   (2,030 )   (2,066 )
 

FINANCING ACTIVITIES
Proceeds from Revolving Credit Facility, net of repayments 5,751 3,254
Repayment of Term Loan (10,000 ) -
Proceeds from exercise of stock options 213 15
Excess tax benefits from exercise of stock options - 6
Payment of capital lease obligations - (59 )

Cash dividend paid
  (622 )   (302 )
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   (4,658 )   2,914  
 

Effect of foreign exchange on cash
(491 ) -
 

DECREASE IN CASH AND CASH EQUIVALENTS
(193 ) (1,411 )

Cash and cash equivalents at beginning of period
  2,972     3,351  

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$ 2,779   $ 1,940  
 
 
LIFETIME BRANDS, INC.
Supplemental Information

(In thousands)
 
Consolidated EBITDA for the four quarters ended
June 30, 2012
Three months ended June 30, 2012   $ 5,584
Three months ended March 31, 2012 6,222
Three months ended December 31, 2011 14,342
Three months ended September 30, 2011   13,524
Total for the four quarters $ 39,672
 
 
Consolidated EBITDA for the four quarters ended
June 30, 2011
Three months ended June 30, 2011 $ 7,512
Three months ended March 31, 2011 2,720
Three months ended December 31, 2010 17,544
Three months ended September 30, 2010   13,529
Total for the four quarters $ 41,305
 
 
Reconciliation of GAAP to Non-GAAP Operating Results
 
Consolidated EBITDA:
 
Three Months Ended

 June 30, 
 

 March 31, 
  December 31,   September 30,
  2012     2012     2011     2011  
Net income as reported $ 559 $ 1,344 $ 5,419 $ 7,533
Subtract out:
Undistributed equity earnings (108 ) (398 ) (925 ) (1,113 )
Add back:
Income tax provision (benefit) 94 588 3,513 2,089
Interest expense 1,675 1,698 1,951 1,789
Loss on early retirement of debt 348 - - -
Depreciation and amortization 2,262 2,207 2,336 2,046
Stock compensation expense 754 698 690 682
Permitted acquisition related expenses   -     85     1,358     498  
Consolidated EBITDA $ 5,584   $ 6,222   $ 14,342   $ 13,524  
 
 
LIFETIME BRANDS, INC.
Supplemental Information

(In thousands - except per share data)
 
Reconciliation of GAAP to Non-GAAP Operating Results (continued)
 
Consolidated EBITDA:
 
Three Months Ended

 June 30, 
 

 March 31, 
  December 31,   September 30,
  2011     2011     2010     2010  
Net income as reported $ 2,063 $ (949 ) $ 13,928 $ 6,585
Subtract out:
Undistributed equity earnings (393 ) (465 ) (733 ) (836 )
Extraordinary item, net of taxes - - (2,477 ) -
Add back:

Income tax provision (benefit)
1,108 (588 ) 1,600 2,390
Interest expense 2,039 1,979 2,188 2,090
Depreciation and amortization 2,020 1,995 2,292 2,518
Stock compensation expense 675 748 746 782
Loss on early retirement of debt   -     -     -     -  
Consolidated EBITDA $ 7,512   $ 2,720   $ 17,544   $ 13,529  
 

Adjusted Net Income and Adjusted Diluted Income Per Share:
     
Three Months Ended Six Months Ended
June 30, June 30,
2012   2011 2012   2011
 
Net income as reported $ 559 $ 2,063 $ 1,903 $ 1,114
Adjustments:
Loss on early retirement of debt, net of tax 205 - 205 -
Retirement benefit obligation expense, net of tax 268 - 268 -

Equity in earnings of World Alliance Enterprises Limited, net of tax
  -   (315 )   -   (315 )
Adjusted net income $ 1,032 $ 1,748   $ 2,376 $ 799  
Adjusted diluted income per share $ 0.08 $ 0.14   $ 0.19 $ 0.06  

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