Lifetime Brands Inc (LCUT) 2010 Q4 法說會逐字稿

Welcome to the Lifetime Brands' Fourth Quarter 2010 Earnings Conference Call. At this time, all participants are in a listen only mode. Following management's prepared remarks we will hold a Q & A session.

(Operator Instructions) As a reminder, this conference is being recorded, Thursday, March 10, 2011. I would now like to turn the conference over to Harriet Fried of LHA. Please go ahead, ma'am.

Good morning, everyone, and thank you for joining Lifetime Brands Fourth Quarter and Year End 2010 conference call. With us today from management are Jeff Siegel, Chairman, President, and Chief Executive Officer, and Larry Winoker, Senior Vice President and Chief Financial Officer. Before we begin, I'll read the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The statements that are about to made in this conference call that are not historical facts, are forward-looking statements, and involve risks and uncertainties, including the Company's ability to comply with the requirements of its credit agreements, the availability of funding under those credit agreements.

The Company's ability to maintain adequate liquidity and financing sources, and an appropriate level of debt. Changes in general economic conditions, which could affect customer pay and practices, or consumer spending. Changes in demand for the Company's products. Shortages of and price volatility for certain commodities. The effective competition on the Company's markets, and other risks detailed in Lifetime's filing with the Securities and Exchange Commission.

The Company undertakes no obligation to update these forward-looking statements. The Company's earnings release contains non-GAAP financial measures within the meaning of regulation G, promulgated by the SEC. Included in this morning's release is a reconciliation of these non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. With that introduction, I would like to turn the call over to Mr. Siegel. Please go ahead, Jeff.

Thanks, Harriet. Good morning, everyone, and thank you for joining us this morning. As you saw in this morning's press release, we had a very successful fourth quarter with strong growth in both top and bottom line. Net sales in the quarter increased 11% over last year's quarter. Even more than we had forecast when we spoke in November.

On an adjusted basis, earnings per share were up 50% over 2009's fourth quarter. Our results for the full year were also very strong, with a 6.8% increase in net sales, and a 200% increase in adjusted EPS.Each part of our business recorded an improvement in profitability in 2010. A trend that we expect to continue in 2011. We continue to execute the key elements of our strategic plan which we put in place in 2009. These include increasing market share in each of our product categories, (inaudible) controlling our SG&A and distribution expenses, and strengthening our balance sheet.

Our growth in 2010, came as a result in increasing market share within our established customer base, which is especially important in mature sectors like housewares, and at times of economic uncertainty. Overall, we view 2010 as a transitional year. Our product development efforts have been significantly enhanced through our open innovation initiative. In addition to our almost 100 in-house designers, we now have a network of thousands of so-called garage inventers, providing us with a steady stream of great new ideas. in fact, in 2010, we screened more than 1,000 inventions submitted by this group, and brought several major product launches to market. There will be many new arrivals in 2011 and beyond.

Although our input costs increased in 2010, especially for raw materials, we were able to maintain our gross margins. We are actively redesigning many of out products to mitigate the effects of increased input costs. This is something we have done many times over the years, and we're very skilled at. In addition, in some cases, we're moving to suppliers with lower labor costs. We currently source from many countries in Asia, including China, Indonesia, India, Thailand, Vietnam, and Japan, as well as from eastern Europe. As costs go up in one country, we are sometimes able to move production to other countries where costs are lower at the time.

We also have been selectively raising our prices with the goal of keeping our margins neutral, as well as the margins of our retail partners. Brand and innovation continues to be the driving force in our market share gains, and is the primary reason we are able to maintain margins in each of our product categories. For 2011, we have stepped up our innovation initiatives, which are critical to our ability to counter increases in raw materials, labor, transportation, and exchange rates. More than anything else, our progress in the last two years is a result of the dedication of our employees, and the strong leadership we have in place in each of our key product areas, and support groups.

In our retail direct segment, our Mikasa website and our new Lifetime Sterling and housewares deals websites, all contributed to our sales growth. It is important to note that the Mikasa website has become the key reference site for many consumers looking for dinnerware, glass ware, and flatware, even if they later make their purchases from other retailers. This week we once again participated in the International Home and Housewares Show in Chicago.

We displayed more new products than at any time in our history, and I have to say is they were very, very well-received. Our group was far more crowded than it has ever been in the past, and our offerings were enthusiastically received. Retailers are well aware of the increase in input costs, and they know that a key part of the answer to them to maintain their margins will be for them to embrace new products, and we're the king of new products in housewares.

This show also allowed us to show for the first time some new product categories, that have great potential for us, as well as some new line extensions and ideas. New product categories include food storage, one of the largest categories of housewares, in which we previously did not participate. Plus porcelain and Abo cast iron cookware, and a vastly expanded selection of ceramic kitchen knives, which are the future of cutlery. All are very well received, and we received commitments from retailers, and key retailers, to add these lines in the third and fourth quarters of this year. In addition, we showed a new line of whimsical fun kitchen gadgets, that were enthusiastically received, and will be a great compliment to our other kitchen gadget lines.

Two very interesting initiatives were also launched at the show. The first is our new B to B site. Specifically targeted to independent retailers.There are thousands and thousands of independent housewares and tabletop retailers in America, and this site will be the cornerstone of our efforts to reach those retailers who have we ignored in the past.

The second initiative is our home-grown ID8 computer design system, which dramatically reduces the time needed to design a complete kitchen gadget line by three to four months.This will primarily be used to facilitate the launch of new exclusive and private label gadget lines, which retailers are asking are us for. The key retailers who were shown this system were shocked at the speed in which we could design a product. We will be expanding the use of this system to other categories of merchandise in the near future.

We are also very pleased with the performance Grupo Vasconia, in which we have a sizable investment. They continue to grow their sales at rate that far exceeds ours, and are now actively expanding their distribution into other Latin American countries. Although we are not displeased with the progress we are making in the US, we intend to explore opportunities outside the US that can help us to accelerate our growth. In no event will we allow these opportunities to distract us from our primary goal of increasing our sales and profits in our US business.

With regards to the balance sheet, in the fourth quarter, we were able to resume our inventory reduction efforts, which we put on hold earlier in the year so that we could ship our customers holiday merchandise in a timely fashion despite the various shipping challenges that the industry was facing. We believe there are still some opportunities to reduce inventories in certain categories, though not to the extent we have done in the past.Finally, we are very pleased to announce this morning that our board of directors reinstated a quarterly cash dividend in the amount of $0.025 per common share. Lifetime brands has made an enormous amount of progress over the last two years. In addition to offering trusted bands, and outstanding design, and significant values, our company is now operationally effective and financially solid.

I am delighted that we can reward our shareholders through a dividend program, and want to again thank our employees for their many contributions. They have been instrumental in this transformation. Based on what we've seen the last few months, as well as the fantastic response to our new offerings at the housewares show, we expect to see continued improvement in 2011. Once again, the major part of our growth will come in the second half, as we roll out our key programs and items for 2011. I don't think I've ever been more enthusiastic about the future of our company. I would like to now turn the call over to Larry for a more detailed review of our financial results.

Thanks, Jeff. As we reported earlier this morning, net income for the current quarter was $13.9 million, or $1.07 per diluted share, as compared to net income to of $5 million, or $0.41 per diluted share in 2009. Net income for the 2010 quarter included a benefit for the reduction in the deferred income tax valuation allowance, and an extraordinary gain on the elimination of negative good will related to the 2008 acquisition of the Mikasa business. Both of these items are infrequent and non-cash in nature. The fourth quarter of 2009 included restructuring expenses, and an income tax benefit on the utilization of the losses incurred during the first half of 2009.

Excluding these items for each period, adjusted net income was $8.1 million, or $0.63 per diluted share for the 2010 quarter, and $5.1 million or $0.41 per diluted share for the 2009 quarter. Reconciliation of net income to adjusted net income, was provided in this morning's release. Income from operations was $14.5 million in 2010, compared to $11.7 million, excluding restructuring charges, in the 2009 period. EBITDA, which is a non-GAAP measure, and is defined and reconciled to net income in our release, was $17.5 million for the 2010 quarter, and $15.6 million in the 2009 quarter. EBITDA was $42.9 million for the full year of 2010, and $32 million for the full year 2009.

Looking at our wholesale segment. Net sales in the fourth quarter were $131.4 million, an increase of $13.2 million, or 11.2%. The increase reflects volume growth to many of our major retail customers. The wholesale segment gross margin declined to 36% in 2010 quarter versus 37.4% last year. The decrease was attributable primarily to a change in sales mix, as a greater percentage of sales was shipped directly from overseas suppliers. Such sales are generally at a lower margin, as the merchandise is not passed through our distribution facilities. This gross margin of 36% for the quarter was in line with our estimate given to you on our last call, and approximated full year rate.

Wholesale distribution expense as a percentage of net sales was 7.7% in the 2010 quarter, compared to 8.1% last year. The 2010 period improvement reflects higher sales volume shipped directly from overseas suppliers. Wholesale SG&A in the quarter was $19.1 million. A decrease of 1.5% from last year, and, as a percentage of net sales, SG&A declined to 14.5% from 16.4% last year. This decrease reflects the benefit derived from our cost control practices and the scale of our infrastructure to manage increased business activities. Turning to our retail direct segment, net sales for this segment was $11.2 million in the 2010 period, compared to $9.9 million in 2009. The increase was primarily due to growth from the Mikasa website, and sales from our new Lifetime Sterling and housewares deals websites. The increase was partially offset by higher promotional activities, primarily free shipping.

Retail direct gross margin decreased to 64.5% from 71.9% last year, due to the free shipping and other promotional activities. This segment distribution expense were approximately 30% for the current quarter, compared to 29% last year, and its SG&A was approximately $3.9 million in both periods. With respect to non-segment items, unallocated corporate expenses declined to $3.4 million for the fourth quarter of this year, as compared to $3.8 million in the 2009 period, due to lower legal and consulting fees.

Interest expense also declined to $2.2 million, from $4.1 million in 2009. The decline reflects lower average borrowings during the current quarter, and an interest rate reduction as a result of our June 2010 debt refinancing. The effective income tax rate for the 2010 quarter was 13%, versus 22.5% in the 2009 period. As I commented earlier, the 2010 quarter included a benefit with reduction in deferred income tax valuation allowance, and the 2009 quarter reflects an income tax benefit on the utilization of losses incurred during the first half of 2009. Grupo Vasconia, our 30% owned investee, continued its very strong 2010 performance through the fourth quarter. Income was up for the fourth quarter of 2010 by 37% on significantly higher sales.

Turning to our financial position. At year-end 2010, the outstanding balance on our revolving credit facility was $14.1 million. The remaining $24.1 million principal amount of convertible notes comes due in July of this year, and we have reserved that amount under the revolving credit facility to repay that maturity. At year end 2010, the leverage ratio, that is total indebtedness to EBITDA, was 1.8 times, and availability under the revolving credit facility was $67.6 million.

Looking at 2011, we currently see the housewares industry growing at approximately 3%, and believe that if our new products and programs are successful, we can grow our wholesale business at a faster rate, perhaps as high as 7%. As Jeff noted, input costs have increased significantly, but through our product development, sourcing, and pricing actions, we believe we can maintain wholesale margins of approximately 36%. Our distribution and SG&A expenses are well controlled and adequate to support reasonable growth. We expect these expenses to grow in line with general inflation. Interest expense will reflect the full-year benefit of the refinancing completed last June.

Note that most of our debt is variable rate based, and after we repay the convertible notes, all of it will be variable. Interest expense is also affected by changes in bank borrowings to support seasonal working capital needs. Such needs are expected to be similar to prior years, and although we continue to work to lower inventory levels, most of the opportunities have been realized. Our normalized tax rate is approximately 40%, but we still have approximately $4.5 million of deferred tax asset valuation allowance, which may be reversed in 2011. And lastly, capital expenditures, which were $2.9 million for the full year of 2010, is forecasted to be approximately $4 million for the full year 2011. Operator, we are ready for questions.

(Operator Instructions)

One moment, please, for the first question. Your first question comes from the line of Ann Gilpin with Jefferies & Co. Please go ahead with your question.

Thank you. I just had a question on some of the new products that you talked about earlier. You obviously have a big pipeline of new products that you're launching in the year. Can you give us an update on the soft grip products that you highlighted at your analyst day?

I'm sorry, the soft grip?

Yes.

Yes, we're placing it. It's a -- we should place it very well. It's just an updated line on our Farberware branded product line. We are definitely placing it. We don't give sales numbers on it, but it is being placed at retailers.

Right, so, can you give us a sense of maybe what the competitive response has been to that, or getting shelf space on that at retailers?

We've definitely gained shelf space. Our growth last year came as shelf space gains. The market itself is not growing. There are no new stores. We do business with just about every major retailer -- with every major retailer in the country, so it is strictly shelf space gains.

This show, we had -- our booth, frankly, at the houseware show was mobbed. I mean, I've never seen anything like it. I think it's the first time -- that show was exhausting. You're starting at 6.00 in the morning and end up at 11.00 at night by, between dinners with customers and so forth, and you normally want to really go home, I didn't even want to leave. I mean, this was really a phenomenal show.

Good.

We have a lot of new products, I've mentioned some. Some are very significant. Food storage is a larger category than the kitchen gadget category, which is our biggest business. We showed food storage for the first time. We've been developing it for several years.

This is the first time we're bringing it to market. We got a phenomenal response to it. We've gotten definite placement, and we think it's going to be a nice-sized business for us.

And our cook wear business is really growing, because we found the niche that's perfect for us, with a -- it's a very heavy kind of cookware. It's enamel on cast iron, it's becoming very popular for casseroles, and we're getting a lot of placement on that, that was terrific.

And these two initiatives that I mentioned, one to the B to B initiative, that could be very significant. It could add a tremendous number of doors to our -- to who we do business with, and this new ID8 program was mind boggling to some people. It's something that we developed in house.We can develop an item like a new kitchen spatula, with a new handle and so forth, we can do it in five minutes. Normally it would take a week.

Good. Sounds like you obviously have a very robust pipeline of new products there. Can you talk a little bit about inventory levels at retailers coming out of the holiday. I know last quarter you talked about them being maybe a little lighter than you would like. Do you think they're about where you would like them to be, or are they still a little bit lean?

They're very -- they're lean. You know, the good thing about lean is normally when you go to a trade show like this, you have customers coming and asking for some mark down money, to help you, and I didn't hear one request, not at the entire show, that's pretty amazing. So, there's a good side to lean inventories. I think retailers will continue to maintain lean inventories, I don't expect them to change their ways, and frankly I'm happy this way.

Okay.

It prevents a lot of issues in the long run, and its just a better way to do business, so.

Then turning to the -- I'm sorry, go ahead.

Go ahead. No, go ahead, I'm sorry.

Okay.Turning to the retail direct with the free shipping program that you're doing there, what are your plans for that, for the year? Do you continue to -- continue offering that free shipping for 2011?

Yes, we -- yes because that's the way the world has gone on the Internet. Free shipping seems to be a norm. We have to be competitive to do that, or all of our -- the retailers are doing the same thing, that we do business with, and we will compensate by improving our margins in the product, so we can make up for that. It really has become something that's almost the norm today.

Got you. Great. Thank you very much.

Sure.

Your next question comes from the line of Lee Giordano with Imperial Capital. Please go ahead with your question.

Thanks.Good morning everybody. Just following up on the last question on innovation and new products.At the housewares show, ceramic cutlery seemed to be a big new item out there. How is that beginning to catch on amongst consumers so far, and do you think that trend will be incremental to the category, or do you think it's going to cannibalize the steel blades?

It's definitely acceptable to consumers now at every level, and we introduced ceramic cutlery under the Farberware band, the Cuisinart brand, the KitchenAid brand, and the Sabatier brand at the show, so we're covering every brand and many lines, so that we will have more coming out. It will be -- we had some promotions in the fourth quarter of last year that were sell outs with ceramic cutlery for big numbers, very big numbers, and we've already gotten confirmations for this year for more, more than that amount from the same retailers, so it's definitely something that's caught on in a big way. It's partially a cannibal -- it partially cannibalizes, but it's definitely overall a plus, so it's a new thing.

I don't know if anyone here has tried it. It's a much, much better knife than any other knife. It's much sharper. You know, technically, the edge of the knife goes to .2MMs, versus the best German knife, which is .35, so it's much thinner and therefore cuts much better. It lasts longer. They're becoming very break resistant.

We actually have one line of Ceramic Cutlery that you could drop on a tile and it breaks the tile, not the knife. So, it's definitely a very acceptable new product, and consumers seem to be opening up to it in a big way.

Great. And then another key trend was reactive glaze. Is this expected to be a key component of sales in 2011?

In the dinnerware business, and our housewares dinnerware business, which is under the Pfaltzgraff brand, and the gourmet basics by Mikasa brand, as well as the private label brands, it is definitely the driver in that business. It is growing. It's growing considerably. It was great last year, growing considerably this year, and we expect that to continue. The prevailing thought is that it's going to continue for at least another two years.

Great. My last question is on pricing. Can you talk a little bit more about your pricing strategy overall for 2011, and have retailers been open to higher prices due to all of these absorption costs increases?

Yes, certainly, and that's certainly something we've been addressing for the last year. The input costs have gone up, they've gone up in raw materials, they've gone up in pretty much all the raw materials we do business with. It's gone up in labor, its gone up in transportation, and certainly there are -- when we deal with China, there's exchange rate differences.

So, it's something that we certainly had to address, and we addressed it early. We've redesigned many products. We've changed products. We've changed packaging.We've changed style numbers.

We've adjusted prices with retailers, with the goal of keeping the -- their margins neutral, which is what they want, and our margins neutral. We've worked with them. They certainly are well aware of what's going on overseas, so that's -- it's not an issue, and frankly we believe that we can maintain our margins this year. We don't believe we're going to suffer because of this.

It took a lot of work, and it's going to continue to take work on our part to make sure we have the right products at the right price points for consumers in 2011, and looks like we do, judging by what we had at the show, it certainly looks like we do.

Sounds great. Congratulations and good luck in 2011.

Thank you.

Your next question comes from the line of Mike Ruggirello with Barrington Research. Please go ahead with your question.

Hi, good morning, gentlemen. Nice end of the year.

Yes, Mike, thank you.

I think you gave this, but what -- did you give the number of new products that you introduced in 2010

In 2010, it was about 5,000. This year will be more. I can tell you that. And it will be -- more than that, it's more significant new products this year. That's what counts, I guess.

And the placement going to be tremendous. And I'm very enthused about the categories, the new categories, in addition to everything else, so we had a phenomenal show. I just can't get over it. We -- our staff, we've been talking about it.I've add salesmen who have been with us for a long time coming over and thanking us for what we did at this show.

I mean, really it's -- we're very enthused. There's going to be a lot of new product. Product -- when prices are going up, new product is really a very, very important part of the mix, and how you drives sales going forward, and we believe in that and we're doing it, so.

How did that 5,000 number compare to 2009?

It was slightly more than 2009.

Okay, because there seems to be some correlation--

(Multiple speakers).As, I mentioned in our -- in my prepared remarks, in this open initiative, and this open initiative brings us literally 1,000 new items last year, and we hope between 1500 to 2000 this year, to look at , and some of those items have been the most significant new products that we've introduced, and we believe the same's going -- the same will be true this

So, I know you have talked about paying off your convertible notes this year. What, kind of what's the plan with the capital structure beyond that?

Well, we're going to continue to de-lever. In part, you know, one of the changes we announced is we are going to commence -- we've reinstated the dividend.

Yes.

But as we de-lever and we continue to look at opportunities, we'll assess what is the best use of capital. It's fluid, it's not something we'll look at today and say okay, that's what's going to happen over the next 12 to 24 months, it's fluid, and we'll evaluate it on a regular basis.

Okay. So, paying down that debt, paying some dividend, that's going to be your focus for use of cash as of right now at least?

Remember when we pay off those notes, we're going to be borrowing under our bank facility, to do that. So, on a debt basis, it's a wash.

I got you.Okay, okay.And last question, was around this Grupo Vasconia. It looks like this is just showing great results. What kind of -- what's your plan with that going forward?

Well, they're continuing to increase their distribution in Central and South America.Their profits are excellent. It's a very, very well run company. We've worked together with them, we're helping them to develop some of the classifications that we're in that they're not dominant in, because their main business is a cookware business, and ours tends to be more the kitchen gadget and kitchen knife business.So, we're certainly assisting them in helping them to grow in our areas, and frankly we've learned things from them that are helping us.

It's a solid company, with solid growth prospects. They're in the right place. Their market is growing. They're well connected with every retailer in Mexico and in Central and South America, so this is a growing business that we're very happy to be part of.

Do you guys, do you use any of their manufacturing down there, or do they make all of their own stuff and sell it down there, and you make your stuff and sell it where you sell it?

We don't use them for sourcing. Frankly, they are a very efficient manufacturer, but they're -- they need their production for their own use and for their growth.

Yes.

They're -- they built a brand-new plant which came online a few months ago. We were there for the dedication, and they're expanding that plant, and will expand the capabilities, and frankly what we are considering is if prices continue to rise in China, we will possibly shift to Mexico for sourcing.

Okay. And then, I know you had mentioned 30% ownership is in that company. Is there plans for more?

Not right now. You know, they're -- we want to certainly keep them very engaged, and they are engaged, so that's something maybe we'll talk about in the future.

Because if I remember correctly, the guy who runs -- the person who runs it also owns a substantial portion of it there. Is that correct?

That's correct. That's exactly correct.

Alright, alright. Super. Thanks for the questions and answers, guys.

Sure.

Your next question comes from the line of Gary Giblen with R.F. Lafferty. Please go ahead with your question.

Good morning, everybody.Just wondered what particular pockets of strength there might have been within the overall healthy wholesale number. In other words, was high end merchandise relatively stronger than mid and low, and was wedding related better, and was Grupo Vasconia sales into US, Hispanic channels particularly strong? You know, if you could talk about those things, that would help.

It was -- I guess the biggest growth we had was the, I would say was the moderate to upper levels, and the -- there's no question that the -- within our economy, the blue collar worker is still the one that's the most stressed. So, we're getting our growth more at the moderate and upper levels. Not to say that -- we did get growth at the lower levels, also.

Every part of our business showed great improvement. You know, one area that in the past has concerned us was the tabletop area. It is now solidly profitable, and really going in absolutely the right direction, so we have no issues there whatsoever. It's more -- not -- on the reverse, it's becoming one of our more profitable businesses. So, that's wonderful.

And all areas are increasing. There's no -- I can't find a negative.

Okay. Well, that's a good thing. And what -- how about the development of the Canadian business, which has been more recent?

That's done very well. You know, it's sort of a joint venture between us and our Canadian distributor, who had been a distributor for many, many years. The business grew significantly in 2010, and we expect it to continue to grow.

It's a good part of our overall business, and it's very important for us to be well connected with both Mexico and Canada, as well as the US, because many of the retailers that are in the US are now looking at those markets, and growing in those markets, as well, and we have to be a supplier in all three markets. It's very important to us.

Target.

Yes, Target, as you know, target is the next one to move to Canada, in a big way.

Sure, and are the cost pressures that are generally out there this year possibly going to be helpful for you, because you can be more efficient relative to other manufacturers?

We think -- on a competitive basis, yes, to some degree, but it's more important for us just to make sure that it works well for us, but we certainly have more leverage, and we're doing some things that we believe will even give us additional leverage.

You know, we have a close affiliation with a German company, called Fackelmann and we're working more closely with them identifying products that are, you know, jointly sold by all of the Companies within our group, you know, including Lifetime, Grupo Vasconia, (Lifetime's, Canada), and Fackelmann and leveraging those products that manufacturers could give them much better production, so that they can produce one item for all four of us. And that will -- that should help -- it helps lower the labor content. It doesn't do anything for the raw material content, but lowers the labor content.

Okay. That's great. And, finally, within the wholesale business, is there any change in -- to more even seasonality this year? I mean I know that other parts of your business produce an even -- more even seasonality.

No, no, the seasonality is going to remain the same. The back half of the year is where it's all going to be. Retailers, as you know, were watching their inventories very closely, and the only time they really free up money is going into the back half. So, we expect that this -- that 2011 is going to be just like 2010, and that the growth is going to come in the back half.

Okay. Well, good luck with the year, Jeff and Larry.

Thank you.

Thank you.

Your next question comes from the line of David Leibowitz with Horizon Asset Management. Please go ahead with your question.

A couple of unrelated items, if I may. First, getting back to the Grupo. Could you explain how you work your valuation. I see on the balance sheet, it's up $4 million year over year, and secondly, the earnings that you were showing there, the $2.7 million, versus $2.2 million, does that flow through the income statement?

I'll answer your last question first. Yes, it does flow through the income statement. We account for it on equity basis, so we pick up 30% of their earnings in our numbers, and that's reflected in our investment on the balance sheet.

And the only other change, would -- that you'd see on the balance sheet with respect to Vasconia, is any change in foreign currency. Dollar -- you know, if the PESO weakens or strengthens against the dollar, that would have an impact on the value.

Well, you've moved -- you've increased your valuation on it, though, approximately $4 million year over year on the balance sheet. How do you derive that figure for valuation if it's a private company?

No, no, that, it's -- sorry --

It's not private.

For the -- it's a public company. It's carried at our -- we had an original investment of about, say approximately $20 million in late 2007, and the increase reflects, as I said, our portion of their earnings, which is 30%, that gets added to that value. And as I also said, is the only difference between the original cost and the earnings, is any change in the exchange rate between the Mexican peso and the US dollar. So, if the peso was strengthening, that -- it would cause it to go up, and if the peso were weakening, then it would go down.

Do you have any -- is there a dividend policy at that company?

Yes, I'm sorry, I should mention that. There is a dividend policy. It's about, our share is about $400,000 a year, and that would reduce the investment, if it's a cash dividend.

And, is there is a license involved as well? Do they pay you any moneys for using any of your labels?

No, there is no license fees. We cross license. We also -- they license the Vasconia brands to us, which we use in the Hispanic markets in the US. And they're not really making much active use of our licenses in Mexico, because they have two very strong brands.

And, a few days ago, you signed a license with Croscill. What are the terms of those licenses?

This is the domestics.

The ExCell Glenoit.

It's small -- this is a small thing, frankly. We don't expect it to be a big income. It's beneficial in some ways, because we -- there is certain items we want to bring to market that need the support of textiles, and we don't want to be in the textile business. So, there's -- I can't go into it, but there's one key retailer that wants to put a line in that we have, that's a little different than what we normally sell, and needs this as part of it.

And in terms --

But, it's not -- this is not going to be a big profit center. Don't count on a big profit center here, please.

Okay. Turning to the houseware show, you said you had 5,000 new SKUs that you added to the line. How many did you take out of the line from a year ago?

Okay. That -- again, in 2000 -- what I've said was in 2010, we introduced 5,000 new SKUs, and what we took out, we took out at least as many. We tend to stay pretty even now.A few years ago, we went on a SKU reduction cycle, we went through a cycle, and we dramatically reduced the total number SKUs the Company sells. We're right-sized now, so it'll be approximately the same amount introduced and taken out each year, which is around 5,000.

And are your gross margins higher on the new introduced products versus what you were receiving on the products that you dropped from the line?

It generally is slightly higher.It's not dramatically higher, but it is slightly higher.Newer products tend to be able to sold at a -- be able to be sold at a slightly higher margin, but it's not a dramatic difference.

And, lastly, the huge increase in the price of silver at the moment, has that had a dilatorious effect on your sail of product A and B, do you have a lot of silver in inventory that might be converted into cash?

Good questions. The interesting part about the sterling silver flatware business, that, for the most part, it's a replacement and add on business. So, if somebody has a pattern called Grand Baroque, one of our key pattern in sterling for us. It's not very price sensitive if we raise the price, to be honest with you.

It's -- if somebody needs another place setting, they can't buy some other thing to put there. They need another place setting.They already have such a big investment, that, that's what it is.It's not a case of young people registering for silver today, because really that's very small.

As far as silver inventory, what we do is we very much -- we scrub the inventory.We did it earlier this year.We melted quite a few things that we felt we had tremendous overstocks on, because of acquisitions when we acquired, if you know the Gorham business a few years ago -- few -- two or three years ago, we had extra inventory on some of the SKUs.

The price of silver went up very high. We melted and got our money out of those SKUs. So, we do, do that. I can't tell you what we have on hand of silver inventory right now.

It's only a few million, but it's really the level, the amount we need. (Over at --).

Okay, well, yes. What we have on hand is what we need to run the business.

Okay. Thank you very much.

Okay.

Your next question comes from the line of Thomas Bundock with RAM Partners. Please go ahead with your question.

Hi. You mentioned that you pursue a strategy of moving to suppliers with lower labor costs, and you mentioned Asia, China, Indonesia, Thailand, Vietnam, Japan, as well as Eastern Europe. I'm wondering what kind of trends your seeing there in terms of labor costs and what you are -- what you've been doing. Are you moving more into Asia, or into eastern Europe? What is the trend there?

And then, secondly, you mentioned redesigning product to reduce input costs, and I'm just wondering if you can give some examples of what types of changes you make, what substitutions you make to reduce costs? Thank you.

Certainly. The overall trend in just about every country we're in is for labor to go up. And it's going up at different rates in different countries. Not every product line can be shifted. And most of our business is in Asia. From eastern Europe, we primarily source crystal for our Mikasa division, but in the -- in Asia, things move around.

For instance, we can buy stainless steel flatware, high quality stainless steel flatware in Vietnam or China.Exactly the same quality. And we move back and forth as things change. And we will continue to do that.

India, we believe will become more important over the next few years. We had our people in India within the last month, really going through many, many factories. There are improvements in India in the infrastructure and the ability to produce some of our products. We do relatively little business there today, but we believe that will definitely grow. I'm sorry, what was your second question?

Well, if I could just -- could you --(Multiple speakers).

Okay. How do you redesign products. It depends.

Sometime there's a disparity for instance, between the price of polypropylene and the price of polyethylene. We can make a plastic cutting board in either one of those materials, and we can switch back and forth very easily, and we do.But in addition that, we can take a product and redesign it, so it uses less material sometimes, and there are many ways to do it. I can't give you an example of any one product, though I know many of them, off the top of my head, but the goal when you do that is not to have an inferior product.

It's sometimes just to redesign the way it's put together, to make it much more efficient. For instance, a kitchen gadget, kitchen gadgets are very labor intensive. There's no machine to make most of them. You can make the parts, but you can't make -- put it together. If you can design a kitchen gadget in a way so that the parts lock together automatically, without using rivets or anything like that, you save labor, you save a considerable amount if of labor, and we're doing lot of that.

Just redesigning things so that they're easier for the manufacturer to make. Make it more efficient for the manufacturer, and it sometimes changing materials so that it becomes just better for us.

Okay. And thank you for that. And just one final question. In terms of what trends are you seeing in shipping costs currently, if you can give some kind of quantification one way or the other.

Shipping costs are somewhat on the low side. They went very high in the spring of 2010. They came down. Our anticipation is that there will be some increases at the peak times, we're antice -- the same as last year, that won't be any different.

There are a number of new large vessels that have come on line which tends to hold the costs down. So, our anticipation is that shipping costs this year, in 2011, will be very similar to 2010. There is what they call a bunker surcharge when oil price goes up, but it's not really significant.

Okay. Thank you.

Sure.

Your next question comes from the line of Lee Giordano with Imperial Capital. Please go ahead with your question.

Thanks your taking my follow up. Larry, do you have the diluted share count at the end of the quarter? I can't seem to find it in the release.

12.376 million.

Great, thanks.

At this time, there are no further questions. You may proceed with any closing remarks.

Thanks again for joining us today. 2010 was a successful year for Lifetime, and the potential for us to grow is better than it has ever been. We look forward to continuing and even improving on our performance in 2011. I hope you'll join us again when we report our first quarter results. Thank you.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.