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~~June 30, ~~2019~~2020


☐			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)

__________________________


Delaware			11-2682486
(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 class

Trading
Symbol(s)

Name of each exchange
on which registered

Common Stock, $.01 par value

LCUT

The ~~NASDAQ~~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”,~~filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller 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~~July 31, ~~2019~~2020 was ~~21,256,793.~~21,768,740.

Table of Contents

LIFETIME BRANDS, INC.

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2019~~2020

INDEX


		Page No.

Part I.	Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets – ~~September~~June 30, ~~2019~~2020 (unaudited) and December 31, ~~2018~~2019	2

	Condensed Consolidated Statements of Operations (unaudited) – Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	3

	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss (unaudited) –Three and ~~Nine~~Six Months Ended~~September~~ June 30, ~~2019~~2020 and ~~2018~~2019	4

	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) –Three and ~~Nine~~Six Months Ended~~September~~ June 30, ~~2019~~2020 and ~~2018~~2019	5

	Condensed Consolidated Statements of Cash Flows (unaudited) – ~~Nine~~Six Months Ended~~September~~ June 30, ~~2019~~2020 and ~~2018~~2019	76

	Notes to Condensed Consolidated Financial Statements (unaudited)	87

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2829

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4144

Item 4.	Controls and Procedures	4144

Part II.	Other Information

Item 1.	Legal Proceedings	4144

Item 1A.	Risk Factors	4246

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 6.	Exhibits	4348

Signatures			4449

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LIFETIME BRANDS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Inin thousands, except share data)

September 30,
2019 December 31,
2018
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,761 $ 7,647
Accounts receivable, less allowances of $9,345 at September 30, 2019 and $7,855 at December 31, 2018 161,935 125,292
Inventory 229,947 173,601
Prepaid expenses and other current assets 9,842 10,822
Income taxes receivable — 1,442
TOTAL CURRENT ASSETS 406,485 318,804
PROPERTY AND EQUIPMENT, net 28,229 25,762
OPERATING LEASE RIGHT-OF-USE ASSETS 108,323 —
INVESTMENTS 20,347 22,582
INTANGIBLE ASSETS, net 316,343 338,847
DEFERRED INCOME TAXES 80 733
OTHER ASSETS 3,925 1,844
TOTAL ASSETS $ 883,732 $ 708,572
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current maturity of term loan $ 4,264 $ 1,253
Accounts payable 67,784 38,167
Accrued expenses 58,252 45,456
Income taxes payable 4,420 —
Current portion of operating lease liabilities 10,741 —
TOTAL CURRENT LIABILITIES 145,461 84,876
DEFERRED RENT & OTHER LONG-TERM LIABILITIES 10,987 23,339
DEFERRED INCOME TAXES 14,947 15,141
OPERATING LEASE LIABILITIES 113,506 —
INCOME TAXES PAYABLE, LONG-TERM 949 949
REVOLVING CREDIT FACILITY 91,212 42,080
TERM LOAN 258,745 262,694
STOCKHOLDERS’ EQUITY
Preferred stock, $1.00 par value, shares authorized: 100 shares of Series A and 2,000,000 shares of Series B; NaN issued and outstanding — —
Common stock, $0.01 par value, shares authorized: 50,000,000 at September 30, 2019 and December 31, 2018; shares issued and outstanding: 21,256,793 at September 30, 2019 and 20,764,143 at December 31, 2018 213 208
Paid-in capital 261,959 258,637
Retained earnings 22,634 55,264
Accumulated other comprehensive loss (36,881) (34,616)
TOTAL STOCKHOLDERS’ EQUITY 247,925 279,493
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 883,732 $ 708,572


	June 30, 2020		December 31, 2019
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	63,537	$	11,370
Accounts receivable, less allowances of $13,040 at June 30, 2020 and $9,681 at December 31, 2019	111,361		128,639
Inventory	168,928		173,427
Prepaid expenses and other current assets	12,249		14,140
Income taxes receivable	2,466		1,577
TOTAL CURRENT ASSETS	358,541		329,153
PROPERTY AND EQUIPMENT, net	25,100		28,168
OPERATING LEASE RIGHT-OF-USE ASSETS	99,883		106,871
INVESTMENTS	17,020		21,289
INTANGIBLE ASSETS, net	250,515		280,471
OTHER ASSETS	2,743		4,071

TOTAL ASSETS	$	753,802	$	770,023
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current maturity of term loan	$	13,527	$	8,413

Accounts payable	66,678		36,173
Accrued expenses	62,114		52,060

Current portion of operating lease liabilities	10,660		10,661
TOTAL CURRENT LIABILITIES	152,979		107,307
OTHER LONG-TERM LIABILITIES	16,159		12,214
INCOME TAXES PAYABLE, LONG-TERM	1,217		1,217
OPERATING LEASE LIABILITIES	106,195		112,180
DEFERRED INCOME TAXES	12,661		13,685
REVOLVING CREDIT FACILITY	27,383		32,822
TERM LOAN	242,337		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; NaN issued and outstanding	—		—
Common stock, $0.01 par value, shares authorized: 50,000,000 at June 30, 2020 and December 31, 2019; shares issued and outstanding: 21,768,740 at June 30, 2020 and 21,255,660 at December 31, 2019	218		213
Paid-in capital	265,630		263,386
(Accumulated deficit) retained earnings	(26,813)		7,173
Accumulated other comprehensive loss	(44,164)		(34,455)
TOTAL STOCKHOLDERS’ EQUITY	194,871		236,317
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	753,802	$	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

(Inin thousands, except per share data)

(unaudited)


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2019		2018		2019		2018			2020		2019		2020		2019
Net sales	Net sales	$	215,502	$	209,448	$	507,964	$	476,268	Net sales	$	150,140	$	142,536	$	295,210	$	292,462
Cost of sales	Cost of sales	142,561		135,663		336,683		305,318		Cost of sales	95,972		98,517		188,108		194,122
Gross margin	Gross margin	72,941		73,785		171,281		170,950		Gross margin	54,168		44,019		107,102		98,340
Distribution expenses	Distribution expenses	18,537		16,612		49,938		49,376		Distribution expenses	15,192		15,541		31,749		31,401
Selling, general and administrative expenses	Selling, general and administrative expenses	37,389		42,113		118,379		122,330		Selling, general and administrative expenses	34,427		40,850		75,949		80,990
Restructuring expenses	Restructuring expenses	338		552		1,119		1,353		Restructuring expenses	253		173		253		781
Impairment of goodwill		9,748		2,205		9,748		2,205
Goodwill and other impairments										Goodwill and other impairments	—		—		20,100		—
Income (loss) from operations	Income (loss) from operations	6,929		12,303		(7,903)		(4,314)		Income (loss) from operations	4,296		(12,545)		(20,949)		(14,832)
Interest expense	Interest expense	(5,172)		(5,634)		(14,788)		(12,413)		Interest expense	(4,230)		(5,044)		(8,966)		(9,966)
Loss on early retirement of debt		—		—		—		(66)
Income (loss) before income taxes and equity in (losses) earnings		1,757		6,669		(22,691)		(16,793)
Mark to market (loss) gain on interest rate derivatives										Mark to market (loss) gain on interest rate derivatives	(164)		350		(2,415)		350

Loss before income taxes and equity in losses										Loss before income taxes and equity in losses	(98)		(17,239)		(32,330)		(24,448)
Income tax (provision) benefit	Income tax (provision) benefit	(15,066)		(906)		(6,813)		4,669		Income tax (provision) benefit	(3,031)		5,795		698		8,253
Equity in (losses) earnings, net of taxes		(210)		185		(395)		417
NET (LOSS) INCOME		$	(13,519)	$	5,948	$	(29,899)	$	(11,707)
BASIC (LOSS) INCOME PER COMMON SHARE		$	(0.66)	$	0.29	$	(1.46)	$	(0.61)
DILUTED (LOSS) INCOME PER COMMON SHARE		$	(0.66)	$	0.29	$	(1.46)	$	(0.61)
Equity in losses, net of taxes										Equity in losses, net of taxes	(848)		(69)		(509)		(185)
NET LOSS										NET LOSS	$	(3,977)	$	(11,513)	$	(32,141)	$	(16,380)
BASIC LOSS PER COMMON SHARE										BASIC LOSS PER COMMON SHARE	$	(0.19)	$	(0.56)	$	(1.55)	$	(0.80)
DILUTED LOSS PER COMMON SHARE										DILUTED LOSS PER COMMON SHARE	$	(0.19)	$	(0.56)	$	(1.55)	$	(0.80)

See accompanying notes to unaudited condensed consolidated financial statements.

- 3 -

Table of Contents

LIFETIME BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~(LOSS) INCOME~~LOSS

(Inin thousands)

(unaudited)


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2019		2018		2019		2018			2020		2019		2020		2019
Net (loss) income		$	(13,519)	$	5,948	$	(29,899)	$	(11,707)
Net loss										Net loss	$	(3,977)	$	(11,513)	$	(32,141)	$	(16,380)
Other comprehensive loss, net of taxes:	Other comprehensive loss, net of taxes:									Other comprehensive loss, net of taxes:
Translation adjustment	Translation adjustment	(2,385)		124		(4,032)		(1,985)		Translation adjustment	(2,514)		(2,953)		(6,972)		(1,647)
Net change in cash flow hedges	Net change in cash flow hedges	151		(381)		1,729		(658)		Net change in cash flow hedges	101		982		(2,776)		1,578
Effect of retirement benefit obligations	Effect of retirement benefit obligations	13		19		38		54		Effect of retirement benefit obligations	19		12		39		25
Other comprehensive loss, net of taxes	Other comprehensive loss, net of taxes	(2,221)		(238)		(2,265)		(2,589)		Other comprehensive loss, net of taxes	(2,394)		(1,959)		(9,709)		(44)
Comprehensive (loss) income		$	(15,740)	$	5,710	$	(32,164)	$	(14,296)
Comprehensive loss										Comprehensive loss	$	(6,371)	$	(13,472)	$	(41,850)	$	(16,424)

See accompanying notes to unaudited condensed consolidated financial statements.

- 4 -

Table of Contents

LIFETIME BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(~~In thousands, except per share data)~~in thousands)

(unaudited)


		Common stock					Paid-in capital		Retained earnings		Accumulated other comprehensive loss			Total		Common stock							Paid-in capital			Retained Earnings			Accumulated other comprehensive loss	Total
Nine Months Ended September 30, 2018		Shares	Amount
BALANCE AT DECEMBER 31, 2017		14,903	$	149	$	178,909	$	60,546	$	(29,325)	$	210,279
Comprehensive loss:
															Shares	Amount				Paid-in capital					Retained Earnings				Accumulated other comprehensive loss	Total
BALANCE AT DECEMBER 31, 2018													BALANCE AT DECEMBER 31, 2018		20,764	$	208	$	258,637
Comprehensive (loss) income:													Comprehensive (loss) income:
Net loss	Net loss	—	—		—		(11,598)		—		$	(11,598)	Net loss		—	—		—				(4,867)			—			(4,867)
Translation adjustment	Translation adjustment	—	—		—		—		3,380		3,380		Translation adjustment		—	—		—		—			1,306			1,306
Derivative fair value adjustment		—	—		—		—		(14)		(14)
Net change in cash flow hedges													Net change in cash flow hedges		—	—		—		—			596			596
Effect of retirement benefit obligations	Effect of retirement benefit obligations	—	—		—		—		18		18		Effect of retirement benefit obligations		—	—		—		—			13			13
Total comprehensive loss	Total comprehensive loss										(8,214)		Total comprehensive loss													(2,952)
Issuance of 5,593,116 shares of common stock for acquisition of Filament, net of equity issuance costs		5,593	56		75,920		—		—		75,976
Restricted shares issued to directors		3	—		—		—		—		—
Net issuance of restricted shares to employees		126	1		(1)		—		—		—
Stock compensation expense		—	—		838		—		—		838
Shares effectively repurchased for required employee withholding taxes		(19)	—		(258)		—		—		(258)
Dividends (1)		—	—		—		(880)		—		(880)
BALANCE AT MARCH 31, 2018		20,606	206		255,408		48,068		(25,941)		277,741
Comprehensive loss:
Net loss		—	—		—		(6,057)		—		$	(6,057)
Translation adjustment		—	—		—		—		(5,489)		(5,489)
Derivative fair value adjustment		—	—		—		—		(263)		(263)
Effect of retirement benefit obligations		—	—		—		—		17		17
Total comprehensive loss											(11,792)
Filament net equity issuance costs adjustment		—	—		(6)						(6)
Restricted shares issued to directors		54	—		—		—		—		—
Net issuance of restricted shares to employees		93	1		(1)		—		—		—
Stock compensation expense		—	—		921		—		—		921
Shares effectively repurchased for required employee withholding taxes		(12)	—		(140)		—		—		(140)
Dividends (1)		—	—		—		(885)		—		(885)
BALANCE AT JUNE 30, 2018		20,741	207		256,182		41,126		(31,676)		265,839
Comprehensive income:
Net income		—	—		—		5,948		—		$	5,948
Translation adjustment		—	—		—		—		124		124
Derivative fair value adjustment		—	—		—		—		(381)		(381)
Effect of retirement benefit obligations		—	—		—		—		19		19
Total comprehensive income											5,710

Net issuance of restricted shares to employees	Net issuance of restricted shares to employees	25	1		—		—		—		1		Net issuance of restricted shares to employees		169	1		(1)		—			—			—
Stock compensation expense	Stock compensation expense	—	—		1,268		—		—		1,268		Stock compensation expense		—	—		900		—			—			900
Net exercise of stock options	Net exercise of stock options	—	—		142		—		—		142		Net exercise of stock options		19	—		—		—			—			—
Shares effectively repurchased for required employee withholding taxes	Shares effectively repurchased for required employee withholding taxes	(4)	—		(45)		—		—		(45)		Shares effectively repurchased for required employee withholding taxes		(25)	—		(232)		—			—			(232)
Dividends (1)	Dividends (1)	—	—		—		(905)		—		(905)		Dividends ⁽¹⁾		—	—		—		(898)			—			(898)
BALANCE AT SEPTEMBER 30, 2018		20,762	$	208	$	257,547	$	46,169	$	(31,914)	$	272,010
BALANCE AT MARCH 31, 2019													BALANCE AT MARCH 31, 2019		20,927	$	209	$	259,304	$	49,499		$	(32,701)		$	276,311

Comprehensive (loss) income:													Comprehensive (loss) income:
Net loss													Net loss		—	—		—		(11,513)			—			(11,513)
Translation adjustment													Translation adjustment		—	—		—		—			(2,953)			(2,953)
Net change in cash flow hedges													Net change in cash flow hedges		—	—		—		—			982			982
Effect of retirement benefit obligations													Effect of retirement benefit obligations		—	—		—		—			12			12
Total comprehensive loss													Total comprehensive loss													(13,472)

Restricted shares issued to directors													Restricted shares issued to directors		61	1		(1)		—			—			—
Net issuance of restricted shares to employees													Net issuance of restricted shares to employees		250	3		(3)		—			—			—
Stock compensation expense													Stock compensation expense		—	—		1,186		—			—			1,186
Net exercise of stock options													Net exercise of stock options		34	—		133		—			—			133
Shares effectively repurchased for required employee withholding taxes													Shares effectively repurchased for required employee withholding taxes		(17)	—		(158)		—			—			(158)
Dividends (1)													Dividends (1)		—	—		—		(896)			—			(896)
BALANCE AT JUNE 30, 2019													BALANCE AT JUNE 30, 2019		21,255	$	213	$	260,461	$	37,090		$	(34,660)		$	263,104


	Common stock					Paid-in capital		Retained Earnings (Accumulated deficit)		Accumulated other comprehensive loss		Total
	Shares	Amount
BALANCE AT DECEMBER 31, 2019	21,256	$	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 employees	62	1		(1)		—		—		—
Net issuance of restricted shares to employees	220	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, 2020	21,486	$	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 income										(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, 2020	21,769	$	218	$	265,630	$	(26,813)	$	(44,164)	$	194,871

⁽¹⁾Cash dividends declared per share of common stock were ~~$0.1275~~$0.085 and ~~$0.1275~~$0.085 in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively.

~~- 5 -~~

~~Table of Contents~~

~~LIFETIME BRANDS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(In thousands, except per share data)~~

~~(unaudited)~~

Common stock Paid-in
capital Retained
earnings Accumulated other
comprehensive loss Total
Nine Months Ended September 30, 2019 Shares Amount
BALANCE AT DECEMBER 31, 2018 20,764 $ 208 $ 258,637 $ 55,264 $ (34,616) $ 279,493
Comprehensive loss:
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 employees 169 1 (1) — — —
Stock compensation expense — — 900 — — 900
Net exercise of stock options 19 — — — — —
Shares effectively repurchased for required employee withholding taxes (25) — (232) — — (232)
Dividends (1) — — — (898) — (898)
BALANCE AT MARCH 31, 2019 20,927 209 259,304 49,499 (32,701) 276,311
Comprehensive loss:
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 directors 61 1 (1) — — —
Net issuance of restricted shares to employees 250 3 (3) — — —
Stock compensation expense — — 1,186 — — 1,186
Net exercise of stock options 34 — 133 — — 133
Shares effectively repurchased for required employee withholding taxes (17) — (158) — — (158)
Dividends (1) — — — (896) — (896)
BALANCE AT JUNE 30, 2019 21,255 213 260,461 37,090 (34,660) 263,104
Comprehensive loss:
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 employees 1 — — — — —
Stock compensation expense — — 1,498 — — 1,498
Dividends (1) — — — (937) — (937)
BALANCE AT SEPTEMBER 30, 2019 21,256 $ 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, 2018 and 2019, respectively.~~

See accompanying notes to unaudited condensed consolidated financial statements.

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LIFETIME BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Inin thousands)

(unaudited)


		Nine Months Ended September 30,							Six Months Ended June 30,
		2019		2018			2020		2019
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net loss	Net loss	$	(29,899)	$	(11,707)	Net loss	$	(32,141)	$	(16,380)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:						Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	18,771		16,807		Depreciation and amortization	12,295		12,649
Impairment of goodwill		9,748		2,205
Goodwill and other impairments						Goodwill and other impairments	20,100		—
Amortization of financing costs	Amortization of financing costs	1,312		1,103		Amortization of financing costs	878		876
Deferred rent		—		357
Mark to market loss (gain) on interest rate derivatives						Mark to market loss (gain) on interest rate derivatives	2,415		(350)
Non-cash lease expense	Non-cash lease expense	1,050		—		Non-cash lease expense	2,020		1,156
Provision for doubtful accounts						Provision for doubtful accounts	2,987		386

Stock compensation expense	Stock compensation expense	3,605		3,027		Stock compensation expense	2,746		2,100
Undistributed equity in losses (earnings), net of taxes		395		(417)
Loss on early retirement of debt		—		66
Undistributed equity in losses, net of taxes						Undistributed equity in losses, net of taxes	509		185
SKU Rationalization	SKU Rationalization	8,500		—		SKU Rationalization	—		8,500
Changes in operating assets and liabilities (excluding the effects of business acquisitions):
Changes in operating assets and liabilities:						Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(37,343)		(13,245)		Accounts receivable	12,661		33,798
Inventory	Inventory	(66,195)		(51,392)		Inventory	2,398		(40,900)
Prepaid expenses, other current assets and other assets	Prepaid expenses, other current assets and other assets	756		905		Prepaid expenses, other current assets and other assets	782		(1,218)
Accounts payable, accrued expenses and other liabilities	Accounts payable, accrued expenses and other liabilities	43,465		29,059		Accounts payable, accrued expenses and other liabilities	39,430		15,587
Income taxes receivable	Income taxes receivable	1,442		(2,952)		Income taxes receivable	(871)		(9,247)
Income taxes payable		4,434		(4,245)
NET CASH USED IN OPERATING ACTIVITIES		(39,959)		(30,429)

NET CASH PROVIDED BY OPERATING ACTIVITIES						NET CASH PROVIDED BY OPERATING ACTIVITIES	66,209		7,142
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Purchases of property and equipment	Purchases of property and equipment	(7,618)		(5,420)		Purchases of property and equipment	(1,380)		(3,867)
Filament acquisition, net of cash acquired		—		(217,521)

NET CASH USED IN INVESTING ACTIVITIES	NET CASH USED IN INVESTING ACTIVITIES	(7,618)		(222,941)		NET CASH USED IN INVESTING ACTIVITIES	(1,380)		(3,867)
FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Proceeds from revolving credit facility	Proceeds from revolving credit facility	258,647		203,237		Proceeds from revolving credit facility	95,851		136,455
Repayments of revolving credit facility	Repayments of revolving credit facility	(208,737)		(210,271)		Repayments of revolving credit facility	(99,134)		(133,497)
Proceeds from term loan		—		275,000

Repayments of term loan	Repayments of term loan	(2,063)		(1,375)		Repayments of term loan	(7,583)		(1,375)
Proceeds from short term loan		—		216
Payments on short term loan		—		(206)
Payment of financing costs		—		(11,171)
Payment of equity issuance costs		—		(936)
Payments for capital leases		(18)		(67)

Payments for finance lease obligations						Payments for finance lease obligations	(50)		(12)
Payments of tax withholding for stock based compensation	Payments of tax withholding for stock based compensation	(390)		(442)		Payments of tax withholding for stock based compensation	(486)		(390)
Proceeds from the exercise of stock options	Proceeds from the exercise of stock options	133		143		Proceeds from the exercise of stock options	—		133
Cash dividends paid	Cash dividends paid	(2,693)		(2,405)		Cash dividends paid	(937)		(1,786)
NET CASH PROVIDED BY FINANCING ACTIVITIES		44,879		251,723
NET CASH USED IN FINANCING ACTIVITIES						NET CASH USED IN FINANCING ACTIVITIES	(12,339)		(472)
Effect of foreign exchange on cash	Effect of foreign exchange on cash	(188)		(190)		Effect of foreign exchange on cash	(323)		85
DECREASE IN CASH AND CASH EQUIVALENTS		(2,886)		(1,837)
INCREASE IN CASH AND CASH EQUIVALENTS						INCREASE IN CASH AND CASH EQUIVALENTS	52,167		2,888
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	7,647		7,600		Cash and cash equivalents at beginning of period	11,370		7,647
CASH AND CASH EQUIVALENTS AT END OF PERIOD	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	4,761	$	5,763	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	63,537	$	10,535

See accompanying notes to unaudited condensed consolidated financial statements.

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LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~2020

(unaudited)

NOTE A1 — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

Organization and business

~~Lifetime Brands, Inc. (the “Company”)~~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.~~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 ~~and~~several lines within each of its product categories under more than one brand. The Company sells its products ~~principally on~~directly to retailers (who may resell the Company’s products through their Internet websites) and, to a ~~wholesale basis~~lesser extent, to ~~retailers.~~distributors. The Company also ~~markets and~~ sells a limited selection of its products directly to consumers through ~~third parties and~~ its own ~~internet~~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 ~~only~~ 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, ~~2018 (the “2018 Annual Report on Form 10-K”).~~2019.

Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019.~~2020.

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 ~~returns~~an estimate for products expected to be returned are reflected as reductions of revenue at the time of sale. See Note B2 – 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 ~~products,~~product, inbound freight costs, purchasing costs, royalties, tooling, and other product procurement related charges.

Prior to January 1, 2019, depreciation associated with certain tooling used to produce products was classified as selling, general and administrative expenses. The amount recorded in cost of sales for the three and nine months ended September 30, 2019 was $0.4 million and $1.1 million, respectively. The impact on the comparative periods presented is immaterial and therefore, the comparative periods have not been adjusted to reflect this change in accounting policy.

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LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~2020

(unaudited)

~~The~~

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~~three months ended ~~September~~June 30, 2019, the Company recorded an $8.5 million charge to cost of sales associated with the SKU Rationalization initiative. The inventory charge, which was recognized in cost of sales during the three months ended June 30, 2019, represented approximately 8% of the Company's consolidated inventory at June 30, 2019.

Distribution expenses

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.~~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 ~~potential~~ 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 ~~$32.5~~$36.0 million ~~and $81.7~~and $73.9 million of receivables during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, and ~~$20.7~~$24.1 million and ~~$59.4~~$49.2 million of receivables during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively. Charges of ~~$0.2 million and $0.4~~$0.1 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the three ~~and nine~~ months ended ~~September~~June 30, ~~2019, respectively.~~2020 and June 30, 2019. Charges of ~~$0.1 million and~~ $0.3 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the ~~three and nine~~six months ended ~~September~~June 30, ~~2018, respectively.~~2020 and June 30, 2019. At ~~September~~June 30, 2020 and 2019, ~~and September 30, 2018, $17.8~~$20.8 million and ~~$13.6~~$14.8 million , respectively, of receivables sold were outstanding and due to HSBC ~~Bank USA~~ 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 ~~costs~~cost of completion, disposal and transportation.

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LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~2020

(unaudited)

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


		September 30, 2019		December 31, 2018			June 30, 2020		December 31, 2019
Finished goods	Finished goods	$	221,863	$	165,969	Finished goods	$	160,704	$	165,950
Work in process	Work in process	140		375		Work in process	442		61
Raw materials	Raw materials	7,944		7,257		Raw materials	7,782		7,416
Total	Total	$	229,947	$	173,601	Total	$	168,928	$	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 ~~that~~ the carrying amounts of borrowings outstanding under its ~~revolving credit facility,~~ABL Agreement and ~~term loan~~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 ~~No.~~ 815, Derivatives and Hedging ("ASC 815"). ASC ~~Topic No.~~ 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 ~~that qualify and are designated as part of a hedging relationship are~~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 into 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 ~~No.~~ 350, Intangibles – Goodwill and ~~Other~~.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 ~~impairment~~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 ~~quantitative~~Company reviews goodwill and other intangibles that have indefinite lives for impairment ~~test compares~~annually as of October 1 or when events or changes in circumstances indicate the carrying value of ~~each reporting unit that has goodwill with~~these assets might exceed their current fair values. Impairment testing is based upon the ~~estimated~~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 ~~respective~~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

June 30, 2020

(unaudited)

related market capitalization could impact key assumptions in the overall estimated fair values of its reporting ~~unit.~~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, ~~historic~~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.~~asset group. If the carrying amount of the asset group is ~~considered to be impaired,~~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.~~asset group.

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~~Table of Contents~~

~~LIFETIME BRANDS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2019~~

~~(unaudited)~~

During the third quarter of 2019, the Company’s qualitative assessment of goodwill indicated triggering events in its European kitchenware business, which resulted in a $9.7 million non-cash impairment charge. There were no indicators of impairment in the U.S. reporting unit.

See Note F5 – Intangible ~~assets~~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 ~~has elected the practical expedient to account~~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 ~~plans.~~plan. The Company maintains an accrual for estimated unpaid claims and ~~estimated~~ claims incurred but not yet reported (“IBNR”). Although management believes that it uses the best information available to estimate IBNR claims, ~~IBNR,~~ 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.

~~In connection~~During the three and six months ended June 30, 2020, the Company's international segment incurred $0.3 million of restructuring expenses related to severance associated with the Company’s March 2018 acquisition of Filament, the Company commenced a restructuring plan to integrate the operations of Filament with the Company’s operations and realize the savings expected from the synergiesstrategic reorganization of the ~~acquisition.~~ international segment’s product development and sales workforce. The strategic reorganization is the result of the Company's efforts for product development efficiencies and a country tailored international sales approach. As of June 30, 2020, $0.2 million of severance was accrued. The Company does not expect to incur any additional restructuring charges for these strategic reorganization efforts for the remainder of 2020.

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LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

During the ~~nine~~three and six months ended ~~September~~June 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, 2018, the Company incurred $0.6~~$0.1 million and ~~$1.4~~$0.4 million, respectively, of Filament restructuring charges, primarily related to ~~severance, of which $0.8 million was accrued at September 30, 2018.~~severance.

During the three and ~~nine~~six months ended ~~September~~June 30, 2019, the Company incurred ~~$0.3~~$0.1 million and ~~$0.7~~$0.4 million of restructuring ~~expense,~~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 ~~Company will combine its physical locations~~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 ~~U.K. in 2019~~same period. Management is currently evaluating the impact of this standard on its consolidated financial statements and ~~expects~~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 ~~incur approximately $0.7 million~~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 ~~additional restructuring~~reference rate reform. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022 and ~~integration charges in 2019. At September 30, 2019, $0.1 million~~should be applied on a prospective basis. Management is currently evaluating the impact of ~~restructuring charges~~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 ~~European restructuring plan were accrued.~~

~~- 11 -~~

~~Table~~effects of ~~Contents~~

~~LIFETIME BRANDS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2019~~

~~(unaudited)~~

~~Adoption~~the COVID-19 pandemic (the “Question-and-Answer Document”). The guidance allows concessions related to the timing of ~~new accounting pronouncements~~

~~Effective January 1, 2019,~~payments, where the ~~Company adopted ASU 2016-02,~~ ~~Leases (Topic 842)~~ ~~(“ASC 842”)~~, ~~which requires a lessee, in most leases,~~total consideration has not changed, to ~~initially recognize a~~not be accounted for as lease ~~liability~~modifications. Instead, any such concessions can be accounted for as if no change was made to the ~~obligation to make~~contract or as variable lease ~~payments and an ROU asset for the right to use the underlying asset for the lease term.~~payments. The Company adopted ~~this standard using~~ the ~~cumulative-effect adjustment method~~guidance on April 1, 2020 and elected ~~certain practical expedients allowed under~~to account for COVID-19 related rent concessions that did not result in a substantial increase in the ~~standard. Upon adoption,~~rights of the ~~Company recognized ROU assets and a~~lessor or the obligations of the lessee not as lease ~~liability of $90.9 million and $104.4 million, respectively.~~modifications. See Note D3 – Leases for additional information on the Company’s adoption of this ~~standard.~~guidance.

~~Effective January 1, 2019, the Company adopted ASU 2018-02,~~ ~~Income Statement- Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~, which addresses the effect on items within accumulated other comprehensive income (loss) of the change in the U.S. federal corporate tax rate due to the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) on December 22, 2017. Upon adoption, the Company did not elect to reclassify the stranded income tax effects of the Tax Act from accumulated other comprehensive (loss) income to retained earnings.

NOTE B2 —REVENUE

The Company sells products wholesale, to retailers and distributors, and sells products retail, directly to ~~the consumer.~~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 $1.0 million and ~~$2.3~~$1.7 million for the three

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LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

and six months ended June 30, 2020, respectively, and $0.6 million and $1.3 million for the three and ~~nine~~six months ended ~~September~~June 30, 2019, ~~respectively, and $0.9 million and $2.2 million for the three and nine months ended September 30, 2018,~~ 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 ~~with customers~~ vary by customer, but generally range from 30 to 90 days or at the point of sale for the Company’s retail direct ~~sales.~~ 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,~~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.

~~- 12 -~~

~~Table of Contents~~

~~LIFETIME BRANDS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2019~~

~~(unaudited)~~

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

Three Months Ended
September 30, 2019 Nine Months Ended
September 30, 2019
U.S. Segment
Kitchenware $ 99,257 $ 234,149
Tableware 57,332 112,543
Home Solutions 38,610 98,637
Total U.S. Segment 195,199 445,329
International Segment
Kitchenware 16,406 42,918
Tableware 3,897 19,717
Total International Segment 20,303 62,635
Total net sales $ 215,502 $ 507,964
United States 179,565 417,657
United Kingdom 13,985 44,697
Rest of World 21,952 45,610
Total net sales $ 215,502 $ 507,964

~~NOTE C —ACQUISITION~~

On December 22, 2017, the Company entered into an agreement providing for the acquisition of Filament by the Company. The acquisition was completed on March 2, 2018. The aggregate consideration for Filament, after taking into account certain adjustments, was $294.4 million, consisting of $217.5 million of cash consideration and 5,593,116 newly issued shares of the Company’s common stock, with a value equal to $76.9 million based on the market value of the Company’s common stock as of March 2, 2018.

~~The purchase price was allocated based on the Company’s final estimate of the fair value of the assets acquired and liabilities assumed, as follows (in thousands):~~


~~Accounts receivable~~	$	~~26,224~~
~~Inventory~~	~~29,044~~
~~Other assets~~	~~5,620~~
~~Other liabilities~~	~~(23,018)~~
~~Deferred income tax~~	~~(13,881)~~
~~Goodwill and other intangibles~~	~~270,427~~
~~Total allocated value~~	$	~~294,416~~

Goodwill results from such factors as an assembled workforce. The total amount of goodwill is not expected to be deductible for tax purposes. The goodwill and other intangible assets are primarily included in the U.S. segment. Customer relationships are amortized on a straight-line basis over their estimated useful lives (see Note F – Intangible Assets).

The three and nine months ended September 30, 2018 included the operations of Filament for the period from March 2, 2018, the date of acquisition, to September 30, 2018. The unaudited condensed consolidated statements of operations for the three months ended September 30, 2018 include $38.6 million of net sales contributed by Filament. The condensed consolidated statements of operations for the nine months ended September 30, 2018, include $77.2 million of net sales contributed by Filament.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
U.S. segment
Kitchenware	$	84,418	$	65,625	$	163,692	$	134,892
Tableware	23,605		28,759		47,249		55,211
Home Solutions	24,568		28,708		50,858		60,027
Total U.S. segment	132,591		123,092		261,799		250,130
International segment
Kitchenware	15,360		12,376		26,314		26,512
Tableware	2,189		7,068		7,097		15,820
Total International segment	17,549		19,444		33,411		42,332
Total net sales	$	150,140	$	142,536	$	295,210	$	292,462

United States	$	128,928	$	116,683	$	253,655	$	238,092
United Kingdom	11,673		14,775		20,772		30,712
Rest of World	9,539		11,078		20,783		23,658
Total net sales	$	150,140	$	142,536	$	295,210	$	292,462

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LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~2020

(unaudited)

~~Unaudited Pro forma Results~~

The following table presents the Company’s pro forma consolidated net sales, income (loss) before income taxes and equity in earnings (losses) and net income (loss) for the three and nine months ended September 30, 2018. The unaudited pro forma results include the historical statements of operations information of the Company and of Filament, giving effect to the Filament acquisition and related financing as if they had occurred at the beginning of the periods presented.

Three Months Ended
September 30, 2018 Nine Months Ended
September 30, 2018
(in thousands, except per share data)
Net sales $ 209,448 $ 502,079
Income (loss) before income taxes and equity in earnings (losses) 6,956 (15,416)
Net income (loss) 6,145 (10,671)
Basic and diluted income (loss) per common share 0.30 (0.52)

The unaudited pro forma results do not include any revenue or cost reductions that may be achieved through the business combination or the impact of non-recurring items directly related to the business combination.

The unaudited pro forma results are not necessarily indicative of the operating results that would have occurred if the Filament acquisition had been completed as of the date for which the pro forma financial information is presented. In addition, the unaudited pro forma results do not purport to project the future condensed consolidated operating results of the combined company.

NOTE D3 — LEASES

The Company adopted ASC 842 as of January 1, 2019, using the cumulative effective adjustment method wherein the Company applied the new leases standard at the adoption date. Accordingly, all periods prior to January 1, 2019 are presented in accordance with the previous ASC Topic 840 – ~~Leases~~, and no retrospective adjustments were made to the comparative periods presented. Adoption of ASC 842 resulted in an increase to total assets and liabilities due to the recording of operating lease ROU assets and operating lease liabilities of approximately $90.9 million and $104.4 million, respectively, as of January 1, 2019. Finance leases are not material to the Company and were not impacted by the adoption of ASC 842, as finance lease liabilities and the corresponding assets were already recorded in the balance sheet under the previous guidance, ASC 840. The adoption did not materially impact the Company’s condensed consolidated statements of operations or cash flows.

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 ~~has~~ elected ~~the practical expedient~~ to account for ~~each separate~~these as if no changes to the lease ~~component~~were made and continued to recognize the straight-line lease expense for these leases in accordance with the FASB Question-and-Answer Document. COVID-19 related deferred rent payments as of June 30, 2020, totaled $1.0 million and were recorded in accrued expenses in the unaudited condensed consolidated balance sheet as of June 30, 2020. In addition, there were a ~~contract~~limited number of rent concessions obtained by the Company in the form of rent abatement and ~~its associated non-lease components~~changes in lease terms. These lease modifications were accounted for as a ~~single~~resolution to a contingency that fixes previously variable lease ~~component, thus causing all fixed~~ payments ~~to be capitalized.~~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 ~~also elected~~continues to assess and hold ongoing conversations with landlords for various properties in seeking commercially reasonable lease concessions given the package of practical expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease classification. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities. These are expensed as incurred and recorded as variable lease expense.

ROU assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the net present value of fixed lease payments over the lease term. The Company’s lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. ROU assets also include any advance lease payments. As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.current environment.

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


	Three Months Ended June 30,						Six Months EndedJune 30,
	2020		2019		2020		2019
Operating lease expenses:
Fixed	$	4,491	$	4,907	$	9,305	$	9,131

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


	Six Months Ended June 30,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	7,285	$	7,975


	Six Months Ended June 30,
	2020		2019
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	12	$	115,488

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Table of Contents

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~2020

(unaudited)

Three Months Ended
September 30, 2019 Nine Months Ended
September 30, 2019
Operating lease costs:
Fixed $ 4,796 $ 13,927
Total $ 4,796 $ 13,927

~~Supplemental cash flow information for the three and nine months ended September 30, 2019 was as follows (in thousands):~~

Three Months Ended
September 30, 2019 Nine Months Ended
September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases $ 4,902 $ 12,877
Total $ 4,902 $ 12,877

Three Months Ended
September 30, 2019 Nine Months Ended
September 30, 2019
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases $ 2,566 $ 118,054
Total $ 2,566 $ 118,054

The aggregate future lease payments for operating leases as of ~~September~~June 30, ~~2019~~2020 were as follows (in thousands):


		Operating			Operating
2019 (excluding the nine months ending September 30, 2019)		$	4,922
2020		17,655
2020 (excluding the six months ending June 30, 2020)				2020 (excluding the six months ending June 30, 2020)	$	8,819
2021	2021	17,538		2021	17,795
2022	2022	17,642		2022	17,920
2023	2023	17,818		2023	17,914
2024				2024	17,585
2025				2025	17,564
Thereafter	Thereafter	88,965		Thereafter	54,209
Total lease payments	Total lease payments	164,540		Total lease payments	151,806
Less: Interest	Less: Interest	(40,293)		Less: Interest	(34,951)
Present value of lease payments	Present value of lease payments	$	124,247	Present value of lease payments	$	116,855

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

Average lease terms and discount rates were as follows:


	~~September~~June 30, ~~2019~~2020
Operating leases:
Weighted-average remaining lease term (years)
~~Operating leases~~	~~8.7~~8.6
Weighted-average discount rate
~~Operating leases~~	~~6.1~~6.2	%

~~- 15 -~~

~~Table of Contents~~

~~LIFETIME BRANDS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2019~~

~~(unaudited)~~

NOTE E4 —INVESTMENTS

The Company owns approximately ~~a 30 % interest in~~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~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~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 ~~19.71~~23.07 and MXN ~~19.64~~18.91 at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019 2018 2019 2018
Average exchange rate (MXN to USD) 19.42 18.94 19.11 - 19.42 18.71-19.38

The effect of the translation of the Company’s investment resulted in a decrease to the investment of $1.8 million during the nine months ended September 30, 2019 and an increase to the investment of $0.8 million during the nine months ended 2018. These translation effects are recorded in accumulated other comprehensive income (loss).


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
Average exchange rate (USD to MXN)	23.31	19.11	19.91 - 23.31	19.11 - 19.24

~~Summarized statement of income information for Vasconia in USD and MXN is as follows (in thousands):~~

Three Months Ended
September 30,
2019 2018
USD MXN USD MXN
Net sales $ 36,566 $ 710,118 $ 41,222 $ 780,938
Gross profit 5,572 108,205 7,762 147,039
(Loss) income from operations (581) (11,288) 1,063 20,136
Net Loss (647) (12,571) (1,233) (23,361)

Nine Months Ended
September 30,
2019 2018
USD MXN USD MXN
Net Sales $ 115,100 $ 2,216,293 $ 128,853 $ 2,452,673
Gross profit 22,801 438,478 24,867 473,763
Income from operations 4,117 78,739 5,867 112,466
Net (Loss) income (1,158) (22,384) 862 17,484

The Company recorded equity in (losses) earnings of Vasconia, net of taxes, of $(0.2) million and $(0.4) million for the three and nine months ended September 30, 2019, respectively. The Company recorded equity in (losses) earnings of Vasconia, net of taxes, of $0.2 million and $0.4 million for the three and nine months ended September 30, 2018, respectively. Equity in (losses) earnings for the three and nine months ended September 30, 2018 includes deferred tax benefit of $0.6 million and $0.3 million, respectively, due to the requirement to record tax benefits for foreign currency translation gains and losses through other comprehensive (loss) income, with a corresponding adjustment to deferred tax liabilities.

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Table of Contents

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~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 $4.0 million and $1.5 million during the six months ended June 30, 2020 and 2019, respectively. These translation effects are recorded in accumulated other comprehensive loss.

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


	Three Months Ended June 30,
	2020						2019
	USD		MXN		USD		MXN
Net sales	$	28,572	$	666,012	$	37,040	$	707,837
Gross profit	6,062		141,304		9,291		177,552
Income from operations	1,414		32,948		2,805		53,601
Net loss	(1,994)		(46,459)		(178)		(3,407)



	Six Months Ended June 30,
	2020						2019
	USD		MXN		USD		MXN
Net Sales	$	60,367	$	1,299,048	$	78,534	$	1,506,175
Gross profit	11,469		248,961		17,229		330,273
Income from operations	864		22,000		4,698		90,027
Net loss	(572)		(18,156)		(511)		(9,813)

The Company recorded equity in losses of Vasconia, net of taxes, of $0.6 million and $0.3 million for the three and six months ended June 30, 2020, respectively. The Company recorded equity in losses of Vasconia, net of taxes, of $0.1 million and $0.2 million for the three and six months ended June 30, 2019, respectively.

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

Vasconia due to and due from balances

Balance Sheet
Location

September 30, 2019

December 31, 2018

Vasconia due to and due from balances

Balance Sheet
Location

June 30, 2020

December 31, 2019

Amounts due from Vasconia

Prepaid expenses and other current assets

Amounts due from Vasconia

Prepaid expenses and other current assets

Amounts due to Vasconia

Accrued expenses and Accounts payable

—

Amounts due to Vasconia

Accrued expenses and Accounts payable

(23)

(77)

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the fair value (based upon ~~Vasconia’s~~the quoted stock price) of the Company’s investment in Vasconia was ~~$33.3~~$28.3 million and ~~$31.9~~$34.7 million, respectively. The carrying value of the Company’s investment in Vasconia was ~~$20.3~~$17.0 million and ~~$22.6~~$21.3 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

~~NOTE F — INTANGIBLE ASSETS~~

~~Intangible assets consist of the following (in thousands):~~

September 30, 2019 December 31, 2018
Gross Impairment Accumulated
Amortization Net Gross Impairment Accumulated
Amortization Net
Goodwill $ 92,361 $ (9,748) — $ 82,613 $ 93,895 $ (2,205) $ — $ 91,690
Indefinite-lived intangible assets:
Trade names 58,216 — — 58,216 58,216 — — 58,216
Finite-lived intangible assets:
Licenses 15,847 — (10,173) 5,674 15,847 — (9,825) 6,022
Trade names 43,193 — (16,174) 27,019 43,689 — (13,965) 29,724
Customer relationships 174,366 — (36,332) 138,034 175,482 — (27,538) 147,944
Other 6,475 — (1,688) 4,787 6,510 — (1,259) 5,251
Total $ 390,458 $ (9,748) $ (64,367) $ 316,343 $ 393,639 $ (2,205) $ (52,587) $ 338,847

~~During the third quarter~~Lifetime Brands Do Brasil Participacoes Ltda., a 100% owned subsidiary of ~~2019, the Company’s qualitative assessment of goodwill indicated triggering events in its European kitchenware reporting unit, resulting in the Company performing~~Lifetime Brands, Inc., was dissolved on May 5, 2020. The subsidiary held a quantitative assessment, that resulted in a $9.7 million non-cash goodwill impairment charge. In the third quarter of 2018 the Company incurred a non-cash goodwill impairment charge of $2.2 million relatednote receivable relating to the ~~European tableware business.~~

~~Furthermore, during the third quarter~~2016 sale of ~~2019 the Company determined~~ its ~~European kitchenware and tableware reporting units had met the criteria to be combined into one reporting unit based~~40% equity interest in GS International S/A (“GSI”), a wholesale distributor of branded housewares products in Brazil, which was accounted for as an equity method investment. The final installment due on the ~~guidance of ASC Topic No. 350,~~ ~~Intangibles - Goodwill and Other~~ ~~and ASC Topic No. 280,~~ ~~Segment Reporting.~~ ~~As a result~~note receivable was received prior to dissolution of the ~~goodwill impairment charges taken~~subsidiary. Foreign currency translation losses of $0.2 million, which were previously recorded as a component of stockholder’s equity within accumulated other comprehensive loss, were recognized in ~~both the third quarter~~earnings upon dissolution of ~~2019 and 2018, the Company wrote off to 0 the amount of goodwill associated with the European kitchenware and tableware reporting units, acquired in 2014 and 2011, respectively.~~

~~Several impairment indicators~~this subsidiary for the ~~European kitchenware business were considered by the~~period ended June 30, 2020. The Company ~~including the continued uncertainties~~included this loss within equity in losses, net of the macro-environment in Europe as a result of the ongoing Brexit negotiations. In addition, the Company considered the decline in operating performance for the European kitchenware business, which included slower fulfillment of orders and labor inefficiencies associated with setting up the new warehouse in the United Kingdom (“U.K.”). While the warehouse consolidation and integration efforts were substantially complete as of September 30, 2019, the operational improvements anticipated from the consolidation of locations had not yet been fully realized as of September 30, 2019. These factors resulted in a decline in the long-term forecast for the European kitchenware business. The fair value of the business was determined based on a combined income and market approach.

taxes.

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Table of Contents

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~2020

(unaudited)

NOTE 5 — INTANGIBLE ASSETS

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


	June 30, 2020														December 31, 2019
	Gross		Impairment		Accumulated Amortization		Net		Gross		Impairment		Accumulated Amortization		Net
Goodwill	$	49,371	$	(19,100)	—		$	30,271	$	92,361	$	(42,990)	$	—	$	49,371
Indefinite-lived intangible assets:
Trade names	58,216		(1,000)		—		57,216		58,216		—		—		58,216
Finite-lived intangible assets:
Licenses	15,847				(10,514)		5,333		15,847				(10,287)		5,560
Trade names	43,222				(18,556)		24,666		43,986				(17,337)		26,649
Customer relationships	174,447				(45,764)		128,683		176,602				(40,605)		135,997
Other	6,478				(2,132)		4,346		6,546				(1,868)		4,678
Total	$	347,581	$	(20,100)	$	(76,966)	$	250,515	$	393,558	$	(42,990)	$	(70,097)	$	280,471

~~NOTE G — DEBT~~In the first quarter of 2020, as a result of the economic downturn caused by the COVID-19 pandemic, the Company concluded that a triggering event had occurred and performed an interim impairment test of goodwill and certain intangible assets as of March 31, 2020. The Company performed the first quarter 2020 interim impairment test of goodwill by comparing its fair value with its carrying value. The analysis was performed by using a discounted cash flow method and market multiple method. For goodwill, the outcome of the valuation is largely dependent upon estimates made by the Company with respect to significant assumptions, including projected net sales, projected earnings before interest, tax, depreciation and amortization (“EBITDA”), terminal growth rates, and the cost of capital under the discounted cash flow method

For its indefinite-lived trade names the Company performed a quantitative impairment analysis by comparing the fair value of the indefinite-lived trade names to their respective carrying values in the first quarter of 2020. The Company values its indefinite-lived trade names using a relief-from-royalty approach, which assumes the value of the trade name is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the trade name and instead licensed the trade name from another company. Significant assumptions used in the Company’s fair value analysis included future net sales for the related brands, royalty rates, and the cost of capital.

Based upon these analyses performed, the Company recognized a non-cash goodwill impairment charge of $19.1 million, and a $1.0 million non-cash impairment charge for certain of its indefinite-lived intangible assets in the U.S. segment in the first quarter of 2020. The Company has determined that as of June 30, 2020 a triggering event has not occurred which would require an interim impairment test to be performed.

The Company believes the circumstances and global disruption caused by COVID-19 may have an adverse effect on its sales, operating results, cash flows and financial condition. In addition, there are some inherent estimates and assumptions used in determining fair value of indefinite-lived intangible assets and reporting units that are outside the control of management, such as interest rates, cost of capital, tax rates, industry growth, credit ratings, foreign exchange rates, labor inflation and tariffs including the current trade negotiations with China. Accordingly, the Company may be required to perform additional impairment testing based on further deterioration of the global economic environment, disruptions to the Company’s business, declines in operating results of the Company’s reporting units and/or trade names, further sustained deterioration of the Company’s market capitalization, and other factors, which could result in impairment charges in the future. Although management cannot predict when improvements in macroeconomic conditions will occur, if consumer confidence and consumer spending decline significantly in the future or if commercial and industrial economic activity or the market capitalization experiences a sustained deterioration significantly from current levels, it is reasonably likely the Company will be required to record impairment charges in the future.

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Table of Contents

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

NOTE 6 — DEBT

The Company’s credit agreement (the “ABL Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan”), includes a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $150.0 million, which facility will mature on March 2, 2023, and a loan agreement (the “Term Loan” and together with the ABL Agreement, the “Debt Agreements”) which provides for a senior secured term loan credit facility in the original principal amount of $275.0 million, which ~~will mature~~matures on February 28, 2025. The Term Loan requires the Company to make an annual prepayment of principal based upon excess cash flow (“Excess Cash Flow”), if any. This estimated amount is recorded in current maturity of term loan on the unaudited condensed consolidated balance sheets. Additionally, the Term Loan facility ~~will be repaid in~~requires quarterly payments, which commenced June 30, 2018, of principal equal to 0.25% of the original aggregate principal amount of the Term Loan facility. ~~The Term Loan requires~~Per the Debt Agreements, when an Excess Cash Flow payment is made by the Company, the payment is first applied to ~~make an annual prepayment~~satisfy the future quarterly required payments in order of principal based upon excess cash flow (the “Excess Cash Flow”), if any. This estimated amount is recorded in the current maturity of term loan on the unaudited condensed consolidated balance sheets. maturity.

The maximum borrowing amount under the ABL Agreement may be increased to up to $200.0 million if certain conditions are met. One or more tranches of additional term loans (the “Incremental 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 pursuant to the Term Loan, is no greater than 3.75 to 1.00, subject to certain limitations and for the period defined pursuant to the Term Loan.

~~At September~~As of June 30, ~~2019~~2020 and December 31, ~~2018, borrowings outstanding under~~2019, the ~~ABL Agreement were $91.2 million and $42.1 million, respectively, and open letters of credit were $3.2 million and $3.4 million, respectively. At September 30, 2019,~~total availability under the ABL Agreement was ~~approximately $55.6 million.~~ as follows (in thousands):


	June 30, 2020		December 31, 2019
Maximum aggregate principal allowed	$	150,000	$	150,000
Outstanding borrowings under the ABL Agreement	(27,383)		(32,822)
Standby letters of credit	(2,677)		(2,288)
Total availability under the ABL Agreement	$	119,940	$	114,890

Availability under the ABL Agreement depends on the valuation of certain current assets comprising the borrowing base. Due to the seasonality of the Company’s business, this may mean that the Company will have greater borrowing availability during the third and fourth quarters of each year. The borrowing capacity under the ABL Agreement will depend, in part, on eligible levels of accounts receivable and inventory that fluctuate regularly. Consequently, the $150.0 million commitment ~~there under~~thereunder may not represent actual borrowing capacity.

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

September 30, 2019 December 31, 2018
Current portion of Term Loan facility:
Term Loan facility $ 2,750 $ 2,750
Estimated Excess Cash Flow payment 3,000 —
Unamortized debt issuance costs (1,486) (1,497)
Total Current portion of Term Loan facility $ 4,264 $ 1,253
Non Current portion of Term Loan facility:
Term Loan facility $ 265,125 $ 270,188
Unamortized debt issuance costs (6,380) (7,493)
Total Non Current portion of Term Loan facility $ 258,745 $ 262,695


	June 30, 2020		December 31, 2019
Current portion of Term Loan facility:
Term Loan facility payment	$	—	$	2,750
Excess Cash Flow principal payment	15,000		7,145
Estimated unamortized debt issuance costs	(1,473)		(1,482)
Total Current portion of Term Loan facility	$	13,527	$	8,413

Non-current portion of Term Loan facility:
Term Loan facility payment, net of current portion	$	247,605	$	260,293
Estimated unamortized debt issuance costs	(5,268)		(6,012)
Total Non-current portion of Term Loan facility	$	242,337	$	254,281

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Table of Contents

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

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 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 substantially all of the assets and stock (but in the case of foreign subsidiaries, limited to ~~65 %~~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 interest consists of (1) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and

~~- 18 -~~

~~Table of Contents~~

~~LIFETIME BRANDS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2019~~

~~(unaudited)~~

its domestic 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 and (2) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and its domestic 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~~ABL agreement bear interest, at the Company’s option, at one of the following rates: (i) 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 %~~0.5% or one-month LIBOR plus ~~1 %,~~1.0%, plus a margin of ~~0.25 %~~0.25% to ~~0.75 %,~~0.75%, or (ii) LIBOR plus a margin of ~~1.25 %~~1.25% to ~~1.75 %.~~1.75%. The respective margins are based upon the Company’s total leverage ratio, as defined in and computed pursuant to the ABL Agreement. ~~Interest rates~~The interest rate on outstanding borrowings under the ABL Agreement at ~~September~~June 30, ~~2019 ranged from 2.60 % to 6.00 %.~~2020 was 1.8%. In addition, the Company ~~paid~~pays a commitment fee of ~~0.250 % to 0.375 %~~0.375% on the unused portion of the ABL ~~Agreement during the nine months ended September 30, 2019.~~Agreement.

The ~~term loan~~Term Loan facility bears interest, at the Company’s option, at one of the following rates: (i) alternate base rate, defined, for any day, as the greater of (x) the prime rate, (y) a federal funds and overnight bank funding based rate plus ~~0.50 %~~0.5% or (z) one-month LIBOR, but not less than 1.0%, plus ~~1 %,~~1.0%, which alternate base rate shall not be less than 2%, plus a margin of ~~2.50 %~~2.5% or (ii) LIBOR, but not less than 1.0%, plus a margin of ~~3.50 %.~~3.5%. The interest rate on outstanding borrowings under the Term Loan at ~~September~~June 30, ~~2019~~2020 was ~~5.60 %.~~4.5%.

The Debt Agreements provide for customary restrictions and events of default. Restrictions include limitations on additional indebtedness, 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 $15.0 million and ~~10 %~~10% of the aggregate commitment under the ABL Agreement at any time and (b) ending on the day after such availability has exceeded the greater of $15.0 million and ~~10 %~~10% of the aggregate commitment under the ABL Agreement for forty-five (45) consecutive days, the Company is required to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 as of the last day of any period of four consecutive fiscal quarters.

The Company was in compliance with the covenants of the Debt Agreements at ~~September~~June 30, ~~2019.~~2020. The Company expects that it will continue to borrow, subject to availability, and repay funds under the ABL Agreement based on working capital and other corporate needs.

NOTE H7 — DERIVATIVES

Interest Rate Swap Agreements

The Company is a party to interest rate swap agreements, with an aggregate notional value of ~~$100.0~~$75.0 million at ~~September~~June 30, ~~2019.~~2020. The ~~Company designated the~~ interest rate swaps are designated as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The hedge periods of these agreements commenced in April 2018 and expire in March 2023. The notional amounts are reduced over these periods. ~~In June 2019, the~~

The Company entered into ~~new~~additional interest rate swap agreements, with an aggregate notional value of $25.0 million at ~~September~~June 30, ~~2019. These~~2020, that do not meet the criteria for hedge accounting treatment. As a result, these interest rate swap agreements are considered non-designated interest rate swaps that serve as ~~cash flow~~economic hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings and expire in February 2025.

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

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Table of Contents

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

Foreign Exchange Contracts

The Company is ~~exposed~~a party from time to ~~market risks as well as changes~~time to certain foreign exchange contracts, primarily to offset the earnings impact related to fluctuations in foreign currency exchange rates ~~as measured against the USD and each other, and changes to credit risk of derivative counterparties. The Company attempts to minimize these risks by primarily using~~associated with inventory purchases denominated in 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 currency markets and 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 not enter into such contracts for speculative purposes and as of September 30, 2019, the Company does not have any foreign currency forward contract derivatives that are not designated as hedges. The aggregate gross notional value of foreign exchange contracts that were not designated as hedges at September 30, 2018 was $9.7 million.

currencies. Fluctuations in the value of certain foreign currencies as compared to the ~~USD~~U.S. dollar 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

~~- 19 -~~

~~Table of Contents~~

~~LIFETIME BRANDS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2019~~

~~(unaudited)~~

limiting the impact of foreign currency exchange rate fluctuations on earnings. The Company purchases short-term (i.e. 12 months or less) foreign currency forward contracts 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 values of~~Company's foreign exchange contracts, ~~at September 30, 2019 was $4.5 million. These foreign exchange contracts have~~that had been ~~designated~~designed as hedges in to order to apply hedge ~~accounting.~~accounting, matured in April 2020. As of June 30, 2020 the Company did not have any outstanding foreign exchange contracts.

The Company is exposed to market risks as well as changes in foreign currency exchange rates as measured against the USD and each other, and to changes to the credit risk of derivative counterparties. 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 not enter into such contracts for speculative purposes and as of June 30, 2020, the Company does not have any foreign currency forward contract derivatives that are not designated as hedges.

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

Derivatives designated as hedging instruments Balance Sheet
Location September 30, 2019 December 31, 2018
Interest rate swaps Prepaid Expenses $ 495 $ 42
Other Assets 1,479 157
Foreign exchange contracts Prepaid Expenses 339 —


Derivatives designated as hedging instruments	Balance Sheet Location	June 30, 2020		December 31, 2019
Interest rate swaps	Prepaid expenses	$	—	$	427
	Other assets	—		1,267
	Accrued expenses	711		—
	Other Long-Term Liabilities	1,425		—
Foreign exchange contracts	Prepaid expenses	—		180

Derivatives not designated as hedging instruments

Balance Sheet
Location

~~September~~

June 30, ~~2019~~

2020

December 31, ~~2018~~2019

Interest rate swaps

Other ~~Assets~~assets

~~717~~—

402

Other Long-Term Liabilities

2,013

—

The fair values of the ~~derivatives~~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. The Company does not anticipate non-performance by any of its counterparties.

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Table of Contents

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

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


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments	2019		2018		2019		2018		Derivatives designated as hedging instruments	2020		2019		2020		2019
Interest rate swaps	Interest rate swaps	$	107	$	(381)	$	1,331	$	(658)	Interest rate swaps	$	209	$	748	$	(2,885)	$	1,224
Foreign exchange contracts	Foreign exchange contracts	44		—		398		—		Foreign exchange contracts	(108)		234		109		354
		$	151	$	(381)	$	1,729	$	(658)		$	101	$	982	$	(2,776)	$	1,578

~~Gains (losses)~~Realized gains and losses on the interest rate swaps ~~designated as hedges, will be~~are reclassified into earnings as the interest expense ~~as the interest~~ on the debt is recognized. ~~During~~The Company had no terminated or matured interest rate swaps during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, the Company recognized $(0.1) million~~2020.

Realized gains and $(0.2) million of interest expense related to the interest rate swaps, respectively. During the three and nine months ended September 30, 2018, the Company recognized $(0.1) million and $(0.3) million of interest expense related to the interest rate swaps, respectively.

~~Gains (losses)~~losses on ~~the~~ foreign exchange contracts ~~will be~~that are reported in other comprehensive income (loss) are reclassified into cost of sales as the ~~hedged merchandise purchases are~~underlying inventory purchased is sold. ~~The amount recorded as~~

During the three months ended June 30, 2020, the Company reclassified $0.2 million of cash flow hedges in other comprehensive losses to earnings. This was comprised of $0.3 million related to realized interest rate swap losses and a gain of $0.1 million related to foreign exchange contracts recognized in cost of ~~sales for~~sales. During the six months ended June 30, 2020, the Company reclassified $0.4 million of cash flow hedges in other comprehensive losses to earnings. This was comprised of $0.6 million related to realized interest rate swap losses and a gain of $0.2 million related to foreign exchange contracts recognized in cost of sales.

During the three ~~and nine~~ months ended ~~September~~June 30, 2019, ~~was $0.2~~the Company reclassified $0.1 million related to realized interest rate swap losses and ~~$0.3~~a gain of $0.1 million ~~respectively.~~related to foreign exchange contracts recognized in cost of sales. During the six months ended June 30, 2019, the Company reclassified $0.1 million related to realized interest rate swap losses and a gain of $0.1 million related to foreign exchange contracts recognized in cost of sales.

~~The amounts of the gains (losses)~~

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


		Three Months Ended June 30,						Six Months Ended June 30,
Derivatives not designated as hedging instruments	Location of gain (loss)	2020		2019		2020		2019
Interest rate swaps	Mark to market (loss) gain on interest rate derivatives	$	(164)	350		$	(2,415)	350
	Interest expense	(87)		—		(102)		—
		$	(251)	$	350	$	(2,517)	$	350

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Table of Contents

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~2020

(unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
Derivatives not designated as hedging instruments Location of gain (loss) 2019 2018 2019 2018
Interest rate swaps Interest expense $ 390 — $ 740 —
Foreign exchange contracts Selling, general and administrative expense — $ (193) — $ (240)

NOTE I8 — STOCK COMPENSATION

On June 25, 2020, the shareholders of the Company approved an amendment and restatement of the Company’s Amended and Restated 2000 Long Term Incentive Plan (the “Plan”). The amendment and restatement of the Plan revised the terms and conditions of the Plan to, among other things, increase the shares available for grant under the Plan by 850,000 shares. As of June 30, 2020, there were 746,809 shares available for the grant of awards under the Plan.

Option Awards

A summary of the Company’s stock option activity and related information for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 is as follows:


		Options		Weighted- average exercise price		Weighted- average remaining contractual life (years)	Aggregate intrinsic value			Options		Weighted- average exercise price		Weighted- average remaining contractual life (years)	Aggregate intrinsic value (in thousands)
Options outstanding, January 1, 2019		1,548,825		$	13.87
Options outstanding, January 1, 2020									Options outstanding, January 1, 2020	1,508,325		$	13.43
Grants	Grants	296,500		9.21					Grants	37,500		6.36
Exercises		(75,000)		4.28

Cancellations	Cancellations	(6,750)		13.34					Cancellations	(3,750)		12.86
Expirations	Expirations	(240,125)		13.93					Expirations	(229,175)		13.14
Options outstanding, September 30, 2019		1,523,450		13.43		5.2	$	7,200
Options exercisable, September 30, 2019		1,040,172		$	14.44	3.3	$	7,200
Options outstanding, June 30, 2020									Options outstanding, June 30, 2020	1,312,900		13.28		5.3	$	14
Options exercisable, June 30, 2020									Options exercisable, June 30, 2020	999,919		$	14.28	4.2	$	—
Total unrecognized stock option expense remaining (in thousands)	Total unrecognized stock option expense remaining (in thousands)	$	1,554						Total unrecognized stock option expense remaining (in thousands)	$	903
Weighted-average years expected to be recognized over	Weighted-average years expected to be recognized over	1.6							Weighted-average years expected to be recognized over	1.5

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that would have been received by the option holders had all option holders exercised their stock options on ~~September~~June 30, ~~2019.~~2020. The intrinsic value is calculated for each in-the-money stock option as the difference between the closing price of the Company’s common stock on ~~September~~June 30, ~~2019~~2020 and the exercise price.

Restricted Stock

A summary of the Company’s restricted stock activity and related information for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 is as follows:


		Restricted Shares		Weighted- average grant date fair value			Restricted Shares		Weighted- average grant date fair value
Non-vested restricted shares, January 1, 2019		326,545		$	14.63
Non-vested restricted shares, January 1, 2020						Non-vested restricted shares, January 1, 2020	593,341		$	10.70
Grants	Grants	439,747		9.25		Grants	534,940		5.94
Vested	Vested	(145,049)		14.49		Vested	(288,597)		10.82
Cancellations	Cancellations	(24,537)		13.97		Cancellations	(5,613)		9.54
Non-vested restricted shares, September 30, 2019		596,706		$	10.73
Non-vested restricted shares, June 30, 2020						Non-vested restricted shares, June 30, 2020	834,071		$	7.61
Total unrecognized compensation expense remaining (in thousands)	Total unrecognized compensation expense remaining (in thousands)	$	5,045			Total unrecognized compensation expense remaining (in thousands)	$	5,511
Weighted-average years expected to be recognized over	Weighted-average years expected to be recognized over	1.7				Weighted-average years expected to be recognized over	1.4

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

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Table of Contents

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~2020

(unaudited)

~~The fair value of restricted stock that vested during the nine months ended September 30, 2019 was $1.4 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 ~~by the end~~ of the ~~performance period.~~Board of Directors. The shares are subject to the terms and conditions of the Company’s ~~Amended and Restated 2000 Long Term Incentive Plan (the “Plan”).~~Plan.

A summary of the Company’s performance-based award activity and related information for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 is as follows:


		Performance- based stock awards (1)		Weighted- average grant date fair value			Performance- based stock awards ⁽¹⁾		Weighted- average grant date fair value
Non-vested performance-based awards, January 1, 2019		339,287		$	14.82
Non-vested performance-based awards, January 1, 2020						Non-vested performance-based awards, January 1, 2020	405,059		$	12.43
Grants	Grants	158,525		9.19		Grants	106,275		6.36
Vested	Vested	(66,761)		15.69		Vested	(62,215)		18.45
Cancellations	Cancellations	(25,992)		15.44		Cancellations	(14,524)		17.39
Non-vested performance-based awards, September 30, 2019		405,059		$	12.43
Non-vested performance-based awards, June 30, 2020						Non-vested performance-based awards, June 30, 2020	434,595		$	9.92
Total unrecognized compensation expense remaining (in thousands)	Total unrecognized compensation expense remaining (in thousands)	$	2,513			Total unrecognized compensation expense remaining (in thousands)	$	1,864
Weighted-average years expected to be recognized over	Weighted-average years expected to be recognized over	1.7				Weighted-average years expected to be recognized over	1.7

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

The total fair value of performance-based awards that vested during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$0.6~~$0.4 million.

~~At September 30, 2019, there were 320,480 shares available for awards that could be granted under the Plan, assuming maximum performance of performance-based awards.~~

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


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
Stock Compensation Expense Components	Stock Compensation Expense Components	2019		2018		2019		2018		Stock Compensation Expense Components	2020		2019		2020		2019
Equity based stock option expense	Equity based stock option expense	$	206	$	152	$	454	$	559	Equity based stock option expense	$	139	$	100	$	285	$	300
Restricted and performance-based stock awards expense	Restricted and performance-based stock awards expense	1,292		1,116		3,130		2,468		Restricted and performance-based stock awards expense	1,276		1,086		2,450		1,786
Stock compensation expense for equity based awards	Stock compensation expense for equity based awards	$	1,498	$	1,268	$	3,584	$	3,027	Stock compensation expense for equity based awards	$	1,415	$	1,186	$	2,735	$	2,086
Liability based stock option expense	Liability based stock option expense	7				21				Liability based stock option expense	5		7		11		14
Total Stock Compensation Expense	Total Stock Compensation Expense	$	1,505	$	1,268	$	3,605	$	3,027	Total Stock Compensation Expense	$	1,420	$	1,193	$	2,746	$	2,100

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Table of Contents

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

NOTE ~~J —(LOSS) INCOME~~9 —LOSS PER COMMON SHARE

Basic ~~(loss) income~~loss per common share has been computed by dividing net ~~(loss) income~~loss by the weighted-average number of shares of the Company’s common stock outstanding during the relevant period. Diluted ~~(loss) income~~loss per common share adjusts net ~~(loss) income~~loss and basic ~~(loss) 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.

~~- 22 -~~

~~Table of Contents~~

~~LIFETIME BRANDS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2019~~

~~(unaudited)~~

The calculations of basic and diluted ~~(loss) income~~loss per common share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 are as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands, except per share amounts)
Net (loss) income – basic $ (13,519) $ 5,948 $ (29,899) $ (11,707)
Weighted-average shares outstanding – basic 20,429 20,357 20,494 19,123
Effect of dilutive securities:
Stock options and other stock awards
— 124 — —
Weighted-average shares outstanding – diluted 20,429 20,481 20,494 19,123
Basic (loss) income per common share $ (0.66) $ 0.29 $ (1.46) $ (0.61)
Diluted (loss) income per common share $ (0.66) $ 0.29 $ (1.46) $ (0.61)
Antidilutive Securities 2,128 1,361 2,246 1,746


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands, except per share amounts)
Net loss – Basic and Diluted	$	(3,977)	$	(11,513)	$	(32,141)	$	(16,380)



Weighted-average shares outstanding – Basic and Diluted	20,824		20,545		20,784		20,527
Basic and Diluted loss per common share	$	(0.19)	$	(0.56)	$	(1.55)	$	(0.80)

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

~~- 23 -~~

~~Table of Contents~~

~~LIFETIME BRANDS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2019~~

~~(unaudited)~~

NOTE K—10— INCOME TAXES

The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to pre-tax income or loss for the reporting period. For the three and six months ended June 30, 2020, the Company has used a discrete effective tax rate method to calculate taxes. Management determined that since minimal changes in estimated pre-tax income or loss would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the three and six months ended June 30, 2020.

Income tax ~~(provision)~~expense of ~~$(15.1)~~$3.0 million and ~~$(6.8)~~benefit of $0.7 million for the three and ~~nine~~six months ended ~~September~~June 30, 2019, respectively, represent taxes on U.S. earnings and a reduced benefit on foreign losses at a combined effective income tax provision rate of 857.5% and (30.0)%, respectively. The negative rate for the nine months ended September 30, 2019 reflects tax expense on a pretax book loss. The effective tax rates for the three and nine months ended September 30, 2019 differ from the federal statutory rate of 21% primarily due to state and local taxes and the impact of non-deductible expenses, offset by a benefit for federal credits. Included within the non-deductible expenses is the European goodwill impairment of $9.7 million recorded in the three months ended September 30, 2019, which is not deductible for income tax purposes in the foreign jurisdiction.

~~Income tax (provision) benefit of $(0.9) million and $4.7 million for the three and nine months ended September 30, 2018,~~2020, respectively, represent taxes on both U.S. and foreign earnings at a combined effective income tax provision rate of ~~13.6 %~~3,092.9% and ~~an income tax~~ benefit rate of ~~27.8 %,~~2.2%, respectively. The effective tax rate for the three and six months ended ~~September~~June 30, ~~2018 reflects~~2020 differs from the ~~reduced U.S. corporate~~federal statutory income tax rate of 21.0% primarily due to non-deductible goodwill impairment and other significant permanent items recorded year-to-date, partially offset by ~~state~~the benefit of losses in foreign jurisdictions.

Income tax benefit of $5.8 million and $8.3 million for the three and six months ended June 30, 2019, respectively, represent taxes on both U.S. and ~~non-deductible expenses~~foreign earnings at combined effective income tax benefit rates of 33.6% and ~~increased by foreign income taxes relating to uncertain tax positions and a reduced benefit for a carryback claim in a foreign jurisdiction.~~33.8%, respectively. The effective tax rate for the ~~nine~~three and six months ended ~~September~~June 30, ~~2018 reflects~~2019 differs from the ~~reduced U.S. corporate income tax~~federal statutory rate ~~increased by~~of 21.0% primarily due to state and local taxes and the impact of ~~nondeductible expenses and offset by foreign taxes.~~

non-deductible expenses.

The Company has identified the following jurisdictions as “major” tax jurisdictions: U.S. Federal, California, Massachusetts, ~~New York, New Jersey, Illinois, Georgia~~Texas and the United Kingdom. The Company’s 2015 U.S. Federal income tax return ~~and~~audit was completed with no assessments. The Company's New York State tax returns for years 2014-2016 remain under audit with no material ~~assesments~~assessments as of ~~September~~June 30, ~~2019.~~2020.

The Company evaluates its tax positions on a quarterly basis and revises its estimates accordingly. There were no material changes to the Company’s uncertain tax positions, interest, or penalties during the three-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~September~~June 30, ~~2018.~~2019.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law and the new legislation contains several key tax provisions, including the five-year net operating loss carryback, an adjusted business interest limitation, and payroll tax deferral. The Company is required to recognize the effect of tax law changes in the period of enactment. The Company has assessed the applicability of the CARES Act and determined there is no material impact to the Company.

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LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

NOTE L11 – BUSINESS SEGMENTS

The Company has 2 reportable segments, U.S. and International. Prior to October 1, 2018, the U.S. segment was reported as 2 separate reportable segments, U.S. Wholesale and Retail Direct. The Company changed its reporting structure as of October 1, 2018 to reflect how the Company is managing its operations as well as what the chief operating decision maker reviews to make organizational decisions about resource allocations. Prior period segment information has been recast to reflect the current reportable segment structure of the Company.

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 its internet 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 ~~(loss)~~ 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 and consulting fees, are not allocated to the specific segments and are reflected as unallocated corporate expenses.

The Company implemented its SKU Rationalization initiative to improve the productivity of its inventory and simplify its U.S. business. 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, which negatively impacted income (loss) from operations for the U.S. segment.


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Net sales
U.S.	$	132,591	$	123,092	$	261,799	$	250,130
International	17,549		19,444		33,411		42,332
Total net sales	$	150,140	$	142,536	$	295,210	$	292,462
Income (loss) from operations
U.S.	$	13,152	$	(4,678)	$	(728)	$	(292)
International	(3,817)		(2,868)		(10,551)		(3,915)
Unallocated corporate expenses	(5,039)		(4,999)		(9,670)		(10,625)
Income (loss) from operations	$	4,296	$	(12,545)	$	(20,949)	$	(14,832)
Depreciation and amortization
U.S.	$	4,934	$	5,210	$	9,996	$	10,481
International	1,127		1,080		2,299		2,168
Total depreciation and amortization	$	6,061	$	6,290	$	12,295	$	12,649


	June 30, 2020		December 31, 2019
	(in thousands)
Assets
U.S.	$	592,806	$	639,047
International	95,036		117,935
Unallocated corporate	65,960		13,041
Total Assets	$	753,802	$	770,023

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LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~2020

(unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands)
Net sales
U.S. $ 195,199 $ 186,064 $ 445,329 $ 410,955
International 20,303 23,384 62,635 65,313
Total net sales $ 215,502 $ 209,448 $ 507,964 $ 476,268
Income (loss) from operations
U.S. $ 24,328 $ 20,027 $ 24,036 $ 16,455
International (12,898) (2,522) (16,813) (5,946)
Unallocated corporate expenses (4,501) (5,202) (15,126) (14,823)
Income (loss) from operations $ 6,929 $ 12,303 $ (7,903) $ (4,314)
Depreciation and amortization
U.S. $ 5,094 $ 5,009 $ 15,575 $ 13,448
International 1,028 1,067 3,196 3,359
Total depreciation and amortization $ 6,122 $ 6,076 $ 18,771 $ 16,807

September 30,
2019 December 31,
2018
(in thousands)
Assets
U.S. $ 772,871 $ 604,532
International 105,975 94,210
Unallocated corporate 4,886 9,830
Total Assets $ 883,732 $ 708,572

NOTE M12 — 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 United States 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.~~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, 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 ~~estimated~~ total net present worth estimated cost for its selected remedy is $7.3 ~~million..~~million. The EPA also designated a second operable unit under which the EPA has and will continue to conduct further investigations to determine the nature and extent of groundwater contamination, as well as a determination by the EPA on the necessity of any further response actions to address groundwater contamination. In February 2017, the EPA indicated that it planned to expand its field investigation for the RI/FS to a second operable unit to further determine the nature and extent of the groundwater ~~damage~~contamination at and from the Site and to determine the nature of the remedial action ~~needed.~~needed to address the contamination. The EPA has requested access to the property occupied by WSPR to install monitoring wells and to undertake groundwater sampling as part of this expanded investigation. WSPR has consented to the EPA’s access request, ~~subject to~~provided that the EPA receives 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.

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~~LIFETIME BRANDS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2019~~

~~(unaudited)~~

In December 2018, the Company, WSPR, and other identified Potentially Responsible Parties affiliated with the Site entered into tolling agreements to extend the statute of limitations for potential claims for the recovery of response costs for the initial operable unit under Section 107 of CERCLA. In February 2020, the tolling agreements were extended to November 2020. 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 a second operable unit in July 2019. The public comment period for the proposed plan ended on September 10, 2019. On September 30, 2019, the EPA issued the ROD for operable unit 2 (“OU-2”), electing to implement its preferred remedy which consists of in-situ treatment of groundwater and a monitored natural attenuation (MNA) program including monitoring of the plume fringe at the Site. The EPA’s estimated total net present worth cost for its selected remedy is $17.3 million.

WSPR never used the primary constituents of concern and did not take up its tenancy at the Site until after EPA had discovered the damage to the local water supply. The EPA has also issued notices of potential liability to numerous other entities affiliated with the Site, which used the constituents of concern. Accordingly, based on the above uncertainties and variables, it is not possible at this time for the Company to estimate its share of liability, if any, related to this matter. However, in the event of one or more ~~definitive claims because~~adverse determinations related to this matter, it is

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Table of ~~property damage asserted against~~Contents

LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

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 7 tableware collections imported in this shipment.

The Company is now in the process of compiling a complete set of supporting documents for the remaining three protests (for the remaining 29 tableware collections that were imported by the Company under the protested shipments) for submission to the CBP. If the CBP approves these additional claims and accepts the evidence presented as it did with the Lead Protest, then no additional duties will be owed for the remaining protested shipments.

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

In the event CBP accepts the evidence presented, then no additional duties or penalties will be owed. If CBP rejects the Company’s position, then the estimated amount of duties that could be owed is $3.1 million. In such event, it is reasonably possible that additional penalties could be assessed, depending upon the level of culpability found, of up to $6.2 million for negligence and up to $12.4 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.

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LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

NOTE N13 — OTHER

Cash dividends

Dividends declared in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 were as follows:

Dividend per share

Date declared

Date of record

Payment date

$0.0425

~~03/12/2019~~3/10/2020

~~05/01/2019~~11/16/2020

~~05/15/2019~~12/16/2020

$0.0425

~~06/27/2019~~6/25/2020

~~08/01/2019~~8/3/2020

~~08/15/2019~~

~~$0.0425~~

~~08/06/2019~~

~~11/01/2019~~

~~11/15/2019~~8/17/2020

On February ~~15, 2019, May 15, 2019, and August 15, 2019~~14, 2020, the Company paid dividends of $0.9 million ~~$0.9 million and $0.9 million, respectively,~~ to shareholders of record on ~~February 1, 2019,~~January 31, 2020.

In 2020, the Company declared dividends as follows:

•On March 10, 2020, the Board of Directors declared a quarterly dividend of $0.0425 per share payable on May 15, 2020 to shareholders of record on May 1, ~~2019, and~~2020. Subsequently, the Company issued a press release on April 23, 2020, announcing that the Board of Directors unanimously approved the rescheduling of the May quarterly dividend. Accordingly, shareholders of record as of November 16, 2020 will be eligible to receive a dividend of $0.0425 per share on December 16, 2020.

•On June 25, 2020, the Board of Directors declared a quarterly dividend of $0.0425 per share payable on August ~~1, 2019, respectively.~~ 17, 2020 to shareholders of record on August 3, 2020.

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

In the three months ended ~~September~~June 30, ~~2019,~~2020, the Company reduced retained earnings for the accrual of $0.9 million relating to the dividend payable on ~~November 15, 2019.~~

~~On November 7, 2019,~~August 17, 2020. For the ~~Board~~six months ended June 30, 2020, the Company reduced retained earnings for the accrual of ~~Directors declared a quarterly~~$1.8 million relating to the dividend ~~of $0.0425 per share~~ payable on ~~February 14,~~August 17, 2020 ~~to shareholders of record on January 31, 2020.~~and December 16, 2020.

Supplemental cash flow information


		Nine Months Ended September 30,							Six Months Ended June 30,
		2019		2018			2020		2019
		(in thousands)							(in thousands)
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid for interest	Cash paid for interest	$	13,876	$	11,003	Cash paid for interest	$	8,070	$	9,066
Cash paid for taxes, net of refunds	Cash paid for taxes, net of refunds	938		2,527		Cash paid for taxes, net of refunds	173		993
Non-cash investing activities:	Non-cash investing activities:					Non-cash investing activities:
Translation loss adjustment	Translation loss adjustment	$	(4,032)	$	(1,985)	Translation loss adjustment	$	(7,207)	$	(1,647)

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LIFETIME BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~2020

(unaudited)

Components of accumulated other comprehensive loss, net


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2019		2018		2019		2018			2020		2019		2020		2019
		(in thousands)															(in thousands)
Accumulated translation adjustment:	Accumulated translation adjustment:									Accumulated translation adjustment:
Balance at beginning of period	Balance at beginning of period	$	(35,374)	$	(29,930)	$	(33,727)	$	(27,821)	Balance at beginning of period	$	(38,477)	$	(32,421)	$	(34,019)	$	(33,727)
Translation (loss) gain during period		(2,385)		124		(4,032)		(1,985)
Translation loss during period										Translation loss during period	(2,749)		(2,953)		(7,207)		(1,647)
Amounts reclassified from accumulated other comprehensive loss ⁽¹⁾										Amounts reclassified from accumulated other comprehensive loss ⁽¹⁾	235		—		235		—
Translation Adjustment										Translation Adjustment	(2,514)		(2,953)		(6,972)		(1,647)
Balance at end of period	Balance at end of period	$	(37,759)	$	(29,806)	$	(37,759)	$	(29,806)	Balance at end of period	$	(40,991)	$	(35,374)	$	(40,991)	$	(35,374)
Accumulated deferred gains (losses) on cash flow hedges:
Accumulated deferred gains on cash flow hedges:										Accumulated deferred gains on cash flow hedges:
Balance at beginning of period	Balance at beginning of period	$	1,739	$	(263)	$	161	$	14	Balance at beginning of period	$	(1,713)	$	757	$	1,164	$	161
Amounts reclassified from accumulated other comprehensive loss:	Amounts reclassified from accumulated other comprehensive loss:									Amounts reclassified from accumulated other comprehensive loss:
Settlement of cash flow hedge		(143)		—		(166)		(14)
Change in unrealized gains (losses)		294		(381)		1,895		(644)
Net change in cash flow hedges, net of taxes of $36, $127, $531, and $215		151		(381)		1,729		(658)
Settlement of cash flow hedge ⁽²⁾										Settlement of cash flow hedge ⁽²⁾	240		(52)		359		(23)
Change in unrealized (losses) gains										Change in unrealized (losses) gains	(139)		1,034		(3,135)		1,601
Net change in cash flow hedges, net of taxes of $69, $306, $(929) and $495										Net change in cash flow hedges, net of taxes of $69, $306, $(929) and $495	101		982		(2,776)		1,578
Balance at end of period	Balance at end of period	$	1,890	$	(644)	$	1,890	$	(644)	Balance at end of period	$	(1,612)	$	1,739	$	(1,612)	$	1,739
Accumulated effect of retirement benefit obligations:	Accumulated effect of retirement benefit obligations:									Accumulated effect of retirement benefit obligations:
Balance at beginning of period	Balance at beginning of period	$	(1,025)	$	(1,483)	$	(1,050)	$	(1,518)	Balance at beginning of period	$	(1,580)	$	(1,037)	$	(1,600)	$	(1,050)
Amounts reclassified from accumulated other comprehensive loss:⁽¹⁾
Amortization of actuarial losses, net of taxes		13		19		38		54
Amounts reclassified from accumulated other comprehensive loss:⁽³⁾										Amounts reclassified from accumulated other comprehensive loss:⁽³⁾
Amortization of actuarial gains, net of taxes										Amortization of actuarial gains, net of taxes	19		12		39		25
Balance at end of period	Balance at end of period	$	(1,012)	$	(1,464)	$	(1,012)	$	(1,464)	Balance at end of period	$	(1,561)	$	(1,025)	$	(1,561)	$	(1,025)
Total accumulated other comprehensive loss at end of period		$	(36,881)	$	(31,914)	$	(36,881)	$	(31,914)
Total accumulated other comprehensive losses at end of period										Total accumulated other comprehensive losses at end of period	$	(44,164)	$	(34,660)	$	(44,164)	$	(34,660)

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

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

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

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q of Lifetime Brands, Inc. (the “Company” and, unless the context otherwise requires, references to the “Company” shall include its consolidated subsidiaries), contains “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include information concerning the Company’s plans, objectives, goals, strategies, future events, future revenues, performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, in Management’s Discussion and Analysis of Financial Condition and Results of Operations. When used in this Quarterly Report on Form 10-Q, the words “estimates,” “expects,” ~~“anticipates,” “projects,~~“predicts,” “plans,~~” “intends,~~” “believes,” “may,” “should,” ~~“assumes,” “seeks,~~“would,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, those based on the Company’s examination of historical operating trends, are based upon the Company’s current expectations and various assumptions. The Company believes there is a reasonable basis for its expectations and assumptions, but there can be no assurance that the Company will realize its expectations or that the Company’s assumptions will prove correct.

There are a number of risks and uncertainties that could cause the Company’s actual results to differ materially from the forward-looking statements contained in this Quarterly Report. Important factors that could cause the Company’s actual results to differ materially from those expressed as forward-looking statements are set forth in this Quarterly Report in Part II, Item 1A. Risk Factors, and in the Company’s ~~2018~~ Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 Annual Report on Form 10-K”) in Part I, Item 1A under the heading Risk Factors. Such risks, uncertainties and other important factors include, among others, risks related to:

•General economic factors and political conditions;

•Exit of the United Kingdom from the European Union;

•Tariffs;

•Indebtedness and compliance with credit agreements;

•Access to the capital markets and credit markets;

•The credit-worthiness of our customers and the counterparties to our derivatives;

•Restructuring and integration of our European operations;

•Seasonality;

•Liquidity;

•Interest;

•Acquisition integration;

•Competition;

•Customer practices;

•Intellectual property, brands and licenses;

•Goodwill;

•International operations;

•Supply chain;

•Foreign exchange rates;

•International trade, ~~and transportation;~~including trade negotiations;

•Transportation;

•Product liability;

•Regulatory matters;

•Product development;

•Stock keeping unit rationalization (“SKU Rationalization”) initiative;

•Reputation;

•Technology;

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Table of Contents

•Personnel;

•Price fluctuations;

•Business interruptions;

~~- 28 -~~

~~Table of Contents~~

•Projections;

•Fixed costs;

•Governance; ~~and~~

•Acquisitions and ~~investments.~~investments;

•Public health pandemics, such as COVID-19; and

•Social unrest, including related protests or disturbances.

There may be other factors that may cause the Company’s actual results to differ materially from the forward-looking statements. Except as may be required by law, the Company undertakes no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

The Company is required to file its Annual Reports on Forms 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Form 8-K, and other reports and documents as required from time to time with the United States Securities and Exchange Commission (the “SEC”). The Company also maintains a website at http://www.lifetimebrands.com. Information contained on this website is not a part of or incorporated by reference into this Annual Report. The Company makes available on its website the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports as soon as reasonably practicable after these reports are filed with or furnished to the SEC. Users can access these reports free of charge on the Company’s website. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding the Company’s electronic filings with the SEC at http://www.sec.gov.

The Company intends to use its website as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Such disclosures will be included on the Company’s website in the ‘Investor Relations’ section. Accordingly, investors should monitor such portion of the Company's website, in addition to following the Company's press releases, SEC filings and public conference calls and webcasts.

ABOUT THE COMPANY

The Company designs, sources and sells branded kitchenware, tableware and other products used in the home. The Company’s product categories include two categories of products used to prepare, serve, and consume foods: Kitchenware (kitchen tools and gadgets, cutlery, ~~cutting boards, shears,~~ kitchen scales, thermometers, ~~timers,~~cutting boards, shears, cookware, pantryware, spice racks, ~~wine accessories,~~ and bakeware) and Tableware (dinnerware, stemware, flatware, ~~wire organization,~~ and giftware); and one category, Home Solutions, which comprises other products used in the home (thermal beverageware, bath scales, weather and outdoor household products, food storage, neoprene travel products ~~bath scales, weather instruments,~~ and home décor). In ~~2018,~~2019, Kitchenware products and Tableware products accounted for approximately ~~82 %~~79% of the Company’s U.S. segment’s net sales and ~~84 %~~82% of the Company’s consolidated net sales.

On March 2, 2018, the Company completed the acquisition of Taylor Holdco LLC and its subsidiaries (doing business as Filament Brands) (“Filament”). Filament primarily designs, markets and distributes consumer and food service precision measurement products, including kitchen scales, thermometers and timers, bath scales, wine accessories, kitchen tools, hydration products, and select outdoor products. The nine months ended September 30, 2018 include the operations of Filament for the period from March 2, 2018 to September 30, 2018.

The Company markets several product lines within each of its product categories and under most of the Company’s brands, primarily targeting moderate price points through virtually every major level of trade. The Company believes it possesses certain competitive advantages based on its brands, its emphasis on innovation and new product development, and its sourcing capabilities. The Company owns or licenses a number of leading brands in its industry, including Farberware^®, Mikasa^®, Taylor^®, KitchenAid^®, ~~Pfaltzgraff~~^®, KitchenCraft^®, ~~Fitz and Floyd~~^®~~, Sabatier®, Kamenstein~~Pfaltzgraff^®, Built NY^®, ~~MasterClass®~~Rabbit^®, ~~Fred~~Kamenstein^®, ~~Rabbit~~^®and ~~LaCafetière~~^®MasterClass®. Historically, the Company’s sales growth has come from expanding product offerings within its product categories, by developing existing brands, acquiring new brands ~~including~~(including complementary brands in markets outside the ~~United States,~~U.S.), and establishing new product categories. Key factors in the Company’s growth strategy have been the selective use and management of the Company’s brands and the Company’s ability to provide a stream of new products and designs. A significant element of this strategy is the Company’s in-house design and development teams that create new products, packaging and merchandising concepts.

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BUSINESS SEGMENTS

~~Effective October 1, 2018, the~~The Company ~~operates in~~has two reportable ~~segments:~~segments, U.S. and International. The U.S. segment is the Company’s primary domestic business that designs, markets and distributes its products to retailers and distributors, as well as directly to consumers through third party and its own internet websites. The International segment consists of certain business operations conducted outside the U.S. The Company has segmented its operations to reflect the manner in which management reviews and evaluates ~~its~~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 its internet 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 and consulting fees, are not allocated to the specific segments and are reflected as unallocated corporate expenses.

EQUITY INVESTMENTS

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members of Vasconia’s Board of Directors. As of ~~September~~June 30, ~~2019,~~2020, Vasconia’s Board of Directors is comprised of ~~twelve~~fourteen members of whom the Company has designated three members.

SEASONALITY

The Company’s business and working capital needs are highly seasonal, with a majority of sales occurring in the third and fourth quarters. In ~~2018~~2019 and ~~2017,~~2018, net sales for the third and fourth quarters accounted for ~~62 %~~60% and ~~60 %~~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. Consistent with the seasonality of the Company’s net sales and inventory levels, the Company also experiences seasonality in its inventory turnover and turnover days from one quarter to the next.

The COVID-19 pandemic has led, and may continue to lead, to shifts in some of the Company's selling and purchasing cycles as customers deviate from their historical ordering patterns.

RESTRUCTURING

RECENT DEVELOPMENTS

In March 2020, the World Health Organization declared COVID-19 a global pandemic. The virus has continued to plague the United States and the rest of the world. The pandemic has resulted in an increase in sales of certain of the Company’s products as well as a decrease in sales in other of its products. The Company ~~will combine~~has experienced a significant reduction in sales at certain retailers which have been closed or have had a limited number of stores that are open during the pandemic. This reduction in sales has been offset by higher sales at retailers that have remained open. Many of the retailers that remain open provide products that are deemed essential. In addition, the Company's e-commerce sales have increased during the pandemic.

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The Company’s distribution centers remain operational and continue to support e-commerce and brick-and-mortar retail customers. The Company has not experienced disruptions in its physical locations in the U.K. in 2019 and expects to incur approximately $0.7 million of additional restructuring and integration charges in 2019. At September 30, 2019, $0.1 million of restructuring chargessupply chain related to the ~~European restructuring plan were accrued.~~COVID-19 pandemic. However, in limited instances and categories, increased demand has strained the manufacturing capacity of certain of the Company’s suppliers.

In response to the COVID-19 pandemic, the Company announced and implemented cost reductions in April 2020. Also in April 2020, the Company's Board of Directors authorized the postponement of the Company's quarterly cash dividend, which was to be paid on May 15, 2020, to shareholders of record on May 1, 2020. The Company set November 16, 2020 as the new record date for such dividend payable on December 16, 2020.

The Company cannot estimate the length or severity of this pandemic. However the Company believes that it could have a material adverse impact on its future sales, results of operations, and cash flows, including the potential impairment of certain intangible and other long-lived assets.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

~~The following is an update to the corresponding critical accounting policies and estimates set forth in the Company’s 2018 Annual Report on Form 10-K. Except as modified below, there~~There have been no material changes to the Company’s critical accounting policies and estimates discussed in the ~~2018~~2019 Annual Report on Form 10-K in Item 7 under the heading Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates.

~~Cost of Sales~~

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.

~~Leases~~

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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.

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.

RESULTS OF OPERATIONS

The following table sets forth statements of operations data of the Company as a percentage of net sales for the periods indicated:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2019		2018		2019		2018			2020		2019		2020		2019
Net sales	Net sales	100	%	100	%	100	%	100	%	Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	Cost of sales	66.2		64.8		66.3		64.1		Cost of sales	63.9		69.1		63.7		66.4
Gross margin	Gross margin	33.8		35.2		33.7		35.9		Gross margin	36.1		30.9		36.3		33.6
Distribution expenses	Distribution expenses	8.6		7.9		9.8		10.4		Distribution expenses	10.1		10.9		10.8		10.7
Selling, general and administrative expenses	Selling, general and administrative expenses	17.4		20.1		23.4		25.7		Selling, general and administrative expenses	22.9		28.7		25.7		27.7
Restructuring expenses	Restructuring expenses	0.2		0.3		0.3		0.3		Restructuring expenses	0.2		0.1		0.1		0.3
Impairment of goodwill		4.6		1.1		2.0		0.5
Goodwill and other impairments										Goodwill and other impairments	—		—		6.8		—
Income (loss) from operations	Income (loss) from operations	3.0		5.9		-1.8		-0.9		Income (loss) from operations	2.9		(8.8)		(7.1)		(5.1)
Interest expense	Interest expense	-2.4		-2.7		-3.0		-2.6		Interest expense	(2.8)		(3.5)		(3.0)		(3.4)
Income (loss) before income taxes and equity in earnings (losses)		0.6		3.2		-4.8		-3.5
Mark to market (loss) gain on interest rate derivatives										Mark to market (loss) gain on interest rate derivatives	(0.1)		0.2		(0.8)		0.1

Loss before income taxes and equity in losses										Loss before income taxes and equity in losses	—		(12.1)		(11.0)		(8.4)
Income tax (provision) benefit	Income tax (provision) benefit	-7.0		-0.4		-1.4		1.0		Income tax (provision) benefit	(2.0)		4.1		0.2		2.8
Equity in (losses) earnings, net of taxes		-0.1		0.1		-0.1		0.1
Net (loss) income		-6.5		2.9		-6.3		-2.4
Equity in losses, net of taxes										Equity in losses, net of taxes	(0.6)		—		(0.1)		(0.1)
Net loss										Net loss	(2.6)	%	(8.0)	%	(10.9)	%	(5.7)	%

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MANAGEMENT’S DISCUSSION AND ANALYSIS

THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2019~~2020 COMPARED TO THE THREE MONTHS ENDED

~~SEPTEMBER~~JUNE 30, ~~2018~~2019

Net Sales

Consolidated net sales for the three months ended ~~September~~June 30, ~~2019~~2020 were ~~$215.5~~$150.1 million, representing an increase of ~~$6.1~~$7.6 million, or ~~2.9%~~5.3%, as compared to net sales of ~~$209.4~~$142.5 million for the corresponding period in ~~2018.~~2019. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying ~~2019~~2020 average rates to ~~2018~~2019 local currency amounts, consolidated net sales increased ~~$7.2~~by $8.2 million, or ~~3.5 %,~~5.8%, as compared to consolidated net sales in the corresponding period in ~~2018.~~2019.

Net sales for the U.S. segment for the three months ended ~~September~~June 30, ~~2019~~2020 were ~~$195.2~~$132.6 million, an increase of ~~$9.1~~$9.5 million, or ~~4.9%~~7.7%, as compared to net sales of ~~$186.1~~$123.1 million for the corresponding period in ~~2018.~~2019.

Net sales for the U.S. segment’s Kitchenware product category were ~~$99.3~~$84.4 million for the three months ended ~~September~~June 30, ~~2019,~~2020, an increase of ~~$2.4~~$18.8 million, or ~~2.5%~~28.7%, as compared to ~~$96.9~~$65.6 million for the corresponding period in ~~2018.~~2019. The increase was ~~attributable to new promotional programs~~mainly driven by higher consumer demand in the e-commerce and wholesale channels for essential kitchen tools and gadgets, cutlery and boards and bakeware ~~and Taylor branded kitchenware, in addition to higher sales within the warehouse club channel.~~products.

Net sales for the U.S. segment’s Tableware product category were ~~$57.3~~$23.6 million for the three months ended ~~September~~June 30, ~~2019, which was consistent with net sales~~2020, a decrease of ~~$56.9~~$5.2 million, or 18.1%, as compared to $28.8 million for the corresponding period in ~~2018.~~2019. The ~~increase~~decrease was primarily ~~attributable~~driven by lower sales of dinnerware products to ~~higher sales in~~brick-and-mortar retailers which were closed for most of the ~~warehouse club channel.~~period as a result of the COVID-19 pandemic. This decrease was partially offset by increased e-commerce sales.

Net sales for the U.S. segment’s Home Solutions product category were ~~$38.6~~$24.6 million for the three months ended ~~September~~June 30, ~~2019, an increase~~2020, a decrease of ~~$6.3~~$4.1 million, or ~~19.5%~~14.3%, as compared to ~~$32.3~~$28.7 million for the corresponding period in ~~2018.~~2019. The ~~increase~~decrease was ~~primarily attributable to increased home décor~~driven by lower sales ~~as a result of new program initiatives.~~in the private label hydration category.

Net sales for the International segment were ~~$20.3~~$17.5 million for the three months ended ~~September~~June 30, ~~2019,~~2020, a decrease of ~~$3.1~~$1.9 million, or ~~13.2%~~9.8%, as compared to net sales of ~~$23.4~~$19.4 million for the corresponding period in ~~2018.~~2019. In constant currency, which excludes the impact of foreign exchange fluctuations, net sales decreased ~~$1.9~~$1.3 million, or ~~8.6%~~6.7%, as compared to consolidated net sales in the corresponding period in ~~2018.~~2019. The decrease in sales, and sales in constant currency, was primarily due to ~~slower fulfillment of orders~~lower sales to brick-and-mortar retailers as a result of ~~warehouse consolidation efforts performed~~lower demand and closures due to COVID-19, offset by ~~the business.~~increased e-commerce sales due to higher customer demand in online channels.

Gross margin

Gross margin for the three months ended ~~September~~June 30, ~~2019~~2020 was ~~$72.9~~$54.2 million, or ~~33.8%~~36.1%, as compared to ~~$73.8~~$44.0 million, or ~~35.2%~~30.9%, for the corresponding period in ~~2018.~~2019.

Gross margin for the U.S. segment was ~~$67.0~~$49.8 million, or ~~34.3%~~37.6%, for the three months ended ~~September~~June 30, ~~2019,~~2020, as compared to ~~$65.7~~$36.7 million, or ~~35.3%~~29.8%, for the corresponding period in ~~2018.~~2019. Gross margin in the 2019 period reflects an $8.5 million charge for the SKU rationalization initiative. Excluding the SKU rationalization the gross margin would have been 36.7%. The ~~decrease~~increase in ~~percentage~~gross margin, excluding the SKU rationalization change, was primarily due to changes in ~~both~~ product ~~and customer~~ mix.

The U.S. segment's gross margin was negatively impacted by higher tariff rates on products imported from the People's Republic of China ("China"). This impact was partially offset by the devalued Chinese Yuan, cost concessions from vendors, packaging redesigns, and higher wholesale price points on affected inventory. Both the tariff environment and the vendor and customer community's response are highly dynamic, which can negatively or positively impact gross margin in future reporting periods.

Gross margin for the International segment was ~~$5.9~~$4.4 million, or ~~29.1%~~24.8%, for the three months ended ~~September~~June 30, ~~2019,~~2020, as compared to ~~$8.1~~$7.3 million, or ~~34.6%~~37.6%, for the corresponding period in ~~2018.~~2019. The decrease in gross margin percentage was ~~primarily attributable~~driven by higher inventory reserves and lower sales to ~~changes in customer~~independent retailers a result of lower demand and ~~product mix.~~store closures due to COVID-19.

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Distribution expenses

Distribution expenses for the three months ended ~~September~~June 30, ~~2019~~2020 were ~~$18.5~~$15.2 million, as compared to ~~$16.6~~$15.5 million for the corresponding period in ~~2018.~~2019. Distribution expenses as a percentage of net sales were ~~8.6%~~10.1% for the three months ended ~~September~~June 30, ~~2019,~~2020, as compared to ~~7.9%~~10.9% for the three months ended ~~September~~June 30, ~~2018.~~2019.

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Distribution expenses as a percentage of net sales for the U.S. segment were approximately ~~7.2%~~8.8% and ~~7.4%~~10.4% for the three months ended ~~September~~June 30, 2020 and 2019, ~~and 2018, respectively~~.respectively. As a percentage of sales shipped from the Company’s U.S. warehouses distribution expenses were ~~8.8 %~~9.0% and ~~8.9 %~~11.8% for the three months ended ~~September~~June 30, 2020 and 2019, respectively. The improvement reflects the continued realization of labor management efficiency, realized synergy savings and the leverage benefit of fixed costs on higher sales volume.

Distribution expenses as a percentage of net sales for the International segment were 19.9% for the three months ended June 30, 2020, compared to 13.9% for the corresponding period in 2019. Distribution expenses during the three months ended June 30, 2020 include $0.3 million for the Company’s facility relocation costs. As a percentage of sales shipped from the Company’s U.K. warehouses, excluding the moving and relocation costs for U.K. operations, distribution expenses were 15.0% and 14.5% for the three months ended June 30, 2020 and 2019, respectively. The increase was primarily attributed to higher labor costs associated with increased e-commerce channel sales.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended June 30, 2020 were $34.4 million, a decrease of $6.5 million, or 15.9%, as compared to $40.9 million for the corresponding period in 2019.

Selling, general and administrative expenses for the U.S. segment were $25.0 million for the three months ended June 30, 2020, as compared to $28.9 million for the corresponding period in 2019. As a percentage of net sales, selling, general and administrative expenses were 18.9% and 23.5% for the three months ended June 30, 2020 and 2019, respectively. The decrease was primarily attributable to lower expenses resulting from the Company's cost reduction strategy in response to the COVID-19 pandemic, as well as lower selling and marketing expenses.

Selling, general and administrative expenses for the International segment were $4.4 million for the three months ended June 30, 2020, as compared to $7.0 million for the corresponding period in 2019. The decrease was primarily attributable to the realization of cost savings resulting from the Company's integration efforts, and lower employee and selling expenses resulting from the Company's cost reduction strategy in response to the COVID-19 pandemic.

Unallocated corporate expenses were $5.0 million for the three months ended June 30, 2020 and 2019.

Restructuring expenses

During the three months ended June 30, 2020, the Company's international segment incurred $0.3 million, of restructuring expenses related to severance associated with the strategic reorganization of the international segment’s product development and sales workforce. The strategic reorganization is the result of the Company's efforts for product development efficiencies and a country tailored international sales approach.

During the three months ended June 30, 2019, the Company incurred $0.1 million of Filament restructuring charges and ~~2018,~~$0.1 million of restructuring expenses, primarily related to severance, for the integration of its legal entities operating in Europe.

Interest expense

Interest expense was $4.2 million for the three months ended June 30, 2020 and $5.0 million for the three months ended June 30, 2019 as a result of lower debt outstanding and a lower interest rate environment.

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Mark to market (loss) gain on interest rate derivatives

Mark to market loss on interest rate derivatives was $0.2 million for the three months ended June 30, 2020 as compared to a mark to market gain on interest rate derivatives of $0.4 million for the three months ended June 30, 2019. The decrease was primarily driven by mark to market fair value fluctuations on the Company's interest rate derivatives. These derivatives were entered into for purposes of locking-in a fixed interest rate on the Company's variable interest rate debt. The current period loss was caused by lower interest rates as compared to the three months ended June 30, 2019. The intent of the Company is to hold these derivative contracts until their maturity. Therefore, the Company expects that this loss will reverse over time.

Income tax (provision) benefit

The provision for income taxes includes federal, foreign, state and local income taxes. The Company used a discrete effective tax rate method to calculate taxes for the three months ended June 30, 2020. Management determined that since minimal changes in estimated pre-tax income or loss would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the three months ended June 30, 2020.

Income tax provision for the three months ended June 30, 2020 was $3.0 million as compared to an income tax benefit of$5.8 million for the corresponding period in 2019. The Company’s effective income tax provision rate for the three months ended June 30, 2020 was 3,092.9% as compared to a tax benefit rate of 33.6% for the corresponding 2019 period. The effective tax rate for the three months ended June 30, 2020 differs from the federal statutory income tax rate of 21.0% primarily due to the impact of the non-deductible portion of the goodwill impairment charge (recorded in the three months ended March 31, 2020), the reversal of a discrete benefit recorded in the three months ended March 31, 2020 for a favorable rate arbitrage related to a net operating loss carryback claim available under the CARES Act, which is no longer expected based on a revised estimate, and other permanent items, partially offset by the benefit of losses in foreign jurisdictions. The effective rate for the three months ended June 30, 2019 differs from the federal statutory income tax rate of 21.0% primarily due to state and local taxes and the impact of non-deductible expenses.

Equity in losses

Equity in losses of Vasconia, net of taxes, was $0.6 million for the three months ended June 30, 2020, as compared to equity in losses of Vasconia, net of taxes, of $0.1 million for the three months ended June 30, 2019. Vasconia reported income from operations of $1.4 million for the three months ended June 30, 2020, as compared to income from operations of $2.8 million for the three months ended June 30, 2019. The decrease is primarily due to a decrease in operating income from Vasconia's aluminum and kitchenware division.

During the three months ended June 30, 2020, the Company recognized a loss of $0.2 million, relating to cumulative translation foreign currency losses that were recognized to earnings upon the dissolution of Lifetime Brands Do Brasil Participacoes Ltda., a 100% owned foreign subsidiary. The foreign currency translation losses related to the notes receivable due to the company from the 2016 sale of its equity interest in GS International S/A.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

SIX MONTHS ENDED JUNE 30, 2020 COMPARED TO THE SIX MONTHS ENDED

JUNE 30, 2019

Net Sales

Consolidated net sales for the six months ended June 30, 2020 were $295.2 million, representing an increase of $2.7 million, or 0.9%, as compared to net sales of $292.5 million for the corresponding period in 2019. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2020 average rates to 2019 local currency amounts, net sales increased by $3.8 million, or 1.3%, as compared to consolidated net sales in the corresponding period in 2019.

Net sales for the U.S. segment for the six months ended June 30, 2020 were $261.8 million, an increase of $11.7 million, or 4.7%, as compared to net sales of $250.1 million for the corresponding period in 2019.

Net sales for the U.S. segment’s Kitchenware product category were $163.7 million for the six months ended June 30, 2020, an increase of $28.8 million, or 21.3%, as compared to $134.9 million for the corresponding period in 2019. The increase was mainly attributable to higher consumer demand in the e-commerce and wholesale channels for essential kitchen tools and gadgets, cutlery and boards, and cookware and bakeware products. In addition, in the early part of 2020, sales increased as a result of the continuance of promotional programs that commenced in the latter part of 2019 for tools and gadgets, cutlery and bakeware.

Net sales for the U.S. segment’s Tableware product category were $47.2 million for the six months ended June 30, 2020, a decrease of $8.0 million, or 14.4%, as compared to $55.2 million for the corresponding period in 2019. The decrease was primarily driven by lower sales of dinnerware products to brick-and-mortar retailers; this decrease was partially offset by increased e-commerce sales.

Net sales for the U.S. segment’s Home Solutions product category were $50.9 million for the six months ended June 30, 2020, a decrease of $9.1 million, or 15.2%, as compared to $60.0 million for the corresponding period in 2019. The decrease was driven by lower sales in the private label hydration category, offset by new program hydration category sales.

Net sales for the International segment were $33.4 million for the six months ended June 30, 2020, a decrease of $8.9 million, or 21.0%, as compared to net sales of $42.3 million for the corresponding period in 2019. In constant currency, which excludes the impact of foreign exchange fluctuations, net sales decreased $7.9 million, or 19.1%, as compared to consolidated net sales in the corresponding period in 2019. The decrease in sales, and sales in constant currency, was driven by several factors including lower sales to independent retailers resulting from lower demand and store closures due to COVID-19, offset by increased e-commerce sales due to higher customer demand in online channels.

Gross margin

Gross margin for the six months ended June 30, 2020 was $107.1 million, or 36.3%, as compared to $98.3 million, or 33.6%, for the corresponding period in 2019.

Gross margin for the U.S. segment was $99.1 million, or 37.9%, for the six months ended June 30, 2020, as compared to $83.0 million, or 33.2%, for the corresponding period in 2019. Gross margin in the 2019 period reflects an $8.5 million charge for the SKU rationalization initiative. Excluding the SKU rationalization the gross margin would have been 36.6%. The increase in gross margin, excluding the SKU rationalization change, was primarily due to changes in product mix.

Gross margin for the International segment was $8.0 million, or 23.9%, for the six months ended June 30, 2020, as compared to $15.3 million, or 36.2%, for the corresponding period in 2019. The decrease in gross margin percentage was primarily due to additional allowances to brick-and-mortar customers, higher inventory reserves and a decrease in sales against a period over period comparable amount of fixed inventoriable costs.

Distribution expenses

Distribution expenses for the six months ended June 30, 2020 were $31.7 million, as compared to $31.4 million for the corresponding period in 2019. Distribution expenses as a percentage of net sales were 10.8% for the six months ended June 30, 2020, as compared to 10.7% for the six months ended June 30, 2019.

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Distribution expenses as a percentage of net sales for the U.S. segment were approximately 9.3% and 10.4% for the six months ended June 30, 2020 and 2019, respectively. Distribution expenses during the six months ended June 30, 2019 include $0.2 million for the Company’s facility relocation efforts of its west coast distribution facility. As a percentage of sales shipped from the Company’s U.S. warehouses, excluding relocation expenses, distribution expenses were 9.4% and 11.3% for the six months ended June 30, 2020 and 2019, respectively. The improvement reflects the continued realization of labor management efficiency and synergy savings as well as the leverage benefit of fixed costs on higher sales volume.

Distribution expenses as a percentage of net sales for the International segment were 22.2% for the ~~three~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~12.0%~~12.8% for the corresponding period in ~~2018.~~2019. Distribution expenses asduring the six months ended June 30, 2020 include $1.1 million for the Company’s facility relocation costs. As a percentage of sales shipped from the Company’s U.K. warehouses, ~~(excluding~~excluding the moving and relocation costs for ~~UK operations) approximated 19.1 %~~U.K. operations, distribution expenses were 15.5% and 12.7% for the ~~three~~six months ended ~~September~~June 30, 2020 and 2019, ~~and 11.9 % for the three months ended September 30, 2018.~~respectively. The increase is primarily attributed to ~~the slower fulfillment of orders~~higher labor costs associated with increased e-commerce channel sales and temporary labor inefficiencies associated with setting up the new U.K. warehouse but not directly attributable to relocation costs.

Selling, general and administrative expenses

Selling, general and administrative expenses for the ~~three~~six months ended ~~September~~June 30, ~~2019~~2020 were ~~$37.4~~$75.9 million, a decrease of ~~$4.7~~$5.1 million, or ~~11.2%~~6.3%, as compared to ~~$42.1~~$81.0 million for the corresponding period in ~~2018.~~2019.

Selling, general and administrative expenses for the U.S. segment were ~~$28.7~~$55.4 million for the ~~three~~six months ended ~~September~~June 30, ~~2019,~~2020, as compared to ~~$31.4~~$57.0 million for the ~~three months ended September 30, 2018.~~corresponding period in 2019. As a percentage of net sales, selling, general and administrative expenses were ~~14.7%~~21.2% and ~~16.9%~~22.8% for the ~~three~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~2019 period reflects the synergy savings~~decrease was primarily attributable to lower labor costs resulting from the ~~Filament acquisition, primarily from efficiencies~~Company's cost reduction strategy in ~~labor reduction initiatives.~~response to the COVID-19 pandemic, as well as lower selling and marketing expenses, offset by higher estimates for bad debt expense related to the economic uncertainties caused by the COVID-19 pandemic.

Selling, general and administrative expenses for the ~~three months ended September 30, 2019 for the~~ International segment were ~~$4.2~~$10.8 million ~~a decrease of $1.3 million, from $5.5~~for the six months ended June 30, 2020, as compared to $13.4 million for the corresponding period in ~~2018.~~2019. The decrease was primarily ~~due~~attributable to the realization of cost savings resulting from the Company's integration efforts, and lower ~~overhead expenses as a result of office consolidation efforts in addition to lower direct~~employee and selling expenses resulting from the Company's cost reduction strategy in response to the ~~current period.~~COVID-19 pandemic, offset by higher estimates for bad debt expense related to the economic uncertainties caused by the COVID-19 pandemic.

Unallocated corporate expenses for the ~~three~~six months ended ~~September~~June 30, ~~2019~~2020 were ~~$4.5~~$9.7 million, as compared to ~~$5.2~~$10.6 million for the corresponding period in ~~2018.~~2019. The decrease was ~~mainly~~primarily attributable to executive salary costs as well as lower professional fees.

~~Impairment of Goodwill~~

Restructuring expenses

During the ~~third quarter~~six months ended June 30, 2020, the Company's international segment incurred $0.3 million of restructuring expenses related to severance associated with the strategic reorganization of the international segment’s product development and sales workforce. The strategic reorganization is the result of the Company's efforts for product development efficiencies and a country tailored international sales approach.

During the six months ended June 30, 2019, the ~~Company’s qualitative assessment~~Company incurred $0.4 million of ~~goodwill indicated triggering events~~Filament restructuring charges and$0.4 million of restructuring expenses, primarily related to severance, for the integration of its legal entities operating in ~~its European kitchenware reporting unit, resulting in~~Europe.

Goodwill and infinite-lived intangible asset impairment

During the six months ended June 30, 2020, the Company ~~performing~~recorded a ~~quantitative assessment, that resulted in a $9.7~~$20.1 million non-cash goodwill ~~impairment charge. In the third quarter of 2018 the Company incurred a non-cash goodwill~~and intangible asset impairment charge ~~of $2.2 million~~ related to the ~~European tableware business. As a result~~U.S. reporting unit. The impairment charge resulted from, among other factors, more conservative estimated future cash flows in light of the goodwill impairment charges taken in both the third quarter of 2019 and 2018, the Company wrote off to zero the amount of goodwill associated with the European kitchenware and tableware reporting units, acquired in 2014 and 2011, respectively.

Several impairment indicators for the European kitchenware business were considered by the Company including the continued uncertainties of the macro-environment in Europe as a result of the ongoing Brexit negotiations. In addition, the Company considered the decline in operating performance for the European kitchenware business, which included slower fulfillment of orders and labor inefficiencies associated with setting up the new warehouse in the U.K. While the warehouse consolidation and integration efforts were substantially complete as of September 30, 2019, the operational improvements anticipateduncertain market conditions arising from the ~~consolidation of locations had not yet been fully realized as of September 30, 2019. These factors resulted in a decline in the long-term forecast for the European kitchenware business.~~

COVID-19 pandemic.

Interest expense

Interest expense was ~~$5.2 million for three months ended September 30, 2019 and $5.6~~$9.0 million for the ~~three~~six months ended ~~September~~June 30, ~~2018. This reflects the benefit from mark to market changes from interest rate swaps not designated as effective hedges.~~

~~Income tax (provision)~~

~~Income tax (provision) for the three months ended September 30, 2019 was $(15.1) million as compared to $(0.9)~~2020 and $10.0 million for the ~~corresponding period in 2018. The Company’s effective income tax provision rate for the three~~six months ended ~~September~~June 30, 2019 ~~was 857.5%~~primarily as ~~compared to 13.6% for the corresponding 2018 period. The effective tax~~a result of lower debt outstanding and a lower interest rate ~~for the three months ended September 30, 2019 differs from the federal statutory rate of 21% primarily due to state and local taxes and the~~environment.

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~~impact of non-deductible expenses offset by a benefit~~Mark to market (loss) gain on interest rate derivatives

Mark to market loss on interest rate derivatives was $2.4 million for ~~federal credits. Included within~~ the ~~non-deductible expenses is the European goodwill impairment of $9.7 million recorded in the three~~six months ended ~~September~~June 30, ~~2019, which~~2020 as compared to a mark to market gain on interest rate derivatives of $0.4 million for the six months ended June 30, 2019. The decrease was primarily driven by mark to market fair value fluctuations on the Company's interest rate derivatives. These derivatives were entered into for purposes of locking-in a fixed interest rate on the Company's variable interest rate debt. The current period loss was caused by lower interest rates as compared to the six months ended June 30, 2019. The intent of the Company is ~~not deductible~~to hold these derivative contracts until their maturity. Therefore, the Company expects that this loss will reverse over time.

Income tax (provision) benefit

The provision for income ~~tax purposes in the~~taxes includes federal, foreign, ~~jurisdiction.~~state and local income taxes. The Company used a discrete effective tax rate method to calculate taxes for the ~~three~~six months ended ~~September~~June 30, ~~2018 reflects~~2020. Management determined that since minimal changes in estimated pre-tax income or loss would result in significant changes in the ~~reduced U.S. corporate income~~estimated annual effective tax rate, ~~offset by state and local taxes and~~ the ~~impact of non-deductible expenses and increased by foreign income taxes relating to uncertain~~historical method would not provide a reliable estimate for the six months ended June 30, 2020.

Income tax ~~positions and a reduced~~ benefit for ~~a carryback claim in a foreign jurisdiction.~~

~~Equity in (losses) earnings~~

~~Equity in (losses) earnings of Vasconia, net of taxes, was $(0.2) million for~~ the ~~three~~six months ended ~~September~~June 30, ~~2019,~~2020 was $0.7 million as compared to ~~equity in (losses) earnings~~an income tax benefit of Vasconia, net of taxes, of $0.2 million for the three months ended September 30, 2018. Equity in (losses) earnings for the three months ended September 30, 2018 includes a deferred tax expense of $0.6 million due to the requirement to record tax benefits for foreign currency translation gains and losses through other comprehensive (loss) income, with a corresponding adjustment to deferred tax liabilities. Vasconia reported losses from operations of $(0.6) for the three months ended September 30, 2019, as compared to income from operations of $1.1 million for the three months ended September 30, 2018. The decrease in income from operations is primarily due to a decrease in operating income from the aluminum division.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~NINE MONTHS ENDED SEPTEMBER 30, 2019 COMPARED TO THE NINE MONTHS ENDED~~

~~SEPTEMBER 30, 2018~~

~~Net Sales~~

~~Consolidated net sales for the nine months ended September 30, 2019 were $508.0 million, an increase of $31.7 million, or 6.7%, as compared to net sales of $476.3~~$8.3 million for the corresponding period in 2018. The nine months ended September 30, 2018 includes sales of $77.2 million from Filament for the period from March 2, 2018, the date of the acquisition. In constant currency, which excludes the impact of foreign exchange fluctuations, net sales increased $35.3 million, or 7.5 %, as compared to consolidated net sales in the corresponding period in 2018.

Net sales for the U.S. segment for the nine months ended September 30, 2019 were $445.3 million, an increase of $34.3 million, or 8.3%, as compared to net sales of $411.0 million for the corresponding period in 2018.

Net sales for the U.S. segment’s Kitchenware product category were $234.2 million for the nine months ended September 30, 2019, an increase of $5.8 million, or 2.6%, as compared to $228.4 million for the corresponding period in 2018. The increase was attributable to the inclusion of Filament for a full nine months in 2019, which added $11.3 million of net sales. Additionally, sale increases were driven by new program initiatives and increasing sales to the warehouse club channel, offset by lower sales for cutlery, bakeware, and pantryware products.

Net sales for the U.S. segment’s Tableware product category were $112.5 million for the nine months ended September 30, 2019, an increase of $0.7 million, or 0.7%, as compared to $111.8 million for the corresponding period in 2018. The increase is primarily related to higher e-commerce sales offset by sales in certain retailer programs, including close-outs, not repeating in 2019.

Net sales for the U.S. segment’s Home Solutions product category were $98.6 million for the nine months ended September 30, 2019, an increase of $27.8 million, or 39.3%, as compared to $70.8 million for the corresponding period in 2018. The increase was primarily attributable to the inclusion of Filament for a full nine months in 2019, which added $16.9 million of net sales. In addition, home décor sales increased as a result of new program initiatives.

Net sales for the International segment were $62.7 million for the nine months ended September 30, 2019, a decrease of $2.6 million, or 3.9%, as compared to net sales of $65.3 million for the corresponding period in 2018. In constant currency, which excludes the impact of foreign exchange fluctuations, net sales increased $0.9 million, or 1.4 %, as compared to consolidated net sales in the corresponding period in 2018. Both net sales and net sales in constant currency were negatively impacted by the slower fulfillment of orders as a result of warehouse consolidation efforts performed by the business.

~~Gross margin~~

~~Gross margin for the nine months ended September 30, 2019 was $171.3 million, or 33.7%, as compared to $171.0 million, or 35.9%, for the corresponding period in 2018.~~

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Gross margin for the U.S. segment was $149.9 million, or 33.7%, for the nine months ended September 30, 2019, as compared to $148.6 million, or 36.2%, for the corresponding period in 2018. The gross margin decrease reflects an $8.5 million charge for the SKU Rationalization initiative, offset by the $1.5 million non-recurring inventory step-up adjustment incurred in the comparative 2018 period. Excluding the SKU Rationalization and the step-up adjustment, gross margin would have been 31.2 % and 31.5 % in the 2019 and 2018 periods, respectively. The decrease was attributable to changes in customer and product mix.

The U.S. segment's gross margin was negatively impacted by higher tariff rates on products imported from China. This impact was partially offset by the devalued Chinese Yuan, cost concessions from vendors, packaging redesigns, and higher wholesale price points on affected inventory. Both the tariff environment and the vendor and customer community's response are highly dynamic, which can negatively or positively impact gross margin in future reporting periods.

Gross margin for the International segment was $21.4 million, or 34.1%, for the nine months ended September 30, 2019, as compared to $22.4 million, or 34.3%, for the corresponding period in 2018. The decrease was primarily attributable to changes in customer and product mix.

~~Distribution expenses~~

Distribution expenses for the nine months ended September 30, 2019 were $49.9 million, as compared to $49.4 million for the corresponding period in 2018. Distribution expenses as a percentage of net sales were 9.8% for the nine months ended September 30, 2019, as compared to 10.4% for the nine months ended September 30, 2018.

~~Distribution expenses as a percentage of net sales for the U.S. segment were approximately 7.1% and 8.3% for the nine months ended September 30, 2019 and 2018, respectively~~. Distribution expenses in the 2019 and 2018 periods include $0.2 million and $2.6 million, respectively, of costs related to the Company’s facility relocation efforts. As a percentage of sales shipped from the Company’s warehouses, distribution expenses, excluding the moving and relocation costs for the U.S. segment, were 10.3 % and 10.5 % for the nine months ended September 30, 2019 and 2018, respectively.

Distribution expenses as a percentage of net sales for the International segment were approximately 15.9% and 12.7% for the nine months ended September 30, 2019 and 2018, respectively. Distribution expenses as a percentage of sales shipped from the Company’s U.K. warehouses were 14.7 % and 13.2 % for the nine months ended September 30, 2019 and 2018, respectively.

~~Selling, general and administrative expenses~~

Selling, general and administrative expenses for the nine months ended September 30, 2019 were $118.4 million, a decrease of $3.9 million, or 3.1%, as compared to $122.3 million for the corresponding period in 2018.

Selling, general and administrative expenses for the U.S. segment were $85.7 million for the nine months ended September 30, 2019, as compared to $90.1 million for the nine months ended September 30, 2018. As a percentage of net sales, selling, general and administrative expenses were 19.2% and 21.9% for the nine months ended September 30, 2019 and 2018, respectively. The 2019 period reflects the synergy savings from the Filament acquisition, primarily from efficiencies in labor reduction initiatives and lower rent expense. The 2018 period includes Filament from the date of acquisition only.

Selling, general and administrative expenses for the nine months ended September 30, 2019 for the International segment were $17.6 million, an increase of $0.2 million, from $17.4 million for the corresponding period in 2018. The increase is primarily due to higher professional recruitment expenses in addition to lower market foreign exchange rate favorability experienced during the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2019.

Unallocated corporate expenses for the nine months ended September 30, 2019 were $15.1 million, as compared to $14.8 million for the corresponding period in 2018 mainly attributable to increased professional fees, partially offset by lower acquisition related expenses.

~~Impairment of Goodwill~~

During the third quarter of 2019, the Company’s qualitative assessment of goodwill indicated triggering events in its European kitchenware reporting unit, resulting in the Company performing a quantitative assessment, that resulted in a $9.7 million non-cash goodwill impairment charge. In the third quarter of 2018 the Company incurred a non-cash goodwill impairment charge of $2.2 million related to the European tableware business. As a result of the goodwill impairment charges taken in both the third

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~~quarter of 2019 and 2018, the Company wrote off to zero the amount of goodwill associated with the European kitchenware and tableware reporting units, acquired in 2014 and 2011, respectively.~~

Several impairment indicators for the European kitchenware business were considered by the Company including the continued uncertainties of the macro-environment in Europe as a result of the ongoing Brexit negotiations. In addition, the Company considered the decline in operating performance for the European kitchenware business, which included slower fulfillment of orders and labor inefficiencies associated with setting up the new warehouse in the U.K. While the warehouse consolidation and integration efforts were substantially complete as of September 30, 2019, the operational improvements anticipated from the consolidation of locations had not yet been fully realized as of September 30, 2019. These factors resulted in a decline in the long-term forecast for the European kitchenware business.

~~Interest expense~~

Interest expense for the nine months ended September 30, 2019 was $14.8 million, an decrease of $2.4 million, from $12.4 million for the nine months ended September 30, 2018. The decrease in interest expense was primarily attributable to the financing obtained in connection with the acquisition of Filament.

~~Income tax (provision) benefit~~

~~Income tax (provision) benefit for the nine months ended September 30, 2019 was $(6.8) million as compared to $4.7 million for the corresponding period in 2018.~~ The Company’s effective income tax ~~expense~~benefit rate for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~(30.0)%, which reflects a tax expense on a pretax book loss,~~2.2% as compared to ~~the effective income tax benefit rate of 27.8 %~~33.8% for the corresponding ~~2018~~2019 period. The effective tax rate for the ~~nine~~six months ended ~~September~~June 30, 2020 differs from the federal statutory income tax rate of 21.0% primarily due to the impact of the non-deductible portion of the goodwill impairment charge (recorded in the three months ended March 31, 2020) and other permanent items, partially offset by the benefit of losses in the foreign jurisdictions. The effective rate for the six months ended June 30, 2019 differs from the federal statutory income tax rate of ~~21%~~21.0% primarily due to state and local taxes and the impact of non-deductible expenses, offset by a benefit for federal credits. Included within the non-deductible expenses is the European goodwill impairment of $9.7 million recorded in the three months ended September 30, 2019, which is not deductible for income tax purposes in the foreign jurisdiction. The effective tax rate for the nine months ended September 30, 2018 reflects the reduced statutory U.S. corporate income tax rate, increased by state and local taxes and the impact of nondeductible expenses and offset by foreign taxes.expenses.

Equity in ~~(losses) earnings~~losses

Equity in ~~(losses) earnings~~losses of Vasconia, net of taxes, was ~~$(0.4)~~$0.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, as compared to equity in ~~(losses) earnings~~losses of Vasconia, net of taxes, of ~~$0.4~~$0.2 million for the ~~nine~~six months ended ~~September~~June 30, 2018. Equity in (losses) earnings for the nine months ended September 30, 2018 includes a deferred tax expense of $0.3 million due to the requirement to record tax benefits for foreign currency translation gains and losses through other comprehensive (loss) income, with a corresponding adjustment to deferred tax liabilities.2019. Vasconia reported income from operations of ~~$4.1~~$0.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, as compared to ~~$5.9~~income from operations of $4.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The decrease is primarily due to a decrease in operating income from Vasconia's aluminum and kitchenware division.

During the six months ended June 30, 2020, the Company recognized a loss of $0.2 million, relating to cumulative translation foreign currency losses that were recognized to earnings upon the dissolution of Lifetime Brands Do Brasil Participacoes Ltda., a 100% owned foreign subsidiary. The foreign currency translation losses related to the notes receivable due to the company from the 2016 sale of its equity interest in GS International S/A.

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LIQUIDITY AND CAPITAL RESOURCES

~~The~~Historically, the Company’s principal sources of cash to fund liquidity needs ~~are:~~were: (i) cash provided by operating activities and (ii) borrowings available under its revolving credit facility under the ABL Agreement, as defined below. The Company’s primary uses of funds consist of working capital requirements, capital expenditures, acquisitions and investments, and payments of principal and interest on its debt. As a result of the COVID-19 pandemic, there is the potential for reduced demand for the Company's products and limited distribution facility capacity. Consequently, the Company may not be able to generate cash from operations at the levels historically provided while operating under pandemic conditions.

At ~~September~~June 30, ~~2019,~~2020, the Company had cash and cash equivalents of ~~$4.8~~$63.5 million, compared to ~~$7.6~~$11.4 million at December 31, 2019. Working capital was $205.6 million at June 30, 2020, compared to $221.8 million at December 31, ~~2018. Working capital was $261.0 million at September 30, 2019, compared to $233.9 million at December 31, 2018.~~2019. Liquidity, which includes cash and cash equivalents and availability under the ABL Agreement, was approximately ~~$60.4~~$183.5 million at ~~September~~June 30, ~~2019.~~2020.

Inventory, a large component of the Company’s working capital, is expected to fluctuate from period to period, with inventory levels higher primarily in the June through October time period. The Company also expects inventory turnover to fluctuate from period to period based on product and customer mix. Certain product categories have lower inventory turnover rates as a result of minimum order quantities from the Company’s vendors or customer replenishment needs. Certain other product categories experience higher inventory turns due to lower minimum order quantities or trending sale demands. ~~In addition, recent tariff increases resulted in higher inventory carrying costs at September 30, 2019.~~ For the three months ended ~~September~~June 30, ~~2019,~~2020, inventory turnover was ~~2.6~~2.3 times, or ~~142~~157 days, as compared to ~~2.7~~1.8 times, or ~~137~~203 days, for the three months ended ~~September~~June 30, ~~2018.~~2019, as adjusted for the SKU Rationalization initiative. The improvement was a result of programs implemented by the Company ~~expects~~to improve the productivity of its inventory, including the SKU Rationalization initiative ~~to generate increased liquidity through~~implemented in the

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~~sale of inventory during the fourth~~ second quarter of ~~2019. Liquidation~~2019, along with an increase in consumer demand for certain products in the second quarter of ~~low-margin products should improve inventory turnover rates~~2020.

The Company believes that availability under the revolving credit facility under its ABL Agreement and ~~reduce overall carrying costs.~~cash flows from operations are sufficient to fund the Company’s operations for the next twelve months. However, if circumstances were to adversely change, the Company may seek alternative sources of liquidity including debt and/or equity financing. However, there can be no assurance that any such alternative sources would be available or sufficient.

The Company closely monitors the creditworthiness of its customers. Based upon its evaluation of changes in customers’ creditworthiness, the Company may modify credit limits and/or terms of sale. However, notwithstanding the Company’s efforts to monitor its customers’ financial condition, the Company could be materially adversely affected by changes in customers' creditworthiness in the future. Some of the Company’s customers may be adversely and materially affected by the COVID-19 pandemic.

Credit Facilities

The Company’s credit agreement (the “ABL Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan”), includes a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $150.0 million, which facility will mature on March 2, 2023, and a loan agreement (the “Term Loan” and together with the ABL Agreement, the “Debt Agreements”) which provides for a senior secured term loan credit facility in the original principal amount of $275.0 million, which matures on February 28, 2025. The Term Loan facility will be repaid in quarterly payments, which commenced June 30, 2018, of principal equal to $275.0 million, which will mature on February 28, 2025. The Term Loan facility will be repaid in quarterly payments, which commenced June 30, 2018, of principal equal to 0.25%of the original aggregate principal amount of the Term Loan facility. The Term Loan requires the Company to make an annual prepayment of principal based upon excess cash flow ~~(the “Excess~~(“Excess Cash Flow”), if any. This estimated amount is recorded in ~~the~~ current maturity of term loan on the unaudited condensed consolidated balance sheets. Additionally, the Term Loan facility requires quarterly payments, which commenced June 30, 2018, of principal equal to 0.25% of the original aggregate principal amount of the Term Loan facility. Per the Debt Agreements, when an Excess Cash Flow payment is made by the Company, the payment is first applied to satisfy the future quarterly required payments in order of maturity.

~~At September~~

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As of June 30, ~~2019~~2020 and December 31, ~~2018, borrowings outstanding under~~2019, the ~~ABL Agreement were $91.2 million and $42.1 million, respectively, and open letters of credit were $3.2 million and $3.4 million, respectively. At September 30, 2019,~~total availability under the ABL Agreement was approximately $55.6 million. Availability under the ABL Agreement depends on the valuation of certain current assets comprising the borrowing base. Due to the seasonality of the Company’s business, this may mean that the Company will have greater borrowing availability during the third and fourth quarters of each year. The borrowing capacity under the ABL Agreement will depend, in part, on eligible levels of accounts receivable and inventory that fluctuate regularly. Consequently, the $150.0 million commitment there under may not represent actual borrowing capacity.

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

September 30, 2019 December 31, 2018
Current portion of Term Loan facility:
Term Loan facility 2,750 2,750
Estimated Excess Cash Flow payment 3,000 —
Unamortized debt issuance costs (1,486) (1,497)
Total Current portion of Term Loan facility 4,264 1,253
Non Current portion of Term Loan facility:
Term Loan facility 265,125 270,188
Unamortized debt issuance costs (6,380) (7,493)
Total Non Current portion of Term Loan facility 258,745 262,695


	June 30, 2020		December 31, 2019
Maximum aggregate principal allowed	$	150,000	$	150,000
Outstanding borrowings under the ABL Agreement	(27,383)		(32,822)
Standby letters of credit	(2,677)		(2,288)
Total availability under the ABL Agreement	$	119,940	$	114,890

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


	June 30, 2020		December 31, 2019
Current portion of Term Loan facility:
Term Loan facility	$	—	$	2,750
Estimated Excess Cash Flow payment	15,000		7,145
Estimated unamortized debt issuance costs	(1,473)		(1,482)
Total Current portion of Term Loan facility	$	13,527	$	8,413

Non-current portion of Term Loan facility:
Term Loan facility payment, net of current portion	$	247,605	$	260,293
Estimated unamortized debt issuance costs	(5,268)		(6,012)
Total Non-current portion of Term Loan facility	$	242,337	$	254,281

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interest consists of (1) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and its domestic 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 and (2) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and its domestic 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~~ABL agreement bear interest, at the Company’s option, at one of the following rates: (i) 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 %~~0.5% or one-month LIBOR plus ~~1.0 %,~~1.0%, plus a margin of ~~0.25 %~~0.25% to ~~0.75 %,~~0.75%, or (ii) LIBOR plus a margin of ~~1.25 %~~1.25% to ~~1.75 %.~~1.75%. The respective margins are based upon the Company’s total leverage ratio, as defined in and computed pursuant to the ABL Agreement. ~~Interest rates~~The interest rate on outstanding borrowings under the ABL Agreement at ~~September~~June 30, ~~2019 ranged from 2.60 % to 6.00 %.~~2020 was 1.8%. In addition, the Company ~~paid~~pays a commitment fee of ~~0.250 % to 0.375 %~~0.375% on the unused portion of the ABL ~~Agreement during the nine months ended September 30, 2019.~~Agreement.

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(ii) LIBOR, but not less than 1%, plus a margin of ~~3.50 %.~~3.5%. The interest rate on outstanding borrowings under the Term Loan at ~~September~~June 30, ~~2019~~2020 was ~~5.60 %.~~4.5%.

The Company was in compliance with the covenants of the Debt Agreements at ~~September~~June 30, ~~2019.~~2020.

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

Covenant Calculations

Consolidated adjusted EBITDA (a non-GAAP financial measure), which is defined in the Company’s Debt Agreements, is used in the calculation of the Fixed Charge Coverage Ratio, Secured Net Leverage Ratio, Total Leverage Ratio and Total Net Leverage Ratio, which are required to be provided to the Company’s lenders pursuant to its Debt Agreements.

The following is the Company’s consolidated adjusted EBITDA, for the last four fiscal quarters:


	Consolidated adjusted EBITDA for the Four Quarters Ended ~~September~~June 30, ~~2019~~2020
	(in thousands)
Three months ended ~~September~~June 30, ~~2019~~2020	$	~~25,758~~
~~Three months ended June 30, 2019~~	~~4,306~~12,388
Three months ended March 31, ~~2019~~2020	~~6,127~~3,252
Three months ended December 31, ~~2018~~2019	~~30,876~~27,873
~~Pro forma projected synergies~~Three months ended September 30, 2019	~~2,523~~25,758
~~Consolidated adjusted EBITDA, before limitation~~	~~69,590~~
~~Permitted non-recurring charge limitation~~	~~(8,471)~~

Consolidated adjusted EBITDA	$	~~61,119~~69,271

Capital expenditures for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 were ~~$7.6~~$1.4 million.

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Non-GAAP financial measure

Consolidated adjusted EBITDA is a non-GAAP financial measure within the meaning of Regulation G and Item 10(e) of Regulation S-K, each promulgated by the Securities and Exchange Commission. This measure is provided because management of the Company uses this financial measure in evaluating the Company’s on-going financial results and trends, and management believes that exclusion of certain items allows for more accurate comparison of the Company’s operating performance by investors and analysts. Management also uses this non-GAAP information as an indicator of business performance. Consolidated adjusted EBITDA, as discussed above, is also one of the measures used to calculate financial covenants required to be provided to the Company’s lenders pursuant to its Debt Agreements.

Investors should consider this non-GAAP financial measure in addition to, and not as a substitute for, the Company’s financial performance measures prepared in accordance with U.S. GAAP. Further, the Company’s non-GAAP information may be different from the non-GAAP information provided by other companies including other companies within the home retail industry.

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The following is a reconciliation of the net ~~(loss) income,~~loss, as reported, to consolidated adjusted EBITDA, for the four quarters ended ~~September~~June 30, ~~2019:~~2020:

Three Months Ended Twelve Months Ended September 30, 2019
December 31, 2018 March 31,
2019 June 30,
2019 September 30,
2019
(in thousands)
Net (loss) income as reported $ 9,987 $ (4,867) $ (11,513) $ (13,519) $ (19,912)
Undistributed equity (earnings) losses, net (128) 116 69 210 267
Income tax (provision) benefit 7,558 (2,458) (5,795) 15,066 14,371
Interest expense 5,591 4,922 4,694 5,172 20,379
Depreciation and amortization 6,522 6,359 6,290 6,122 25,293
Impairment of goodwill — — — 9,748 9,748
Stock compensation expense 1,108 907 1,193 1,505 4,713
Contingent consideration fair value adjustment (1,774) — — — (1,774)
Unrealized gain on foreign currency contracts (33) — — — (33)
SKU Rationalization (1) — — 8,500 — 8,500
Acquisition related expenses and divestments 523 151 — — 674
Restructuring expenses (1) 971 608 173 338 2,090
Integration charges (1) 433 174 695 235 1,537
Warehouse relocation (1) 118 215 — 881 1,214
Projected synergies (2) — — — — 2,523
Consolidated adjusted EBITDA, before limitation $ 30,876 $ 6,127 $ 4,306 $ 25,758 $ 69,590
Permitted non-recurring charge limitation (1) (8,471)
Consolidated adjusted EBITDA $ 61,119


	Three Months Ended										Twelve Months Ended June 30, 2020
	September 30, 2019		December 31, 2019		March 31, 2020		June 30, 2020
	(in thousands)
Net loss as reported	$	(13,519)	$	(14,516)	$	(28,164)	$	(3,977)	$	(60,176)
Undistributed equity losses (earnings), net	210		(738)		(339)		848		(19)
Income tax provision (benefit)	15,066		(5,704)		(3,729)		3,031		8,664
Interest expense	5,172		5,590		4,736		4,230		19,728
Mark to market loss on interest rate derivatives	—		—		2,251		164		2,415
Depreciation and amortization	6,122		6,344		6,234		6,061		24,761
Goodwill and other impairments	9,748		33,242		20,100		—		63,090
Stock compensation expense	1,505		1,436		1,326		1,420		5,687




Acquisition and divestment related expenses	—		55		47		55		157
Restructuring expenses	338		316		—		253		907
Integration charges	235		159		—		—		394
Warehouse relocation	881		1,689		790		303		3,663

Consolidated adjusted EBITDA	$	25,758	$	27,873	$	3,252	$	12,388	$	69,271

~~(1)~~
~~Permitted non-recurring charges include SKU Rationalization, severance expense, warehouse relocation costs, transition expenses and restructuring expenses. These are permitted exclusions from~~

Consolidated adjusted EBITDA is a non-GAAP financial measure which is defined in the Company’s ~~consolidated~~debt agreements. Consolidated adjusted EBITDA ~~subject~~is defined as net income (loss), adjusted to ~~limitations, pursuant~~exclude undistributed equity in (earnings) losses, income tax (benefit) provision, interest expense, mark to market loss on interest rate derivatives, depreciation and amortization, goodwill and other impairments, stock compensation expense, and other items detailed in the ~~Company’s Debt Agreements.~~

~~(2)Projected synergies represents the amount of projected cost savings, operating expense reductions, restructuring charges and expenses and cost saving synergies projected~~table above that are consistent with exclusions permitted by the Company as a result of actions taken through September 30, 2019 or expected to be taken as of September 30, 2019, net of the benefits realized during the twelve months ended September 30, 2019. Projected synergies is a permitted exclusion from the Company’s consolidated adjusted EBITDA, subject to limitations, pursuant to the Company’s Debt Agreements.our debt agreements.

Accounts Receivable Purchase Agreement

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To improve its liquidity during seasonally high working capital periods, the Company has an uncommitted Receivables Purchase Agreement with HSBC Bank USA, National Association (“HSBC”) as Purchaser (the “Receivables Purchase Agreement”). Under the Receivables Purchase Agreement, the Company may offer to sell certain eligible accounts receivable (the “Receivables”) to HSBC, which may accept such offer, and purchase the offered Receivables. Under the Receivables Purchase Agreement, following each purchase of Receivables, the outstanding aggregate purchased Receivables shall not exceed $25.0 million. HSBC will assume the credit risk of the Receivables ~~purchased;~~purchased, and the Company will continue to be responsible for all non-credit risk matters. The Company will service the Receivables, and as such servicer, collect and otherwise enforce the Receivables on behalf of HSBC. The term of the agreement is for 364 days and shall automatically be extended for annual successive terms unless terminated. Either party may terminate the agreement at any time upon sixty days’ prior written notice to the other party.

Pursuant to this agreement, the Company sold to HSBC ~~$32.5~~$36.0 million and ~~$81.7~~$73.9 million of receivables during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, and ~~$20.7~~$24.1 million and ~~$59.4~~$49.2 million of receivables during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively. Charges of ~~$0.2 million and $0.4~~$0.1 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the three ~~and nine~~ months ended ~~September~~June 30, ~~2019, respectively.~~2020 and June 30, 2019. Charges of ~~$0.1 million and~~ $0.3 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the ~~three and nine~~six months ended ~~September~~June 30, ~~2018, respectively.~~2020 and June 30, 2019. At ~~September~~June 30, 2020 and 2019, ~~and September 30, 2018, $17.8~~$20.8 million and ~~$13.6~~$14.8 million , respectively, of receivables sold were outstanding and ~~are~~ due to HSBC ~~Bank USA~~ from customers.

Derivatives

Interest Rate Swaps

The Company is a party to interest rate swap agreements, with an aggregate notional value of ~~$100.0~~$75.0 million at ~~September~~June 30, ~~2019. The Company~~2020, designated ~~the interest rate swaps~~ 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. The hedge periods of these agreements commenced in April 2018 and expire in March 2023. The notional amounts are reduced over these periods. ~~In June 2019, the~~

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The Company entered into ~~new~~additional interest rate swap agreements, with an aggregate notional value of $25.0 million at ~~September~~June 30, ~~2019. These~~2020 that do not meet the criteria for hedge accounting treatment. As a result, these interest rate swap agreements are considered non-designated interest rate swaps that serve as ~~cash flow~~economic hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings and expire in February 2025.

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

Foreign Exchange Contracts

The Company ~~has also entered into~~is a party from time to time to certain foreign exchange contracts, primarily to ~~primarily~~ offset the earnings impact related to fluctuations in foreign currency exchange rates associated with ~~sales and~~ inventory purchases denominated in foreign currencies. ~~Beginning~~Fluctuations in the value of certain foreign currencies as compared to the U.S. dollar 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 ~~January 29, 2019, these~~earnings. The Company purchases short-term (i.e. 12 months or less) foreign currency forward contracts 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 Company's foreign exchange contracts, ~~have~~that had been ~~designated~~designed as hedges ~~as required~~ in order to apply hedge accounting, ~~and accordingly,~~matured in April 2020. As of June 30, 2020 the Company did not have any outstanding foreign exchange contracts.

The Company is exposed to market risks as well as changes in foreign currency exchange rates as measured against the ~~fair value~~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 ~~recorded in accumulated other comprehensive loss in~~components of hedging programs and are entered into for the ~~unaudited condensed consolidated statements~~sole purpose of ~~stockholders equity. Prior to January 29, 2019, these~~hedging an existing or anticipated currency exposure. The Company does not enter into such contracts for speculative purposes and as of June 30, 2020, the Company does not have any foreign ~~exchange contracts were~~currency forward contract derivatives that are not designated as ~~hedges as required in order to apply hedge accounting. The changes in the fair value of these contracts were recorded in the unaudited condensed consolidated statements of operations.~~hedges.

Operating activities

Net cash ~~used in~~provided by operating activities was ~~$40.0~~$66.2 million and $7.1 million for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, respectively. The change in 2020 as compared to ~~net cash used in operating activities of $30.4 million for~~ the corresponding ~~2018 period. The change from~~ 2019 ~~as compared to 2018~~period was primarily attributable to inventory reduction initiatives commencing in the second quarter of 2019, the timing of collections related to the Company's accounts ~~receivable.~~receivable, in addition to cost savings initiatives and payment deferral strategies utilized in response to the COVID-19 pandemic.

Investing activities

Net cash used in investing activities was ~~$7.6~~$1.4 million and ~~$222.9~~$3.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~2018 investing activity includes~~change in 2020 as compared to the ~~cash consideration paid for~~corresponding 2019 period was primarily attributable to higher capital expenditures in the ~~acquisition of Filament of $217.5 million.~~2019 period resulting from the Company's U.K. reorganization and warehouse consolidation efforts.

Financing activities

Net cash provided by financing activities was $44.9 million for the nine months ended September 30, 2019, as compared to net cash provided by financing activities of $251.7 million for the corresponding 2018 period. The changeused in financing activities was $12.3 million and $0.5 million for the six months ended June 30, 2020 and 2019, respectively. The change was mainly attributable to repayments on the ~~new Debt Agreements entered into~~Company's revolving credit facility under its ABL Agreement and the Company's term loan in ~~order to finance the acquisition of Filament in 2018.~~

2020.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes in market risk for changes in foreign currency exchange rates and interest rates from the information provided in Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the ~~2018~~2019 Annual Report on Form 10-K.

Item 4. Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of ~~September~~June 30, ~~2019,~~2020, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed by it under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in Internal Controls

The Company implemented the new lease standard under ASC 842 as of January 1, 2019. In connection with these changes, the Company implemented certain modifications to internal controls over financial reporting, including the documentation of the policy regarding the new accounting for leases, implementation of processes to address various judgments and assessments necessary during the life of a lease, as well as implementing new controls to capture the expanded disclosures required under ASC 842.

~~Except as described above, there have been~~There were no ~~other~~ changes in the Company’s internal controls over financial reporting that occurred during the Company’s most recent fiscal quarter ~~ended September 30, 2019~~ that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, the Company’s internal ~~control~~controls over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the effects that the COVID-19 pandemic may have on our internal controls to minimize the impact on their design and operating effectiveness.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Wallace EPA Matter

In May 2008, WSPR received from the EPA a Notice of Potential Liability and Request for Information pursuant to 42 U.S.C.

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second operable unit under which the EPA has and will continue to conduct further investigations to determine the nature and extent of groundwater contamination, as well as a determination by the EPA on the necessity of any further response actions to address groundwater contamination. In February 2017, the EPA indicated that it planned to expand its field investigation for the RI/FS to a second operable unit to further determine the nature and extent of the groundwater ~~damage~~contamination at and from the Site and to determine the nature of the remedial action ~~needed.~~needed to address the contamination. The EPA has requested access to the property occupied by WSPR to install monitoring wells and to undertake groundwater sampling as part of this expanded investigation. WSPR has consented to the EPA’s access request, ~~subject to~~provided that the EPA receives 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.

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including monitoring of the plume fringe at the Site. The EPA’s estimated total net present worth cost for its selected remedy is $17.3 ~~million~~million.

WSPR never used the primary constituents of concern and did not take up its tenancy at the Site until after EPA had discovered the damage to the local water supply. The EPA has also issued notices of potential liability to numerous other entities affiliated with the Site, which used the constituents of concern. Accordingly, based on the above uncertainties and variables, it is not possible at this time for the Company to estimate its share of liability, if any, related to this matter. However, in the event of one or more ~~definitive claims because of property damage asserted against the Company and~~ 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

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.

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

Other

Item 1A. Risk Factors

~~There have been no material changes~~In light of recent developments relating to COVID-19, the Company is supplementing Item 1A. Risk Factors in the ~~Company’s risk factors from those disclosed in the Company’s 2018~~2019 Annual Report on Form 10-K. The following risk factor should be read in conjunction with the risk factors described in the 2019 Annual Report on Form 10-K.

The Company must successfully manage the demand, supply, and operational challenges associated with the actual or perceived effects of the COVID-19 pandemic. Any failure to do so could have a material adverse impact on the Company’s business, financial condition, results of operations, cash flows, and competitive position.

The COVID-19 pandemic has negatively impacted the global economy and disrupted global supply chains. Continuing concerns over economic and business prospects in the U.S. and other countries have contributed to increased volatility and diminished expectations for the global economy. These factors, coupled with the prospect of decreased business and consumer confidence and increased unemployment resulting from the outbreak of COVID-19, may precipitate a prolonged economic slowdown and recession.

The Company’s business may be unfavorably impacted by the fear of exposure to or actual effects of the COVID-19 pandemic, such as reduced travel or recommendations or mandates from governmental authorities to cease particular business activities.

These impacts include, but are not limited to:

•Reductions in demand or volatility in demand for one or more of the Company’s products, which may be caused by, among other things: the temporary inability of consumers to purchase the Company’s products due to illness, brick and mortar retailers closing their store operations, which has resulted in reduced demand from such customers, quarantine or other travel restrictions, or financial hardship for customers and consumers;

•Inability to meet the Company’s customers’ needs and achieve cost targets due to disruptions in the Company's supply chain arrangements as well as distribution centers caused by the loss or disruption of transportation, workforce, or other distribution capability;

•Failure of third parties on which the Company relies, including the Company’s suppliers, third-party manufacturers, distributors, and external business partners, to meet their obligations to the Company, including due to a lack of manufacturing capacity, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties;

•Significant changes in the political and labor conditions in markets in which the Company sells, or distributes products, including quarantines, governmental or regulatory actions, closures or other restrictions that limit or close the Company’s distribution facilities, restrict the Company’s employees’ ability or willingness to travel or perform necessary business functions, or otherwise prevent the Company's facilities or its third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of the Company's products;

•Increased cybersecurity threats that could result from many of the Company’s key employees working remotely; new and preexisting technologies such as reliance on home networks, virtual workspaces, videoconferencing, and other forms of remote work practices to support this temporary working environment may expose additional cybersecurity threats and vulnerabilities to the Company's network, and increase the exposure of the Company to electrical or internet outages; or

•Negative impact on the Company’s workforce that could result if executive officers or other key employees or a large number of its workers fall ill.The temporary or permanent loss of any of the Company’s executive officers or other key employees could harm the Company’s business and negatively affect the Company’s ability to timely achieve its strategic initiatives.Moreover, the Company may not be successful in finding and integrating suitable successors in

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the event of the loss of executive officers or other key employees or if such persons become unavailable for a prolonged period of time.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. The Company does not yet know the full extent of the impact of COVID-19 on the global economy. Although disruptions from COVID-19 may continue to occur, the long-term economic impact and near-term financial impact on the Company of the COVID-19 pandemic, including but not limited to, any possible impairment, restructuring, and other charges, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments. Despite efforts to manage and remedy the impact of COVID-19, the ultimate impact of COVID-19 could materially and adversely affect the Company’s business, financial condition, results of operations, cash flows, and competitive position, and depends on factors beyond the Company’s knowledge or control, including the duration and severity of COVID-19 as well as third-party actions taken to contain its spread and mitigate its public health effects.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities


Period	Total number of shares purchased⁽¹⁾	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs⁽²⁾	Maximum approximate dollar value of shares that may yet be purchased under the plans or programs subsequent to end of period ⁽²⁾
May 1 - May 31, 2020	249	$	4.84	—	$	6,771,467
June 1 - June 30, 2020	26,348	7.07		—	6,771,467

(1)The repurchased shares were acquired other than as part of a publicly announced plan or program. The Company repurchased these securities in connection with its Amended and Restated 2000 Long Term Incentive Plan which allow participants to use shares to satisfy the exercise price of options exercised, certain tax liabilities arising from the exercise of options, and certain tax liabilities arising from the vesting of restricted stock. The number above does not include unvested shares forfeited back to us pursuant to the terms of our stock compensation plans.

(2)On April 30, 2013, the Board of Directors of Lifetime Brands, Inc. authorized the repurchase of up to $10.0 million of the Company’s common stock. The repurchase authorization permits the Company to effect the repurchases from time to time through open market purchases and privately negotiated transactions. No repurchases occurred during the three months ended June 30, 2020.

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Item 6. Exhibits

See the Exhibit Index below, which is incorporated by reference herein.

Exhibit Index


Exhibit No.
10.1			Amended and Restated ~~Employment Agreement dated October 11, 2019 between Lifetime Brands, Inc.~~2000 Long-Term Incentive Plan (filed as Appendix B to the Registrant's Definitive Proxy Statement on Schedule 14A, filed on April 29, 2020 and ~~Taylor Parent, LLC (incorporated~~incorporated by reference ~~from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 15, 2019)~~herein).
~~10.2~~		Amended and Restated Employment Agreement dated October 11, 2019 between Lifetime Brands, Inc. and Robert B. Kay (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed October 15, 2019)
~~10.3~~	Amended and Restated Employment Agreement dated October 11, 2019 between Lifetime Brands, Inc. and Jefferey Siegel (incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed October 15, 2019)
~~10.4~~	Amended and Restated Employment Agreement dated October 11, 2019 between Lifetime Brands, Inc. and Laurence Winoker (incorporated by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed October 15, 2019)
~~10.5~~	Amended and Restated Employment Agreement dated October 11, 2019 between Lifetime Brands, Inc. and Daniel Siegel (incorporated by reference from Exhibit 10.5 to the Company’s Current Report on Form 8-K filed October 15, 2019)
~~10.6~~	Amended and Restated Employment Agreement dated October 11, 2019 between Lifetime Brands, Inc. and Jefferey Siegel (incorporated by reference from Exhibit 10.6 to the Company’s Current Report on Form 8-K filed October 15, 2019)
31.1		Certification by Robert B. Kay, Chief Executive Officer and Director, pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification by Laurence Winoker, Senior Vice President – Finance, Treasurer and Chief Financial Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification by Robert B. Kay, Chief Executive Officer and Director, and Laurence Winoker, Senior Vice President – Finance, Treasurer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase Document


101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL and contained in Exhibit 101

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			Lifetime Brands, Inc.

			/s/ Robert B. Kay			~~November 7, 2019~~August 6, 2020
			Robert B. Kay
			Chief Executive Officer and Director
			(Principal Executive Officer)

			/s/ Laurence Winoker			~~November 7, 2019~~August 6, 2020
			Laurence Winoker
			Senior Vice President – Finance, Treasurer and Chief Financial Officer
			(Principal Financial and Accounting Officer)

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	September 30, 2019		December 31, 2018
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	4,761	$	7,647
Accounts receivable, less allowances of $9,345 at September 30, 2019 and $7,855 at December 31, 2018	161,935		125,292
Inventory	229,947		173,601
Prepaid expenses and other current assets	9,842		10,822
Income taxes receivable	—		1,442
TOTAL CURRENT ASSETS	406,485		318,804
PROPERTY AND EQUIPMENT, net	28,229		25,762
OPERATING LEASE RIGHT-OF-USE ASSETS	108,323		—
INVESTMENTS	20,347		22,582
INTANGIBLE ASSETS, net	316,343		338,847
DEFERRED INCOME TAXES	80		733
OTHER ASSETS	3,925		1,844
TOTAL ASSETS	$	883,732	$	708,572
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES

Current maturity of term loan	$	4,264	$	1,253
Accounts payable	67,784		38,167
Accrued expenses	58,252		45,456
Income taxes payable	4,420		—
Current portion of operating lease liabilities	10,741		—
TOTAL CURRENT LIABILITIES	145,461		84,876
DEFERRED RENT & OTHER LONG-TERM LIABILITIES	10,987		23,339
DEFERRED INCOME TAXES	14,947		15,141
OPERATING LEASE LIABILITIES	113,506		—
INCOME TAXES PAYABLE, LONG-TERM	949		949
REVOLVING CREDIT FACILITY	91,212		42,080
TERM LOAN	258,745		262,694
STOCKHOLDERS’ EQUITY
Preferred stock, $1.00 par value, shares authorized: 100 shares of Series A and 2,000,000 shares of Series B; NaN issued and outstanding	—		—
Common stock, $0.01 par value, shares authorized: 50,000,000 at September 30, 2019 and December 31, 2018; shares issued and outstanding: 21,256,793 at September 30, 2019 and 20,764,143 at December 31, 2018	213		208
Paid-in capital	261,959		258,637
Retained earnings	22,634		55,264
Accumulated other comprehensive loss	(36,881)		(34,616)
TOTAL STOCKHOLDERS’ EQUITY	247,925		279,493
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	883,732	$	708,572


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
U.S. Segment
Kitchenware	$	99,257	$	234,149
Tableware	57,332		112,543
Home Solutions	38,610		98,637
Total U.S. Segment	195,199		445,329
International Segment
Kitchenware	16,406		42,918
Tableware	3,897		19,717
Total International Segment	20,303		62,635
Total net sales	$	215,502	$	507,964
United States	179,565		417,657
United Kingdom	13,985		44,697
Rest of World	21,952		45,610
Total net sales	$	215,502	$	507,964


	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
	(in thousands, except per share data)
Net sales	$	209,448	$	502,079
Income (loss) before income taxes and equity in earnings (losses)	6,956		(15,416)
Net income (loss)	6,145		(10,671)
Basic and diluted income (loss) per common share	0.30		(0.52)


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease costs:
Fixed	$	4,796	$	13,927
Total	$	4,796	$	13,927


	Three Months Ended										Twelve Months Ended September 30, 2019
	December 31, 2018		March 31, 2019		June 30, 2019		September 30, 2019
	(in thousands)
Net (loss) income as reported	$	9,987	$	(4,867)	$	(11,513)	$	(13,519)	$	(19,912)
Undistributed equity (earnings) losses, net	(128)		116		69		210		267
Income tax (provision) benefit	7,558		(2,458)		(5,795)		15,066		14,371
Interest expense	5,591		4,922		4,694		5,172		20,379
Depreciation and amortization	6,522		6,359		6,290		6,122		25,293
Impairment of goodwill	—		—		—		9,748		9,748
Stock compensation expense	1,108		907		1,193		1,505		4,713
Contingent consideration fair value adjustment	(1,774)		—		—		—		(1,774)
Unrealized gain on foreign currency contracts	(33)		—		—		—		(33)

SKU Rationalization (1)	—		—		8,500		—		8,500
Acquisition related expenses and divestments	523		151		—		—		674
Restructuring expenses (1)	971		608		173		338		2,090
Integration charges (1)	433		174		695		235		1,537
Warehouse relocation (1)	118		215		—		881		1,214
Projected synergies (2)	—		—		—		—		2,523
Consolidated adjusted EBITDA, before limitation	$	30,876	$	6,127	$	4,306	$	25,758	$	69,590
Permitted non-recurring charge limitation (1)									(8,471)
Consolidated adjusted EBITDA									$	61,119