NOTE B —ACQUISITIONS

Kitchen Craft

On January 15, 2014, the Company acquired 100% of the share capital of Thomas Plant (Birmingham) Limited (“Kitchen Craft”) for cash in the amount of £37.4 million ($61.5 million) and 581,432 shares of common stock of the Company with an intrinsic value of £5.5 million ($9.0 million). The purchase price also includes contingent cash consideration of up to £5.5 million ($9.0 million) which will be payable in future years if Kitchen Craft achieves certain financial targets. Kitchen Craft is a leading supplier of kitchenware products and accessories in the United Kingdom. The assets, liabilities and operating results of Kitchen Craft are reflected in the Company’s consolidated financial statements in accordance with ASC Topic No. 805, Business Combinations, commencing from the acquisition date.

The purchase price has been determined to be as follows (in thousands):


Cash	$	61,302
Share consideration issued⁽¹⁾		8,382
Value of contingent consideration⁽²⁾		2,488
Working capital adjustment⁽³⁾		374

Total purchase price	$	72,546

(1)	Share consideration issued is valued at the closing market price discounted to account for lack of marketability related to the lock up period as described in the share purchase agreement.

(2)	The value of contingent consideration represents the present value of the estimated payments related to the attainment of certain financial targets for the years 2014 through 2016. The maximum undiscounted contingent consideration to be paid on the agreement is £5.5 million ($9.0 million).

(3)	A working capital adjustment was made in May 2014 as provided for in the share purchase agreement.

The purchase price was allocated based on the Company’s estimate of the fair value of the assets acquired and liabilities assumed, as follows (in thousands):


	Purchase Price Allocation
Accounts Receivable ⁽¹⁾	$	14,267
Inventory		17,912
Other assets		4,054
Other liabilities		(10,242	)
Deferred income tax		(8,391	)
Goodwill and other intangibles		54,946

Total allocated value	$	72,546

(1)	The fair value of accounts receivable approximated the gross contractual amounts receivable.

Goodwill results from such factors as an assembled workforce. The total amount of goodwill is not expected to be deductible for tax purposes. All of the goodwill and other intangible assets are included in the International Segment. Customer relationships and trade names are amortized on a straight-line basis over their estimated useful lives (see Note D).

Kitchen Craft pension plan

Kitchen Craft is the sponsor of a defined benefit pension plan (the “Plan”) for which service costs accrual ceased prior to the acquisition. Pursuant to the share purchase agreement, the Company and the sellers agreed to take action to settle the Plan’s obligation through the purchase of a group annuity contract and terminate the Plan.

As of the acquisition closing date, the projected benefit obligation of the Plan was estimated to be £7.1 million ($11.7 million) and was fully funded pursuant to the share purchase agreement. The assumptions utilized in the measurement of the funded status at the acquisition date, including a discount rate of 3.3%, reflected Kitchen Craft’s intent to settle the Plan through the purchase of a group annuity contract.

On October 31, 2014, the Plan trustees secured, in full, all benefits payable or contingently payable under the Plan (subject to adjustment as determined by the UK pension authority in connection with its approval of the Plan’s termination) through the purchase of a group annuity contract from a major UK-based insurance company. The terms of the group annuity contract required Kitchen Craft to make an additional payment of approximately £1.5 million ($2.4 million). The share purchase agreement provides that any additional contribution required in connection with the settlement and termination of the Plan shall be offset by future amounts owed to the sellers or, if those amounts are insufficient, reimbursed by the sellers. Accordingly, there was no impact, nor is there any expected future impact, to the Company’s statement of operations in connection with the settlement and planned termination of the Plan, which is expected to occur in 2015.

The Company’s net periodic benefit cost for the year ended December 31, 2014 is described in Note L.

Unaudited pro forma results

The year ended December 31, 2014 includes the operations of Kitchen Craft for the period from January 15, 2014 to December 31, 2014. The consolidated statements of operations for the year ended December 31, 2014 includes $67.6 million of net sales and $4.1 million of income from operations contributed by Kitchen Craft.

The following table presents the Company’s pro forma consolidated net sales and income before income taxes and equity in earnings for the year ended December 31, 2014 and 2013. The unaudited pro forma results include the historical statements of operations information of the Company and of Kitchen Craft, giving effect to the Kitchen Craft acquisition and related financing as if they had occurred at the beginning of the period presented. As described below under “Other Acquisitions,” the Company consummated certain other acquisitions during the year ended December 31, 2014; however the Company has not included the results prior to their acquisition in these pro forma results as the impact would not have been material.


	Unaudited pro forma results
	Year ended
	December 31, 2014		December 31, 2013
	(In thousands, except per share data)
Net sales	$	586,010	$	567,218
Income before income taxes and equity in earnings		15,760		26,491
Net income		2,702		12,031
Basic earnings per common share		0.20		0.90
Diluted earnings per common share	$	0.19	$	0.88

The pro forma results, prepared in accordance with U.S. GAAP, include the following pro forma adjustments related to the Kitchen Craft acquisition:

(i)

the elimination of the charge in cost of sales related to the increase in fair value of acquired inventory of $0.9 million in the year ended December 31, 2014;

(ii)

an increase in amortization expense related to the fair value of the identifiable intangible assets of $3.4 million in the year ended December 31, 2013;

(iii)

the elimination of acquisition costs recorded in the year ended December 31, 2014 and 2013 of $1.0 million and $0.6 million, respectively;

(iv)

an increase in interest expense and amortization of debt issuance costs of $2.0 million, resulting from the refinancing of the Company’s debt to finance the acquisition, during the year ended December 31, 2013; and

(v)

an adjustment of $2.2 million in the year ended December 31, 2013 to conform compensation expense to the Company’s current compensation policies.

The unaudited pro forma results do not include any revenue or cost reductions that may be achieved through the business combination, or the impact of non-recurring items directly related to the business combination.

The unaudited pro forma results are not necessarily indicative of the operating results that would have occurred if the Kitchen Craft acquisition had been completed as of the date for which the pro forma financial information is presented. In addition, the unaudited pro forma results do not purport to project the future consolidated operating results of the combined companies.

Other 2014 acquisitions

In February 2014, the Company acquired certain assets of Built NY, Inc. (“Built NY”), including inventory, trademarks and other intellectual property. Also in February 2014, the Company acquired certain assets of The Empire Silver Company, Inc. (“Empire Silver”), including trademarks and other intellectual property. In March 2014, the Company acquired the share capital of La Cafetière (UK) Limited, together with certain assets of other subsidiaries of The Greenfield Group Limited (collectively, “La Cafetière”). The La Cafetière acquisition included the purchase of certain trademarks and other intellectual property, and certain inventory and receivables.

In aggregate, the Company paid approximately $5.4 million of primarily cash consideration for the acquisitions of Built NY, Empire Silver and La Cafetière. The assets, liabilities and operating results of the acquisitions are reflected in the Company’s consolidated financial statements in accordance with ASC Topic No. 805, Business Combinations, commencing from the acquisition dates.

Fred^® & Friends

On December 20, 2012, the Company acquired the Fred^® & Friends (“F&F”) business. F&F designs and distributes novelty housewares under the Fred^® brand directly to retailers throughout the United States and Canada. The assets, liabilities and operating results of F&F have been reflected in the Company’s consolidated financial statements in accordance with ASC Topic No. 805, Business Combinations, commencing from the acquisition date and did not significantly impact the Company’s consolidated financial results for the year ended December 31, 2012.

The purchase price was comprised of the following (in thousands):


Cash paid	$	14,500
Common stock issued		1,507
Value of contingent consideration		5,370

Total purchase price	$	21,377

The cash portion of the purchase price was funded by borrowings under the Company’s revolving credit facility. The value of contingent consideration represents the present value of estimated contingent payments of $4.0 million related to the attainment of certain gross contribution targets for the years 2013 through 2016 and the present value of the contractual holdback amount of $1.4 million, which serves as security for payments in satisfaction of any claim. The maximum undiscounted deferred and contingent consideration to be paid under the agreement is $7.7 million.

The Company assessed the fair value of the contingent consideration as of December 31, 2014 and based upon the projected attainment of certain gross contribution margin targets, a fair value adjustment to reduce the contingent consideration accrual by $4.2 million is included within Selling, general and administrative expenses for the year ended December 31, 2014.

The purchase price has been allocated based on management’s estimate of the fair value of the assets acquired and liabilities assumed, as follows (in thousands):


	Purchase Price Allocation
Accounts receivable⁽¹⁾	$	5,003
Inventory		3,941
Other assets		360
Other liabilities		(1,519	)
Goodwill and other intangibles		13,592

Total allocated value	$	21,377

Note:

(1)	The fair value of accounts receivable approximated the gross contractual amounts receivable.

On the basis of estimated fair values, the excess of the purchase price over the net assets acquired of $13.6 million has been allocated as follows: $7.2 million for customer relationships, $3.9 million for trade names and $2.5 million for goodwill. The goodwill recognized results from such factors as an assembled workforce and the value of other synergies expected from combining operations with the Company. The total amount of goodwill is expected to be deductible for tax purposes. All of the goodwill and other intangibles are included in the U.S. Wholesale segment. Customer relationships and trade names are amortized on a straight-line basis over their estimated useful lives (see Note D).

See Note M for amounts accrued as of December 31, 2014 and 2013 related to contingent consideration. The estimated fair value of the contingent consideration was calculated using Level 3 unobservable inputs.