What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-03-09 compared with 2021-03-10 · 187 added, 299 removed, 320 unchanged (60% of the section changed)

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net sales and 85% of the Company’s consolidated net sales.

The year ended December 31, 2018 includes the operations of Filament for the period from March 2, 2018, the date of the acquisition of Filament, to December 31, 2018.

The Company markets several product lines within each of its product categories and under most of the Company’s brands, primarily targeting moderate price points through virtually every major level of trade.

The Company believes it possesses certain competitive advantages based on its brands, its emphasis on innovation and new product development, and its sourcing capabilities.

The Company owns or licenses a number of leading brands in its industry, including Farberware®, Mikasa®, Taylor®, KitchenAid®, KitchenCraft® , Pfaltzgraff® , BUILT NY®, Rabbit®, Kamenstein®, and MasterClass®.

The Company owns or licenses a number of leading brands in its industry, including Farberware®, KitchenAid®, Taylor®, Mikasa®, KitchenCraft® , BUILT NY®, Kamenstein®, Pfaltzgraff® , Rabbit®, and Sabatier®.

Historically, the Company’s sales growth has come from expanding product offerings within its product categories, by developing existing brands, acquiring new brands (including complementary brands in markets outside the United States), and establishing new product categories.

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EQUITY INVESTMENTS

The Company owns approximately 30% interest in Grupo Vasconia S.A.B (“Vasconia”), an integrated manufacturer of aluminum products and one of Mexico's largest housewares companies.

The Company owns 24.7% interest in Grupo Vasconia S.A.B (“Vasconia”), an integrated manufacturer of aluminum products and one of Mexico's largest housewares companies.

Shares of Vasconia's capital stock are traded on the Bolsa Mexicana de Valores, the Mexican Stock Exchange.

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The Company accounts for its investment in Vasconia using the equity method of accounting and records its proportionate share of Vasconia’s net income in the Company's consolidated statements of operations.

Accordingly, the Company has recorded its proportionate share of Vasconia's net income (reduced for amortization expense related to the customer relationships acquired) for the year ended December 31, 2020, 2019, and 2018 in the accompanying consolidated statements of operations.

Accordingly, the Company has recorded its proportionate share of Vasconia's net income (reduced for amortization expense related to the customer relationships acquired) for the years ended December 31, 2021, 2020, and 2019 in the accompanying consolidated statements of operations.

Pursuant to a Shares Subscription Agreement, the Company may designate four persons to be nominated as members of Vasconia’s Board of Directors.

As of December 31, 2020, Vasconia's Board of Directors is comprised of fourteen members of whom the Company has designated three members.

As of December 31, 2021, Vasconia's Board of Directors is comprised of eleven members of whom the Company has designated two members.

On June 30, 2021, Vasconia sold shares, which diluted the Company’s investment ownership from approximately 30% to approximately 27%.

The Company recorded a non-cash gain of $1.7 million, increasing the Company’s investment balance.

Additionally, a loss of $2.0 million was recognized for the proportionate share of the diluted ownership for amounts previously recognized in accumulated other comprehensive loss.

The net loss of $0.3 million was included in equity in earnings, net of taxes, in the accompanying consolidated statements of operations for the year ended December 31, 2021.

On July 29, 2021, the Company sold 2.2 million shares further reducing its ownership from approximately 27% to 24.7% in Vasconia for net cash proceeds of approximately $3.1 million, as a result the Company recorded a gain of $1.0 million, after decreasing the Company’s investment balance.

The gain on the sale resulted in a tax expense of $0.1 million.

Additionally, a loss of $1.4 million was recognized for the proportionate share of the reduced ownership for amounts previously recognized in accumulated other comprehensive loss.

The net loss, including taxes, of $0.5 million was included in equity in earnings, net of taxes, in the accompanying consolidated statements of operations for the year ended December 31, 2021.

The Company continues to apply the equity method of accounting.

The Company recorded equity in earnings of Vasconia, net of taxes, of $1.8 million, $1.5 million and $0.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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In 2021, 2020 and 2019, net sales for the third and fourth quarters accounted for 56%, 62% and 60% of total annual net sales, respectively.

The increase in the Company's net sales in the first half of the year compared to historical trend was a result of increased demand for the Company's products due in part to the effects on demand from the COVID-19 pandemic.

In anticipation of the pre-holiday shipping season, inventory levels increase primarily in the June through October time period.

In 2020, the Company's inventory levels did not significantly decrease during the fourth quarter.

The higher inventory levels at December 31, 2020 were a result of increased inventory purchases to meet higher expected demand in 2021 due in part to the effects on demand from the COVID-19 pandemic.

In 2021, the Company's inventory levels increased during the fourth quarter compared to the third quarter.

The higher inventory balance at December 31, 2021 was a result of increased inventory purchases, to maintain inventory availability and meet expected demand, and higher inventory cost.

Consistent with the seasonality of the Company's net sales and inventory levels, the Company also experiences seasonality in its inventory turnover and turnover days from one quarter to the next.

RESTRUCTURING

During the years ended December 31, 2019 and 2018, the Company's U.S.

segment incurred $0.7 million and $2.1 million.

During the year ended December 31, 2021, the Company did not incur restructuring expense.

During the year ended December 31, 2020, the Company's International segment incurred $0.2 million of restructuring expenses related to severance associated with the strategic reorganization of the International segment’s product development and sales workforce.

The strategic reorganization was the result of the Company's efforts for product development efficiencies and an international sales approach tailored to countries.

During the years ended December 31, 2019, and 2018, the Company's international segment incurred $0.7 million and $0.2 million, respectively, of restructuring expense primarily related to the integration of its legal entities operating in Europe.

The Company does not expect to incur any additional restructuring charges for these efforts.

During the year ended December 31, 2019, the Company's U.S.

segment incurred $0.7 million of restructuring expense related to the integration of Filament.

During the year ended December 31, 2019, the Company's International segment incurred $0.7 million of restructuring expense primarily related to the integration of its legal entities operating in Europe.

RECENT DEVELOPMENTS

The COVID-19 pandemic continues to affect the United States and the rest of the world.

The pandemic has resulted in an increase in sales of certain of the Company’s products as well as a decrease in sales in other of its products.

The Company has experienced a reduction in sales at certain retailers, that had closed or had limited store openings, during the pandemic.

The ongoing COVID-19 pandemic, as well as other factors including, increased demand and shifts in consumer shopping patterns, have caused disruption in the global supply chain.

The increased demand for containers, limited container capacity, and backlog at U.S.

ports have resulted in increased market costs of inbound freight, container shortages, and longer lead times.

The disruption in the global supply chain has also caused increased input costs used to manufacture the Company’s product.

The Company has been impacted by these disruptions and has experienced higher inbound freight cost, delays in importing inventory due to limited availability of containers, and an increase in product costs.

There have also been instances of limited trucking availability.

The Company has experienced instances of trucking shortages, which has resulted in delays of shipments to certain of its customers.

The Company expects that these trends may continue into 2022.

The pandemic resulted in an increase in sales of certain of the Company’s products as well as a decrease in sales in other of its products.

The Company had experienced a reduction in sales at certain retailers, that had closed or had limited store openings, during the pandemic.

These declines were offset by higher sales at retailers that remained open and by e-commerce sales.

Many of the retailers that had remained open provide products that are deemed essential.

The Company’s distribution facilities remain operational and continue to support e-commerce and brick-and-mortar retail customers.

The Company has not experienced significant disruptions in its supply chain related to the COVID-19 pandemic.

In limited instances and categories, increased demand has strained the manufacturing capacity of certain of the Company’s suppliers.

The Company expects, in the short term, higher inbound freight cost to import inventory as a result of expected higher demand of the Company's products and broader macroeconomic demand for ocean freight.

Additionally, in the U.S., the Company has experienced instances of trucking availability shortages, resulting in delays of shipments to certain of its customers.

During 2019, the Office of the U.S.

Trade Representative (‘‘USTR’’) imposed additional tariffs on products imported from China.

In certain cases, both in 2019 and 2020, these tariffs were subsequently reduced, suspended or removed.

The Company purchases a high concentration of products from unaffiliated manufacturers located in China.

This concentration exposes the Company to risks associated with doing business globally, including changes in tariffs.

The tariff increases that were implemented by the USTR began to adversely impact the Company's cost of sales in the third quarter of fiscal 2019 and will continue to do so, as long as these tariff increases remain in effect.

In January 2020, the U.S.

and China signed a trade agreement known as the Phase One Agreement.

This agreement reversed some tariff increases that had become effective in September 2019.

Significant uncertainty exists as to the timing and content of a Phase Two agreement, particularly due to the ongoing pandemic and to changes in the United States Administration as a result of the November 2020 Presidential election.

The Company expects to mitigate the impact of tariff increases primarily through pricing actions and product cost reductions in its supply chain.

Since July 2018, the USTR has periodically issued lists of products that are excluded from tariffs on Chinese imports.

Under the USTR exclusion process, companies have the opportunity to seek to have particular products excluded from the tariff lists and apply for a refund.

On January 31, 2020, the U.K.

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The U.K.’s exit from the European Union is unprecedented and it remains unclear what long-term impact this will have on the U.K.’s access to the EU Single Market and on the legal and regulatory environment in which the Company operates, as well as its effect on the global macroeconomic environment.

The Company has experienced an increase in delivery times and cost for products shipped from the U.K.

warehouse to continental Europe.

To remain competitive in the distribution of products within continental Europe, the Company plans to expand its distribution and warehouse capacity through a third-party operated distribution provider located in the Netherlands in 2022.

The uncertainty surrounding the consequences of the U.K.’s exit could adversely impact the U.K.

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and the European Union.

uncertainty may contribute to additional market volatility, including volatility in the value of the U.K.

Such uncertainty may contribute to additional market volatility, including volatility in the value of the U.K.

pound and European euro, and may adversely affect the Company’s businesses, results of operations, and financial condition.

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domiciled businesses were $81.0 million for the year ended December 31, 2021, and represent approximately 9% of the Company’s consolidated net sales for the period.

On March 3, 2021, the Chancellor of the Exchequer presented the U.K Budget 2021 to Parliament.

The budget includes a proposal to increase the U.K.

corporate tax rate from 19% to 25% effective April 1, 2023.

The proposed change will be enacted into law upon approval by Parliament, which is expected in the second half of 2021.

The U.K Finance Act 2021 included an increase to the U.K.

corporate tax rate from 19% to 25% effective April 1, 2023, which was enacted into law in 2021.

The Company expects the higher tax rate could negatively impact the Company's operating results.

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Adopted accounting pronouncements

On April 10, 2020, the FASB staff issued a question-and-answer document to address stakeholder questions on the application of the lease accounting guidance for lease concessions related to the effects of the COVID-19 pandemic (the “Question-and-Answer Document”).

The guidance allows concessions related to the timing of payments, where the total consideration has not changed, to not be accounted for as lease modifications.

Instead, any such concessions can be accounted for as if no change was made to the contract or as variable lease payments.

The Company adopted the guidance on April 1, 2020 and elected to account for COVID-19-related rent concessions that did not result in a substantial increase in the rights of the lessor or the obligations of the lessee not as lease modifications.

See NOTE 4 — LEASES for additional information on the Company’s adoption of this guidance.

Accounting Pronouncements to be Adopted in Future Periods

Updates not listed below were assessed and either determined to not be applicable or are expected to have a minimal effect on the Company’s financial position, results of operations, and disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Effective January 1, 2021, the Company adopted ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles and simplifies the application of U.S.

GAAP for other areas of Topic 740 by clarifying and amending the existing guidance.

The guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020.

The impact of the adoption is not expected to have a material impact on the Company's consolidated financial statements.

The adoption did not have a material impact on the Company’s consolidated financial statements.

New accounting pronouncements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments.

This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses.

The ASU also provides updated guidance regarding the impairment of available-for-sale debt securities and includes additional disclosure requirements.

ASU 2016-13 also provides updated guidance regarding the impairment of available-for-sale debt securities and includes additional disclosure requirements.

The new guidance is effective for public business entities that meet the definition of a Smaller Reporting Company as defined by the Securities and Exchange Commission for interim and annual periods beginning after December 15, 2022.

The Company met the definition of a Smaller Reporting Company as of the one-time determination date of November 15, 2019.

Early adoption is permitted.

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In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to account for contract modifications, hedging relationships and other transactions that reference LIBOR or another reference rate that is expected to be discontinued as a result of reference rate reform.

The guidance was effective upon issuance and may be applied prospectively to contract modifications and hedging relationships entered into or evaluated as of any date from March 12, 2020 but no later than December 31, 2022.

The Company has not yet applied the guidance in this ASU and is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to account for contract modifications, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate ("LIBOR") or another reference rate that is expected to be discontinued as a result of reference rate reform.

The guidance in ASU 2020-04 may be applied to contract modifications and hedging relationships as of any date from March 12, 2020 but no later than December 31, 2022 and should be applied on a prospective basis.

The Company has not yet applied the guidance in ASU 2020-04 and is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers.

The new guidance is effective for public business entities for fiscal years beginning after December 15, 2022 on a prospective basis, with early adoption permitted.

Management is currently evaluating the timing of adoption and the impact of this standard on its consolidated financial statements and related disclosures.

RESULTS OF OPERATIONS

The results of operations below focuses on the results of 2020 compared to 2019.

For a discussion of 2019 compared to 2018 refer to "Results of Operations" in our Form 10-K for the year ended December 31, 2019.

The results of operations below focuses on the results of the year ended December 31, 2021 compared to the year ended December 31, 2020.

For a discussion of 2020 compared to 2019 refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations", in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

The following table sets forth statement of operations data of the Company as a percentage of net sales for the periods indicated below.

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Selling, general and administrative expenses 18.2 20.3 22.0

Goodwill and other impairments 2.6 5.8 0.3

Goodwill and other intangible asset impairments 1.7 2.6 5.8

Restructuring expenses — 0.0 0.2

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Interest expense (1.8) (2.2) (2.8)

Mark to market (loss) gain on interest rate derivatives

Loss on early retirement of debt — — 0.0

Mark to market gain (loss) on interest rate derivatives

0.1 (0.3) 0.0

Income (loss) before income taxes and equity in earnings

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Equity in earnings, net of taxes

Net income (loss)

2.4 % (0.4) % (6.1) %

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2021 COMPARED TO 2020

Net sales for the year 2020 were $769.2 million, an increase of $34.3 million, or 4.7%, compared to net sales of $734.9 million in 2019.

Net sales for the year ended December 31, 2021 were $862.9 million, an increase of $93.7 million, or 12.2%, compared to net sales of $769.2 million in 2020.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2021 average rates to 2020 local currency amounts, net sales increased $88.4 million, or 11.4%, as compared to consolidated net sales in the corresponding period in 2020.

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The net sales increase in the U.S.

segment’s Kitchenware product category was primarily a result of higher consumer demand in both the e-commerce and wholesale channels for essential food preparation products including kitchen tools and gadgets, cutlery/boards, and measurement products.

The strong demand for these products have been a result of shifts in consumer purchasing patterns.

Net sales for the U.S.

segment’s Tableware product category in 2020 were $141.1 million, a decrease of $15.0 million, or 9.6%, compared to net sales of $156.1 million for 2019.

The decrease was primarily driven by lower sales of dinnerware products to brick-and-mortar retailers many of which were closed due to the COVID-19 pandemic.

This decrease was partially offset by higher sales of flatware products and e-commerce sales.

segment’s Tableware product category in 2021 were $167.2 million, an increase of $26.1 million, or 18.5%, compared to net sales of $141.1 million for 2020.

The increase came from all product lines driven by higher dinnerware e-commerce sales, continued recovery of sales to brick-and-mortar customers, and flatware sales from a new flatware warehouse club program that began in 2021.

Net sales for the U.S.

segment’s Home Solutions products category in 2020 were $115.5 million, a decrease of $18.3 million, or 13.7%, compared to net sales of $133.8 million in 2019.

The decrease was primarily driven by lower sales in the food and beverage outlet channel and lower home décor sales due to certain retailer program initiatives not repeating in 2020 and store closing due to the pandemic.

This decrease was offset by higher sales resulting from new programs of branded hydration products in the wholesale channel.

Net sales for the International segment in 2020 were $85.7 million, a decrease of $5.0 million, compared to net sales of $90.7 million for 2019.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2020 average exchange rates to 2019 local currency amounts, net sales decreased approximately 6.3%.

The decrease in sales was driven by lower sales to national and independent retailers primarily as a result from lower demand and store closures due to COVID-19.

This decrease was offset by increased e-commerce sales due to higher customer demand in online channels.

segment’s Home Solutions products category in 2021 were $115.6 million, an increase of $0.1 million, or 0.1%, compared to net sales of $115.5 million in 2020.

The increase was primarily attributable home décor sales, sales in the back-to-school lunch box category and a new private label hydration program, offset by lower sales in the hydration product category due to a warehouse club program not repeating in 2021.

Net sales for the International segment in 2021 were $92.3 million, an increase of $6.6 million, compared to net sales of $85.7 million for 2020.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was

determined by applying 2021 average exchange rates to 2020 local currency amounts, net sales increased approximately 1.6%.

The increase in sales was attributable to sales in the Company's global trading business in Asia and higher selling prices, partially offset by lower e-commerce sales.

Gross margin for 2021 was $303.3 million, or 35.2%, compared to $274.0 million, or 35.6%, for the corresponding period in 2020.

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segment was $274.1 million, or 35.6%, for 2021, compared to $250.5 million, or 36.6%, for 2020.

Gross margin in the 2019 period reflects an $8.5 million charge for the SKU Rationalization initiative.

Excluding the SKU Rationalization initiative, the gross margin in the 2019 period would have been 36.5%.

The decrease in gross margin percentage was primarily due to higher inbound freight costs, product mix and the inclusion in the 2020 period of a benefit from a duty exclusion on certain products.

These drivers were partially offset by higher selling prices.

Gross margin for the International segment was $29.2 million, or 31.6%, for 2021, compared to $23.5 million, or 27.4%, for 2020.

The decrease in gross margin percentage was primarily due to higher inventory reserves and unfavorable sales mix related to store closures due to COVID-19.

The increase in gross margin percentage was driven by customer mix, lower sales allowances and inventory reserves and higher selling prices.

The improvement was partially offset by increased inbound freight costs.

Distribution expenses

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segment were approximately 8.0% in 2021 and 8.4% in 2020.

Distribution expenses in 2019 included $0.2 million for the Company’s facility relocation efforts of its west coast distribution facility.

As a percentage of sales shipped from the Company’s warehouses, distribution expenses, excluding the relocation costs for the U.S.

segment, were 8.8% and 9.6% f or 2020 and 2019, respectively.

The improvement reflects the continued realization of labor management efficiency and synergy savings as well as the leverage benefit of fixed costs on higher sales volume.

The improvement was partially offset by higher hourly labor rates for warehouse employees.

As a percentage of sales shipped from the Company’s warehouses, distribution expenses were 8.7% and 8.8% f or 2021 and 2020, respectively.

The improvement was a result of the leverage benefit of fixed costs on higher sales volume, improved labor management, partially offset by higher hourly labor rates and warehouse supply expenses.

Distribution expenses as a percentage of net sales for the International segment were approximately 20.3% in 2021 and 17.9% in 2020, respectively.

Distribution expenses in 2020 and 2019 included $1.1 million and $2.6 million, respectively, for the Company’s facility relocation costs of its International distribution facilities.

Distribution expenses in 2020 included $1.1 million for the Company’s facility relocation costs of its International distribution facilities.

As a percentage of sales shipped from the Company’s warehouses, distribution expenses, excluding the relocation costs for the International segment, were 17.4% and 13.8% f or 2021 and 2020, re spectively.

The decrease was primarily attributable to the improvement in the fulfillment of orders and labor efficiencies compared to the prior year.

The increase was attributed to increased shipping cost for products shipped from the U.K.

warehouse to continental Europe, higher cost due to transportation shortages and an expense in the current period related to a reassessment of real estate tax expense for the U.K.

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses for 2020 w ere $155.9 million, a decrease of $5.7 million, or 3.5%, as compared to $161.6 million for 2019.

Selling, general and administrative (“SG&A”) expenses for 2021 w ere $156.9 million, an increase of $1.0 million, or 0.6%, as compared to $155.9 million for 2020.

SG&A expenses for 2021 for the U.S.

segment were $112.6 million , a decrease of $4.5 million , or 3.8% , compared to $117.1 million for 2019.

segment wer e $111.8 million, a decrease of $0.8 million, or 0.7% , compared to $112.6 million for 2020.

As a percentage of net sales, SG&A expenses were 14.5% for 2021, compared to 16.5% for 2020.

The decrease was primarily attributable to a reduction in headcount and selling and marketing expenses as a result from the Company's cost savings efforts in response to the COVID-19 pandemic.

This reduction was partially offset by higher employee incentive compensation and higher estimates for bad debt expense related to the economic uncertainties caused by the COVID-19 pandemic.

SG&A expenses for 2020 for the International segment were $20.7 million , compared to $24.3 million for 2019.

As a percentage of net sales, SG&A expenses decrease d to 24.2% for 2020, compared to 26.8% for 2019.

The decrease was primarily attributable to a reduction in headcount resulting from the Company's cost savings efforts in response to the COVID-19 pandemic, as well as lower selling and marketing expenses.

This was partially offset by higher estimates for bad debt expense related to the economic uncertainties caused by the COVID-19 pandemic.

The decrease in the expense was attributable to lower estimates for bad debt expense and facility expense in 2021, offset by higher employee expense as the prior period reflects the effects of COVID related furloughs and for 2021 higher incentive compensation and advertising expense.

The improvement in selling, general and administrative expense as a percentage of net sales is due to the leverage benefit of fixed costs on higher sales volume.

SG&A expenses for 2021 for the International segment were $20.7 million for both 2021 and 2020.

As a percentage of net sales, SG&A expenses decreased to 22.4% for 2021, compared to 24.2% for 2020.

The international segment expense increased primarily due to unfavorable foreign currency exchange losses, which was offset by lower selling expenses related to marketing, lower estimates for bad debt expense, and a decrease in amortization expense on its intangible assets.

Unallocated corporate expenses for 2021 were $24.4 million , compared to $22.6 million for 2020.

The increase was driven by higher executive incentive compensation, partially offset by lower executive salary costs for the temporary reduction in base salary during 2020 and lower professional fees.

Goodwill and other impairments

The increase was driven by higher incentive compensation an salary costs, as the prior year included a temporary reduction in base salary.

The increase was partially offset by lower professional fees.

Goodwill and other intangible asset impairments

Finite-lived intangibles and Long-lived assets

During the fourth quarter of 2021, due to lower than expected operating results for the International segment caused by continuing impacts of COVID-19 and the exit of the U.K.

from the European Union, impairment indicators were identified for the International asset group.

The Company tested the recoverability of the asset group, concluding it was not recoverable and performed an analysis of the fair value of the international long-lived assets.

For the finite-lived intangible assets, the Company performed discounted cash flow analysis and recorded an impairment of $14.8 million within the international segment.

There was no goodwill for the International segment as of December 31, 2021.

Reporting Unit

The Company performed its annual impairment assessment of its U.S.

reporting unit as of October 1,2021 by comparing the fair value of the reporting unit with its carrying value.

The Company performed the analysis using a discounted cash flow and market multiple method.

As of October 1, 2021, the fair value of the U.S.

reporting unit exceeded the carrying value of goodwill.

During the first quarter of 2020, as a result of the economic downturn caused by the COVID-19 pandemic, the Company performed an interim assessment of the goodwill for the U.S.

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reporting unit was approximately 3.9% below its carrying value as of March 31, 2020.

The Company performed its annual impairment assessment of its U.S.

reporting unit as of October 1, 2020 by comparing the fair value of the reporting unit with its carrying value.

The Company performed the analysis using a discounted cash flow and market multiple method.

As of October 1, 2020, the fair value of the U.S.

reporting unit exceeded the carrying value of goodwill.

In 2019, the Company recognized a non-cash goodwill impairment charge of $33.2 million , during the three months ended December 31, 2019.

The Company performed the analysis using a discounted cash flow and market multiple method.

The goodwill impairment charge resulted from, among other factors, a sustained decline in the Company's market capitalization observed in the fourth quarter of 2019.

The fair value of the U.S, reporting unit was approximately 6.1% below its carrying value at October 1, 2019.

International Reporting Unit

In the third quarter of 2019, the Company performed an interim assessment of its European kitchenware business by comparing the fair value of the reporting unit with its carrying value as of September 30, 2019.

The Company performed the analysis using a discounted cash flow and market multiple approach.

Based upon the analysis performed, the Company recognized a $9.7 million non-cash goodwill impairment charge during the third quarter of 2019.

The goodwill impairment charge was the result of a decline in operating performance and reduced expectations for future cash flows of the European kitchenware business.

The fair value of the business was approximately 30.1% below its carrying value as of September 30, 2019.

Indefinite-lived intangibles

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Restructuring expenses

During the year ended December 31, 2019, the Company's U.S.

segment incurred $0.7 million, of restructuring expense related to the integration of Filament, of which $0.1 million was accrued at December 31, 2019.

During the year ended December 31, 2021, the Company did not incur restructuring expense.

The strategic reorganization was the result of the Company's efforts for product development efficiencies and an international sales approach tailored to countries.

The Company had no international restructuring accrual as of December 31, 2020 and December 31, 2019.

The Company does not expect to incur any additional restructuring charges for these efforts.

Interest expense

Interest expense for 2021 was $15.5 million, compared to $17.3 million for 2020 .

The decrease in expense was primarily a result of less debt outstanding and a lower interest rate environment.

Mark to market (loss) gain on interest rate derivatives

Mark to market loss on interest rate derivatives was $2.1 million for the year ended December 31, 2020, as compared to a mark to market gain on interest rate derivatives of $0.4 million for the year ended December 31, 2019 .

The mark to market amount represents the change in the fair value on the Company's interest rate derivatives that have not been designed as hedging instruments.

The decrease in expense was primarily a result of less debt outstanding.

Mark to market gain (loss) on interest rate derivatives

Mark to market gain on interest rate derivatives was $1.1 million for the year ended December 31, 2021, as compared to a mark to market loss on interest rate derivatives of $2.1 million for the year ended December 31, 2020 .

The mark to market amount represents the change in the fair value on the Company's interest rate derivatives that have not been designated as hedging instruments.

These derivatives were entered into for purposes of locking-in a fixed interest rate on the Company's variable interest rate debt.

The current period loss was caused by lower interest rates as compared to the year ended December 31, 2019.

The intent of the Company is to hold these derivative contracts until their maturity.

Therefore, the Company expects that this loss will reverse over time.

The prior period loss was a result of declines in interest rates during that period.

As of December 31, 2021, the intent of the Company is to hold these derivative contracts until their maturity.

Income tax provision

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The Company’s effective tax rate for 2021 was 45.5%, compared to 177.8% for 2020.

The effective tax rate in 2021 was driven primarily by state and local tax expenses, nondeductible expenses, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.

The effective tax rate in 2020 was driven primarily by the impairment of goodwill in the U.S, nondeductible expenses, equity-based awards, and a valuation allowance against net deferred tax assets in the United Kingdom.

The effective tax rate in 2019 was driven by the impairment of goodwill in the U.S.

and international reporting units, nondeductible expenses, state taxes and tax credits.

Equity in earnings

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(in thousands)

Vasconia Equity earnings, net of taxes $ 1,545 $ 467

Vasconia equity in earnings, net of taxes $ 1,769 $ 1,545

Net loss on dilution in Vasconia ownership (297) —

Net loss on partial sale of Vasconia ownership, net of taxes (510)

Total equity in earnings related to Vasconia activity 962 1,545

Cumulative translation foreign currency losses related to dissolution of Lifetime Brands Do Brasil Participacoes Ltda

Equity in earnings (losses), net of taxes $ 962 $ 1,310

Vasconia reported loss from operations for 2020 of $0.1 million, as compared to income of $8.6 million for 2019 and reported net income of $5.6 million and $1.8 million in 2020 and 2019, respectively.

The effect of the translation of the Company’s investment, as well as the translation of Vasconia’s balance sheet, resulted in a decrease of the investment of $2.7 million during the year ended December 31, 2020 and a decrease of the investment of $1.6 million during the year ended December 31, 2019.

Vasconia reported income from operations for 2021 of $15.5 million, as compared to loss of $0.1 million for 2020 and reported net income of $7.0 million and $5.6 million in 2021 and 2020, respectively.

The effect of the translation of the Company’s investment, as well as the translation of Vasconia’s balance sheet, resulted in a increase of the investment of $1.0 million during the year ended December 31, 2021 and a decrease of the investment of $2.7 million during the year ended December 31, 2020.

During the year ended December 31, 2021, the Company's ownership in its equity method investment decreased as a result of a dilution of its investment in Vasconia and a subsequent partial sale of its investment.

The Company recognized a net loss of $0.3 million related to the dilution of the Company's ownership in its Vasconia investment.

The net loss was comprised of a loss of $2.0 million, related to amounts that were previously recognized in accumulated other comprehensive loss, net of a non-cash gain of $1.7 million for the difference between the selling price and the Company's basis in the diluted shares.

Additionally, the Company recognized a net loss of $0.5 million related to a partial sale of the Company’s ownership in its Vasconia investment.

The net loss was comprised of a gain of $1.0 million, for the difference between the selling price and the Company’s basis in the sale of shares, offset by tax expense of $0.1 million and a loss of $1.4 million, related to amounts previously recognized in accumulated other comprehensive loss.

During the year ended December 31, 2020, the Company recognized a loss of $0.2 million, relating to cumulative translation foreign currency losses that were recognized to earnings upon the dissolution of Lifetime Brands Do Brasil Participacoes Ltda., a 100% owned foreign subsidiary.

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The Company believes that the following discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the Company’s consolidated financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

Inventory consists principally of finished goods sourced from third-party suppliers.

Inventory also includes finished goods, work in process and raw materials related to the Company’s manufacture of sterling silver products.

Inventory is priced using the lower of cost (first-in, first-out basis) or net realizable value.

The Company estimates the selling price of its inventory on a product by product basis based on the current selling environment.

If the estimated selling price is lower than the inventory’s cost, the Company reduces the value of the inventory to its net realizable value.

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and transportation.

Accounts Receivable

The Company periodically reviews the collectability of its accounts receivable and establishes allowances for estimated losses that could result from the inability of its customers to make required payments, taking into consideration customer credit history and financial condition, industry and market segment information, credit reports, and economic trends and conditions such as the impact of the COVID-19 pandemic in 2020.

A considerable amount of judgment is required to assess the ultimate realization of these receivables including assessing the initial and on-going creditworthiness of the Company’s customers.

The Company also maintains an allowance for anticipated customer deductions.

The allowances for deductions are primarily based on contracts with customers.

However, in certain cases the Company does not have a formal contract and, therefore, customer deductions are non-contractual.

To evaluate the reasonableness of non-contractual customer deductions, the Company analyzes currently available information and historical trends of deductions.

Receivable purchase agreement

To improve its liquidity during seasonally high working capital periods, the Company has an uncommitted Receivables Purchase Agreement with HSBC Bank USA, as Purchaser (the “Receivables Purchase Agreement”).

Under the Receivables Purchase Agreement, the Company may offer to sell certain eligible accounts receivables (the “Receivables”) to HSBC Bank USA, which may accept such offer, and purchase the offered Receivables.

Under the Receivables Purchase Agreement, following each purchase of Receivables, the outstanding aggregate purchased Receivables shall not exceed $30.0 million.

HSBC Bank USA will assume the credit risk of the Receivables purchased;

and, the Company will continue to be responsible for all non-credit risk matters.

The Company will service the Receivables, and as such servicer, collect and otherwise enforce the Receivables on behalf of HSBC Bank USA.

The term of the agreement is for 364 days and automatically extends for annual successive terms unless terminated.

Either party may terminate the agreement at any time upon 60 days prior written notice to the other party.

Pursuant to this agreement, the Company sold $159.4 million and $115.4 million of Receivables during the years ended December 31, 2020 and 2019, respectively.

At December 31, 2020 and 2019, $24.7 million and $20.9 million, respectively, of receivables sold are outstanding and are due to HSBC Bank USA from customers.

A charge of $0.4 million and $0.6 million related to the sale of the Receivables is included in selling, general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2020 and 2019, respectively.

The Company determines if an arrangement is a lease at the inception of a contract.

Operating lease right-of-use (“ROU”) assets are included in operating lease right-of-use assets on the consolidated balance sheets.

The current and long-term components of operating lease liabilities are included in the current portion of operating lease liability and operating lease liabilities, respectively, on the consolidated balance sheets.

Finance leases are included in property and equipment, net, accrued expenses and other long-term liabilities.

The Company's finance leases are not material to the Company’s consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term.

As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.

The operating lease ROU asset may also include any lease payments made, adjusted for any prepaid or accrued rent payments, lease incentives, and initial direct costs incurred.

Certain leases may include options to extend or terminate the lease.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

For certain equipment leases, the Company applies a portfolio approach to effectively account for any ROU assets and lease liabilities.

Leases with an initial term of twelve months or less are not recorded on the balance sheet.

The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized.

Goodwill, intangible assets and long-lived assets

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The significant assumptions used in the relief from royalty model are future net sales for the related brands, royalty rates and the cost of capital to determine the fair value of the indefinite lived intangibles.

The Company also evaluates qualitative factors to determine whether or not its indefinite lived intangibles have been impaired and then performs quantitative tests if required.

The Company also evaluates qualitative factors to determine whether impairment indicators exist for its indefinite lived intangibles and performs quantitative tests if required.

These tests can include the relief from royalty model or other valuation models.

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The Company’s principal terms of sale are Free on Board ("FOB") Shipping Point, or equivalent, and, as such, the Company primarily transfers control and records revenue for product sales upon shipment.

Sales arrangements with delivery terms that are not FOB Shipping Point are not recognized upon shipment and the transfer of control for revenue recognition is evaluated based on the associated shipping terms and customer obligations.

Sales arrangements with delivery terms that are not FOB Shipping Point are not recognized upon shipment and the transfer of control for revenue recognition is evaluated based on the

associated shipping terms and customer obligations.

Shipping and handling fees that are billed to customers in sales transactions are included in net sales.

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As a result of the COVID-19 pandemic, beginning in the first quarter of 2020 and lasting through the fourth quarter of 2020, many of the Company's customers that operate retail locations temporarily closed their stores voluntarily or as mandated by government stay at home orders.

In response to these closings, the affected customers have requested extended payment terms.

The Company has been working with these customers to address their temporary extended payment requests.

In response to these closings, the affected customers had requested temporary extended payment terms.

The Company incurs certain direct incremental costs to obtain contracts with customers, such as sales-related commissions, where the recognition period for the related revenue is less than one year.

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Incidental items that are immaterial in the context of the contract are expensed as incurred.

Cost of sales

Cost of sales consist primarily of costs associated with the production and procurement of product, inbound freight costs, purchasing costs, royalties and other product procurement related charges.

In 2019, the Company implemented programs to improve the productivity of its inventory and simplify its U.S.

In connection therewith, it initiated a stock keeping unit rationalization (“SKU Rationalization”) initiative to identify inventory to discontinue from active status, consistent with the objectives of these programs.

During the year ended December 31, 2019, the Company recorded an $8.5 million charge to cost of sales associated with the SKU Rationalization initiative.

The inventory charge, which was recognized in cost of sales during the three months ended June 30, 2019, represented approximately 8% of the Company's consolidated inventory at June 30, 2019.

Prior to January 1, 2019, depreciation associated with certain tooling used to produce products was recorded in selling, general and administrative expenses in the consolidated statement of operations.

The amount recorded in cost of sales for the year ended December 31, 2020 and 2019 was $1.0 million and $1.4 million, respectively.

The impact on the comparative periods presented is immaterial and therefore, the comparative periods have not been adjusted to reflect this change in accounting policy.

Share-based compensation

The Company accounts for its share-based compensation arrangements in accordance with ASC Topic 718, Compensation:

Stock-based Compensation, which requires the measurement of compensation expense for all share-based compensation granted to employees and non-employee directors at fair value on the date of grant and recognition of compensation expense over the related service period.

Forfeitures are accounted for as they occur.

The Company uses the Black-Scholes option valuation model to estimate the fair value of its stock options.

The Black-Scholes option valuation model requires the input of highly subjective assumptions including the expected stock price volatility of the Company’s common stock and the risk-free interest rate.

Changes in these subjective input assumptions can materially affect the fair value estimate of the Company’s stock options on the date of the option grant.

Performance share awards are initially valued at the Company’s closing stock price on the date of grant.

Each performance award represents the right to receive up to 150% of the target number of shares of common stock.

The number of shares of common stock earned will be determined based on the attainment of specified performance goals, as determined by the Compensation Committee of the Board of Directors, by the end of the performance period.

Compensation expense for performance awards is recognized over the vesting period and will vary based on remeasurement during the performance period.

If achievement of the performance metrics is not probable of achievement during the performance period, compensation expense is reversed.

The awards are forfeited if the performance metrics are not achieved as of the end of the performance period.

The performance share awards vest at the end of a three year period, as determined by the Compensation Committee.

The Company bases the estimated fair value of restricted stock awards on the date of grant.

The estimated fair value is determined based on the closing price of the Company’s common stock on the date of grant multiplied by the number of shares awarded.

Compensation expense is recognized on a straight-line basis over the vesting period.

Restructuring Expenses

Costs associated with restructuring activities are recorded at fair value when a liability has been incurred.

A liability has been incurred at the communication date for severance.

Charges associated with lease terminations, related to restructuring activities, are recognized at the effective date of the lease modification.

Employee healthcare

The Company self-insures certain portions of its health insurance plan.

The Company maintains an accrual for estimated unpaid claims and claims incurred but not yet reported (“IBNR”).

Although management believes that it uses the best information available to estimate IBNR claims, actual claims may vary significantly from estimated claims.

The Company applies the authoritative guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the Company’s financial statements .

In accordance with this guidance, tax positions must meet a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position.

A valuation allowance is required to be established or maintained when it is “more likely than not” that all or a portion of deferred tax assets will not be realized.

The Company accounts for derivative instruments in accordance with ASC Topic 815, Derivatives and Hedging.

ASC 815 requires that all derivative instruments be recognized on the balance sheet at fair value as either an asset or liability.

Changes in the fair value of derivatives that qualify as hedges and have been designated as part of a hedging relationship for accounting purposes have no net impact on earnings until the hedged item is recognized in earnings.

The change in the fair value of hedges are included in accumulated other comprehensive income (loss) and is subsequently recognized in the Company’s consolidated statements of operations to mirror the location of the hedged items impacting earnings.

Changes in fair value of derivatives that do not qualify as hedging instruments for accounting purposes are recorded in the consolidated statements of operations.

Foreign currency

Foreign currency denominated assets and liabilities are translated into U.S.

dollars at exchange rates prevailing at the balance sheet dates.

Revenues, costs and expenses are translated into U.S.

dollars at average exchange rates for the relevant period.

Income and losses resulting from translation are recorded as a component of accumulated other comprehensive income (loss).

The Company may enter into foreign exchange derivative contracts to hedge the volatility of exchange rates related to a portion of its international inventory purchases.

Realized gains and losses from designated foreign currency derivative contracts are recognized in cost of sales as the hedged inventory purchases are sold.

Unrealized gains and losses from foreign currency transactions on the fair value of foreign exchange contracts designated as hedges are recorded as a component of accumulated other comprehensive income (loss).

Realized and unrealized gains and losses from non-designated foreign currency hedges are recognized in selling, general and administrative expenses in the consolidated statements of operations.

Commitments and Contingencies

The Company is subject to various claims and contingencies related to lawsuits, certain taxes and environmental matters, as well as commitments under contractual and other commercial obligations.

The Company recognizes liabilities for contingencies and commitments when a loss is probable and estimable.

LIQUIDITY AND CAPITAL RESOURCES

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At December 31, 2021 and 2020, the Company had cash and cash equivalents of $28.0 million and $36.0 million, respectively, and working capital of $270.8 million at December 31, 2021, compared to $241.2 million at December 31, 2020.

The current ratio (current assets to current liabilities) was 2.3 to 1.0 at December 31, 2020, compared to 3.1 to 1.0 at December 31, 2019.

The increase in working capital was driven by higher sales and increased inventory levels compared to the prior year.

The decrease in the current ratio was primarily due to an increase in accounts payable due to timing of inventory purchases and an increase in the estimated excess cash flow principal payment related to the Company's debt agreement.

At December 31, 2020, borrowings under the Company’s ABL Agreement were $27.3 million and $262.6 million was outstanding under the Term Loan.

The current ratio (current assets to current liabilities) was 2.3 to 1.0 at December 31, 2021, compared to 2.3 to 1.0 at December 31, 2020.

The current ratio remained consistent at December 31, 2021 and 2020.

At December 31, 2021, borrowings under the Company’s ABL Agreement were nil and $252.1 million was outstanding under the Term Loan.

At December 31, 2020, borrowings under the Company’s ABL Agreement were $27.3 million and $262.6 million was outstanding under the Term Loan.

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Inventory, a large component of the Company’s working capital, is expected to fluctuate from period to period, with inventory levels higher primarily in the June through October time period.

In 2020, the Company's inventory levels did not significantly decrease during the fourth quarter.

The higher inventory levels at December 31, 2020 were a result of increased inventory purchases to meet higher expected demand in 2021.

In 2021, the Company's inventory levels increased during the fourth quarter compared to the third quarter.

The higher inventory balance at December 31, 2021 was a result of increased inventory purchases, to maintain inventory availability and meet expected demand, and higher inventory cost.

The Company also expects inventory turnover to fluctuate from period to period based on product and customer mix.

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For the three months ended December 31, 2021 inventory turnover was 2.5 times, or 145 days, as compared to 3.1 times, or 117 days, for the three months ended December 31, 2020.

The improvement was a result of an increase in consumer demand for certain products beginning in the second quarter of 2020.

The decrease in inventory turnover was attributable to higher inventory costs and delays in receiving inventory due to supply chain constraints.

Credit Facilities

The Company’s credit agreement (the “ABL Agreement”) with JPMorgan Chase Bank, N.A.

(“JPMorgan”), includes a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $150.0 million, which facility will mature on March 2, 2023, and a loan agreement (the “Term Loan” and together with the ABL Agreement, the “Debt Agreements”) provides for a senior secured term loan credit facility in the original principal amount of $275.0 million, which matures on February 28, 2025.

(“JPMorgan”), includes a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $150.0 million, which will mature on March 2, 2023, and a loan agreement (the “Term Loan” and together with the ABL Agreement, the “Debt Agreements”) that provides for a senior secured term loan credit facility in the original principal amount of $275.0 million, which matures on February 28, 2025.

The Term Loan facility will be repaid in quarterly payments, which commenced June 30, 2018, of principal equal to 0.25% of the original aggregate principal amount of the Term Loan facility.

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Current portion of Term Loan facility:

Term Loan facility payment $ — $ 2,750

Estimated Excess Cash Flow principal payment $ 7,200 $ 19,120

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Borrowings under the revolving credit facility bear interest, at the Company’s option, at one of the following rates:

(i) an alternate base rate, defined, for any day, as the greater of the prime rate, a federal funds and overnight bank funding based rate plus 0.5% or one-month LIBOR plus 1.0%, plus a margin of 0.25% to 0.75%, or (ii) LIBOR plus a margin of 1.25% to 1.75%.

or Sterling Overnight Index Average “SONIA” for borrowings denominated in Pounds Sterling), plus a margin of 1.25% to 1.75%.

The respective margins are based upon the Company’s total leverage ratio, as defined in and computed pursuant to the ABL Agreement.

The interest rate on outstanding borrowings under the ABL Agreement at December 31, 2020 was 1.52%.

In addition, the Company paid a commitment fee that ranged from 0.250% to 0.375% on the unused portion of the ABL Agreement during the year ended December 31, 2020.

There were no outstanding borrowings under the ABL Agreement at December 31, 2021.

In addition, the Company paid a commitment fee of 0.375% on the unused portion of the ABL Agreement during the year ended December 31, 2021.

The Term Loan facility bears interest, at the Company’s option, at one of the following rates:

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Restrictions include limitations on additional indebtedness, acquisitions, investments and payment of dividends, among other things.

Further, the ABL Agreement provides that during any period (a) commencing on the last day of the most recently ended four consecutive fiscal quarters on or prior to the date availability under the ABL Agreement is less than the greater of $15.0 million or 10% of the aggregate commitment under the ABL Agreement at any time and (b) ending on the day after such availability has exceeded the greater of $15.0 million or 10% of the aggregate commitment under the ABL Agreement for forty-five (45) consecutive days, the Company is required to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 as of the last day of any period of four consecutive fiscal quarters.

Further, the ABL Agreement provides that

during any period (a) commencing on the last day of the most recently ended four consecutive fiscal quarters on or prior to the date availability under the ABL Agreement is less than the greater of $15.0 million or 10% of the aggregate commitment under the ABL Agreement at any time and (b) ending on the day after such availability has exceeded the greater of $15.0 million or 10% of the aggregate commitment under the ABL Agreement for forty-five (45) consecutive days, the Company is required to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 as of the last day of any period of four consecutive fiscal quarters.

The Company was in compliance with the covenants of the Debt Agreements at December 31, 2021.

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Covenant Calculations

Consolidated adjusted EBITDA (a non-GAAP financial measure), which is defined in the Company’s Debt Agreements, is used in the calculation of the Fixed Charge Coverage Ratio, Secured Net Leverage Ratio, Total Leverage Ratio and Total Net Leverage Ratio, which are required to be provided to the Company’s lenders pursuant to its Debt Agreements.

The following is the Company’s consolidated adjusted EBITDA, for the last four fiscal quarters:

Consolidated adjusted EBITDA for the four quarters ended

December 31, 2020

(in thousands)

Three months ended December 31, 2020

Three months ended September 30, 2020

Three months ended June 30, 2020

Three months ended March 31, 2020

Consolidated adjusted EBITDA $ 77,326

Adjusted EBITDA (a non-GAAP financial measure), which is defined in the Company’s Debt Agreements, is used in the calculation of the Fixed Charge Coverage Ratio, Secured Net Leverage Ratio, Total Leverage Ratio and Total Net Leverage Ratio, which are required to be provided to the Company’s lenders pursuant to its Debt Agreements.

Non-GAAP financial measure

Consolidated adjusted EBITDA is a non-GAAP financial measure within the meaning of Regulation G and Item 10(e) of Regulation S-K, each promulgated by the Securities and Exchange Commission.

Adjusted EBITDA is a non-GAAP financial measure within the meaning of Regulation G and Item 10(e) of Regulation S-K, each promulgated by the Securities and Exchange Commission.

This measure is provided because management of the Company uses this financial measure in evaluating the Company’s on-going financial results and trends.

Management also uses this non-GAAP information as an indicator of business performance.

Consolidated adjusted EBITDA, as discussed above, is also one of the measures used to calculate financial covenants required to be provided to the Company’s lenders pursuant to its Debt Agreements.

Adjusted EBITDA, as discussed above, is also one of the measures used to calculate financial covenants required to be provided to the Company’s lenders pursuant to its Debt Agreements.

Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, the Company’s financial performance measures prepared in accordance with GAAP.

Further, the Company’s non-GAAP information may be different from the non-GAAP information provided by other companies including other companies within the home retail industry.

The following is a reconciliation of net (loss) income as reported to consolidated adjusted EBITDA for the years ended December 31, 2020 and 2019 and each fiscal quarter of 2020 and 2019:

The following is a reconciliation of net income (loss) as reported to adjusted EBITDA for the years ended December 31, 2021 and 2020 and each fiscal quarter of 2021 and 2020:

Three Months Ended Year Ended

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(in thousands)

Net (loss) income as reported

Net income (loss) as reported

$ 3,067 $ 5,789 12,571 $ (626) $ 20,801

Subtract out:

Undistributed equity (earnings) losses, net

Undistributed equity losses (earnings), net

247 (393) (195) (466) (807)

Income tax (benefit) provision

Income tax provision

2,416 1,832 5,589 6,704 16,541

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Depreciation and amortization 5,958 5,765 5,837 4,960 22,520

Mark to market loss (gain) on interest rate derivatives 2,251 164 (99) (172) 2,144

Goodwill and other impairments 20,100 — — — 20,100

Mark to market gain on interest rate derivatives

(498) (46) (120) (398) (1,062)

Intangible asset impairments — — — 14,760 14,760

Stock compensation expense 1,444 1,328 1,201 1,244 5,217

Acquisition related expenses 182 72 41 378 673

Restructuring expenses (benefit) — 253 — (42) 211

Warehouse relocation expenses (1)

Consolidated adjusted EBITDA $ 3,252 $ 12,388 $ 29,228 $ 32,458 $ 77,326

Consolidated adjusted EBITDA is a non-GAAP financial measure which is defined in the Company’s debt agreements.

Consolidated adjusted EBITDA is defined as net income (loss), adjusted to exclude undistributed equity in (earnings) losses, income tax (benefit) provision, interest expense, depreciation and amortization, mark to market loss (gain) on interest rate derivatives, goodwill and other impairments, stock compensation expense, and other items detailed in the table above that are consistent with exclusions permitted by our debt agreements.

— — — 450 450

Wallace facility remedial design expense — — 500 — 500

Adjusted EBITDA (2)

$ 16,830 $ 18,166 $ 29,259 $ 30,862 $ 95,117

(1) Warehouse relocation expenses included $0.1 million of expenses related to the International segment and $0.3 million of expenses related to the U.S.

(2) Adjusted EBITDA is a non-GAAP financial measure which is defined in the Company’s debt agreements.

Adjusted EBITDA is defined as net income (loss), adjusted to exclude undistributed equity in losses (earnings), income tax provision, interest expense, depreciation and amortization, mark to market gain on interest rate derivatives, intangible asset impairments, stock compensation expense, and other items detailed in the table above that are consistent with exclusions permitted by our debt agreements.

Three Months Ended Year Ended

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(in thousands)

Net loss as reported

$ (4,867) $ (11,513) $ (13,519) $ (14,516) $ (44,415)

Subtract out:

Undistributed equity losses (earnings), net

Net (loss) income as reported $ (28,164) $ (3,977) $ 13,913 $ 15,221 $ (3,007)

Undistributed equity (earnings) losses, net

(339) 848 (147) (1,620) (1,258)

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Interest expense 4,736 4,230 4,128 4,183 17,277

Depreciation and amortization, net 6,359 6,290 6,122 6,344 25,115

Depreciation and amortization 6,234 6,061 6,090 6,279 24,664

Mark to market loss (gain) on interest rate derivatives

Impairment of goodwill — — 9,748 33,242 42,990

Stock compensation expense 907 1,193 1,505 1,436 5,041

SKU Rationalization (1)

2,251 164 (99) (172) 2,144

Acquisition and divestment related expenses 151 — — 55 206

Restructuring expenses (1)

608 173 338 316 1,435

Integration charges (1)

174 695 235 159 1,263

Goodwill and other intangible asset impairments 20,100 — — — 20,100

Stock compensation expense 1,326 1,420 1,575 1,630 5,951

Acquisition related expenses 47 55 57 126 285

Restructuring expenses (benefit) — 253 — (42) 211

Warehouse relocation expenses (1)

790 303 — — 1,093

Consolidated adjusted EBITDA, before limitation $ 6,127 $ 4,306 $ 25,758 $ 27,873 $ 64,064

Permitted non-recurring charge limitation (1)

Consolidated adjusted EBITDA $ 55,135

(1) Permitted non-recurring charges include restructuring expenses, integration charges, warehouse relocation costs, and SKU Rationalization.

These are permitted exclusions from the Company’s consolidated adjusted EBITDA, subject to limitations, pursuant to the Company’s Debt Agreements.

Adjusted EBITDA (2)

$ 3,252 $ 12,388 $ 29,228 $ 32,458 $ 77,326

(1) Warehouse relocation expenses related to the International segment.

(2) Adjusted EBITDA is a non-GAAP financial measure which is defined in the Company’s debt agreements.

Adjusted EBITDA is defined as net income (loss), adjusted to exclude undistributed equity in losses (earnings), income tax provision, interest expense, depreciation and amortization, mark to market gain on interest rate derivatives, goodwill and other intangible asset impairments, stock compensation expense, and other items detailed in the table above that are consistent with exclusions permitted by our debt agreements.

Capital expenditures

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Where the Company deems it prudent, the Company engages in hedging programs using foreign currency forward contracts aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings.

The Company purchases short-term (i.e., 12 months or less) foreign currency forward contracts to protect against currency exchange risks associated with the payment of merchandise purchases to foreign suppliers.

The Company purchases foreign currency forward contracts with terms less then 18 months to protect against currency exchange risks associated with the payment of merchandise purchases to foreign suppliers.

The Company does not hedge the translation of foreign currency profits into USD, as the Company regards this as an accounting exposure rather than an economic exposure.

The Company's foreign exchange contracts, that had been designed as hedges in order to apply hedge accounting, matured in April 2020.

At December 31, 2020, the Company had no outstanding foreign exchange contracts.

The aggregate gross notional values of foreign exchange contracts at December 31, 2021 was $22.6 million.

The Company had no outstanding foreign exchange contracts at December 31, 2020.

The Company is exposed to market risks, as well as changes in foreign currency exchange rates, as measured against the USD and each other, and changes to credit risk of derivative counterparties.

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The Company does not enter into such contracts for speculative purposes and, as of December 31, 2021, the Company does not have any foreign currency forward contract derivatives that are not designated as hedges.

These foreign exchange contracts have been designated as hedges in to order to apply hedge accounting.

Dividends were declared in 2021 and 2020 as follows:

Dividend per share Date declared Date of record Payment date

$0.0425 March 12, 2019 May 1, 2019 May 15, 2019

$0.0425 March 10, 2020 November 16, 2020 December 16, 2020

$0.0425 June 25, 2020 August 3, 2020 August 17, 2020

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$0.0425 November 3, 2020 January 29, 2021 February 12, 2021

$0.0425 March 10, 2020 November 16, 2020 December 16, 2020

$0.0425 March 9, 2021 May 3, 2021 May 17, 2021

$0.0425 June 24, 2021 August 2, 2021 August 16, 2021

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Cash provided by operating activities

Net cash provided by operating activities was $44.8 million in 2020, compared to $29.9 million in 2019 and $19.2 million in 2018.

The increase from 2020 compared to 2019 was attributable to an increase in net income, most significantly before goodwill impairment, partially offset by an increase in working capital primarily attributable to the timing of collections related to accounts receivables.

The change from 2019 compared to 2018 was primarily attributable to timing of collections related to accounts receivables.

Net cash provided by operating activities was $37.0 million in 2021, compared to $44.8 million in 2020.

The decrease from 2021 compared to 2020 was attributable to an increase in inventory investment and timing of payments for accounts payable and accrued expenses, offset by the timing of collections related to the Company's accounts receivable and an increase in net income.

Cash used in investing activities

Net cash used in investing activities was $2.1 million in 2020, compared to $9.2 million in 2019 and $224.2 million in 2018.

The change in 2020 as compared to the corresponding 2019 period was primarily attributable to higher capital expenditures in the 2019 period resulting from the Company's U.K.

reorganization and warehouse consolidation efforts.

The 2018 investing activity includes the cash consideration paid for the acquisition of Filament and capital expenditures related to the Company’s relocation of its west coast distribution facility.

Cash (used in) provided by financing activities

Net cash (used in) provided by financing activities was $(18.2) million in 2020 compared to $(16.9) million in 2019 and $205.3 million in 2018.

During 2020 and 2019, the Company utilized cash generated to repay a portion of its outstanding debt related to its Term Loan and credit facility.

In 2018, the change in financing activities was attributable to the new Debt Agreements entered into in order to finance the acquisition of Filament in 2018.

CONTRACTUAL OBLIGATIONS

As of December 31, 2020, the Company’s contractual obligations were as follows (in thousands):

Payment due by period

Total Less than

1 year 1-3 years 3-5 years More than

Operating leases $ 146,290 $ 18,112 $ 36,375 $ 35,688 $ 56,115

Finance leases 203 127 62 14 —

Short-term debt 19,120 19,120 — — —

Long-term debt 270,787 — 27,302 243,485 —

Interest on debt 38,876 13,783 24,571 522 —

Minimum royalty payments 26,771 10,045 10,800 683 5,243

Post-retirement benefits 7,963 431 929 852 5,751

Total $ 510,010 $ 61,618 $ 100,039 $ 281,244 $ 67,109

Net cash used in investing activities was $1.1 million in 2021, compared to $2.1 million in 2020.

The change from 2021 compared to 2020 was attributable to higher capital expenditures, offset by proceeds from the partial sale of shares in its equity method investment.

Cash used in financing activities

Net cash used in financing activities was $44.0 million in 2021 compared to $18.2 million in 2020.

The change from 2021 compared to 2020 was attributable to the repayment on the Company's revolving credit facility under its ABL Agreement.

MATERIAL CASH REQUIREMENTS

The Company’s material cash requirements include the following:

As of December 31, 2021, the Company had outstanding Term Loan facility, which matures on February 28, 2025, for an aggregate principal amount of $252.1 million, with $7.2 million payable within 12 months.

The amount payable within the 12 months represents the Company's estimated Excess Cash Flow principal payment.

Future interest obligations associated with debt and interest rate swaps total $37.8 million, with $12.7 million payable within 12 months.

The future interest obligations are estimated by assuming the amounts outstanding under the Company's debt agreements and the interest rates as of December 31, 2021 remain consistent to the end of the debt agreements.

Actual amounts borrowed and interest rates may vary over time.

The Company has operating leases for corporate offices, distribution facilities, manufacturing plants, and certain vehicles.

As of December 31, 2021, the Company had fixed lease payment obligations of $129.3 million, with $18.5 million payable within 12 months.

The Company has license agreements that require the payment of royalties on sales of licensed products which expire through 2048.

As of December 31, 2021, the estimated minimum royalties payable under these agreements amounted to $13.4 million, with $10.2 million payable within 12 months.

Post-retirement benefit

The Company assumed retirement benefit obligations, which are paid to certain former executives of a business acquired in 2006.

As of December 31, 2021, the estimated discounted obligations under the agreements with the former executives amounted to $7.4 million, with $0.5 million payable within 12 months.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis