LIFETIME BRANDS, INC

The Company recognized total stock compensation expense of $1.2 million for the three months ended June 30, 2019, of which $0.1 million represents stock option compensation expense and $1.1 million represents restricted stock and performance-based stock compensation expense. For the six months ended June 30, 2019, the Company recognized total stock compensation expense of $2.1 million, of which $0.3 million represents stock option compensation expense and $1.8 million represents restricted stock and performance-based stock compensation expense. The Company recognized total stock compensation expense of $0.9 million for the three months ended June 30, 2018, of which $0.2 million represents stock option compensation expense and $0.7 million represents restricted stock and performance-based stock compensation expense. For the six months ended June 30, 2018, the Company recognized total stock compensation expense of $1.8 million, of which $0.4 million represents stock option compensation expense and $1.4 million represents restricted stock and performance-based stock compensation expense.

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 capital cost for its selected remedy is $7.3 million. 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 at and from the Site and to determine the nature of the remedial action needed. The EPA requested access to the property occupied by WSPR to install monitoring wells and to undertake groundwater sampling as part of this expanded investigation. WSPR consented to the EPA’s access request, subject to PRIDCO’s consent, as the property owner.

On July 19, 2019, WSPR’s counsel received an email from the US Department of Justice attorney representing the EPA with respect to the Site providing, as a courtesy, information relating to a public meeting to be held on July 30, 2019, in San German concerning the EPA’s proposed plan for a second operable unit. The EPA is accepting public comments on the proposed remedy, which is estimated to cost $17.3 million and includes in situ treatment and monitored nature attenuation of groundwater. The public comment period lasts for 30 days and ends on August 11, 2019. However, any member of the public can request a mandatory 30 day extension.

The Company implemented programs to improve the productivity of its inventory and simplify its U.S. business. In connection therewith, it initiated a SKU Rationalization initiative to identify inventory to discontinue from active status, consistent with the objectives of these programs. During the three months ended June 30, 2019, the Company recorded an $8.5 million charge to cost of sales associated with the SKU Rationalization initiative. The inventory affected represents approximately 8% of its consolidated inventory.

Gross margin for the U.S. segment was $83.0 million, or 33.2%, for the six months ended June 30, 2019, as compared to $82.9 million, or 36.8%, for the corresponding period in 2018. The gross margin decrease reflects an $8.5 million charge for the SKU Rationalization initiative, offset by the $1.2 million non-recurring inventory step-up charge incurred in the six month period in 2018. Excluding the SKU Rationalization and step-up charges, gross margin would have been 36.6% and 37.4% in the 2019 and 2018 periods, respectively. The decrease was attributable to changes in customer and product mix.