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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-Q
__________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 0-19254
__________________________
LIFETIME BRANDS, INC.
(Exact name of registrant as specified in its charter)
__________________________
Delaware11-2682486
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1000 Stewart Avenue, Garden City, New York, 11530
(Address of principal executive offices) (Zip Code)
(516) 683-6000
(Registrant’s telephone number, including area code)
__________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange
on which registered
Common Stock, $.01 par valueLCUTThe Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No  ☒
The number of shares of the registrant’s common stock outstanding as of October 31, 2020 was 21,768,020.



Table of Contents
LIFETIME BRANDS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2020
INDEX
Page No.
Part I.
Item 1.
Condensed Consolidated Statements of Operations (unaudited) – Three and Nine Months Ended September 30, 2020 and 2019
Condensed Consolidated Statements of Comprehensive Income (loss) (unaudited) – Three and Nine Months Ended September 30, 2020 and 2019
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) –Three and Nine Months Ended September 30, 2020 and 2019
Condensed Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended September 30, 2020 and 2019
Item 2.
Item 3.
Item 4.
Part II.
Item 1.
Item 1A.
Item 2
Item 6.
























Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

September 30,
2020
December 31,
2019
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents$42,675 $11,370 
Accounts receivable, less allowances of $14,782 at September 30, 2020 and $9,681 at December 31, 2019
180,289 128,639 
Inventory209,825 173,427 
Prepaid expenses and other current assets9,619 14,140 
Income taxes receivable 1,577 
TOTAL CURRENT ASSETS442,408 329,153 
PROPERTY AND EQUIPMENT, net23,839 28,168 
OPERATING LEASE RIGHT-OF-USE ASSETS98,126 106,871 
INVESTMENTS17,734 21,289 
INTANGIBLE ASSETS, net247,180 280,471 
OTHER ASSETS2,559 4,071 
TOTAL ASSETS$831,846 $770,023 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current maturity of term loan$18,522 $8,413 
Accounts payable109,509 36,173 
Accrued expenses81,167 52,060 
Income taxes payable1,522  
Current portion of operating lease liabilities11,329 10,661 
TOTAL CURRENT LIABILITIES222,049 107,307 
OTHER LONG-TERM LIABILITIES16,394 12,214 
INCOME TAXES PAYABLE, LONG-TERM1,217 1,217 
OPERATING LEASE LIABILITIES104,183 112,180 
DEFERRED INCOME TAXES12,829 13,685 
REVOLVING CREDIT FACILITY25,654 32,822 
TERM LOAN237,727 254,281 
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, 2020 and December 31, 2019; shares issued and outstanding: 21,768,020 at September 30, 2020 and 21,255,660 at December 31, 2019
218 213 
Paid-in capital267,200 263,386 
(Accumulated deficit) retained earnings
(13,842)7,173 
Accumulated other comprehensive loss
(41,783)(34,455)
TOTAL STOCKHOLDERS’ EQUITY211,793 236,317 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$831,846 $770,023 
See accompanying notes to unaudited condensed consolidated financial statements.
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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,
 2020201920202019
Net sales$224,750 $215,502 $519,960 $507,964 
Cost of sales145,958 142,561 334,066 336,683 
Gross margin78,792 72,941 185,894 171,281 
Distribution expenses18,961 18,537 50,710 49,938 
Selling, general and administrative expenses38,325 37,389 114,274 118,379 
Restructuring expenses 338 253 1,119 
Goodwill and other impairments 9,748 20,100 9,748 
Income (loss) from operations
21,506 6,929 557 (7,903)
Interest expense(4,128)(5,539)(13,094)(15,505)
Mark to market gain (loss) on interest rate derivatives
99 367 (2,316)717 
Income (loss) before income taxes and equity in earnings (losses)
17,477 1,757 (14,853)(22,691)
Income tax provision
(3,711)(15,066)(3,013)(6,813)
Equity in earnings (losses), net of taxes
147 (210)(362)(395)
NET INCOME (LOSS)
$13,913 $(13,519)$(18,228)$(29,899)
BASIC INCOME (LOSS) PER COMMON SHARE
$0.66 $(0.66)$(0.87)$(1.46)
DILUTED INCOME (LOSS) PER COMMON SHARE
$0.65 $(0.66)$(0.87)$(1.46)
See accompanying notes to unaudited condensed consolidated financial statements.
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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,
 2020201920202019
Net income (loss)
$13,913 $(13,519)$(18,228)$(29,899)
Other comprehensive income (loss), net of taxes:
Translation adjustment2,145 (2,385)(4,827)(4,032)
Net change in cash flow hedges216 151 (2,560)1,729 
Effect of retirement benefit obligations20 13 59 38 
Other comprehensive income (loss), net of taxes
2,381 (2,221)(7,328)(2,265)
Comprehensive income (loss)
$16,294 $(15,740)$(25,556)$(32,164)
See accompanying notes to unaudited condensed consolidated financial statements.
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Table of Contents
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Common stockPaid-in
capital
Retained EarningsAccumulated other
comprehensive
 loss
 Total
SharesAmount
BALANCE AT DECEMBER 31, 201820,764 $208 $258,637 $55,264 $(34,616)$279,493 
Comprehensive (loss) income:
Net loss
— — — (4,867)— (4,867)
Translation adjustment— — — — 1,306 1,306 
Net change in cash flow hedges— — — — 596 596 
Effect of retirement benefit obligations— — — — 13 13 
Total comprehensive loss
(2,952)
Net issuance of restricted shares to employees169 1 (1)— — — 
Stock compensation expense— — 900 — — 900 
Net exercise of stock options19 — — — — — 
Shares effectively repurchased for required employee withholding taxes(25)— (232)— — (232)
Dividends (1)
— — — (898)— (898)
BALANCE AT MARCH 31, 201920,927 $209 $259,304 $49,499 $(32,701)$276,311 
Comprehensive (loss) income:
Net loss
— — — (11,513)— (11,513)
Translation adjustment— — — — (2,953)(2,953)
Net change in cash flow hedges— — — — 982 982 
Effect of retirement benefit obligations— — — — 12 12 
Total comprehensive loss
(13,472)
Restricted shares issued to directors61 1 (1)— — — 
Net issuance of restricted shares to employees250 3 (3)— — — 
Stock compensation expense— — 1,186 — — 1,186 
Net exercise of stock options34 — 133 — — 133 
Shares effectively repurchased for required employee withholding taxes(17)— (158)— — (158)
Dividends (1)— — — (896)— (896)
BALANCE AT JUNE 30, 201921,255 $213 $260,461 $37,090 $(34,660)$263,104 
Comprehensive (loss) income
Net loss
— — — (13,519)— (13,519)
Translation adjustment— — — — (2,385)(2,385)
Derivative fair value adjustment— — — — 151 151 
Effect of retirement benefit obligations— — — — 13 13 
Total comprehensive loss
(15,740)
Net issuance of restricted shares to employees1  — — —  
Stock compensation expense— — 1,498 — — 1,498 
Dividends (1)— — — (937)— (937)
BALANCE AT SEPTEMBER 30, 201921,256 $213 $261,959 $22,634 $(36,881)$247,925 

(1)Cash dividends declared per share of common stock were $0.1275 and $0.1275 in the nine months ended September 30, 2019 and 2020, respectively.












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Table of Contents
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
 Common stockPaid-in
capital
Retained Earnings (Accumulated deficit)
Accumulated other
comprehensive
 loss
Total
SharesAmount
BALANCE AT DECEMBER 31, 201921,256 $213 $263,386 $7,173 $(34,455)$236,317 
Comprehensive (loss) income:
Net loss
— — — (28,164)— (28,164)
Translation adjustment— — — — (4,458)(4,458)
Net change in cash flow hedges— — — — (2,877)(2,877)
Effect of retirement benefit obligations— — — — 20 20 
Total comprehensive loss
(35,479)
Performance shares issued to employees62 1 (1)— — — 
Net issuance of restricted shares to employees220 2 (2)— — — 
Stock compensation expense— — 1,320 — — 1,320 
Shares effectively repurchased for required employee withholding taxes(52)(1)(298)— — (299)
Dividends (1)
— — — (932)— (932)
BALANCE AT MARCH 31, 202021,486 $215 $264,405 $(21,923)$(41,770)$200,927 
Comprehensive (loss) income:
Net loss
— — — (3,977)— (3,977)
Translation adjustment— — — — (2,514)(2,514)
Net change in cash flow hedges— — — — 101 101 
Effect of retirement benefit obligations— — — — 19 19 
Total comprehensive loss
(6,371)
Net issuance of restricted shares to employees 309 3 (3)— — — 
Stock compensation expense— — 1,415 — — 1,415 
Shares effectively repurchased for required employee withholding taxes(26)— (187)— — (187)
Dividends (1)— — — (913)— (913)
BALANCE AT JUNE 30, 202021,769 $218 $265,630 $(26,813)$(44,164)$194,871 
Comprehensive income:
Net income
— — — 13,913 — 13,913 
Translation adjustment— — — — 2,145 2,145 
Net change in cash flow hedges— — — — 216 216 
Effect of retirement benefit obligations— — — — 20 20 
Total comprehensive income
16,294 
Stock compensation expense— — 1,570 — — 1,570 
Shares effectively repurchased for required employee withholding taxes(1)— — — — — 
Dividends (1)— — — (942)— (942)
BALANCE AT SEPTEMBER 30, 202021,768 $218 $267,200 $(13,842)$(41,783)$211,793 
(1)Cash dividends declared per share of common stock were $0.1275 and $0.1275 in the nine months ended September 30, 2019 and 2020, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.
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LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
 20202019
OPERATING ACTIVITIES
Net loss
$(18,228)$(29,899)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization18,385 18,771 
Goodwill and other impairments20,100 9,748 
Amortization of financing costs1,326 1,312 
Mark to market loss (gain) on interest rate derivatives
2,316 (717)
Non-cash lease expense2,915 1,050 
Provision for doubtful accounts3,011 316 
Stock compensation expense4,321 3,605 
Undistributed equity in losses, net of taxes
362 395 
SKU Rationalization 8,500 
Changes in operating assets and liabilities:
Accounts receivable(55,466)(37,659)
Inventory(37,303)(66,195)
Prepaid expenses, other current assets and other assets3,573 1,473 
Accounts payable, accrued expenses and other liabilities100,798 43,465 
Income taxes receivable1,577 1,442 
Income taxes payable1,521 4,434 
 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
49,208 (39,959)
INVESTING ACTIVITIES
Purchases of property and equipment(1,645)(7,618)
NET CASH USED IN INVESTING ACTIVITIES
(1,645)(7,618)
FINANCING ACTIVITIES
Proceeds from revolving credit facility107,418 258,647 
Repayments of revolving credit facility(113,652)(208,737)
Repayments of term loan(7,583)(2,063)
Payments for finance lease obligations(75)(18)
Payments of tax withholding for stock based compensation(486)(390)
Proceeds from the exercise of stock options 133 
Cash dividends paid(1,862)(2,693)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
(16,240)44,879 
Effect of foreign exchange on cash(18)(188)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
31,305 (2,886)
Cash and cash equivalents at beginning of period11,370 7,647 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$42,675 $4,761 
See accompanying notes to unaudited condensed consolidated financial statements.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(unaudited)

NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Organization and business
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 Internet websites) and, to a lesser extent, to distributors. The Company also sells a limited selection of its products directly to consumers through its own Internet 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 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, some specifically associated with recent events surrounding the COVID-19 pandemic, 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, 2019.
Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
The Company’s business and working capital needs are highly seasonal, with a majority of sales occurring in the third and fourth quarters. In 2019 and 2018, net sales for the third and fourth quarters accounted for 60% and 62% of total annual net sales, respectively. In anticipation of the pre-holiday shipping season, inventory levels increase primarily in the June through October time period.
Although the Company’s current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from expectations, which could materially affect the Company’s results of operations and financial position. In particular, a number of estimates have been and will continue to be affected by the ongoing COVID-19 pandemic. The severity, magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, are uncertain, rapidly changing and difficult to predict.
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.
Cost of sales
Cost of sales consists primarily of costs associated with the production and procurement of product, inbound freight costs, purchasing costs, royalties, tooling, and other product procurement related charges.

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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(unaudited)

In 2019, the Company implemented programs to improve the productivity of its inventory and simplify its U.S. business. In connection therewith, it initiated a stock keeping unit rationalization (“SKU Rationalization”) initiative to identify inventory to discontinue from active status, consistent with the objectives of these programs.
During the nine months ended September 30, 2019, the Company recorded an $8.5 million charge to cost of sales associated with the SKU Rationalization initiative. The inventory charge, which was recognized in cost of sales during the three months ended June 30, 2019, represented approximately 8% of the Company's consolidated inventory at June 30, 2019.
Distribution expenses
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 losses that could result from the inability of its customers to make required payments, taking into consideration customer credit history and financial condition, industry and market segment information, credit reports, and economic trends and conditions such as the impacts of the COVID-19 pandemic in 2020. A considerable amount of judgment is required to assess the ultimate realization of these receivables, including assessing the initial and on-going creditworthiness of the Company’s customers.
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. Pursuant to this agreement, the Company sold to HSBC $43.0 million and $116.9 million of receivables during the three and nine months ended September 30, 2020, respectively, and $32.5 million and $81.7 million of receivables during the three and nine months ended September 30, 2019, respectively. Charges of $0.1 million and $0.4 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2020, respectively. Charges of $0.2 million and $0.4 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2019, respectively. At September 30, 2020 and 2019, $26.7 million and $17.8 million, respectively, of receivables sold were outstanding and due to HSBC from customers.
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.




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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(unaudited)

The components of inventory were as follows (in thousands):
September 30,
2020
December 31, 2019
Finished goods$201,453 $165,950 
Work in process145 61 
Raw materials8,227 7,416 
Total$209,825 $173,427 
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 the carrying amounts of borrowings outstanding under its ABL Agreement and Term Loan (each as defined in Note 6 – 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 change in the fair value of hedges is included in accumulated other comprehensive loss and is subsequently recognized in the Company’s unaudited condensed consolidated statements of operations to mirror the location of the hedged items impacting earnings. Changes to the fair value of derivatives that do not qualify as hedging instruments for accounting purposes are recorded in the Company’s unaudited condensed 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 Accounting Standards Update (“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.
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
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(unaudited)
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. The Company also evaluates qualitative factors to determine whether or not its indefinite lived intangibles have been impaired and then performs quantitative tests if required. These tests can include the relief from royalty model or other valuation models.
Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, historical or anticipated declines in revenue or operating profit or material adverse changes in the business climate that indicate that the carrying amount of an asset group may be impaired. When impairment indicators are present, the recoverability of the asset group is measured by comparing the carrying value of the asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of the asset group is not recoverable, the impairment to be recognized is measured by the amount by which the carrying amount of the long-lived asset group exceeds the fair value of the asset group.
See Note 5 – Intangible Assets to the unaudited condensed consolidated financial statements included in this Quarterly Report for additional information.
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 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 accounts 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. A liability has been incurred at the point of closure for any remaining operating lease obligations and at the communication date for severance.
During the nine months ended September 30, 2020, the Company's international segment incurred $0.3 million of restructuring expenses related to severance associated with the strategic reorganization of the international segment’s product development and sales workforce. The strategic reorganization is the result of the Company's efforts for product development efficiencies and a country tailored international sales approach. As of September 30, 2020, $0.1 million of severance was accrued. The Company does not expect to incur any additional restructuring charges for these strategic reorganization efforts for the remainder of 2020.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(unaudited)
During the nine months ended September 30, 2019, the Company incurred $0.4 million of Filament restructuring charges, primarily related to severance.
During the three and nine months ended September 30, 2019, the Company incurred $0.3 million and $0.7 million of restructuring expenses, primarily related to severance, for the integration of its legal entities operating in Europe. In 2018, the Company finalized its integration plans for its European operations and took further steps to consolidate its operations.
New accounting pronouncements
Updates not listed below 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.
In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles and simplifies the application of U.S. GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. Management is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued 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. The ASU also provides updated guidance regarding the impairment of available-for-sale debt securities and includes additional disclosure requirements. The new guidance is effective for public business entities that meet the definition of a Smaller Reporting Company as defined by the Securities and Exchange Commission for interim and annual periods beginning after December 15, 2022. Early adoption is permitted. Management is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to account for contract modifications, hedging relationships and other transactions that reference LIBOR or another reference rate that is expected to be discontinued as a result of reference rate reform. The guidance in the ASU may be applied to contract modifications and hedging relationships as of any date from March 12, 2020 but no later than December 31, 2022 and should be applied on a prospective basis. The Company has not yet applied the guidance in this ASU and is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
On April 10, 2020, the FASB staff issued a question-and-answer document to address stakeholder questions on the application of the lease accounting guidance for lease concessions related to the effects of the COVID-19 pandemic (the “Question-and-Answer Document”). The guidance allows concessions related to the timing of payments, where the total consideration has not changed, to not be accounted for as lease modifications. Instead, any such concessions can be accounted for as if no change was made to the contract or as variable lease payments. The Company adopted the guidance on April 1, 2020 and elected to account for COVID-19-related rent concessions that did not result in a substantial increase in the rights of the lessor or the obligations of the lessee not as lease modifications. See Note 3 – Leases for additional information on the Company’s adoption of this guidance.
NOTE 2 —REVENUE
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 $0.9 million and $2.6 million for the three
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Table of Contents
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(unaudited)
and nine months ended September 30, 2020, respectively, and $1.0 million and $2.3 million for the three and nine months ended September 30, 2019, 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 represent forms of variable consideration and an estimate of sales returns are reflected as reductions in net sales in the Company’s unaudited condensed consolidated statements of operations. These estimates are based on historical experience and other known factors or as the most likely amount in a range of possible outcomes. On a quarterly basis, variable consideration is assessed on a portfolio approach in estimating the extent to which the components of variable consideration are constrained.
Payment terms vary by customer, but generally range from 30 to 90 days or at the point of sale for the Company’s retail direct sales. As a result of the COVID-19 pandemic, many of the Company's customers which operate retail locations have temporarily closed their stores voluntarily or as mandated by government stay at home orders. In response to these closings, the affected customers have requested extended payment terms. The Company has been working with these customers to address their temporary extended payment requests.
The Company incurs certain direct incremental costs to obtain contracts with customers, such as sales-related commissions, 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.
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, 2020 and 2019 (in thousands):

Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
U.S. segment
Kitchenware$119,566 $99,257 $283,258 $234,149 
Tableware51,285 57,332 98,534 112,543 
Home Solutions30,688 38,610 81,546 98,637 
Total U.S. segment201,539 195,199 463,338 445,329 
International segment
Kitchenware19,186 16,406 45,500 42,918 
Tableware4,025 3,897 11,122 19,717 
Total International segment23,211 20,303 56,622 62,635 
Total net sales$224,750 $215,502 $519,960 $507,964 
United States$193,432 $179,565 $447,087 $417,657 
United Kingdom15,646 13,985 36,418 44,697 
Rest of World15,672 21,952 36,455 45,610 
Total net sales$224,750 $215,502 $519,960 $507,964 

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Table of Contents
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(unaudited)
NOTE 3 — LEASES
The Company has operating leases for corporate offices, distribution facilities, manufacturing plants, and certain vehicles. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet.
In response to the COVID-19 pandemic, the Company negotiated COVID-19-related rent concessions for several of its leased properties. The majority of these rent concessions were in the form of deferred rent payments for one or more months. For these rent concessions the Company elected to account for these as if no changes to the lease were made and continued to recognize the straight-line lease expense for these leases in accordance with the FASB Question-and-Answer Document. COVID-19-related deferred rent payments at September 30, 2020 were $1.4 million and were recorded in accrued expenses in the unaudited condensed consolidated balance sheet at September 30, 2020. In addition, there were a limited number of rent concessions obtained by the Company in the form of rent abatement and changes in lease terms. These lease modifications were accounted for as a resolution to a contingency that fixes previously variable lease payments which resulted in the remeasurement of the right-of-use asset and lease liability. The remeasurement of the right-of-use and lease liability did not have a material effect on our consolidated financial statements or results of operations. The Company continues to assess its leased properties in seeking commercially reasonable lease concessions given the current environment.
The components of lease expense for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Operating lease expenses:
Fixed$4,450 $4,796 $13,755 $13,927 

Supplemental cash flow information for lease related liabilities and assets for the nine months ended September 30, 2020 and 2019 were as follows (in thousands):
Nine Months Ended
September 30,
2020
2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$10,839 $12,877 

Nine Months Ended
September 30,
2020
2019
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases$38 $118,054 
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(unaudited)

The aggregate future lease payments for operating leases as of September 30, 2020 were as follows (in thousands):
 Operating
2020 (excluding the nine months ending September 30, 2020)
$4,639 
202117,965 
202218,071 
202318,050 
202417,723 
202517,697 
Thereafter54,993 
Total lease payments149,138 
Less: Interest(33,626)
Present value of lease payments$115,512 
The Company expects to make payments related to the deferrals obtained as a result of COVID-19-related rent concessions of $0.4 million in 2020 and $1.0 million in 2021, per the updated terms of the applicable lease agreements.
Average lease terms and discount rates were as follows:
 September 30, 2020
Operating leases:
Weighted-average remaining lease term (years)8.4
Weighted-average discount rate6.2 %

NOTE 4 —INVESTMENTS
The Company owns approximately 30% 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, 2020 and 2019 in the accompanying unaudited condensed consolidated statements of operations.
The value of the Company's investment balance has been translated from Mexican Pesos ("MXN") to U.S. Dollars ("USD") using the spot rates of MXN 22.26 and MXN 18.91 at September 30, 2020 and December 31, 2019, respectively.
The Company's proportionate share of Vasconia's net income (loss) has been translated from MXN to USD using the following exchange rates:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Average exchange rate (USD to MXN)
22.06
19.42
19.91 - 23.31
19.11 - 19.42

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Table of Contents
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(unaudited)
The effect of the translation of the Company’s investment, as well as the translation of Vasconia's balance sheet, resulted in a decrease to the investment of $3.4 million and $1.8 million during the nine months ended September 30, 2020 and 2019, respectively. These translation effects are recorded in accumulated other comprehensive loss.

Summarized income statement information for the three and nine months ended September 30, 2020 and 2019 for Vasconia in USD and MXN is as follows (in thousands):
Three Months Ended
September 30,
20202019
USDMXNUSDMXN
Net sales$39,565 $872,647 $36,566 $710,118 
Gross profit
9,556 210,770 5,572 108,205 
Income (loss) from operations
2,957 65,229 (581)(11,288)
Net income (loss)
536 11,812 (647)(12,571)

Nine Months Ended
September 30,
20202019
USDMXNUSDMXN
Net Sales$99,932 $2,171,695 $115,100 $2,216,293 
Gross profit
21,025 459,731 22,801