Lifetime Hoan Corporation

One Merrick Avenue
Westbury, New York 11590
U.S.A.
(516) 683-6000
Fax: (516) 683-6116
Web site: http://www.lifetime.hoan.com

Public Company
Incorporated: 1945 as Lifetime Cutlery Corporation
Employees: 527
Sales: $100.02 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: LCUT
SICs: 3421 Cutlery; 3429 Hardware, Not Elsewhere Classified; 3914 Silverware, Plated Ware & Stainless Steel Ware

Lifetime Hoan Corporation designs, markets, and distributes household cutlery, kitchenware, cutting boards, and bakeware under both owned and licensed brands. Among the trademarks the company owns are Hoffritz, Tristar, Old Homestead, Hoan, Roshco, Baker’s Advantage, and Smart Choice; licensed brands include Farberware, Revere, and various brands under license from The Pillsbury Company (for example, the Pillsbury Doughboy, Green Giant) and Walt Disney Company, Inc. (for example, Mickey Unlimited and Mickey Stuff for Kids). Each year, Lifetime’s 12-person design department creates in excess of 300 new products, ranging from entry-level items through the mid-priced sector and to the upscale. The company farms out production to about 45 contract manufacturers located primarily in east Asia, with final assembly and packaging completed in a company-owned factory in New Jersey. Marketing is handled through both the company’s own sales force as well as a network of independent sales representatives. Lifetime includes among its customers about 1,800 national retailers, department store chains, mass merchant retail and discount stores, supermarket chains, warehouse clubs, direct marketing companies, specialty chains, and other channels. Its largest customer is the Wal-Mart Stores, Inc. chain, which accounts for about 17 percent of net sales. Through its Outlet Retail Stores, Inc. subsidiary, Lifetime Hoan also owns and operates about 50 Farberware outlet stores located in 25 states.

Cutlery Beginnings

The founder of Lifetime Hoan—and the chairman, CEO, and president of the company into the late 1990s—was Milton Cohen, born in 1929, the son of a garment worker. Following high school, Cohen began working as a scissors and shears salesman. He eventually gained a position, at age 26, managing sales on the east coast for a large cutlery firm.

Wanting to be his own boss, Cohen joined in 1957 with partner Sam Siegel to start a knife factory in Brooklyn under the name Reo Products. In 1960 Reo Products acquired 1945-founded Lifetime Cutlery Corporation, a larger distributor of knives than Reo. Cohen adopted Lifetime’s name for his company.

Cohen, in a 1995 interview with the New York Times, estimated that there were about 100 cutlery manufacturers in the United States in the late 1950s, but that their numbers dwindled over the decades to three. Most of the companies failed because of increasing imports of cheap goods from Asia. A key to his company’s survival, Cohen had concluded, was the 1961 decision to shift manufacturing overseas. That year the company began contracting with manufacturers in Japan for the production of parts. The parts were then shipped to the Brooklyn factory for assembly and packing. Freed from the production of basic parts, Cohen and Siegel could concentrate on design, packaging, and marketing. Over the years, Lifetime Cutlery shifted its production from one east Asian country to the next, progressing to Korea, Taiwan, the Philippines, Malaysia, Indonesia, Thailand, and China.

Between 1965 and 1967 Lifetime sold 50 million steak knives to Shell Oil for ten cents each. Shell gave one of the ivory-plastic-handled knives out to each customer coming in for a fill-up. Cohen told Business Week in 1994, “It was a lot of business and just a lot of hard work and no profit.”

By staying away from such risky gimmicks and especially through relentless marketing, Cohen, Siegel, and a third partner increased sales by 1980 to $13 million. Within a year, however, both of Cohen’s partners died. Needing cash for himself and to provide for his partners’ families, Cohen—in collaboration with his former partners’ sons, Jeffrey Siegel and Craig Phillips—executed a $16 million leveraged buyout (LBO) of the company in April 1984. Siegel and Phillips became executives at Lifetime, remaining in executive positions and on the board of directors into the late 1990s.

Acquired Hoan Products in the Mid-1980s

Cohen and his new partners acquired a controlling interest in Hoan Products Ltd. in 1986; they soon owned the company outright, through a total investment of $4 million. Hoan Products was an unprofitable supplier of kitchen tools and gadgets generating annual sales of $14 million. Lifetime Cutlery became Lifetime Hoan Corporation following the takeover.

Still headquartered in low-cost Brooklyn, Lifetime Hoan moved the Hoan operation there, selling its New Jersey headquarters for $5 million. Other changes included redesigning the Hoan line, cutting the costs of manufacturing Hoan products, and selling them through Lifetime’s established channels. The last of these maneuvers was particularly strategic as both Lifetime cutlery and Hoan kitchenware were positioned in the entry-level and middle-market sectors, selling well in supermarkets, mass merchandisers, and specialty shops. By the early 1990s half of the company’s sales came from the Hoan line.

In 1987 Lifetime Hoan moved its manufacturing operation to Dayton, New Jersey, maintaining its headquarters in Brooklyn. That same year the company entered into its first licensing agreement. In a deal with Walt Disney Company, Lifetime obtained the right to develop and market a line of Disney flatware and a line of kitchen gadgets under the Chef Mickey name. After some ups and downs, the two companies settled on profitable lines of children’s housewares featuring Mickey and Minnie Mouse on such items as bag clips, party goods, bottle stoppers, and flatware.

Farberware and Pillsbury Licenses Marked Early 1990s

Revenues reached $38.5 million by 1989, while net income stood at $800,000. At this time Lifetime Hoan’s cutlery lines, which included the Tristar and Old Homestead brands, remained on the lower end of the market. The company made its first move up the scale in early 1990 when it entered into a license agreement with Farberware, Inc. to market cutlery, kitchen gadgets, and barbecue accessories under the well-known and respected Farberware name. Founded in 1900, Farberware made its reputation with the stainless steel cookware it introduced soon after the end of World War II and the beginnings of the postwar boom years. In 1966 Farberware was acquired by Walter Kidde & Co., which sold the company to British conglomerate Hanson PLC in 1987. Under Hanson, Farberware began broadening the range of products bearing the famous brand, with the agreement with Lifetime Hoan a notable part of that trend. The Lifetime-created Farberware products were mid-priced and aimed at department stores and specialty shops, a retail sector already well acquainted with the Farberware name. This strategy enhanced both the probability that stores would stock the items and that consumers would buy them.

A similar licensing deal involving the leveraging of a familiar brand was reached in April 1991, this time with Pillsbury for a line of moderately priced bakeware and kitchen accessories. Launched in mid-1992, the line eventually included items such as nonstick cookie sheets and pie pans, spatulas, whisks, and cookie cutters featuring the Pillsbury Doughboy logo, as well as accessories such as peelers, can openers, kitchen hooks, and steamers incorporating the Green Giant character. These products were aimed at the supermarket channel, where the Pillsbury brands were long established.

In June 1991 Lifetime Hoan sold 40 percent of the company to the public in an initial public offering (IPO) that raised $19.4 million. Portions of the proceeds were used to virtually eliminate Lifetime’s outstanding debt (some stemming from the 1984 LBO) and to redeem all outstanding preferred stock, leaving about $7.7 million in working capital. The offering not only strengthened the company’s balance sheet, it also positioned Lifetime to grow through continued aggressive new product development and through acquisition. In addition, the offering provided some liquidity for Cohen and the second generation Siegel and Phillips shareholders, a lesson Cohen learned from the surprise deaths of his original partners. As of 1993, Cohen and his family held a 24 percent stake in Lifetime Hoan, while the Siegel and Phillips families held another 27 percent.

The company launched a new brand, Smart Choice, in 1993. This was a line of gadgets, packaged as impulse purchases and geared strictly for supermarkets, drug store chains, and mass merchandisers. Smart Choice helped fuel a new product blitz whereby Lifetime introduced 500 new items in 1994, compared with 150 the previous year. By 1994 the company offered about 3,000 different products.

Sales reached $77.4 million in 1994, nearly double the figure of 1989. Profits stood at $8.6 million, which translated into a profit margin of 11.1 percent, quite impressive for a maker of mainly low-priced housewares. The Farberware license was responsible for much of the increase in both sales and profits, as the Farberware line accounted for more than a quarter of overall sales and an even larger portion of profits. The decision to sell more higher priced products (a Farberware set of knives might be priced three times higher than a similar set under one of Lifetime’s other brands) was clearly beginning to pay dividends. The company’s shareholders benefited thereby from a 3-for-2 stock split in late 1993.

Lifetime Hoan moved its headquarters to Westbury, New York (on Long Island), in October 1994. The company had outgrown its space in Brooklyn, but also found difficulty in attracting employees there. Of particular importance was hiring new computer-literate designers since the design department was being expanded and computerized during this period. The move to Long Island enabled Lifetime to bring in the highly skilled people it needed and to improve its productivity. The company paid $5 million for a 40,000-square-foot building, used as headquarters and for a showroom for visiting buyers. Previously, because many buyers were reluctant to venture into Brooklyn, Lifetime had had to maintain a showroom in expensive Manhattan, where high rents limited its size. At this new building, the company had a huge showroom, with the added benefit of being able to show buyers both the showroom and Lifetime’s high-tech design shop at the same time. Meantime, Lifetime continued to contract out its manufacturing to its Asian partners, with final assembly and packaging handled at its New Jersey factory.

Made Hoffritz and Farberware Deals in the Mid-1990s

The middle to late 1990s saw an ever more aggressive Lifetime Hoan complete a series of acquisitions and enter into new licensing and partnership deals. Having established itself as a leader in the entry-level and mid-priced segments of the housewares market, Hoan sought to enter the high-end market. To do so, it decided to acquire an instantly recognizable brand, rather than license one. After a two-year search, Lifetime settled upon the upscale 60-year-old Hoffritz brand, acquiring it in September 1995 from Alco Capital Group, Inc., an investment firm that had purchased Hoffritz in late 1992 from the bankrupt C.W. Acquisitions. At one time, there had been 197 Hoffritz stores selling upscale cutlery and kitchenware, but by the time Lifetime acquired the brand there were only six (and these were closed shortly thereafter).

Lifetime launched a new line of Hoffritz products in the spring of 1996, a line that within a few years exceeded 300 items. It featured knives, scissors, and shears; kitchenware, including spatulas, ladles, peelers, ice cream scoops, lemon zesters, serving spoons, graters, thermometers, and colanders; barbecue accessories; cutting boards; pepper grinders; bar accessories; and personal care implements, such as nail files and clippers, tweezers, manicure sets, and pocket knives. Lifetime marketed Hoffritz products in department and specialty stores through a “shop within a store” concept.

In 1995 Hanson spun off Farberware and 33 of its other smaller U.S. subsidiaries, forming U.S. Industries Inc. The new company soon began shopping Farberware around, having designated it a noncore asset. In April 1996 Lifetime Hoan joined with Syratech Corporation, an East Boston-based maker of tabletop and giftware products, to acquire most of the assets of Farberware for a total of about $52 million, $12.7 million of which was paid by Lifetime in cash. Syratech gained Farberware’s cookware and small electrical appliances business. Lifetime and Syratech simultaneously entered into a 50-50 joint venture that gained outright ownership of the rights to the Farberware trademarks. Through this joint venture, Lifetime acquired a 200-year, royalty-free, exclusive right to the Farberware name in connection with the cutlery, kitchen gadgets, and barbecue accessories covered by the 1990 licensing agreement; in essence Lifetime thereby owned the trademark for these product categories. The company also acquired 50 Farberware outlet stores. In July 1997 Lifetime struck a deal with Meyer Corporation, the licensed manufacturer of Farberware cookware, in connection with these stores. Lifetime would continue to own and operate the stores, while Meyer and Lifetime would be jointly responsible for merchandising and stocking them, with Meyer handling the cookware and Lifetime the rest of the stock. Meyer would receive all revenue from sale of the cookware and reimburse Lifetime for 62.5 percent of the stores’ operating expenses. Through this arrangement, the stores returned to profitability.

In April 1997 the company entered into a long-term agreement with the Microban Products Company to incorporate Microban antibacterial protection into cutting boards, kitchenware, and cutlery. The Microban technology acted to inhibit the growth of common kitchen bacteria, as well as molds, fungus, and mildew. In September 1997 Farberware cutting boards and such kitchen items as pastry and sink brushes, all with Microban protection, made their debut. The following month Lifetime Hoan announced that it had initiated payment of cash dividends on its stock, starting with the third quarter of 1997, a move reflecting a company confident of its long-term prospects.

Not resting on its laurels, Lifetime in August 1998 acquired Roshco, Inc., a Chicago-based, privately held distributor of better-quality bakeware under the Roshco and Baker’s Advantage brands. The addition of Roshco, which had revenues of $10 million in 1997, not only extended the company further into the bakeware sector, it also added to the already strong array of higher-end products Lifetime could aim at department and specialty stores. In late 1998 Lifetime achieved similar aims through the signing of a license agreement with Corning Consumer Products Company for the design and marketing of cutlery and cutting boards under the well-known Revere brand. The first products from this line were introduced in early 1999.

Over the course of the 1990s Lifetime Hoan made a dramatic transition from a marketer of lower-end, lesser-known trademarks to that of higher-end, better-known brands. Farberware and Hoffritz quickly became Lifetime’s most important brands, with these lines accounting for about 60 percent of overall sales in 1996, 70 percent in 1997, and 75 percent in 1998. The addition of the Roshco and Revere brands to the company stable were logical extensions of the same strategy. In the early 21st century Lifetime Hoan was likely to continue to seek out complementary acquisitions to fuel growth; its balance sheet was solid enough to fund such purchases easily. The company also seemed certain to leverage the highly desirable brands it now owned outright (or through the partnership with Syratech) by serving increasingly as a licenser.