Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Lifetime Brands Earnings Conference Call. My name is Keith, and I'll be your operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. And I would now like to turn the conference over to your host for today, Ms. Harriet Fried of LHA. Please go ahead, ma'am.

Good morning, everyone, and thank you for joining Lifetime Brand's fourth quarter 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 be 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 payment practices or consumer spending, changes in demand for the company's products, shortages of and price volatility for certain commodities, the effect of competition on the company's markets and other risks detailed in Lifetime's filings 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'd like to turn the call over to Mr. Siegel. Please go ahead, Jeff.

Thanks, Harriet, and good morning, everyone. With me on the call today is Larry Winoker, our CFO. Hopefully, you've all had a chance to review the earnings release we issued earlier today. In 2011, Lifetime's core U.S. wholesale business, Kitchenware and Tabletop, performed well, achieving solid, profitable growth. Our Kitchenware businesses, which include Kitchen Tools & Gadgets, kitchen cutlery, cutting boards and bakeware and cookware achieved organic sales growth of 3.5%, and our Tabletop businesses, which are dinnerware, flatware and glassware, achieved organic sales growth of 9.1%, with an actual sales growth of 14.5%. These gains were achieved in spite of a weak consumer demand and reflect the critical importance of our commitment to innovation and our successful effort to gain market share. In the Tabletop area, the overall gain also reflects sales of Creative Tops which we acquired in November. It is worth noting that our Tabletop businesses have had a remarkable turnaround from the time, only a few years ago when they were struggling. Including Creative Tops, total wholesale sales for the year increased 1.8%. For the fourth quarter, total wholesale sales went down by 1.7% as some of our retailer partners shifted planned new product launches into 2012 as those retailers chose to manage their year-end inventories. Our businesses other than Kitchenware and Tabletop, which we now call home solutions, were impacted by the weak consumer demand in nonessential categories, especially home décor. The home décor market has been soft all year with many of our retailer partners indicating that this business has been struggling. The problems were especially acute in the fourth quarter with concerns about the direction of the economy was taking -- was going to take, still very much on everyone's mind. Our plan to restore our home décor business which began in 2011,…

Thanks, Jeff. As we reported earlier this morning, net income for the fourth quarter of 2011 was $5.4 million or $0.43 per diluted share versus $13.9 million or $1.07 per diluted share in the 2010 period. Adjusted net income for the 2011 quarter was $6.5 million or $0.52 per share versus $7.9 million or $0.62 per share in the 2010 quarter. Adjusted net income, which is reconciled to net income in our earnings release, excludes acquisition-related expenses in 2011, an extraordinary gain in 2010 and changes to the deferred income tax valuation allowance in both periods. Income from operations was $10 million, $11.5 million excluding acquisition expenses in the fourth quarter of 2011 versus $14.5 million in 2010. Consolidated EBITDA, a non-GAAP measure that is defined and reconciled to net income in our earnings release was $14.3 million for the 2011 quarter and $17.5 million for 2010 quarter. Consolidated EBITDA was $38.1 million for the full year 2011 versus $42.9 million last year. Looking at our wholesale segment, net sales for the fourth quarter of 2011 decreased $2.3 million or 1.7% to $129.1 million. This is primarily due to a $9.1 million decrease for home solutions products, which includes home décor, pantryware, spices, travel mugs and storage containers. This category has been weak throughout 2011, especially home décor, as consumer spending for these nonessentials has been down. Tabletop sales increased by $2.6 million, which offset decline in Kitchenware. However, for the full year, each of Kitchenware and Tabletop increased in the aggregate, 5.5%. The 2011 quarter decline was substantially offset by the inclusion of Creative Tops since its acquisition in November. Wholesale gross margin was 34.8% in 2011 quarter versus 36% last year. This decline primarily reflects the poor performance of our home solutions products, which contributed 100 of the…

[Operator Instructions] And your first question is from the line of Lee Giordano with Imperial Capital.

Can you talk a little bit more about what you're doing to improve momentum in the home décor business? And I guess, what have you seen so far this year that gives you hope that these discretionary categories will revive in 2012?

Yes, we -- obviously, as that business was deteriorating in 2011, we took a very, very hard look at it and made plans for great changes. The most important things that we've done, I guess, going 2 directions: one, in how to improve the top line and the margins of the business; and secondly, how to reduce the SG&A. Talking about the SG&A, we have significantly reduced the SG&A by combining 2 of the businesses into 1 and done other things that would reduce the SG&A of the business. In addition to that, we've refocused the business to move it up to a little bit higher level, primarily under the Mikasa brand and then also under the Pfaltzgraff and Studio Nova brands. We've had great success with Mikasa home décor. Wherever it's been placed, it sold. We haven't had anything that didn't do well. So we're obviously going to expand on that. It's the first time we've had a really consumer-branded home décor assortment and that started in 2011, and really, we're going to accelerate it in '12. And last month, at the Atlanta Gift Show, which is a big show for home décor, we showed a line of Pfaltzgraff-branded home décor, which has wider distribution than Mikasa, and it was very, very well received. And that will be rolling out beginning in the second quarter. So those are the main initiatives to improve that business. We have a goal to at least break even in home solutions this year, which is a dramatic turnaround. I think we're going to do better than that. I think we will make a little bit of a profit. So we're heading the right way. The top line is not going to increase much in that business, but it should be -- it should increase enough to make it work.

Great. And as far as the JV in China, can you provide any financial metrics or targets there? And how big can this be as a revenue generator and how might it impact margins? Or will this be accounted for similar to Vasconia?

Well, it'd be accounted more like Vasconia because we only have 50% of the joint venture. It will not be producing anything significant this year or probably even next year. It's going to take 2 years for us to really get this off the ground in a way that is worthwhile. The first 2 years will be to establish the brand in China, which we've already done. They're opening showcase shops that really are to enhance the value of the brand in key cities. Next step will be moving towards an Internet platform in China, which is a very popular thing with young people. That's how they shop. And also with us, a direct selling within China, the -- our partner has a direct selling set up that has done very, very well with other businesses. They have and that will be expanded late 2012 going into 2013. But as far as how much it could be worth or what it can do, that's an unknown market. It's brand new. As everyone knows, the Chinese have a very, very rapidly growing middle class. That middle-class could equal our total population within a few years, and it's the right place for us to establish our key brand.

Your next question is from the line of Gary Giblen with Aegis Capital.

Is there any material inventory risk in the sense that inventories are up 10% year-over-year, and it's more than the flattish sales growth? So the -- any markdown risk or is it just solid carryover inventory?

There's no issue. We have a lower percentage of what we would call discontinued inventory that we've ever had in the history of the company. The reason for the higher inventory -- there are 2 reasons for it. First of all, Chinese New Year came as early as it can possibly come in 2012. So it was in mid-January, which means we had to ship goods in December. So little more was on the water than would've normally been on the water, quite a bit more actually for the first quarter. In addition, as we noted, some of the programs that retailers were supposed to roll out in December were pushed into the retailer's first quarter. So the inventory was there, it has already shipped, just so you know, we have already shipped it. So the inventory will be coming down. So your answer is there is no inventory risk.

Gary, just to add, half of that 10% is any [ph] increases as Jeff described, the other half is because we now own Creative Tops.

Okay, yes, okay, that addresses that. And then as you look on the year, I mean, what are the big 3 factors that led it to come in a little softer than you thought earlier in the year? I mean, is it -- I mean, the economy effect on discretionary? Or is it retailers own reactions, cautiousness and open to buy, or in other words just what really drove the softness?

It's really, it's all -- it's certainly related to the economy, but the consumers for home décor are not buying home décor. I mean, it's a very discretionary purchase. Our home décor, up until 2011, was aimed more at the blue-collar level. That level is spending on necessities. It certainly hasn't hurt our Kitchenware business or our Tabletop business, because those things are necessary to having a home. But you don't have to have that extra thing you hang on a wall or to put on a table. And that business has suffered. It started suffering really in the second quarter of last year, and as we've mentioned it on a number of calls, and it accelerated in the fourth quarter. It seems to be stabilizing, not all the way, but it is moving, certainly moving better than it was. It's not showing the ridiculous decreases that were showing in the fourth quarter. A little note on the fourth quarter, which is a little bit surprising. We only had one really bad month in the fourth quarter. That was the month of October. And that was horrible, to be honest with you. It got better after that. Not wonderful, but it certainly got better after that. And we expected December to be much, much stronger with all these new programs that were rolling out for 2012. But a couple of key retailers wanted to come low in inventory and they didn't let us ship it until the first quarter. But we -- the good news is that we have shipped these new programs.

Okay. And I mean, that's interesting, you say October was the low point and then it picked up from there. I mean, any color on why that would be? In other words, the holiday season got a little bit clearer for retailers so they ordered more, closer to their holiday need? Or what do you think happened?

No, this was -- it was unanticipated, frankly. I think there was a lot of nervousness, if you -- what was in the news September going into October evidently got a lot of retailers nervous. They slowed down, slowed down much below what we expected. I mean, we had a -- we get monthly updates. We have something called a flex plan, which we would look at very carefully to understand demand. And there was no indication of this happening. But it did happen. And the month of October turned out to be a very slow month for us. It was the worst we've had in years, frankly, as far as percentage decrease. But like I said, it came back. And certainly, is continuing to come back in a big way in the first quarter. This is in the first quarter, it looks very, very good.

Okay. Got it. And then final question is, could you give an update on the fourth quarter and current trends in the online biz? Give some commentary.

As we've mentioned in previous calls, our online business has evolved to be more of a -- a way of enhancing our retail business. It certainly moved in the right direction. We don't run the sales that we used to run because the retailers don't like that, frankly. So we run less dramatic discount sales, and we run things more at the same price that our customers are running it for. We don't discount anything on that to other sites. But we do have proprietary product that is not carried by other retailers where we can run sales. But the sites are evolving, especially -- our most important site going forward is the Mikasa site. It's evolving more into a site that really enhances the brand. That is our fastest growing brand, so you know. And it's going to be our fastest growing brand for many years all around the world. And the Mikasa site is being designed and redesigned, and we'll relaunch it in very shortly in a way that will enhance the brand worldwide, and it will become a worldwide site. We will be porting the Mikasa site to many other countries starting in 2012.

That's good news. I mean, are margins better than -- now that you said you're running more full price billing on the online. And then -- but you still have shipping?

Yes, the answer is yes. Our margins on our Direct-To-Consumer business have gone up. They started going up in the fourth quarter very nicely, and we expect them to be up very nicely in 2012. In general, our margins seem to be improving as a company right now going into the first quarter. The increases in costs that we faced in early 2011 have stabilized. We're not getting the increases. Raw materials have pretty much stabilized. The Chinese currency, the RMB, has stabilized against the dollar to some degree. So we're not getting the pressures that we had and retailers have accepted the increases that we passed on to them. Though they fought until the last quarter, frankly, but they have accepted. And we would expect margins in 2012 overall throughout the company to improve.

Your next question is from the line of Brian Freckmann with LS Capital.

Just a question, sort of jumping on the last caller. Care to put into a dollar amount what you would consider sort of the push out from fourth quarter to first quarter?

We haven't done that. Do you have that, Larry?

No. Actually, I don't.

All I could tell you is that we had...

Ballpark maybe.

We don't have a number, but I can tell you that our first quarter will be impacted by the extra business that would have been shipped in December. Though, even without that, I think we're happy to get a good quarter.

I mean, we did, I did -- in my comments, I did mention that Tabletop, which is up about $2.6 million offset the declines. So Kitchenware was up versus last year of $2.6 million. So it should be at least that much, not more.

Right, okay. I can sort of back into that math. So Tabletop offset. Okay. The next question would be -- just as you guys grow the GSI business, and I guess eventually, the Chinese business, more and more of your earnings will come from the JV line. So given that and then of course given the change in tax rate this year versus last year, care to help us out a little bit in understanding -- I mean, it's going to be harder and harder for us to model out, we can get operating margins, but to get to a net income number, it's going to be a little more difficult. So I was hoping you could maybe help us think about GSI in 2012. You were clear that maybe China wouldn't happen until 2013 or so.

I think it's...

I don't know if that's a tax question.

It's not a tax question, but I think...

No, no. I mean, it's more of -- obviously, GSI is going to come up as a JV income line like Grupo Vasconia. And so maybe a little help on sort of how we can model that out. We can model your core business out. We understand the margins there. But on GSI, it's just going to come out as a JV income line. I'm trying to figure out how, if you could give us a little help there in trying to figure out what we should be looking for, for that type of business.

I think it's probably, maybe a little early and maybe because we're looking at more of the whole business rather than just the components. We know that in China, that income will be taxed at lower rates and rates are low in Brazil. And you didn't ask, but also will be lower in the U.K. with Creative Tops. But in terms of how do you model that out in terms of its contribution to our net income, it's a little early yet because we just closed the acquisition. It takes some time to integrate some of the benefits we think we can be derived by bringing what we do well to those markets.

I could tell you that we expect to have income from GSI, just so you know. This is a profitable business. We made an investment in a business that is nicely profitable.

Okay. Well, that -- obviously, you've been able to grow Grupo Vasconia or they've been able to grow it. So that -- I think that grew about 23% year-over-year. So as I sort of look at modeling my full year 2012, yes, I'm using sort of Grupo Vasconia, my best guess on how fast they're going to grow and then some GSI. That's fair? Is that probably a fair way to look at it?

GSI is a much, much more smaller business, remember. So it's not in the same world. Keep that in mind. It's going to take some time to get to the size of Grupo Vasconia. They're a much, much smaller company.

Okay. And then just finally on Creative Tops, I know sort of short, that $6.7 million, were you guys pleased with that? Is that in line with kind of your estimates? How do you -- as you look at your influence on Creative Tops, how do you see that affecting 2012?

Well, the $6.7 million was in line with what we expected. Creative Tops will probably -- we'll see the benefits sooner than we'll see in GSI because it's a bigger, it's a more developed, it has more infrastructure than GSI. But that will -- we'll see that more in the second half in 2012, as we bring, as we said, the things that Lifetime does well in the different categories we bring that to the U.K. market and get placement in the different retail channels.

Yes, I would agree with that. We should -- we'll get a positive benefit from Creative Tops starting in the first quarter. But the benefit, the additional benefit that Lifetime brings to help Creative Tops in any way would not come until the second half of the year, starting in the second half of the year. They have a great management team. They're very aggressive. They'd like to run -- they started running before we even closed on the transaction. But it takes time. We have to -- if they are going to put a line into a particular retailer, one from that was developed by Lifetime, they have to displace somebody else. They've already started having success doing that. So we expect that will continue. But even with that, we won't get the additional benefit from that until the second half.

Okay. Let's see here. And then as you've got -- a number of moving parts. I think after the second quarter call back in June or July, whenever it was, you guys made a comment that you thought operating income would be up year-over-year. Care to give us sort of any thoughts on something like that rather than -- I know you guys are sort of tight with your guidance, but you have, on occasion, given us a few things to look at. Care to think about 2012 from a revenue or an operating income line or an op margin or something that we can kind of try to build our models off of?

We'll try to give you a little more after the next -- at the next conference call. It's early in the year. Give us a little more time to try to open up a little bit more for you.

And your next question is from the line of Dominic Marshall with Pacific Ridge.

I was going to push on the same question that the previous caller asked. But you did talk at the beginning of your prepared statements about 2011 being a year for broadening your lines and increasing the geographic spread and 2012 being more of a focus on growth. Can you quantify at all kind of your baseline expectation for what reasonable growth expectation would be for 2012?

Well, as we've said before, we want to grow at just in our -- in the U.S. domestic business at double the rate of GDP. Hopefully we'll do better than that. But we also have this year layering on the Creative Tops which we acquired in November. So we have a full year of that. So we should have significant growth, both organic growth in our core businesses, as well as the additional growth layered on by Creative Tops, and then additional income layered on by GSI and our other foreign partners.

Okay. And could you remind us, I looked at your recent investor presentation on your website and didn't see anything listed there. I think I have in the past in terms of your kind of long term operating model. Can you talk at all about just longer term, what your expectation is at the gross margin and operating margin line?

Yes. We continue to try and achieve 13% on the wholesale margin line. We've said that the gross margin -- it's operating margin. The gross margin line has been challenged as we previously discussed. Of cost going up in China, currency. But we've made really fast, good progress on the other lines on the expense side. So we think 13% is something we can -- we should be able to achieve in wholesale.

And at what sort of revenue level would it take to get there, do you think?

Not much more. 3%, 3% or 5%. We're pretty close. That's why we're comfortable with the 13%, notwithstanding the gross margin challenge.

Then just a last question. You talked about the goal for 2012 being to get home solutions to around breakeven. And maybe I missed this, but can you just quantify at all what the drag was in 2011 from that business?

Well, we said that the delta was about $7.5 million, and it was a category that was very weak in the whole industry. We were not immune to that. So it hurt our top line. And then in addition to moving product, it hurt our margins. We had to do more off-price selling.

So $7.5 million was the top line impact. Can you talk about what the margin or...

I'm sorry. I said $7.5 million was the profit delta. The top line was -- for the year was about $17.5 million.

And there's no other questions at this time. [Operator Instructions] And it looks like no other questions. So with that, this will end the question-and-answer portion of our call. And I'd like to turn it back over to Mr. Jeff Siegel for closing remarks.

Thank you. I'm glad you were able to join us on the call today. We remain committed to creating shareholder value through growth in revenue, net income and diluted earnings per share. As a leading marketer and distributor of branded consumer products used in the home, our strategy for achieving these objectives is to introduce new products to increase our penetration of existing distribution channels and to pursue strategic acquisitions in the United States and to expand internationally. I hope you join us for the next update after the first quarter 2012 results are in. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect. Everyone have a great rest of the day.