Lifetime Brands Inc (LCUT) 2005 Q4 法說會逐字稿

Thank you, Harriet. Good morning, everyone. As announced in this morning's press release, Lifetime Brands just completed an outstanding quarter and an exceptional year. Even before taking into account contributions of the Pfaltzgraff business we acquired in July 2005 and the Salton tabletop business we acquired in September, the company's sales and earnings set records for both the three-month period and the full year. Bob McNally will review in detail our financial results for the fourth quarter with you in just a moment.

2005 was indeed an excellent year for Lifetime as we realized the benefits of an extensive series of growth initiatives we began to implement in 2003. For those of you who are new to our conference calls, I'll reiterate the most important of those initiatives. They include the expansion of Lifetime's portfolio of powerful brands, the enhancement of our industry-leading product development and design capabilities, the extension of our product categories through internal development and acquisitions, and the expansion of our sourcing capabilities. These initiatives have proven to be the right course for Lifetime, and in 2006 we will not only continue on the same course, but intensify our efforts in each of these growth initiatives. All of these initiatives contributed to the strength of our business in 2005.

We are especially gratified by the strong organic sales momentum we achieved in the fourth quarter. In our cutlery category, which includes kitchen cutlery, cutting boards, and scissors and shears, we increased sales by 60%. This increase was fueled by substantial gains in sales of our KitchenAid branded products, as well as of our Farberware and Cuisinart products. It is most gratifying to me to see such great growth in our most mature business, and it validates our position that, if we continue on the same path, we can achieve significant double digit growth in each of our major categories. For the year, we achieved sales increases of over 30% in each of our four major cutlery brands, Farberware, Cuisinart, KitchenAid, and Sabatier.

Our kitchenware division -- which includes kitchen tools and gadgets, barbecue accessories, sinkware, brushes and functional glassware -- was also a great source of growth. Sales in the quarter rose by 36% over the prior year period and for the year as a whole, organic growth was over 18%. In this division, both the KitchenAid and Farberware brands were standouts. During the year, we added new lines of tools and gadgets to maximize our distribution through diverse retail channels.

In 2005, we developed an extensive assortment of sinkware under the KitchenAid and Farberware brands. Sinkware includes dish racks, brushes, scrubbers and soap dispensers. These lines have been very well received by the same retailers who have done so well with our kitchenware, and we have begun rollouts with several major customers.

In our Bakeware and Cookware division, we continue to see great growth, especially in silicone bakeware, where we lead the market. This month we will have a major introduction to the trade of four exciting brands of cookware that we developed in 2005. We will begin shipping cookware lines at the end of the second quarter. Cookware is one of the largest categories in the housewares industry.

In our Pantryware division, double digit growth came in the spice rack business, as well as in a new upscale line of stainless steel pantryware. Overall this division's gross profit improved in spite of us downsizing our wood pantryware business, which is probably the most commoditized business at Lifetime. Our company strength is developing unique new products, not competing in the commodity arena. At the housewares show this month we will be showing a full line of KitchenAid branded pantryware, and as those of you who have been following us know, we have had great success in every category where we have introduced product under that great brand.

In addition to giving you an overview of the sales growth of our company, I'd like to give you an update on our expansion into the important tabletop category. As most of you know, over the past two years we made a number of acquisitions in this area, most recently Pfaltzgraff and Salton's tabletop business, both of which fit in perfectly with Lifetime's strategy of assembling a portfolio of premier national brands. One of our goals for 2005 was to complete the integration of these businesses, and we quickly achieved this goal, uniting them and the Excel business we acquired in 2004 under the Pfaltzgraff Studio banner.

We have put in place what I believe is a first class team of dinnerware and glassware experts that are charged with the profitable growth of this division. We have applied our sourcing and product development expertise to improve the price value relationship of the Pfaltzgraff and Salton tabletop lines and to greatly accelerate the introduction of new patterns.

2005 was an important transitional year for our retail, or direct to consumer, business. Those of you on this call who are long-time friends of the Company will remember that we have operated the Farberware Outlet Stores since 1996, the year in which we acquired our then 200-year license from Farberware, Inc. During the past decade, we operated the stores as true factory outlets, merchandising them principally with overstocks and discontinued products. As such, they contributed less than 10% of our overall sales and did not have a material impact on our financial results.

By contrast, for a number of years, the Pfaltzgraff Factory Stores were an important distribution channel for Pfaltzgraff dinnerware and especially the accessories. More recently, Pfaltzgraff has been a true multi-channel retailer, successfully combining its stores, a mail order catalog and an Internet site. A significant portion of the products carried in the Pfaltzgraff Factory Stores are extensions of their product lines that are not carried by traditional retailers. Our acquisition of Pfaltzgraff provided us with several opportunities. First, we consolidated the management of the Farberware stores under the leadership of the Pfaltzgraff retail team. Second, we re-merchandised both groups of stores, so that each now carries the others' products. Third, we closed a large number of stores, principally those that were losing money and those that otherwise would have duplicated our presence in the same or neighboring malls. We currently operate 84 stores, of which 44 are Farberware Outlets and 40 are Pfaltzgraff Factory Stores. At this point, we have no plans to add or close additional stores.

Starting in the quarter ended September 30, 2005, we now report the results of our combined Direct to Consumer business as a separate business segment. For the full year 2005, the Direct to Consumer segment will report an operating loss of $444,000 on net sales of $66.3 million. Our guidance for 2006 assumes this segment will be profitable for the year, with net sales of approximately $90 million. I must remind you, however, that our Direct to Consumer business, like most retail businesses, especially those heavily dependent on the housewares sector, is heavily weighted towards the end of the year and therefore will have a negative impact on year over year comparisons in the first and second quarters.

We're pleased with the profitable growth our business showed in 2005, but most enthused with momentum going into 2006. We will endeavor to drive continued growth across all Lifetime's brands, products and customer base. Much of that growth will be fueled by new product development. As I mentioned in this morning's press release, we expect to introduce approximately 1,400 new items this year - double last year's already high number. At the housewares show later this month in Chicago, we will kick off the introductions with approximately 825 exciting new products. We invite any of you who will be attending to stop by our exhibit, which will certainly be one of the largest and most active at the show.

I want to emphasize that for 2006, we expect our bottom-line growth to again come from our more mature businesses. . We have established a great foundation for growth in the tabletop business, including the right personnel, product development and sourcing, but it will take us until the back half of the year to get the sales momentum in that business going at a level that we find acceptable.

In the last conference call, I said that Lifetime has made five acquisitions in the last two years and it should be apparent to all that one of our key strategies is to acquire businesses that complement our current offerings and to integrate them quickly. We are in a fragmented industry which means there are many opportunities for us to acquire companies which fit well in our model. With the closing of our secondary offering last November, Lifetime's debt was substantially paid down, enabling us move quickly when the opportunity arises.

In summary, we have many reasons to be very pleased with our company's direction and to be extremely excited about our prospects for 2006 and beyond. At this point, I'll turn the call over to Bob McNally to review our financial results in more detail. Bob?

Net Sales for the fourth quarter of 2005 were $124.4 million, which is $56.3 million or 82.8% higher than 2004's fourth quarter sales of $68.1 million. Net Income increased 35.2% to $7.2 million, or $0.60 per diluted share for this year's fourth quarter as compared to Net Income of $5.3 million, or $0.47 per diluted share, recorded for the fourth quarter of 2004.

The $56.3 million increase in net sales for the 2005 quarter included approximately $43.2 million of combined sales for the Pfaltzgraff and Salton businesses that we acquired in 2005. Excluding the sales attributable to Pfaltzgraff and Salton, net sales totaled $81.2 million, a 19.3 % increase over the comparable 2004 quarter's sales of $68.1 million. This sales increase was primarily attributable to significantly higher sales of cutlery products, in particular sales of the Company's newly introduced lines of KitchenAid branded cutlery along with higher sales of Farberware cutlery, and significantly higher sales of KitchenAid and Farberware branded kitchen tools and gadgets.

The $43.2 million of sales for Pfaltzgraff and Salton for the fourth quarter included approximately $30.1 million of retail sales through Pfaltzgraff's outlet stores, Internet and Catalog operations. The combined results of the Pfaltzgraff and Salton businesses, net of interest expense, contributed nominally to our fourth quarter earnings. The Pfaltzgraff direct to consumer business combined with our Farberware Outlet Stores makes our total direct to consumer retail sales a more significant part of our overall business.

Therefore, starting with the filing of our third quarter 10-Q for 2005 we began disclosing certain financial information in the footnotes and in Management's Discussion about operating results for our two segments - our wholesale business and our direct to consumer business. We expect to file our Form 10-K for 2005 at the end of next week, and we urge everyone to read this report to gain a more complete understanding of our businesses.

Cost of sales for the three months ended December 31, 2005 was $72.5 million, compared to $40.1 million for the comparable 2004 period. Excluding Pfaltzgraff and Salton, cost of sales for the fourth quarter of 2005 was $48.1 million, a 20.0% increase over the 2004 quarter, and as a percentage of net sales increased slightly to 59.3% in 2005 compared to 59.6% in 2004.

Distribution expenses, which consist primarily of warehousing expenses, handling costs of products sold and freight out, were approximately $10.8 million in the fourth quarter of 2005, compared to $6.4 million in the fourth quarter of 2004. Excluding expenses related to the Pfaltzgraff and Salton businesses, distribution expenses were $6.5 million, 2.0% higher than the 2004 period, and as a percentage of sales, distribution expenses were 8.1% in the fourth quarter of 2005 as compared to 9.4% in the 2004 quarter. This improved relationship primarily reflects the continued benefits of labor savings and efficiencies generated by our main distribution center in Robbinsville, NJ.

Selling, general and administrative expenses for the three months ended December 31, 2005 were $28.1 million, compared $12.4 million of expenses for the comparable 2004 period. Excluding expenses for Pfaltzgraff and Salton, selling, general and administrative expenses were $15.1 million for the fourth quarter of 2005, a 22.3 % increase over these expenses for the fourth quarter of 2004 and as a percentage of net sales, selling, general and administrative expenses were 18.6% for the fourth quarter of 2005 compared to 18.2% in the 2004 quarter.

Income from operations for the three months ended December 31, 2005 was $13.0 million, an increase of 41.5%, or $3.8 million over income from operations for the three months ended December 31, 2004. Excluding Pfaltzgraff and Salton, income from operations as a percentage of net sales, operations improved to 14.0% for the 2005 quarter compared to 13.5% for the 2004 period.

Recapping our year-to-date results, net sales for 2005 were approximately $307.9 million compared to $189.5 million for 2004, a 62.5% increase. Net sales for 2005 for the Excel business that was purchased in July 2004, the Pfaltzgraff business that was purchased in July 2005 and the Salton-At-Home business that was acquired in September 2005 were $81.1 million combined. Excluding net sales attributable to these acquired businesses, net sales for 2005 totaled $226.8 million, a 24.0% increase over the $182.9 million of the corresponding net sales recorded for 2004, excludes $6.4 million in net sales of Excel.

Again, this sales increase was primarily attributable to significantly higher sales of cutlery products, particularly sales of the Company's newly introduced lines of KitchenAid branded cutlery along with higher sales of Farberware cutlery, solid growth in sales of KitchenAid and Farberware branded kitchen tools and gadgets and higher sales of Roscho and KitchenAid bakeware. Net income for 2005 was approximately $14.1 million, or $1.23 per share, a 66.5% increase over net income of $8.5 million, or $0.76 per share earned in 2004.

Focusing now on our Balance Sheet, as of December 31, 2005 our financial condition remained very strong with $140.5 million in Stockholders' equity, the equivalent of $10.87 per share in Book value.

Accounts Receivable at December 31, 2005 was approximately $49.0 million, $14.9 million higher than at December 31, 2004. This increase is commensurate with the increase in sales in the latter part of the quarter, including the added volume from the acquisitions of Pfaltzgraff and Salton-At-Home during 2005.

Inventories at December 31, 2005 were approximately $92.0 million, $33.1 higher than at December 31, 2004. The higher inventory levels primarily reflect the $29.8 million of added inventory for the Pfaltzgraff and Salton business that we acquired during 2005. Inventory is our largest asset, and the company continues to focus on ways to manage it.

Property and Equipment, net, at December 31, 2005 was $24.0 million as compared to $20.0 million a year ago. The increase was primarily related to property and equipment that was acquired with the Pfaltzgraff acquisition. Capital spending during the year was approximately $5.4 million and depreciation expense was 4.8 million.

Borrowings under our $100 million Secured Credit Facility at December 31, 2005 were $19.5 million, of which $14.5 million were short-term borrowing and $5.0 million is a long-term loan due in August 2009. The $19.5 million in borrowings were $4.9 million lower than the $24.4 million of debt outstanding at December 31, 2004. The lower borrowings primarily reflect the net effect of $48.0 million of additional borrowings used to fund the acquisitions of Pfaltzgraff and Salton, the pay down of debt using the $35 million of proceeds from the Company's sale of 1,733,000 shares of stock in November and further reductions in debt from cash generated from operations.

As was noted in our press release this morning, we have reaffirmed our guidance for Fiscal 2006 and expect total sales to range between $380 and $400 million, with earnings per share of $1.45 to $1.70. While we do not give quarterly earnings guidance, the acquisition of Pfaltzgraff has significantly increased our direct to consumer business. Therefore the portion of our sales and operating profits that are generated during the second half of the year will also increase significantly, and as a result, we will report lower earnings in the first and second quarters of 2006, as compared to the first and second quarters of 2005. Now, we'd like to open it up for questions.

[Operator Instructions] Your first question comes from Greg Badishkanian from CitiGroup.

Great, thank you. Just a few questions. THE first one is -- when you mentioned earnings lower in the first half, is there any way to quantify that SO WE CAN MODEL that out more accurately?

As we'VE said, Greg, we resist doing quarterly forecasting. We prefer not to at this point. So I think we'll let our analysts like yourself come up with models. We don't really want to get into the game of quarter-to-quarter comparisons. I think we historically have said that we COULD GET swings quarter to quarter that are tough to plan out. Suffice IT to say when we report our quarter, we will be breaking our business down between wholesale and direct to consumer bills SO EVERYONE WILL be able to give, measure and see where we are.

Sure. Okay. Great. And moving over to organic growth. How much of the organic growth was due to the product introduction in the kitchen cutlery area?

It's hard to measure. THERE ARE so many new products. We're a company that's driven by new products, so even if you take our oldest brand, Farberware, the growth in Farberware was primarily driven by new products. That's the way we run our business. I don't think we've ever tried to figure out how much more we get from new products versus old products in a single year. I don't honestly think that's a very important measurement of our business.

We know how to manage the lifecycle of products, so that's not an issue for us. The more we can introduce new products and exciting products and the more we can bolster our product development, I think the more business we're going to do and the more profits we're going to make. But you can't just measure one because there are introductions in every brand, our oldest brand and our new brands. There's just no way to measure any one part of it.

So what was the timing on that when you introduced the new line that you came out with?

Oh, okay, the KitchenAid line was introduced in the fourth quarter of 2004.

Okay.

And so, we had one quarter's results for that last year, actually the prior year, THE 2004 year. And I can tell you it certainly wasn't the major part of everything we're doing; that I can tell you. We don't want to break out the sales of that business.

Okay. Okay. Yes, I'm just trying to understand when you LAPPED that and to understand just from a modeling perspective.

We use brands because -- different retailers prefer to have different brands. We have a hard time selling the same brand to every retailer. So very often, we'll move concepts of products between brands. We might have developed it with the intention of putting it under the Hoffritz brand and we end up putting it under the Cuisinart brand because retailers would prefer it under the Cuisinart brand. So it makes it more difficult, but that's why we're such a branded house and we use the brands to be able to do business with everybody from Wal-Mart to Tiffany.

Right, good. That's helpful. And also just moving over to acquisitions. You talked a little bit about it, about the Pfaltzgraff acquisition. Can you give a little bit of an update there in terms of how-- cutting costs out of that business and how accretive you think that could actually be in 2006, and maybe just give us a progress report on where you expect it to be? A little bit more color on that would be very helpful.

Sure, without giving the numbers, we have cut substantial costs out of them. The main cost cutting in Pfaltzgraff was moving production from Pennsylvania to China and yet maintaining the same exact quality level, and that was a dramatic cost reduction, but part of that cost reduction also went to lowering some of the retail prices that make them more competitive. And we waited, too. We took a good part of it became additional [process] first, and part of it will go to DRIVE more sales by reducing the retail prices.

We've integrated - again, it becomes a little more difficult -- we've integrated the three businesses, the Pfaltzgraff business, the Salton and tabletop business and the Excel business, and all three had dinnerware, and it's now integrated into one division. And again, we're applying the same strategy that we do for all of our other businesses and use the various brands to be able to do business with every level of trade. So we move products between.

So, in some of our numbers I was looking at the other day, I saw that the Excel business was flying this quarter, for instance, but it's really because some of the Excel brands were picked up by some retailers, it might have been part that we developed for Pfaltzgraff.

Right.

So again, that becomes very difficult. We have to look at it as a whole. We can't break it down. Just like our gadget business has primarily TWO major brands, Farberware and KitchenAid; you can't break things apart, it just doesn't work.

Great. Thank you very much.

Your next question comes from Gary Giblen with Brean Murray Carret.

Yes, hi. Congratulations on an excellent quarter there.

Thank you.

To step away from minutia now, how are you finding the department store environment -- because in apparel, that's causing a lot of havoc for Federated May and even just the transitions at other department stores. Several of them are changing ownership or closing stores, but is this impacting you in any material way? Or causing more uncertainty in terms of short-term results?

I think the only way it's impacting us that I can see is that it has made it take a little longer to get the tabletop business moving. And the integration - and it's only really focused on May and Macy's. As you know, they're having issues combining the two companies, and I think they're going to get it right. I think they've put some terrific people in place to get everything right, but they're not there yet and they're not making -- without having the buying staffs in place, the tabletop, which they don't have, they're not making the decisions right now. They expect, from what I understand, to have the buying staff in place within the next few weeks, which certainly is enough time to impact the fall. I've had meetings with people there, and things look very positive going forward.

The other regional change - it's an interesting thing. People predicted the demise of department stores over the years and with the growth of the mass, but we're finding some of the regional chains are becoming much, much stronger with the chains like Belks and the [tex] northern group, which is a BonTon, which now combined with BonTon, have become much more important to us going forward, and we're very pleased with that, to tell you the truth.

Also, I want to add one more thing. Department stores are probably less than 15% of our business. So we're not talking about a major impact either way. It's an old part of our business, it's something I certainly want to continue in a big way, but it is not the biggest part of our business.

Sure, THAT makes sense. And how's the Home Depot business going and is it likely to lead to increased placements there?

As we said late last year, that roll OUT is just starting, we haven't even done the roll out yet, it's going to happen either this quarter or the beginning of the next quarter, so I can't really give you any update on that. There's nothing negative there, but we do have to keep moving.

We're going to have to find a lot of major opportunities for us going forward in our business, in that trade, which is really, I guess, two retailers. Those in Home Depot should be significantly higher this year than it has been in the past.

Okay. Are your margins IN a Home Depot or Lowe's or whatever, how do they compare to average margins given the product mix and the price points that you would have there?

They're the same margins that - as we operate in other parts of our business. They're not different. We've learned over many, many years, never to take business that's not profitable.

Okay, that's good. And then the press release says we completed the integration of the Pfaltzgraff AND SALTON businesses. So that appears to me to be ahead of plan, but if you're not -

That's not what I said, actually. The goal for us was to integrate them within 90 days. Pfaltzgraff fell within the 90 days; SaltON was faster, it was much faster. We get more and more experienced on integration, we've learned to do it quickly, and hopefully we'll have some other integrations coming about and I look to move them in a much faster pace than 90 days, frankly. We know we can do it; we could see that we could do that.

On a scale of 1 to 10, where 10 is where total procurement opportunity realized on Pfaltzgraff, where are you now as we speak?

I'd say we're maybe at a 6 or a 7 at the most. I would think - I don't believe you can ever reach 10. That's been - if you can't reach it, it's not a good goal.

Okay. And can you give us some color on what the chain store buyers are - how they're responding to the fact that you are now offering lower prices on Pfaltzgraff and then actually some more contemporary design as well? So is it a big difference and does it translate to actual orders?

Yes, it's a major difference. I've sat in on a number of the tabletop meetings and the retailers are floored with the amount of possible things that they can do with us and the opportunity. And, like everyone else, everyone is looking for opportunities. We're just providing more opportunities than anyone else is providing and that crosses all parts of our company. We are so enthused with the amount and the quality of the new product that we're introducing. And the retailers that we've showed them to are equally enthused.

Okay, last question is -- you do business with SuperValu, I believe, and with Albertsons, so now you have the pleasant SITUATION where ALBERTSONS is going to be owned in part by SuperValu. So have you had any discussions as to what that would mean for you?

I have not been privy to those, I know - you're absolutely right that we do business with SuperValu and negligible with Albertsons, if anything. So it certainly is an opportunity for us.

That segment of our business -- the supermarket, the food segment -- is growing nicely and it shows potential to grow significantly over the next few years. We have a terrific team that specializes only in that trade and it's quite different than doing business with them versus doing business with any other trade. But our people are very astute at doing it, it's been in place for a couple of years. Every year they gain placement and they gain customers. So I would assume it's going to continue.

Okay, so you're saying some discussions have occurred, but -

I believe so, but I am not privy to it, honestly.

Okay, and, I mean, can you give us just a rough estimate of how much volume, how much wholesale sales do you make per door, let's say, at a SuperValu?

We don't give that. Sorry, Gary.

Or at a typical supermarket. [inaudible - cross-talk]

I can tell you, whenever I've seen an analysis of when we take over the supermarket business versus our competitor, there is a dramatic increase in sales to the retailer.

I'm just saying, if you have a 100-store supermarket customer, how much volume does that mean for you? I've been trying to understand how much.

Gary, I can't give you that. I really can't, that would really be competitively not a good idea for us.

Oh, okay. I was trying to make it non-account specific. Okay I understand. Thanks, keep up the good work.

Your next question comes from Mark Rupe with Canaccord Adams.

Hey, guys, congratulations on the quarter. Just a question on Pfaltzgraff. I know when you acquired the business, it had been, over the prior few years, decelerating for obvious reasons, but looking at the fourth quarter results it appears that maybe it wasn't nearly the kind of turn it was going at and actually maybe it leveled off a little bit. Is that fair to assume?

No, we've definitely taken it down. There was business that they were doing in order to feed a factory that was not profitable. We've eliminated that business and some of that business we won't replace overseas. There were several customers who were private label customers. They weren't running the Pfaltzgraff brand, but they were producing goods for several customers and they were producing them at a loss.

Got it.

So we won't -- obviously we won't run that business, we have no interest in doing that. So we have taken the business down. I don't know what else to tell you but we have definitely taken it down to where we want. We've taken it down to where we can make a profit going forward.

Got it. Okay. And then as far as the future, looking into '06, and you maybe addressed this already and I apologize if you have to double up on it. Obviously, there is going to be leverage in the distribution expenses, but is it safe to assume that SG&A is the majority of the other expense leverage rather than the cost of goods?

Yes. Yes.

And then -- I mean, based on your guidance of 380 to 400, grow ups into this year, obviously you didn't have Pfaltzgraff in the first half of last year. If you were to incorporate that, is the organic growth or the way you determine the organic growth -- is that still going to be in that 15% plus range?

I would fully expect that organic growth would be 15% plus. Yes.

Perfect. Thank you.

Your next question comes from David Cohen with Midwood Capital.

Hey, guys, good quarter. Hello?

Yes, we're here. Thanks.

I sort of have this trouble on my phone line. A couple questions on the store closings -- were all the stores that you closed open during the fourth quarter?

Most were, I think almost all were. The most opportune time to close them was January, at the end of January, which is what we did.

And so they were contributors in the fourth quarter?

They were - yes, they were contributors in the fourth quarter. Most of those stores would have been profitable in the quarter, but not on an annual basis.

Can you quantify the operating loss for the year that you're eliminating by eliminating those stores?

No, because part of it is Pfaltzgraff stores that was prior to us owning them. I don't think we could quantify that. I could also tell you, though, that even winding down the business that there certainly -- the stores that were closing were less profitable than they would have been because of the winding down of the businesses and the lowering of inventories and so forth. So they weren't a major contributor.

And on the inventory, with Pfaltzgraff inventory, given your move of production as well as what you're doing on pricing, I guess a couple of things. One, what costs did you have on that inventory in the fourth quarter, so were you basically selling high cost inventory or had you already taken the investment on it?

We had taken some adjustment through purchase price accounting, valuing the inventory at acquisition date, it caught some write down others. And that is reflected in the numbers.

Okay, so is that still at a cost of goods that is higher than what you expected it going forward?

We expect that's a little higher than we're expected to get.

And had you already taken pricing down in the fourth quarter?

Not fully. There wasn't an opportune time, so we really didn't take it down that much in the fourth quarter, no.

Okay, and is that fully taken down or taken down a level where you want to start in the first quarter? Will the first quarter see the benefit of that?

Mostly, but there will be some lingering until the second quarter.

Thanks. Given where you have taken down your debt level, assuming no additional acquisitions for 2006, where do you see, what's sort of a range of where interest is likely to fall out on a go-forward basis?

I think it would be fair to say for next year we've got about $2.5 million in interest expense. In 2006, we're planning about $2.5 million.

Thanks. Last question and then I'll get back in queue -- what was your cash from operations for Q4 for the year? Do you have that available?

I have it in here. $28.7 million positive cash provided by OpEx.

Actually I lied, one more question. There was a significant increase in Q4 SG&A, obviously you have a lot of store level operating expenses, but how much of that increase was non-cash related to intangible amortization?

I don't have exactly the number. It's not that much. I could give you the number for the year. Amortization for the year is $800,000, so perhaps 200. A small amount.

Alright. Thanks.

[Operator Instructions.] We have a question from Gary Giblen from Brean Murry Carret.

Yes, hi, thanks. What kind of results did you achieve from having Lifetime product in the Pfaltzgraff catalogue and online?

I don't have the number. Remember there was a test for the fall. It seems to have gone very well. There's a new catalogue that they've just mailed and it has a more significant assortment of our products.

I can tell you that the stores have been reset replacing outside vendors with our own products. The Pfaltzgraff stores and the Farberware stores, likewise, we replaced some outside vendors with Pfaltzgraff products in the hardware stores. And that reset was only done in the last 30 days.

Okay, so that's just beginning to happen. Okay. So, are there going to be more Lifetime products added to the catalogue and e-commerce sites?

Yes. You know, they have to catch their breath for a second. They closed an awful lot of stores. They closed over 30 stores, which is quite a task. They closed them properly and [inaudible] they charged us, which means we didn't have to pay charges for it. So they were certainly tied up doing that in the last two months, so now they're more focused on improving our business going forward by improving assortment and doing what you said and really putting more things into the website.

They have taken over the Farberware website, which we didn't sell products on, and now if you go to the Farberware website you'll find a button to order the products directly to the Pfaltzgraff website. And we will do more things like that going forward.

Okay, that's great. And could you just recap how many total Pfaltzgraff stores closed since the acquisition and how many Lifetime stores closed?

I don't have the number. I know that there are, as we said, there are now 44 Farberware stores and 40 Pfaltzgraff stores. The exact number of each that were closed I don't know. I believe there were more Pfaltzgraff. It's probably pretty close to equal, though. They might be pretty much the same.

Okay.

Fifteen of one and fifteen of another or something like that.

Okay, and again, in response to this other person's question, that's probably it or will there be more closures?

No, that's it. We took quick action and closed all the stores that we felt were going to be a drag on us for the year. So we don't have any of those left to close at this point and we have no immediate plans to close or open any additional stores as the year goes on. Or later in the year, when we see that direction is exactly right, we might consider some openings or closings. We'll see.

Okay, and other than the remerchandising -- in other words, what has Pfaltzgraff done in managing the Farberware stores to make them more effective in merchandising?

Well, you know, Pfaltzgraff had a professional management in place. Their stores had been running in a much better way than ours, than the Farberware stores were running. We were running basically just a close-out outlet store and they were running a retail operation. So that management certainly has much greater depth and much stronger management of stores, so there are operational changes as well.

They're much more structured than we were, so there are very good operational changes that have been made to run the stores in a better manner.

Okay, that's very helpful. Thanks again.

Thank you.

Our next question comes from David Cohen with Midwood Capital.

Hi. In the tabletop category -- do you think it's sort of, I mean Gary talked about kind of transition in department stores. If you look at the transition going on there and anything else in some other channels, where do you think most of your opportunity is in wholesale in tabletop in terms of customer types and channels?

That's really diverse. The tabletop division actually does business with Wal-Mart and does business with Tiffany. So there is every level of trade, for dinnerware and glassware, especially. We are weaker in the flatware end, but with dinnerware, we're solid as can be and with tabletop additions and glass and crystal, business is solid.

There are opportunities at every level. I think there are great opportunities at department stores, believe it or not, even though it's a small part of the business. We have brands that are desirable by department stores. I've sat in on meetings that I was very impressed with. The big boxes -- the Bed Bath and Beyonds, the Linens of this world -- are very strong potentials. We have brands that are perfect for them and we have brands that are terrific for a Kohls or a [Burban] or a JC Penny.

I think we have the brands and the ability to have the right product at every level of trade , so I don't want to say we want to limit it to one.

More specifically, let's follow up with that thought. If you think of the Pfaltzgraff brand, has that business, before you owned it, was it in more outlets, more types of stores than it should have been and are you likely to focus that more so that you can help to rebuild the brand value there?

Yes. You're right. We've done that already. We've taken action to focus it more. It's traditionally been a department store brand and a specialty store brand. It's in many cases the most desirable brand. I was with a large regional department store chain that was here last week, and they told me that it was by far their number one brand.

So the focus of the Pfaltzgraff brand will be department stores and specialty stores. We have, as a company, over 25 brands right now and we certainly have brands for every level of trade.

Okay, and one other question. Obviously, the cutlery, KitchenAid in particular, was a real positive contributor in 2005, I know you're introducing hundreds of new products, but if you thought of a brand and a category or a couple of brands in a given category, what gets you most excited in 2006?

For 2006, I can tell you that we're sure we're going to have significant growth in our kitchenware business, especially. And the reason for that is a combination of two things. First it's increased placement in major retailers of our current product line and it's dramatically increased in some of the bigger retailers. And secondly, it's a roll out of this sinkware line that's been very, very well received. It's under the KitchenAid brand, we will be rolling out a Farberware brand in sinkware line later in the year.

There's an opportunity for us to gain some space through our gadget walls; it doesn't cannibalize any business for us. The major retailers who have seen it are in love with it and, as I said, rolling it out. So that division is poised. They had a great year last year. They're going to have a spectacular year this year.

In addition to that, the cutlery business is still on a roll, I mean it really is. It's not one brand. Our four major brands of cutlery each had dramatic increases last year. It's not one brand, it's not one customer, it's not one line, it's just dramatic increases across the board.

We've had great product development. The people who are running the business really know what they're doing. The development of products is fantastic. The pipeline of products for all of our divisions is phenomenal. We have a trade show that starts in two weeks in Chicago, the International Home and Houseware Show. Yesterday they were passing out the binders of the new products, I had trouble carrying it. It's about four or five inches thick.

Well, I like to hear you talk about new products and get excited about it.

That's the one thing I do get excited about. To me, merchandise is everything and we've developed an ability to come out with new and unique products that doesn't exist in our industry.

Perfect. Thanks a lot.

Thank you.

Your next question comes from [Tim Lamala] with the Newbury Partners.

Yes. With regard to 2006, are you comfortable with the manufacturing costs or do you have a lot more room?

Well, remember most of our products are sourced. We have little to no true manufacturing that we do, so we're comfortable that our sourcing is doing a great job in containing -- as everyone knows over the last two or three years there's been great increases in raw materials and transportation cost and oil and everything else and we use a lot of oil-based products and plastics and producing steel and so forth. But you've seen we've held our margin and I have to give credit to a combination of product development and sourcing, to have done that.

We've really fought to make sure that our margins do not deteriorate.

Thank you.

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Thanks, everyone, for joining us this morning as we recapped the accomplishments of 2005 and the many exciting growth plans we have for Lifetime for 2006. We've got great expectations for this year and we continue to see a very, very bright future for our company. We look forward to speaking with all of you again at the end of the first quarter. Thank you.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your line.