UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of report (Date of earliest event reported): July 11, 2005
Lifetime Brands, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
0-19254 11-2682486
(Commission File Number) (IRS Employer Identification No.)
One Merrick Avenue, Westbury, New York 11590
(Address of Principal Executive Offices) (Zip Code)
516-683-6000
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of
the registrant under any of the following provisions (see
General Instruction A.2. below):
Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-
2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-
4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Explanatory Note
On July 15, 2005, Lifetime Brands, Inc. ("Lifetime" or the
"Company") filed a Form 8-K under Item 2.01 to report the
completion of its acquisition of the business and certain
assets and liabilities of The Pfaltzgraff Co.
("Pfaltzgraff"). In response to parts (a) and (b) of Item
9.01 of such Form 8-K, Lifetime stated that it would file
the required financial information by amendment, as
permitted by Item 9.01(a)(4) and 9.01(b)(2) to Form 8-K.
Lifetime hereby amends its Form 8-K filed on July 15, 2005
in order to provide the financial information required by
Item 9.01.
ITEM 9.01 Financial Statements and Exhibits
(a) Financial Statements of business acquired.
1. The audited consolidated balance sheets of The Pfaltzgraff Co.
and subsidiaries as of December 31, 2004 and
2003 and the related consolidated statements of operations,
stockholder's equity and cash flows for the years ended
December 31, 2004, 2003 and 2002 and the notes to the
consolidated financial statements together with the report
thereon of KPMG LLP are attached hereto as Exhibit 99.1.
2. The unaudited condensed consolidated balance sheets of
The Pfaltzgraff Co. and subsidiaries as of June 30, 2005 and
December 31, 2004 and the related unaudited condensed
consolidated statements of operations and cash flows for the
six months ended June 30, 2005 and 2004 and the notes to the
unaudited condensed consolidated financial statements are
attached hereto as Exhibit 99.1.
(b) Pro forma financial information
The unaudited pro forma condensed combined balance sheet of the
Company as of June 30, 2005 and unaudited pro forma condensed
combined statements of operations for the six months ended
June 30,2005 and the year ended December 31, 2004 are
attached hereto as Exhibit 99.2.
(c) Exhibits.
23.1 Consent of KPMG LLP
99.1 Pfaltzgraff Financial Statements
99.2 Unaudited Pro Forma Condensed Combined Financial
Information
99.3 The Asset Purchase Agreement dated as of June
17, 2005 by and among The Pfaltzgraff Co., The Pfaltzgraff
Manufacturing Co. and Lifetime Brands, Inc., PFZ Acquisition
Corp. and PFZ Outlet Retail, Inc. filed with a Current
Report on Form 8-K dated June 17, 2005 and incorporated
herein by reference.
99.4 Amendment No.1 to the Restated Credit Facility
Agreement between Lifetime Hoan Corporation and the Bank of
New York, dated July 11, 2005 filed with a Quarterly Report
on Form 10-Q dated June 30, 2005 and incorporated herein by
reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this
report to be signed on its behalf by the undersigned,
hereunto duly authorized.
LIFETIME BRANDS, INC.
By: /s/ Robert McNally
Robert McNally
Vice President of Finance
and Chief Financial Officer
Dated: September 21, 2005
Exhibit Index
23.1 Consent of KPMG LLP
99.1 Pfaltzgraff Financial Statements
99.2 Unaudited Pro Forma Condensed Combined Financial
Information
Exhibit 23.1
Consent of Independent Auditors'
The Board of Directors
Lifetime Brands, Inc.
We consent to the use of our report dated September 16,
2005, with respect to the consolidated balance sheets of The
Pfaltzgraff Co. and subsidiaries, a wholly-owned subsidiary
of Susquehanna Pfaltzgraff Co., as of December 31, 2004 and
2003, and the related consolidated statements of operations,
stockholder's equity, and cash flows for each of the years
in the three-year period ended December 31, 2004, which
report is included in the Form 8-K/A of Lifetime Brands, Inc.
as originally dated July 11, 2005.
/s/ KPMG LLP
Harrisburg, Pennsylvania
September 19, 2005
Exhibit 99.1
THE PFALTZGRAFF CO. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
Independent Auditors' Report 1
Financial Statements
Consolidated Balance Sheets as of December 31, 2004 and 2003 2
Consolidated Statements of Operations for the Years
Ended December 31, 2004, 2003 and 2002 3
Consolidated Statements of Stockholder's Equity for the
Years Ended December 31, 2004, 2003 and 2002 4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2004, 2003 and 2002 5
Notes to Consolidated Financial Statements 6-15
Independent Auditors' Report
The Board of Directors
TPC-York, Inc. (formerly The Pfaltzgraff Co.):
We have audited the accompanying consolidated balance sheets of
The Pfaltzgraff Co. and subsidiaries (the Company), a wholly-
owned subsidiary of Susquehanna Pfaltzgraff Co., as of December
31, 2004 and 2003, and the related consolidated statements of
operations, stockholder's equity and cash flows for each of the
years in the three year period ended December 31, 2004. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
financial position of The Pfaltzgraff Co. and subsidiaries as
of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the years in the
three year period ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States
of America.
/s/ KPMG LLP
September 16, 2005
THE PFALTZGRAFF CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
2004 2003
ASSETS
Current Assets
Cash and cash equivalents $ 716 $ -
Accounts receivable, less allowance for
doubtful accounts and sales returns of
$1,775 in 2004 and $2,239 in 2003 (Note 2) 4,634 6,332
Inventories (Notes 2 and 3) 25,956 33,952
Other current assets 2,526 2,730
Total Current Assets 33,832 43,014
Property, Plant and Equipment, at cost (Note 2)
Land 1,817 1,817
Buildings and improvements 23,798 24,754
Machinery and equipment 74,173 80,056
Construction-in-progress 495 881
100,283 107,508
Accumulated depreciation and amortization 80,590 83,040
Property, Plant and Equipment, net 19,693 24,468
Income Taxes Receivable From Parent (Note 4) 25,299 21,174
Deferred Income Taxes (Note 4) - 488
Prepaid Pension Costs (Note 5) 10,531 9,890
Other Assets 121 599
$ 89,476 $ 99,633
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Cash overdrafts $ - $ 123
Accounts payable 3,150 5,540
Accrued interest 38 42
Deferred income taxes (Note 4) 1,613 3,735
Accrued restructuring and closing costs
(Note 8) 565 1,132
Accrued salaries and benefits 1,403 1,175
Accrued advertising 1,994 1,595
Other accrued expenses 2,113 1,711
Total Current Liabilities 10,876 15,053
Long-term Debt (Note 2) 9,139 7,633
Liability for Discontinued Operations (Note 9) 1,043 1,290
Deferred Income Taxes (Note 4) 1,777 -
Stockholder's Equity (Note 2)
Preferred stock - 7% Non-cumulative,
$1,000 par value, 20,000 shares
authorized, issued and outstanding 20,000 20,000
Common stock - Class "A" Voting, $1 par
value, 31,200,000 shares authorized,
issued and outstanding 31,200 31,200
Additional paid-in capital 87,057 83,657
Accumulated deficit (71,616) (59,200)
Total Stockholder's Equity 66,641 75,657
$ 89,476 $ 99,633
The accompanying notes are an integral part of the condensed
consolidated financial statements.
2
THE PFALTZGRAFF CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
For The Years Ended
December 31,
2004 2003 2002
REVENUES $148,021 $157,078 $185,158
COSTS AND EXPENSES
Cost of sales 102,772 108,556 123,077
Selling 29,965 31,729 34,270
General and administrative 28,765 30,992 33,353
Interest 702 943 547
Restructuring and closing costs (Note 8) 3,431 5,783 3,293
Other 532 (260) 735
Total 166,167 177,743 195,275
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (18,146) (20,665) (10,117)
BENEFIT FOR INCOME TAXES (Note 4) 5,730 7,589 2,541
LOSS FROM CONTINUING OPERATIONS (12,416) (13,076) (7,576)
DISCONTINUED OPERATIONS, NET OF
INCOME TAX BENEFIT OF $134 FOR 2002 - - (291)
NET LOSS AND COMPREHENSIVE LOSS $ (12,416) $(13,076) $(7,867)
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
THE PFALTZGRAFF CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(In thousands, except share data)
Additional
Preferred Common Paid-In Accumulated
Stock Stock Capital Deficit Total
Balance as of January 1, 2002 $20,000 $31,200 $77,657 $(38,257) $90,600
Net loss - - - (7,867) (7,867)
Balance as of December 31, 2002 20,000 31,200 77,657 (46,124) 82,733
Net loss - - - (13,076) (13,076)
Parent's capital contributions - - 6,000 - 6,000
Balance as of December 31, 2003 20,000 31,200 83,657 (59,200) 75,657
Net loss - - - (12,416) (12,416)
Parent's capital contributions - - 3,400 - 3,400
Balance as of December 31, 2004 $20,000 $31,200 $87,057 $(71,616) $66,641
Shares Issued and Outstanding
Preferred Common Stock
Stock
January 1, 2002 20,000 31,200,000
December 31, 2002 20,000 31,200,000
December 31, 2003 20,000 31,200.000
December 31, 2004 20,000 31,200,000
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
THE PFALTZGRAFF CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
2004 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (12,416) $(13,076) $(7,576)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 4,686 6,299 7,312
Deferred income taxes 144 613 996
Deferred financing amortization 93 148 47
Loss on sale of Shenango assets - - 1,371
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable, net 1,698 (2,405) 2,793
Decrease (increase) in inventories 7,995 1,223 (367)
Increase in income taxes receivable
from parent (4,126) (8,270) (3,869)
Decrease (increase) in other current
assets 204 919 (249)
Increase in prepaid pension costs (640) (817) (997)
Decrease in accounts payable (2,390) (57) (404)
Increase (decrease) in accrued interest (4) (7) 4
Increase (decrease) in accrued
restructuring and closing costs 1,314 3,887 35
Increase (decrease) in accrued
salaries and benefits 228 (492) (452)
Increase (decrease) in accrued
advertising 398 (84) (100)
Increase (decrease) in other accrued
expenses 403 (596) 839
Net cash used by operating activities
of continuing operations (2,413) (12,715) (617)
NET CASH USED BY DISCONTINUED OPERATIONS (247) (67) (308)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and
equipment, net (1,407) (1,792) (1,813)
Proceeds from sale of Shenango assets - - 50
Increase in other assets - (391) (72)
Net cash used by investing activities (1,407) (2,183) (1,835)
CASH FLOW FROM FINANCING ACTIVITIES
Capital contributions by Parent 3,400 6,000 -
Increase in revolving credit borrowings 1,506 7,633 -
Increase (decrease) in cash overdrafts (123) 123 -
Net cash provided by financing
activities 4,783 13,756 -
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 716 (1,209) (2,760)
CASH AND CASH EQUIVALENTS, beginning of year $ - $ 1,209 $ 3,969
CASH AND CASH EQUIVALENTS, end of year $ 716 $ - $ 1,209
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
1.Significant Accounting Policies
Nature of Operations - The Pfaltzgraff Co. (the Company)
is a manufacturer, wholesaler and retailer of dinnerware
and complementary housewares. The Company distributes
its product primarily in the United States.
Principles of Consolidation - The consolidated financial
statements include the accounts of the Company and its
subsidiaries, The Pfaltzgraff Outlet Co., The Pfaltzgraff
Manufacturing Co., Treasure Craft, Inc., Pfaltzgraff
Canada, Ltd. and Pfaltzgraff Investment Co. The Company
is a wholly-owned subsidiary of Susquehanna Pfaltzgraff
Co. (the Parent). All significant intercompany accounts
and transactions are eliminated.
Use of Estimates in the Preparation of Financial
Statements - The preparation of financial statements in
conformity with accounting principles generally accepted
in the United States of America requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results
could differ from those estimates.
Credit Risk - Concentrations of credit risk include cash
and accounts receivable. The Company deposits its cash
in high-quality financial institutions. Periodically,
deposited balances may exceed FDIC-insured maximums.
Accounts receivable are largely from retail businesses
whose ability to pay is subject to changes in general
economic conditions. Credit risk is managed by credit
and collection controls. The allowance for doubtful
accounts is determined using historical experience,
payment trends and credit information in the context of
existing economic conditions. Three customers made up
the following percentages of accounts receivable and
revenues for the years ended
2004 2003 2002
Accounts Receivable 66% 67% 48%
Revenues 14% 16% 12%
Cash and Cash Equivalents - The Company considers all
highly liquid financial instruments purchased with a
maturity of three months or less to be cash equivalents.
Inventories - Inventories manufactured by the Company in
the United States of America and certain sourced items
are valued at the lower of last-in, first-out (LIFO) cost
or market. Other inventories are valued at the lower of
first-in, first-out (FIFO) cost or market.
6
1.Significant Accounting Policies, continued
Property, Plant and Equipment - These assets are stated
at cost. Depreciation and amortization are computed
using the straight-line method for financial statement
purposes based on the following ranges of estimated
useful lives:
Buildings and improvements 10 to 40 years
Machinery and equipment 3 to 20 years
Depreciation and amortization expense was $4.7 million,
$6.3 million and $7.3 million for the years ended
December 31, 2004, 2003 and 2002, respectively.
Asset additions and major renovations are capitalized and
depreciated over their estimated useful lives.
Periodically, asset lives are reviewed and adjusted based
on facts and circumstances. Costs of maintenance,
repairs and minor renovations are charged against income.
Gains or losses on dispositions are credited to or
charged against income. The costs and accumulated
depreciation related to dispositions are removed from the
accounts.
Revenue Recognition - Revenues are recognized on shipment
of inventory or retail sale. Returns are reflected as a
reduction of revenues. The Company estimates expected
sales returns and allowances based on a periodic
historical review and other factors. The company records
shipping and handling charged to its customers in
Revenues and the related cost of shipping and handling in
Cost of Sales.
Advertising - Advertising costs are expensed as incurred.
Valuation of Long-Lived Assets - The Company evaluates
the recoverability of its long-lived assets including
property, plant and equipment whenever events or changes
in circumstances suggest the carrying values may not be
recoverable. Analyses based on undiscounted cash flows
generated by the related operations and appraisals,
trends or other indicators of fair value are used in
these evaluations. If the asset's carrying value exceeds
the indicated fair value, a loss is recognized for the
difference between the fair value and the asset's
carrying value.
Interest - Interest paid was $0.6 million, $0.8 million
and $0.5 million for the years ended December 31, 2004,
2003 and 2002, respectively.
Income Taxes - The Company uses the asset and liability
method of accounting for income taxes. The benefit for
income taxes includes income taxes currently payable and
those deferred. Deferred income taxes reflect the future
tax consequences of temporary differences between the tax
bases of assets and liabilities and their financial
reporting balances at each year-end. Changes in enacted
tax rates are reflected in income taxes as they occur.
7
1.Significant Accounting Policies, continued
Recent Accounting Pronouncements - In January 2003, the
FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No.
51," (FIN 46). FIN 46 addresses the consolidation by
business enterprises of variable interest entities as
defined in the Interpretation. FIN 46 applied
immediately to variable interests in variable interest
entities created after January 31, 2003, and to variable
interests in variable interest entities obtained after
January 31, 2003. In December 2003, FASB issued FIN 46R,
a revision of FIN 46, that delayed implementation for
entities other than Special Purpose Entities. The
Company must adopt FIN 46R in 2005. FIN 46R's impact has
not yet been determined.
2.Long-term Debt
Long-term debt as of December 31, was as follows (in
thousands):
2004 2003
Notes Payable -
Revolving credit loans $ 9,139 $ 7,633
The revolving credit loan's stated value approximated its
fair value. A credit agreement provided a revolving
credit facility with a maximum commitment up to $30
million. Availability under the credit facility at any
time was limited to a percentage of eligible accounts
receivable and inventory. As of December 31, 2004, $4.9
million was available for borrowing under the facility.
The credit facility was available for working capital and
capital expenditure requirements and was scheduled to
mature in March 2006. The credit facility was repaid in
July 2005 (see Note 10). Borrowings were secured by the
Company's assets and were guaranteed by all domestic
subsidiaries. On October 20, 2004, an amendment to the
credit agreement was signed. The amendment changed the
minimum adjusted net worth requirement and added a
minimum excess availability requirement.
Interest rates on borrowings were at the prime rate plus
up to 0.5% or at LIBOR plus 2.25% to 2.75%. As of
December 31, 2004, the interest rate was 4.93%. Interest
rates may be fixed for periods up to 180 days. Interest
was payable monthly on prime and LIBOR-based loans. The
Company could utilize up to $10 million of the facility
for letters of credit. As of December 31, 2004, $2.5
million of letters of credit were outstanding. A fee of
up to 0.5% of the facility's unused amount was payable
monthly. The credit facility limited the Company's
ability to pay dividends, make capital expenditures and
acquisitions, and make payments to related parties.
8
3.Inventories
Inventories as of December 31, were comprised of (in
thousands):
2004 2003
Finished goods $ 17,645 $ 23,048
Work-in-process 6,540 8,254
Raw materials 1,771 2,650
$ 25,956 $ 33,952
LIFO increments were costed using the link-chain method.
External indices were used to determine the effect of
price changes for manufactured and sourced item pools.
If all inventories were valued at the lower of FIFO cost
or market, inventory values at December 31, 2004 and 2003
would have been $32.0 million and $40.0 million,
respectively. Using the FIFO method would have increased
the loss from continuing operations by $1.1 million in
2004, would not have changed the 2003 loss from continuing
operations and would have decreased the 2002 loss from
continuing operations by $0.4 million. A decrement in
LIFO inventories increased the loss from continuing
operations for 2003 by $0.6 million.
Retail and other inventories, valued at the lower of FIFO
cost or market, were $9.0 million and $13.4 million at
December 31, 2004 and 2003, respectively.
4.Income Taxes
Components of the benefit for income taxes for the years
ended December 31, were as follows (in thousands):
2004 2003 2002
Current
Federal $ 6,136 $ 8,255 $ 3,804
State (262) (53) (111)
Foreign - - (156)
Total current 5,874 8,202 3,537
Deferred
Federal (230) (525) (576)
State 86 (88) (420)
Total deferred (144) (613) (996)
Benefit for Income Taxes $ 5,730 $ 7,589 $ 2,541
9
4.Income Taxes, continued
Income taxes paid in 2004, 2003 and 2002 were $0.2
million, $0.1 million and $0.1 million, respectively.
The Company is included in its Parent's consolidated
federal income tax return. The Company's tax provision
is first computed on a separate return basis. The
consolidated federal income tax expense is allocated pro
rata to all return group members. In accordance with a
tax sharing agreement among its Parent and other
subsidiaries, the Company receives pro rata benefit for
losses that reduce income taxes paid or payable on a
consolidated basis. Income taxes receivable from Parent
arise from losses utilized in the consolidated federal
income tax return. The tax sharing account must be
settled with the Parent if the Company leaves the
consolidated federal income tax return, or earlier at the
Parent's sole discretion. During the year ended December
31, 2004, $2.0 million was received from the Parent and
recognized as a reduction of income taxes receivable from
parent.
At December 31, 2004 and 2003, deferred tax assets and
liabilities resulted from the following temporary
differences (in thousands):
2004 2003
Deferred Tax Assets
Allowance for doubtful accounts $ 138 $ 135
Inventories 559 999
Environmental reserves 179 254
Returns and allowances reserve 475 695
Closing reserves 281 155
Liabilities not recognized for tax 661 276
Foreign NOL carryforwards 2,259 2,118
State net operating loss
carryforward 10,837 10,053
15,389 14,685
Deferred Tax Liabilities
Property, plant and equipment (1,997) (2,121)
Retirement benefits (3,664) (3,613)
Other liabilities (22) (27)
(5,683) (5,761)
Valuation Allowances (13,096) (12,171)
Net deferred tax liabilities $(3,390) $(3,247)
The Company had $121.3 million and $111.7 million of
state net operating loss carryforwards as of December 31,
2004 and 2003, respectively.
The Company has established a full valuation allowance
for the tax effects of these state income tax loss
carryforwards as utilization is uncertain. No current
tax benefits were provided for these losses.
10
4.Income Taxes, continued
One of the Company's foreign subsidiaries has established
a full valuation allowance for its net operating loss
carryforwards of $5.7 million and $5.3 million at
December 31, 2004 and 2003, respectively. The balance in
the valuation allowance for foreign deferred tax assets
as of December 31, 2004 and 2003 was $2.3 million and
$2.1 million, respectively.
Reconciliations of the difference between the U.S.
statutory income tax rate and the actual effective book
income tax rate follow:
2004 2003 2002
U. S. statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
Federal income tax effect (0.6) (0.4) (3.3)
Permanent differences (0.2) (0.2) (0.2)
Foreign taxes - - (1.5)
Other (2.6) 2.3 (5.9)
Annual effective book income
tax rate 31.6% 36.7% 24.1%
5.Employee Benefits
Full-time employees participated in the Parent's Employee
Stock Ownership Plan (ESOP). ESOP benefit costs of $2.2
million, $2.4 million and $4.3 million were recognized
for the years ended December 31, 2004, 2003 and 2002,
respectively. Effective January 1, 2005, the Company's
employees ceased participation in the Parent's ESOP and
became fully vested in their accounts.
Certain full-time employees of the Company and its
subsidiaries were covered by the Parent's noncontributory
qualified defined benefit pension plans (the Plans).
Benefits under the Plans were based on employees' years
of service and earnings over part or all of their careers
through April 1999, when benefit accruals ceased and the
ESOP was instituted.
11
5.Employee Benefits, continued
The funded status of the Plans as of December 31, was (in
thousands):
2004 2003
Benefit obligation,
beginning of year $43,853 $38,941
Service cost - -
Interest cost 2,623 2,586
Actuarial losses 2,739 4,406
Benefits paid (1,932) (2,080)
Benefit obligation, end of
year 47,283 43,853
Fair value of the Plans'
assets, beginning of year 48,725 40,534
Actual return on the
Plans' assets 4,850 10,271
Benefits paid (1,932) (2,080)
Fair value of the Plans'
assets, end of year 51,643 48,725
Excess of fair value of the
Plans' assets over benefit
obligation at end of year 4,360 4,872
Unrecognized net actuarial
losses 12,691 10,904
Unrecognized transition asset - -
Unrecognized prior service costs 816 884
Prepaid pension cost at
December 31, $17,867 $16,660
The Plans' net pension costs for the years ended December
31, included the following components (in thousands):
2004 2003
Service cost $ 240 $ 270
Interest cost 2,623 2,586
Expected return on plan assets (4,371) (4,402)
Amortization of transition asset - (7)
Amortization of loss 233 -
Amortization of prior service cost 68 68
Net periodic pension cost (income) $( 1,207) $(1,485)
Pension income allocated to the Company for the years
ended December 31, 2004, 2003 and 2002 was $0.6 million,
$0.8 million and $1.0 million, respectively. The
Company's share of prepaid pension costs as of December
31, 2004 and 2003 was $10.5 million and $9.9 million,
respectively.
12
5.Employee Benefits, continued
The Parent's funding policy for the Plans is to make
contributions, as required by various regulations, not to
exceed the maximum amounts deductible for federal income
tax purposes. The Plans' assets, primarily listed bonds
and stocks, are held by independent trustees.
The weighted average discount rate used in determining
the actuarial present value of the Plans' projected
benefit obligations was 5.74%, 6.10% and 6.75% for 2004,
2003 and 2002, respectively. The expected long-term rate
of return on the Plans' assets was 8.75% for all three
years.
The Parent also sponsors a defined contribution (401K)
plan, which covers all full-time employees. The plan
matches 75% of the first 2% of eligible compensation
contributed by a participant. The match for Company
employees was suspended September 1, 2003 as a cost-
savings measure. The Company contributed $0.3 million
to the plan for both the years ended December 31, 2003
and 2002. No contribution was made in 2004.
6.Lease Commitments
Total operating lease expenses recognized were $7.6
million, $8.9 million and $9.6 million for the years
ended December 31, 2004, 2003 and 2002, respectively.
Annual future aggregate minimum rental commitments
under non-cancelable operating leases
are as follows (in thousands):
2005 $ 6,029 2008 $ 2,543
2006 4,530 2009 1,675
2007 3,847 2010 and beyond 1,455
7.Related Parties
The Company purchased management, general and
administrative services from its Parent at a cost of $4.2
million, $4.5 million and $5.9 million for the years
ended December 31, 2004, 2003 and 2002, respectively.
Included in operating leases for the years ended
December 31, 2004, 2003 and 2002 were $0.8 million,
$1.1 million and $0.9 million, respectively, for
office and warehouse space rented from its Parent and
a related partnership. These leases represent $0.7
million in annual rental commitments under non-
cancelable operating leases in each year through 2009.
From 2010 though 2012, the related party annual rental
commitment is $0.2 million.
13
8.Restructuring and Closing
The Company stopped production at its Nogales, Mexico
facility in November 2003 and completed the facility's
closing in March 2004. Certain other manufacturing
operations were curtailed in 2004. The number of
employees terminated in the restructurings was 48 and 278
in 2004 and 2003, respectively.
During 2002 and 2003, the Company continued its efforts
to restructure operations and reduce costs. Retail
stores were closed in 2002 and 2003. In 2002, the
Company sold its Shenango refractories operation at a
$1.4 million loss. Employees terminated in these
restructurings totaled 278 in 2003 and 65 in 2002.
A summary of restructuring and closing activities follows
(in thousands):
Contract Consolidation Fixed
Termination / Removal Severance Assets Total
Balance as of
January 1, 2002 $ 389 $ 35 $ 22 $ 54 $ 500
Charges 364 658 1,070 1,201 3,293
Payments/Uses (435) (658) (842) (1,323) (3,258)
Balance as of
December 31, 2002 318 35 250 (68) 535
Charges 1,484 1,410 751 2,138 5,783
Payments/Uses (1,399) (1,188) (529) (2,070) (5,186)
Balance as of
December 31, 2003 403 257 472 - 1,132
Charges 242 508 425 2,256 3,431
Payments/Uses (511) (532) (699) (2,256) (3,998)
Balance as of
December 31, 2004 $ 134 $ 233 $ 198 $ - $ 565
14
9.Liability for Discontinued Operations
Prior to the 1995 sale of its Syracuse China division,
the Company executed a consent order with the New York
Department of Environmental Conservation (DEC), under
which the Company agreed to conduct a Remedial
Investigation and Feasibility Study (RI/FS) of an on-site
landfill and surrounding wetlands at Syracuse China's
Court Street facility in Syracuse, New York. The purpose
of the RI/FS was to investigate the environmental
condition and develop alternatives for potential
remediation of the site. Following completion of the
work required by the RI/FS consent order, the Company
negotiated with DEC regarding the exact nature and extent
of the remediation of the landfill. This negotiation
resulted in a Remedial Design/Remedial Construction
Consent Order between the Company and DEC, which was
executed in March 2000. Pursuant to this order, the
Company hired a contractor to excavate certain
contaminated sediments from the wetlands and move them to
the landfill, which was then covered with a geomembrane
cap. Substantially all remediation work was completed in
the second quarter of 2003, and a final engineering
report was submitted to DEC in the third quarter of 2003.
Through December 31, 2004, cumulative remediation costs
paid were $5.1 million, including legal fees and other
expenses.
As of December 31, 2004, the liability for discontinued
operations represents undiscounted future costs for
remediation and monitoring obligations that may extend
more than twenty years. The Company previously sold its
Syracuse China division to a subsidiary of Libbey Glass,
Inc. (Libbey). Libbey has agreed to reimburse the Company
for 50% of the remediation and monitoring costs, up to a
total contribution of $1.4 million. Reimbursement has
been made subject to potential reduction for any recovery
from Canadian Pacific (U.S.), Inc., the prior owner of
Syracuse China. The Company is in litigation with
Canadian Pacific to recover costs associated with the
landfill.
10.Subsequent Event
On July 11, 2005, Pfaltzgraff sold assets constituting
its wholesale and retail business and its intangible
assets, including rights to the Pfaltzgraff name, to
Lifetime Brands, Inc. ("Lifetime") for $32.5 million
cash. The Company repaid all its long-term debt of $10.1
million using the sales proceeds. Under terms of the
sales agreement, Pfaltzgraff may receive additional
consideration through a working capital adjustment to be
completed in mid-September 2005. Pfaltzgraff did not
sell its manufacturing facilities, raw materials and work-
in-process inventories or distribution real estate in the
transaction. Under terms of a product supply agreement
with Lifetime, Pfaltzgraff will manufacture certain
inventory for Lifetime into October 2005. On August 15,
2005, Pfaltzgraff notified its manufacturing employees of
its intention to terminate manufacturing operations. The
Pfaltzgraff Co. has changed its name to TPC-York, Inc.
15
THE PFALTZGRAFF CO. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of
June 30, 2005 and December 31, 2004 1
Unaudited Condensed Consolidated Statements of Operations
for the Six Months Ended June 30, 2005 and 2004 2
Unaudited Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30, 2005 and 2004 3
Notes to Unaudited Condensed Consolidated Financial
Statements 4-6
THE PFALTZGRAFF CO. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
2005 2004
ASSETS
Current Assets
Cash and cash equivalents $ 1,159 $ 716
Accounts receivable, less allowance for
doubtful accounts and sales returns of
$1,034 in 2005 and $2,239 in 2004 2,257 4,634
Inventories 30,171 25,956
Other current assets 2,403 2,526
Total Current Assets 35,990 33,832
Property, Plant and Equipment, at cost
Land 1,817 1,817
Buildings and improvements 23,632 23,798
Machinery and equipment 70,744 74,173
Construction-in-progress 572 495
96,765 100,283
Accumulated depreciation and amortization 78,621 80,590
Property, Plant and Equipment, net 18,144 19,693
Income Taxes Receivable From Parent 30,496 25,299
Prepaid Pension Costs 10,799 10,531
Other Assets - 121
$ 95,429 $ 89,476
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 1,947 $ 3,150
Current portion of long-term debt 10,282 -
Accrued salaries and benefits 2,926 1,403
Accrued advertising 966 1,994
Accrued restructuring and closing costs 667 565
Accrued interest 45 38
Deferred income taxes 2,875 1,613
Other accrued expenses 2,214 2,113
Total Current Liabilities 21,922 10,876
Long-term Debt - 9,139
Liability for Discontinued Operations 953 1,043
Deferred Income Taxes 1,497 1,777
Stockholder's Equity
Preferred stock - 7% Non-cumulative,
$1,000 par value, 20,000 shares
authorized, issued and outstanding 20,000 20,000
Common stock - Class "A" Voting, $1 par
value, 31,200,000 shares authorized,
issued and outstanding 31,200 31,200
Additional paid-in capital 99,657 87,057
Accumulated deficit (79,800) (71,616)
Total Stockholder's Equity 71,057 66,641
$ 95,429 $ 89,476
The accompanying notes are an integral part of the condensed
consolidated financial statements.
1
THE PFALTZGRAFF CO. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
For The Six
Months Ended
June 30,
2005 2004
REVENUES $ 49,206 $ 65,368
COSTS AND EXPENSES
Cost of sales 33,934 44,871
Selling 13,326 13,995
General and administrative 13,388 14,315
Interest 452 310
Restructuring and closing costs 850 1,450
Other (489) 179
Total 61,461 75,120
LOSS BEFORE INCOME TAXES (12,255) (9,752)
BENEFIT FOR INCOME TAXES 4,071 3,391
NET LOSS AND COMPREHENSIVE LOSS $ (8,184) $(6,361)
The accompanying notes are an integral part of the condensed
consolidated financial statements.
2
THE PFALTZGRAFF CO. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For The Six Months Ended
June 30,
2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ ( 8,184) $ (6,361)
Adjustments to reconcile net loss
to net cash:
Depreciation and amortization 1,949 2,383
Deferred income taxes 999 1,203
Deferred financing amortization 116 47
Changes in assets and liabilities:
Decrease in accounts receivable, net 2,378 2,488
Decrease (increase) in inventories (4,215) 3,126
Increase in income taxes receivable
from parent (5,214) (2,627)
Decrease (increase) in other current
assets 122 (636)
Increase in prepaid pension costs (268) (410)
Decrease in accounts payable (1,204) (799)
Increase (decrease) in accrued interest 7 (19)
Increase in accrued restructuring
and closing costs 285 24
Increase in accrued salaries
and benefits 1,525 569
Decrease in accrued advertising (1,028) (277)
Increase in other accrued expenses 100 818
Net cash used by operating
activities (12,632) (471)
CASH USED IN DISCONTINUED OPERATIONS (90) (175)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and
equipment, net (583) (651)
Decrease (increase) in other assets 5 (96)
Net cash used by investing
activities (578) (747)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution by Parent 12,600 -
Decrease in cash overdrafts - (123)
Proceeds from borrowing 1,143 1,898
Net cash provided by
financing activities 13,743 1,775
NET INCREASE IN CASH AND CASH
EQUIVALENTS 443 382
CASH AND CASH EQUIVALENTS, beginning 716 -
CASH AND CASH EQUIVALENTS, ending $ 1,159 $ 382
The accompanying notes are an integral part of the condensed
consolidated financial statements
3
THE PFALTZGRAFF CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.Basis of Presentation
Pursuant to the rules and regulations of the Securities
and Exchange Commission, the condensed consolidated
interim financial statements included herein have been
prepared, without audit, by The Pfaltzgraff Co. (the
"Company" or "Pfaltzgraff"). The financial statements
have been prepared in accordance with accounting
principles generally accepted in the United States of
America ("GAAP") for interim financial information and
with the instructions in Regulation S-X. Accordingly,
certain information and footnote disclosures normally
included in financial statements prepared in accordance
with accounting principles generally accepted in the
United States have been condensed or omitted; however,
Pfaltzgraff believes that the disclosures are adequate to
make the information presented not misleading. The
condensed consolidated financial statements included
herein should be read in conjunction with the
consolidated financial statements and the notes thereto
included in this Form 8-K for the year ended December 31,
2004.
The condensed consolidated financial statements (the
"financial statements") include the accounts of
Pfaltzgraff and all its subsidiaries. All significant
intercompany accounts and transactions have been
eliminated.
In the opinion of management, the accompanying condensed
consolidated interim financial statements contain all
material adjustments (consisting only of normal recurring
adjustments) necessary to present fairly Pfaltzgraff's
consolidated financial position as of June 30, 2005, its
results of operations for the six months ended June 30,
2005 and 2004, and its cash flows for the six months
ended June 30, 2005 and 2004.
The preparation of financial statements in conformity
with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those
estimates. Interim results are not necessarily
indicative of results for the full year or future
periods.
2.Recent Developments
Sale of Assets
On July 11, 2005, Pfaltzgraff sold assets constituting
its wholesale and retail business and its intangible
assets, including rights to the Pfaltzgraff name, to
Lifetime Brands, Inc. ("Lifetime") for $32.5 million
cash. The Company repaid all its long-term debt of $10.1
million using the sales proceeds. Under terms of the
sales agreement, Pfaltzgraff may receive additional
consideration through a working capital adjustment to be
completed in mid-September 2005. Pfaltzgraff did not
sell its manufacturing facilities, raw materials and work-
in-process inventories or distribution real estate in the
transaction. Under terms of a product supply agreement
with Lifetime, Pfaltzgraff will manufacture certain
inventory for Lifetime into October 2005. On August 15,
2005, Pfaltzgraff notified its manufacturing employees of
its intention to terminate manufacturing operations. The
Pfaltzgraff Co. has changed its name to TPC-York, Inc.
4
Inventories
Inventories were comprised of (in thousands):
June 30, December 31,
2005 2004
Finished goods $22,192 $17,645
Work-in-process 6,408 6,540
Raw materials 1,571 1,771
$30,171 $25,956
LIFO increments are costed using the link-chain method.
External indices are used to determine the effect of
price changes for manufactured and sourced item pools.
If all inventories were valued at the lower of FIFO cost
or market, inventory values at June 30, 2005, and December
31, 2004 would have been $37.8 million and, $32.0 million,
respectively. Using the FIFO method would have increased
the loss from continuing operations by $0.6 million in
both 2005 and 2004.
Retail and other inventories, valued at the lower of FIFO
cost or market, were $10.4 million and $9.0 million at
June 30, 2005 and December 31, 2004, respectively
Restructuring and Closing
The Company completed the closing of its Nogales, Mexico
facility in March 2004. Certain other manufacturing
operations were curtailed in 2004 and 2005. The number
of employees terminated in the restructurings was 14 in
2005 and 48 in 2004.
A summary of restructuring and closing activities
follows (in thousands):
Contract Consolidation
Termination /Removal Severance Total
Balance as of
January 1, 2004 $ 403 $ 257 $ 472 $ 1,132
Charges - 750 700 1,450
Payments/Uses (51) (1,007) (608) (1,666)
Balance as of
June 30, 2004 $ 352 $ - $ 564 $ 916
Balance as of
January 1, 2005 $ 134 $ 233 $ 198 $ 565
Charges - 676 174 850
Payments/Uses (134) (271) (343) (748)
Balance as of
June 30, 2005 $ - $ 638 $ 29 $ 667
5
Capital Contributions
During the six months ended June 30, 2005, the Company's
parent, Susquehanna Pfaltzgraff Co., made capital
contributions totaling $12.6 million to Pfaltzgraff.
6
Exhibit 99.2
LIFETIME BRANDS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
On July 11, 2005, Lifetime Brands, Inc. ("Lifetime" or the
"Company") completed the acquisition of the business and
certain assets and liabilities of The Pfaltzgraff Co.
("Pfaltzgraff ") pursuant to and upon the terms and
conditions of an Asset Purchase Agreement dated as of June
17, 2005. Pfaltzgraff designs, markets, distributes and
sells ceramic dinnerware and tabletop accessories for the
home. Its products are distributed through company-owned
factory stores and retail chains as well as through Internet
and catalog operations. The amount paid at closing, subject
to post closing adjustments, was approximately $33.1
million.
To finance the acquisition, on July 11, 2005 Lifetime
amended its $50 million secured credit facility (the "Credit
Facility") to increase the size of the facility to $100
million and to extend its maturity to July 2010. Borrowings
under the Credit Facility are secured by all of the assets
of the Company. Under the terms of the Credit Facility,
Lifetime is required to satisfy certain financial covenants,
including limitations on indebtedness and sale of assets; a
minimum fixed charge ratio; a maximum leverage ratio and
maintenance of a minimum net worth. Borrowings under the
Credit Facility have different interest rate options that
are based on an alternate base rate, the LIBOR rate and the
lender's cost of funds rate, plus in each case a margin
based on a leverage ratio.
The acquisition of Pfaltzgraff by Lifetime was initially
reported on a Current Report on Form 8-K filed on July 15,
2005, which report is hereby being amended by the filing of
this Form 8-K/A to include the financial statements required
by Item 9.01 of Form 8-K. The following unaudited pro forma
condensed combined financial information has been prepared
to give effect to the acquisition by Lifetime of the
business and certain assets and liabilities of Pfaltzgraff
using the purchase method of accounting.
The transaction was accounted by Lifetime under the purchase
method of accounting in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 141, Business
Combinations. Under the purchase method of accounting, the
total purchase price is allocated among the net tangible and
identifiable intangible assets acquired by Lifetime in
connection with the transaction, based on their fair values
as of the completion of the transaction. The unaudited pro
forma condensed combined financial information reflects the
preliminary allocation of the purchase price to the assets
acquired based on their estimated fair value on July 11,
2005. The preliminary purchase price allocation is subject
to change based on the finalization of post closing
adjustments to the purchase price and additional fair value
adjustments, which may be significant.
The unaudited pro forma condensed combined financial
information is presented in accordance with Article 11 of
Regulation S- X. The unaudited pro forma condensed combined
balance sheet of Lifetime gives effect to the transaction as
if it occurred on June 30, 2005. The unaudited pro forma
condensed combined statements of operations for the six
months ended June 30, 2005 and the year ended December 31,
2004 give effect to the transaction as if it had occurred on
January 1, 2004.
1
The pro forma adjustments are based upon information and
assumptions available at the time of the filing of this
Form 8-K/A. The unaudited pro forma condensed combined
financial information does not reflect any synergies that
may be achieved from the combination of the entities by i)
lowering the cost of products sold by sourcing all
production overseas, ii) closing unprofitable Pfaltzgraff
factory stores, iii) consolidating the Pfaltzgraff factory
store operations with Lifetime's existing Farberware outlet
store operations and iv) eliminating redundant staffing,
operations and executive management. Lifetime cannot assure
that management will be successful in its efforts to
integrate the operations of the companies.
The pro forma information is presented for illustrative
purposes only and is not intended to be indicative of the
operating results that actually would have occurred if the
transaction had been consummated on January 1, 2004 nor is
the data intended to be indicative of future operating
results. The unaudited pro forma condensed financial
information of Lifetime and Pfaltzgraff and the accompanying
notes thereto should be read in conjunction with the
historical financial statements and notes thereto of
Lifetime and Pfaltzgraff. Lifetime's historical financial
statements are included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2004 and the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005. Pfaltzgraff's historical financial
statements and related notes thereto are attached as
Exhibit 99.1 to this Form 8-K/A.
2
Lifetime Brands, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet as June 30, 2005
Pro Forma Lifetime
(In Thousands) Lifetime Pfaltzgraff Adjustments Pro Forma
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 105 $ 1,159 $ (1,107) (a) $ 157
Accounts receivable, net 24,437 2,257 26,694
Merchandise inventories 67,517 30,171 (696) (a) 100,109
3,117 (b)
Prepaid expenses 1,809 1,809
Deferred income taxes 4,705 4,705
Other current assets 3,389 2,403 (268) (a) 5,524
TOTAL CURRENT ASSETS 101,962 35,990 1,046 138,998
PROPERTY AND EQUIPMENT, net 21,149 18,144 (10,186) (a) 24,701
(4,406) (c)
GOODWILL 16,200 16,200
OTHER INTANGIBLES, net 15,043 15,043
OTHER ASSETS 2,476 41,295 (41,295) (a) 2,476
TOTAL ASSETS $156,830 $ 95,429 $(54,841) $197,418
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 21,300 $ 10,282 $ 33,113 (d) $ 59,056
4,643 (e)
(10,282) (a)
Accounts payable 10,481 1,947 (1,434) (a) 10,994
Accrued expenses 15,646 9,693 (4,999) (a) 17,965
(2,875) (a)
500 (f)
Income tax payable 3,678 3,678
TOTAL CURRENT
LIABILITIES 51,105 21,922 18,666 91,693
DEFERRED RENT & OTHER LONG-
TERM LIABILITIES 1,996 953 (953) (a) 1,996
DEFERRED INCOME TAX LIABILITIES 4,602 1,497 (1,497) (a) 4,602
LONG-TERM DEBT 5,000 5,000
STOCKHOLDERS' EQUITY 94,127 71,057 (71,057) (g) 94,127
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $156,830 $ 95,429 $(54,841) $197,418
See notes to unaudited pro forma condensed combined financial
information.
3
Lifetime Brands, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Six Months Ended
June 30, 2005
(In Thousands Except Per Share Amounts) Pro Forma Lifetime
Lifetime Pfaltzgraff Adjustments Pro Forma
Net Sales $ 89,272 $ 49,206 $ $138,478
Cost of Sales 51,859 28,674 (569) (h) 79,964
Distribution Expenses 11,923 5,260 464 (i) 17,647
Selling, General and
Administrative Expenses 21,239 26,714 142 (i) 48,095
Interest 452 (452) (j)
Restructuring and Closing Costs 850 850
Other (489) (489)
Income (Loss) from Operations 4,251 (12,255) 415 (7,589)
Interest Expense 490 957 (j) 1,447
Other Income, net (26) (26)
Income (Loss) Before Income
Taxes 3,787 (12,255) (542) (9,010)
Income Tax Provision (Benefit) 1,439 (4,071) (792) (k) ( 3,424)
NET INCOME (LOSS) $ 2,348 $(8,184) $ 250 $ (5,586)
BASIC INCOME (LOSS) PER
COMMON SHARE $ 0.21 $( 0.51)
DILUTED INCOME (LOSS) PER
COMMON SHARE $ 0.21 $ (0.51)
WEIGHTED AVERAGE SHARES -
BASIC 11,057 11,057
WEIGHTED AVERAGE SHARES AND
COMMON SHARE EQUIVALENTS -
DILUTED 11,277 11,057
See notes to unaudited pro forma condensed combined financial
information.
4
Lifetime Brands, Inc.
Unaudited Pro Forma Condensed Combined Statement of
Operations for the Year Ended
December 31, 2004
(In Thousands Except Per Share Amounts) Pro Forma Lifetime
Lifetime Pfaltzgraff Adjustments Pro Forma
Net Sales $189,458 $ 148,021 $ $337,479
Cost of Sales 111,497 90,598 (1,122) (h) 200,973
Distribution Expenses 22,830 12,174 940 (i) 35,944
Selling, General and
Administrative Expenses 40,282 58,730 287 (i) 99,299
Interest 702 (702) (j)
Restructuring and Closing Costs 3,431 3,431
Other 532 532
Income (Loss) from Operations 14,849 ( 18,146) 597 (2,700)
Interest Expense 835 1,914 (j) 2,749
Other Income, Net (60) (60)
Income (Loss) Before Income
Taxes 14,074 (18,146) (1,317) (5,389)
Income Tax Provision (Benefit) 5,602 (5,730) (2,016) (k) (2,144)
NET INCOME (LOSS) $ 8,472 $ (12,416) $ 699 $ (3,245)
BASIC INCOME (LOSS) PER
COMMON SHARE $ 0.77 $ (0.30)
DILUTED INCOME (LOSS) PER
COMMON SHARE $ 0.75 $ (0.30)
WEIGHTED AVERAGE SHARES -
BASIC
10,982 10,982
WEIGHTED AVERAGE SHARES AND
COMMON SHARE EQUIVALENTS -
DILUTED 11,226 10,982
See notes to unaudited pro forma condensed combined
financial information.
5
LIFETIME BRANDS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
1.Basis of Presentation
On July 11, 2005, Lifetime Brands, Inc. ("Lifetime" or
the "Company") completed the acquisition of the business
and certain assets and liabilities of The Pfaltzgraff Co.
("Pfaltzgraff ") pursuant to and upon the terms and
conditions of an Asset Purchase Agreement dated as of
June 17, 2005. Pfaltzgraff designs, markets, distributes
and sells ceramic dinnerware and tabletop accessories for
the home. Its products are distributed through company-
owned factory stores and retail chains as well as through
Internet and catalog operations. The amount paid at
closing, subject to post closing adjustments, was
approximately $33.1 million.
To finance the acquisition, on July 11, 2005 Lifetime
amended its $50 million secured credit facility (the
"Credit Facility") to increase the size of the facility
to $100 million and to extend its maturity to July 2010.
Borrowings under the Credit Facility are secured by all
of the assets of the Company. Under the terms of the
Credit Facility, Lifetime is required to satisfy certain
financial covenants, including limitations on
indebtedness and sale of assets; a minimum fixed charge
ratio; a maximum leverage ratio and maintenance of a
minimum net worth. Borrowings under the Credit Facility
have different interest rate options that are based on an
alternate base rate, the LIBOR rate and the lender's cost
of funds rate, plus in each case a margin based on a
leverage ratio.
The accompanying unaudited pro forma condensed combined
financial information presents the pro forma results of
operations and financial position of Lifetime and
Pfaltzgraff on a combined basis based on the historical
financial information of each company and after giving
effect to the acquisition of the business and certain
assets and liabilities of Pfaltzgraff by Lifetime on July
11, 2005. The acquisition was recorded using the
purchase method of accounting.
Certain reclassifications have been made to the
historical financial statements of Pfaltzgraff to conform
to the presentation used in Lifetime's historical
financial statements. Such reclassifications had no
effect on Pfaltzgraff's previously reported results from
operations.
The unaudited pro forma condensed combined balance sheet
has been prepared assuming the acquisition occurred on
June 30, 2005. The unaudited pro forma condensed
combined statements of operations have been prepared
assuming the acquisition occurred on January 1, 2004.
2.Pro Forma Adjustments
The following are brief descriptions of each of the pro
forma adjustments included in the unaudited pro forma
condensed combined financial statements:
(a) To record the elimination of assets and liabilities of
Pfaltzgraff not being acquired by Lifetime:
Cash $1,107
Manufacturing inventories 696
Other current assets 268
Property, plant and equipment 10,186
Other assets 41,295
Short-term borrowings (10,282)
Accounts payable (1,434)
Accrued expenses (4,999)
Current deferred income tax liability (2,875)
Other long-term liabilities (953)
Noncurrent deferred income tax liabi (1,497)
6
(b) To record adjustments to inventory:
To eliminate Pfaltzgraff's LIFO
inventory adjustment to conform with
Lifetime's inventory accounting
policy which is based on FIFO $4,285
To eliminate unabsorbed overhead
capitalized in inventory of the
manufacturing operations not acquired
by Lifetime. (1,168)
$3,117
(c) Lifetime has preliminarily allocated the purchase price
in accordance with SFAS No. 141. The sum of the amounts of
the assets acquired and liabilities assumed preliminarily
exceeds purchase price by approximately $4,406. The excess
has been preliminarily allocated as a reduction of the fair
value of property and equipment acquired. The preliminary
purchase price allocation is subject to change based on the
finalization of post closing adjustments to the purchase price
and additional fair value adjustments, which may be significant.
Purchase price:
Cash paid at closing $ 33,113 (1)
Estimated professional and other
transaction fees 500
Estimated additional purchase price based
on preliminary post closing adjustments 4,643
Total purchase price $ 38,256
Allocation of purchase price:
Cash $ 52
Accounts receivable 2,342
Merchandise inventories 32,592
Other current assets 2,050
Property and equipment 7,958
Accounts payable (513)
Accrued expenses (1,819)
Reduction of fair value
of property and equipment acquired (4,406)
Purchase price allocated $ 38,256
(1) Included in the cash paid by Lifetime at closing was
$561 for rents that were prepaid by Pfaltzgraff and $52
for retail store funds.
(d) To record debt used to finance the cash paid at closing
(see Note (c)).
(e) To record the estimated additional purchase price (see
Note (c)).
7
(f) To record an accrual for estimated professional and
other transaction fees associated with the Pfaltzgraff
acquisition (see Note (c)).
(g) To record the elimination of Pfaltzgraff's historical
equity.
(h) To eliminate the net change in Pfaltzgraff's LIFO
inventory reserve from cost of sales to conform with
Lifetime's inventory accounting policy which is based on
FIFO.
(i) To record adjustments to Distribution Expenses and
Selling, General and Administrative Expenses related to the
leases of the distribution center and office space entered
into by Lifetime as part of the acquisition of the
Pfaltzgraff:
Distribution Expenses Six months
ended Year ended
June 30, December 31,
2005 2004
To record rent expense for the
lease of the Pfaltzgraff
distribution center. $ 828 $ 1,655
To eliminate rent expense
recorded by Pfaltzgraff related
to the distribution center. (272) (545)
To eliminate depreciation
expense recorded by
Pfaltzgraff related to the
distribution center. (92) (170)
$ 464 $ 940
Selling General and
Administrative Expenses
To record rent expense for the
lease of the Pfaltzgraff
offices. $ 178 $ 355
To eliminate depreciation
expense recorded by
Pfaltzgraff related to the
offices. (36) (68)
$ 142 $ 287
(j) To record adjustments to interest expense:
Six months
ended Year ended
June 30, December 31,
2005 2004
To record interest expense on
the total estimated increased
borrowings at an interest rate
of 5.07% $ 957 $ 1,914
To eliminate interest expense
recorded by Pfaltzgraff (452) (702)
8
(k) To record adjustments to income taxes:
Six months
ended Year ended
June 30, December 31,
2005 2004
To record the tax benefit of
Pfaltzgraff's loss at
Lifetime's marginal rate of
38.0% for the six months ended
June 30, 2005 and 39.8% for the
year ended December 31, 2004 $ (4,657) $ (7,222)
To record the tax benefit of
the pro forma adjustments at
Lifetime's marginal rate of
38.0% for the six months ended
June 30, 2005 and 39.8% for the
year ended December 31, 2004 (206) (524)
To eliminate the tax benefit
recorded by Pfaltzgraff 4,071 5,730
$ (792) $ (2,016)
3. Pro Forma Net Loss Per Share
The unaudited pro forma combined basic net loss per share
is based upon the weighted average number of outstanding
shares of common stock of Lifetime during the periods
presented. The unaudited pro forma combined diluted net
loss per share is the same as the unaudited pro forma
combined basic net loss per share as all common stock
equivalents are anti-dilutive due to the loss position.
9