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Lifetime Hoan Corporation LIFETIME HOAN CORPORATION ANNUAL REPORT 2004 COMPANY PROFILE Lifetime Hoan Corporation is a leading designer, developer and marketer of a broad range of branded consumer products used in the home, including Kitchenware, Cutlery and Cutting Boards, Bakeware and Cookware, Pantryware and Spices, Tabletop and Bath Accessories. FINANCIAL HIGHLIGHTS $200,000 $10,000 $0.80 $50,000 0.70 8,000 40,000 150,000 0.60 0.50 6,000 30,000 100,000 0.40 4,000 20,000 0.30 50,000 0.20 2,000 10,000 0.10 0 0 0.00 0 '04 '03 '02 '01 '00 '04 '03 '02 '01 '00 '04 '03 '02 '01 '00 '04 '03 '02 '01 '00 NET SALES INCOME FROM DILUTED WORKING (in thousands) CONTINUING EARNINGS CAPITAL OPERATIONS PER COMMON (in thousands) (in thousands) SHARE FROM CONTINUING OPERATIONS The KitchenAid® Cutlery Carousel; taking the world's first silicone handle knives for a spin DEAR FELLOW SHAREHOLDERS: During 2004, we took a number of steps to build on the strengths of our proven business model and to position our Company for future growth. Over the years, the three essential ingredients we have used to forge our leadership position in the housewares industry are: • An expanding portfolio of powerful brands • A proven track record of innovation and design excellence • Superior sourcing capabilities Our consistent focus on each of these areas has enabled Lifetime to grow and prosper, and, we believe, will continue to provide a solid foundation for our future success. An Expanding Portfolio of Powerful Brands Lifetime owns or licenses some of the most powerful brands in housewares, enabling us to differentiate our product lines in the eyes of both our retail customers and consumers. Our two top-selling brands are KitchenAid® and Farberware®, which also rank as the #1 and #2 brands in kitchen gadgets and cutlery, according to the HFN 2003 Brand survey. In 2004, we acquired the business and certain assets of Excel Importing Corp. This acquisition expanded our brand portfolio and, as well, added an important new product category – Tabletop. Among the brands we acquired was Sabatier®, a highly respected, upper-end brand that we expect will be a key growth driver for Lifetime in the years to come. Proven Track Record of Innovation and Design Excellence At the heart of our Company is a strong culture of new product development and design excellence. Our unique in-house Product Development and Design Team, consisting of 35 professional designers and engineers, is responsible for creating new products and packaging and merchandising concepts. This Team utilizes state-of-the-art equipment that enables us to shorten product development time, expedite the production process and “value-engineer” our products. Lifetime has an impressive record of developing exciting new products. In 2004, we introduced over 600 individual products. In addition, we applied for more than 30 utility and design patents over the past two years. Superior Sourcing Capabilities We have successfully sourced products overseas for more than 40 years. Moreover, we use our product design capabilities to help our suppliers to reduce their production costs and to take advantage of lower- cost raw materials. In 2004, we opened a second office in China and hired a Senior Vice President of Sourcing, based in Shanghai. 2004 Financial Results In 2004, Lifetime’s net sales totaled a record $189.5 million, an increase of $29.1 million or 18% over 2003. For the year, we reported net income of $8.5 million, compared to $8.4 million for 2003. Earnings per diluted share for 2004 came to $0.75, compared to $0.78 for 2003. Net sales in 2004 for the three businesses we acquired over the past 18 months, :USE®, Gemco® and Excel, amounted to $14.3 million. The Company’s organic growth was driven primarily by strong sales across all classifications of products sold under the KitchenAid® brand. In 2004, we implemented plans to strengthen our infrastructure. In particular, we bolstered our product 2004 2 LIFETIME HOAN CORPORATION Jeffrey Siegelan of the Board, President and Chief Executive Officer Chairm 2004 3 Jeffrey Siegel (Chairman, President and CEO) and Ronald Shiftan (Vice Chairman) 2004 4 LIFETIME HOAN CORPORATION development and design, overseas sourcing and sales and marketing teams. We also added key executives in each of our growing business classifications. Although the increased cost of this infrastructure did affect the Company’s year-over-year earnings comparison, we believe these additional resources will have a very positive impact on Lifetime’s long-term growth. In addition, it should be noted that we incurred over $900,000 in expenses related to Sarbanes-Oxley compliance work in 2004, the equivalent of $0.05 in earnings. As of December 31, 2004, stockholders’ equity was $92.9 million, the equivalent of $8.41 in book value per share. In summary, 2004 was a successful year for Lifetime during which we implemented many initiatives to expand our presence in the housewares industry and accelerate our future growth. We broadened our portfolio of licensed and owned brands, added several new classifications, developed exciting new products and pioneered new ways to use materials in our products. 2005 In 2005, we expect our results to reflect the benefits of the initiatives we put into place in 2004. The goal of broadening our portfolio of powerful brands, continuing to invest in enhancing our Product Development and Design capabilities, strengthening our overseas sourcing organization and building our infrastructure is to be able to create, source and distribute unique products targeted to consumers at different price points in every major level of trade. For example, in our cutlery and cutting board businesses, the ability to offer products under the KitchenAid®, Cuisinart®, Sabatier®, Farberware®, Hoffritz®, DBK™-Daniel Boulud Kitchen and Laguiole™ brands enables us to offer new, innovative higher-value products to which consumers can trade up, as well as to provide better value and greater selection to consumers at more moderate price points. We expect that a substantial portion of our growth in 2005 will come from the expansion of our shelf space in a number of major retailers. At the beginning of the year, for example, we more than doubled our space with one of our leading customers for KitchenAid® products. We estimate that the increased space at this one customer alone should produce over $10 million in additional sales for Lifetime in 2005. Our results for 2005 should also benefit from the new categories we added in 2004. For example, the Tabletop and Cookware categories that we acquired from Excel should contribute significantly in 2005. We have redesigned many Excel’s Tabletop lines to bring them in line with our high standards for product and packaging quality and style. In closing, we are proposing to change the name of our Company from Lifetime Hoan Corporation to Lifetime Brands, Inc., reflecting the crucial role that well-known and well-respected brands play in our business model. We believe this new name more accurately expresses one of Lifetime’s most important attributes and key competitive strengths. We look forward to communicating with our shareholders, customers and employees in the future using this new name to reinforce our most fundamental business strategy. Thank you for your continued support. Sincerely, Jeffrey Siegel Chairman of the Board, President and Chief Executive Officer 2004 5 INNOVATIVE PRODUCT DESIGN AND BRAND MANAGEMENT Lifetime Hoan Corporation’s growth in 2004 was KitchenAid® items in 2004. made possible, in large part, by the introduction ® of over 600 new products. The goal for 2005 is to Shipments of our new lines of KitchenAid cutlery introduce no fewer than 700 new items. This commenced during the 4th quarter. Totaling over remarkable achievement reflects our strong in- 60 new items, each of the lines features tempered house product design and development 420J2 steel, a special high-carbon cutlery steel capabilities. Our Product Design and that can be tapered to a perfect cutting edge. Development Team, consisting of 35 professional The cutlery is offered in a number of handle materials to suit every preference: hollow handle designers and engineers, enables us to extend ® our record of innovation and new product stainless steel; super-strong Dupont Delrin ; triple- introductions. This Team utilizes sophisticated riveted impact-resistant ABS, and even the world’s computer aided design technology that is also first line of non-slip silicone. The cutlery is available capable of creating product prototypes in-house. in open stock, in full sets and in multi-packs, such as carving sets and steak knife sets. Our designers collaborate closely with our ® customers to create new, innovative and unique Another major KitchenAid introduction in 2004 products. We monitor design trends and was the salad spinner. Over a year and a half in innovations in the overall consumer products development, the salad spinner was a major design and engineering challenge. The industry and attempt to apply new design ® concepts to the categories in which we compete. KitchenAid salad spinner requires only one hand to control, can be loaded with fruits or vegetables We also utilize our design capabilities to help our with no disassembly, has 2 easy-pour spouts for suppliers achieve manufacturing efficiencies and dispensing the extracted water, comes with 3 we work with our suppliers to introduce new dividers for the main basket, which allows manufacturing technologies. We have created simultaneous spinning of multiple fruits and new ways to shorten development time and vegetables without having them mix together, has speed up the production process. For example, a soft silicone ring on the handle and base to we use state-of-the-art rapid prototyping prevent slipping, and a clear 6-quart capacity machinery to bring ideas to reality in a fraction of outer bowl that can be used for both storage the time it would take using traditional modeling and serving.
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