Lifetime Brands(US:LCUT)2023-03-09 22:21Business Segments and Operations - The Company operates in two reportable segments: U.S. and International, with the U.S. segment focusing on domestic operations and the International segment covering operations outside the U.S.[38] - The Company has a significant international presence, with subsidiaries in the U.K., China, and Mexico, and a strategic alliance for distribution in Canada[32][33]. - The Company operates distribution facilities totaling over 1.8 million square feet across various locations, including Rialto, California (703,000 sq ft) and Robbinsville, New Jersey (700,000 sq ft)[44]. - The company employs approximately 1,260 full-time employees, with 910 located in the U.S. and Puerto Rico[54]. - The Company sources almost all of its products from suppliers outside the U.S., primarily in China, and has a facility in Puerto Rico for manufacturing sterling silver products[36]. Customer Base and Sales - The Company has a diverse customer base, including mass market merchants like Walmart and Target, specialty stores, department stores, and e-commerce platforms such as Amazon[41]. - In 2022, Walmart accounted for 19% of consolidated net sales, while Costco and Amazon accounted for 13% and 11%, respectively[43]. - The company's U.K. operations generated net sales of $45.7 million in 2022, representing approximately 6% of consolidated net sales[66]. - The company has a significant reliance on major customers, with Walmart accounting for 19% of consolidated net sales, Costco for 13%, and Amazon for 11% during the year ended December 31, 2022[104]. - Changes in purchasing practices by large customers could adversely affect the company's operating results and financial condition, increasing credit risk and reducing demand[105]. Product and Brand Management - The Company sells products under several well-known brands, including Mikasa (owned), KitchenAid (licensed), and Farberware (licensed), across various product categories[35]. - The Company holds a fully-paid, royalty-free license for the Farberware brand, which represents a material portion of its sales, expiring in 2195[53]. - In 2022, sales of licensed brands accounted for approximately 14% of the Company's gross sales, indicating a significant reliance on third-party licenses[119]. - New product development is critical for the company's growth strategy, and failure to introduce competitive products could adversely affect performance and future growth prospects[111]. - The Company may face challenges in renewing its KitchenAid brand license, which expires in December 2026, potentially impacting its sales[121]. Financial Position and Debt - The Company has substantial indebtedness, and its highly seasonal business impacts its borrowing needs and financial position[18]. - As of December 31, 2022, the Company had $256.3 million of consolidated debt outstanding under a senior secured term loan credit facility[75]. - The Company's credit agreement allows for a maximum aggregate principal amount of $200.0 million, maturing on August 25, 2027[76]. - Borrowings under the Debt Agreements represented approximately 35% of total capital as of December 31, 2022[76]. - The Company may face significant negative consequences due to its leverage and seasonal fluctuations in cash flow, impacting its ability to meet financial covenants[78]. Risks and Challenges - The Company faces various risks, including macroeconomic factors, supply chain disruptions, and competition, which could materially affect its financial results[18][23]. - The Company is subject to regulatory compliance requirements, and non-compliance could adversely affect its operations and financial condition[28]. - The company is exposed to intense competition, which could lead to loss of market share and necessitate price reductions to remain competitive[98]. - The Company is subject to various risks, including inflation in supply chain costs and potential impacts from geopolitical conditions such as the military conflict in Ukraine[65]. - The Company has experienced supply chain disruptions due to limited container capacity and increased demand, impacting its ability to meet customer obligations[117]. Operational and Market Risks - The Company aims to manage operational challenges related to the ongoing COVID-19 pandemic and other health issues to mitigate adverse impacts on its business[18]. - The Company is subject to transportation risks, including increases in fuel costs and disruptions due to geopolitical conflicts, which could adversely affect its business operations[113]. - The Company conducts business internationally, exposing it to risks from fluctuations in foreign currency exchange rates and regulatory compliance issues[129]. - The Company may need to seek alternate sources of supply if its operations are curtailed, which could be more expensive and lead to delays[118]. - The Company is transitioning to cloud-based technologies, which may expose it to additional cyber threats during the migration process[144]. Financial Management and Market Risk - The Company entered into foreign exchange derivative contracts to hedge against volatility in exchange rates related to international inventory purchases[89]. - The Company assesses market risk using sensitivity analysis based on hypothetical changes of 10% or 100 basis points in interest and foreign currency exchange rates[279]. - The Company does not hedge the translation of foreign currency profits into USD, viewing it as an accounting exposure[281]. - A hypothetical 10% change in exchange rates would result in an increase of approximately $0.9 million in SG&A expenses[280]. - A hypothetical 100 basis point increase in variable interest rates would increase interest expense by approximately $2.6 million over a twelve-month period[283]. Compliance and Regulatory Environment - The Company is subject to increasing regulatory standards for data protection, such as GDPR and the California Consumer Privacy Act, which could result in legal and reputational risks[143]. - The Company operates in a regulated environment with significant compliance requirements, which if violated, could materially adversely affect its business[133]. - Non-compliance with anti-corruption laws could lead to regulatory sanctions and adversely affect the Company's business and financial condition[133]. - The Company is subject to various laws and regulations governing the Internet and e-commerce, which may impede growth and increase operational costs[134]. Human Resources and Management - The loss of key executives and skilled employees could adversely affect the Company's ability to achieve its strategic initiatives[148]. - The Company has significant influence from Taylor Parent due to its acquisition, which may lead to conflicts of interest[149]. - Taylor Parent holds significant control over the Company, requiring its approval for major actions, including incurring debt over $100 million and asset transactions exceeding $100 million[150].