LIFETIME BRANDS, INC 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements for the Company and Notes thereto set forth in Item 15. This discussion contains forward-looking statements relating to future events and the future performance of the Company based on the Company’s current expectations, assumptions, estimates and projections about it and the Company’s industry. These forward-looking statements involve risks and uncertainties. The Company’s actual results and timing of various events could differ materially from those anticipated in such forward-looking statements as a result of a variety of factors, as more fully described in this section and elsewhere in this Annual Report including those discussed under “Disclosures regarding Forward-Looking Statements,” “Risk Factors Summary” under Item 1A “Risk Factors” and under Item 7A “Quantitative and Qualitative Disclosures Regarding Market Risk.” The Company undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, other than as required by law. ABOUT THE COMPANY The Company designs, sources and sells branded kitchenware, tableware and other products used in the home. The Company’s product categories include two categories of products used to prepare, serve and consume foods, Kitchenware (kitchen tools and gadgets, cutlery, kitchen scales, thermometers, cutting boards, shears, cookware, pantryware, spice racks and bakeware) and Tableware (dinnerware, stemware, flatware and giftware); and one category, Home Solutions, which comprises other products used in the home (thermal beverageware, bath scales, weather and outdoor household products, food storage, neoprene travel products and home décor). In 2021, Kitchenware products and Tableware products accounted for approximately 85% of the Company’s U.S. net sales and 87% of the Company’s consolidated net sales. In 2020, Kitchenware products and Tableware products accounted for approximately 83% of the Company’s U.S. net sales and 85% of the Company’s consolidated net sales. 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®, 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. Key factors in the Company’s growth strategy have been the selective use and management of the Company’s brands and the Company’s ability to provide a stream of new products and designs. A significant element of this strategy is the Company’s in-house design and development teams that create new products, packaging and merchandising concepts. BUSINESS SEGMENTS The Company operates in two reportable segments: U.S. and International. The U.S. segment is the Company’s primary domestic business that designs, markets and distributes its products to retailers and distributors, as well as directly to consumers through third parties and its own internet websites. The International segment consists of certain business operations conducted outside the U.S. The Company has segmented its operations to reflect the manner in which management reviews and evaluates its results of operations. EQUITY INVESTMENTS 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. The Quotation Key is VASCONI. 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 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, 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. 30 Table of Contents 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. SEASONALITY The Company’s business and working capital needs are highly seasonal, with a majority of sales occurring in the third and fourth quarters. 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 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 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 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 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. On January 31, 2020, the U.K. left the European Union. In December 2020, the U.K and European Union announced the agreement of a new Trade and Cooperation Agreement that will govern the ongoing relationship between the U.K. and the European Union. 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. 31 Table of Contents 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. economy, customers and investor confidence. The U.K.'s exit also could adversely impact the export of products between the U.K. and the European Union. 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. Net sales attributable to U.K. 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. 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. EFFECT OF ADOPTION OF ACCOUNTING PRINCIPLES Adopted accounting pronouncements 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 adoption did not have a material impact on the Company’s consolidated financial statements. New accounting pronouncements 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 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. 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. Management is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. 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 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. 32 Table of Contents RESULTS OF OPERATIONS 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. Year Ended December 31, 2021 2020 2019 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 64.8 64.4 65.3 Gross margin 35.2 35.6 34.7 Distribution expenses 9.4 9.5 9.9 Selling, general and administrative expenses 18.2 20.3 22.0 Goodwill and other intangible asset impairments 1.7 2.6 5.8 Restructuring expenses — 0.0 0.2 Income (loss) from operations 5.9 3.2 (3.2) Interest expense (1.8) (2.2) (2.8) Mark to market gain (loss) on interest rate derivatives 0.1 (0.3) 0.0 Income (loss) before income taxes and equity in earnings 4.2 0.7 (6.0) Income tax provision (1.9) (1.3) (0.2) Equity in earnings, net of taxes 0.1 0.2 0.1 Net income (loss) 2.4 % (0.4) % (6.1) % MANAGEMENT’S DISCUSSION AND ANALYSIS 2021 COMPARED TO 2020 Net Sales 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. Net sales for the U.S. segment in 2021 were $770.6 million, an increase of $87.1 million, or 12.7%, compared to net sales of $683.5 million in 2020. Net sales for the U.S. segment’s Kitchenware product category in 2021 were $487.8 million, an increase of $60.9 million, or 14.3%, compared to net sales of $426.9 million in 2020. 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 and board, and bakeware products and higher selling prices. 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 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 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 33 Table of Contents 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 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. Gross margin for the U.S. segment was $274.1 million, or 35.6%, for 2021, compared to $250.5 million, or 36.6%, for 2020. 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 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 Distribution expenses were $80.8 million for the 2021 period as compared to $72.8 million for the 2020 period. Distribution expenses as a percentage of net sales were 9.4% and 9.5% in 2021 and 2020. Distribution expenses as a percentage of net sales for the U.S. segment were approximately 8.0% in 2021 and 8.4% in 2020. 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 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 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. warehouse. Selling, general and administrative expenses 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 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 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 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. 34 Table of Contents 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. U.S. 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. reporting unit as of March 31, 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. Based upon the analysis performed, the Company recognized a non-cash goodwill impairment charge of $19.1 million during the first quarter of 2020. The goodwill impairment charge resulted from, among other factors, the uncertain market conditions arising from the COVID-19 pandemic, which impacted the Company's market capitalization, as well as a reduction of forecasted future cash flows associated with the effects of the COVID-19 pandemic. The fair value of the U.S. reporting unit was approximately 3.9% below its carrying value as of March 31, 2020. Indefinite-lived intangibles As a result of the impairment testing performed in connection with the COVID-19 pandemic triggering event, the Company determined that certain of its indefinite-lived intangible assets in the U.S. segment were impaired. As a result, the Company recorded a $1.0 million non-cash impairment charge during the first quarter of 2020. Restructuring expenses 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. 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. 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 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 The income tax provision was $16.5 million in 2021 and $9.9 million in 2020. 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. 35 Table of Contents Equity in earnings The Company’s equity in earnings, net of tax, for 2021 and 2020 are as follows: Year Ended December 31, 2021 2020 (in thousands) 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 — (235) Equity in earnings (losses), net of taxes $ 962 $ 1,310 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. The foreign currency translation losses related to the notes receivable due to the Company from the 2016 sale of its equity interest in GS International S/A. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s audited consolidated financial statements which have been prepared in accordance with GAAP and with the instructions to Form 10-K and Article 10 of Regulation S-X. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments based on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates these estimates including those related to revenue recognition, allowances for doubtful accounts, reserves for sales returns and allowances and customer chargebacks, inventory mark-down provisions, estimates for unpaid healthcare claims, impairment of goodwill, tangible and intangible assets, stock compensation expense, accruals related to the Company’s tax positions and tax valuation allowances. Actual results may differ from these estimates using different assumptions and under different conditions and changes in these estimates are recorded when known. The Company’s significant accounting policies are more fully described in NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES in the Notes to the consolidated financial statements included in Item 15. 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. 36 Table of Contents Goodwill, intangible assets and long-lived assets Goodwill and intangible assets deemed to have indefinite lives are not amortized but, instead, are subject to an annual impairment assessment. Additionally, if events or conditions were to indicate the carrying value of a reporting unit may not be recoverable, the Company would evaluate goodwill and other intangible assets for impairment at that time. As it relates to the goodwill assessment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment testing described in the FASB's Accounting Standards Update No. (“ASU”) Topic 350, Intangibles – Goodwill and Other. If, after assessing qualitative factors, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative test is unnecessary and the Company’s goodwill is considered to be unimpaired. However, if based on the Company’s qualitative assessment it concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if the Company elects to bypass the qualitative assessment, the Company will proceed with performing the quantitative impairment test. The Company reviews goodwill and other intangibles that have indefinite lives for impairment annually as of October 1st or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. For goodwill, impairment testing is based upon the best information available using a combination of the discounted cash flow method, a form of the income approach, and the guideline public company method, a form of the market approach. The significant assumptions used under the income approach, or discounted cash flow method, are projected net sales, projected earnings before interest, tax, depreciation and amortization (“EBITDA”), terminal growth rates, and the cost of capital. Projected net sales, projected EBITDA and terminal growth rates were determined to be significant assumptions because they are three primary drivers of the projected cash flows in the discounted cash flow fair value model. Cost of capital was also determined to be a significant assumption as it is the discount rate used to calculate the current fair value of those projected cash flows. For the guideline public company method, significant assumptions relate to the selection of appropriate guideline companies and related valuation multiples used in the market analysis. Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results. In addition, sustained declines in the Company's stock price and related market capitalization could impact key assumptions in the overall estimated fair values of its reporting units and could result in non-cash impairment charges that could be material to the Company's consolidated balance sheet or results of operations. Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting unit, an impairment charge will be recorded to reduce the reporting unit to fair value. 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. These tests can include the relief from royalty model or other valuation models. 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 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. Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit or material adverse changes in the business climate that indicate that the carrying amount of an asset may be impaired. When impairment indicators are present, the recoverability of the asset is measured by comparing the carrying value of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset is not recoverable, the impairment to be recognized is measured by the amount by which the carrying amount of each long-lived asset exceeds the fair value of the asset. Revenue recognition The Company sells products wholesale, to retailers and distributors, and sells products retail, directly to consumers. Wholesale sales and retail sales are recognized at the point in time the customer obtains control of the products in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the customer, the customer must have the significant risks and rewards of ownership, and where acceptance is not a formality, the customer must have accepted the product or service. 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 37 Table of Contents associated shipping terms and customer obligations. Shipping and handling fees that are billed to customers in sales transactions are included in net sales. Net sales exclude taxes that are collected from customers and remitted to the taxing authorities. The Company offers various sales incentives and promotional programs to its wholesale customers from time to time in the normal course of business. These incentives and promotions typically include arrangements such as cooperative advertising, buydowns, volume rebates and discounts. These arrangements represent forms of variable consideration, and an estimate of sales returns are reflected as reductions in net sales in the Company’s consolidated statements of operations. These estimates are based on historical experience and other known factors or as the most likely amount in a range of possible outcomes. On a quarterly basis, variable consideration is assessed on a portfolio approach in estimating the extent to which the components of variable consideration are constrained. Payment terms vary by customer, but generally range from 30 to 90 days or at the point of sale for the Company’s retail direct sales. 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 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. These costs are expensed as incurred and recorded within selling, general and administrative expenses in the consolidated statement of operations. Incidental items that are immaterial in the context of the contract are expensed as incurred. 38 Table of Contents LIQUIDITY AND CAPITAL RESOURCES The Company’s principal sources of cash to fund liquidity needs are: (i) cash provided by operating activities and (ii) borrowings available under its revolving credit facility under the ABL Agreement. The Company’s primary uses of funds consist of working capital requirements, capital expenditures, acquisitions and investments and payments of principal and interest on its debt. 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 increase in working capital was driven by higher sales and increased inventory levels compared to the prior year. 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. The Company believes that availability under the revolving credit facility under its ABL Agreement and cash flows from operations are sufficient to fund the Company’s operations for the next twelve months. However, if circumstances were to adversely change, the Company may seek alternative sources of liquidity including debt and/or equity financing. However, there can be no assurance that any such alternative sources would be available or sufficient. The Company closely monitors the creditworthiness of its customers. Based upon its evaluation of changes in customers’ creditworthiness, the Company may modify credit limits and/or terms of sale. However, notwithstanding the Company’s efforts to monitor its customers’ financial condition, the Company could be materially affected by changes in the future. Some of the Company’s customers may be adversely and materially affected by the COVID-19 pandemic. 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 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. Certain product categories have lower inventory turnover rates as a result of minimum order quantities from the Company’s vendors or customer replenishment needs. Certain other product categories experience higher inventory turns due to lower minimum order quantities or trending sale demands. 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 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 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. The Term Loan requires the Company to make an annual prepayment of principal based upon excess cash flow (the “Excess Cash Flow”), if any. This estimated amount is recorded in the current maturity of term loan on the consolidated balance sheets. Per the Debt Agreements, when the Company makes an Excess Cash Flow payment, the payment is first applied to satisfy the future quarterly required payments in order of maturity. The maximum borrowing amount under the ABL Agreement may be increased to up to $200.0 million if certain conditions are met. One or more tranches of Incremental Facilities may be added under the Term Loan if certain conditions are met. The Incremental Facilities may not exceed the sum of (i) $50.0 million plus (ii) an unlimited amount so long as, in the case of (ii) only, the Company’s secured net leverage ratio, as defined in and computed pursuant to the Term Loan, is no greater than 3.75 to 1.00 subject to certain limitations and for the period defined pursuant to the Term Loan. 39 Table of Contents As of December 31, 2021 and 2020, the total availability under the ABL Agreement were as follows (in thousands): December 31, 2021 December 31, 2020 Maximum aggregate principal allowed $ 150,000 $ 150,000 Outstanding borrowings under the ABL Agreement — (27,302) Standby letters of credit (3,659) (2,698) Total availability under the ABL agreement $ 146,341 $ 120,000 Availability under the ABL Agreement depends on the valuation of certain current assets comprising the borrowing base. Due to the seasonality of the Company’s business, this may mean that the Company will have greater borrowing availability during the third and fourth quarters of each year. The borrowing capacity under the ABL Agreement will depend, in part, on eligible levels of accounts receivable and inventory that fluctuate regularly. Consequently, the $150.0 million commitment thereunder may not represent actual borrowing capacity. The current and non-current portions of the Company’s Term Loan facility included in the consolidated balance sheets are presented as follows (in thousands): December 31, 2021 December 31, 2020 Current portion of Term Loan facility: Estimated Excess Cash Flow principal payment $ 7,200 $ 19,120 Estimated unamortized debt issuance costs (1,429) (1,463) Total Current portion of Term Loan facility $ 5,771 $ 17,657 Non-current portion of Term Loan facility: Term Loan facility, net of current portion $ 244,927 $ 243,485 Estimated unamortized debt issuance costs (3,054) (4,508) Total Non-current portion of Term Loan facility $ 241,873 $ 238,977 The Company’s payment obligations under its Debt Agreements are unconditionally guaranteed by its existing and future U.S. subsidiaries, with certain minor exceptions. Certain payment obligations under the ABL Agreement are also direct obligations of its foreign subsidiary borrowers designated as such under the ABL Agreement and, subject to limitations on such guaranty, are guaranteed by the foreign subsidiary borrowers, as well as by the Company. The obligations of the Company under the Debt Agreements and any hedging arrangements and cash management services and the guarantees by its domestic subsidiaries in respect of those obligations are secured by substantially all of the assets and stock (but in the case of foreign subsidiaries, limited to 65% of the capital stock in first-tier foreign subsidiaries and not including the stock of subsidiaries of such first-tier foreign subsidiaries) owned by the Company and the U.S. subsidiary guarantors, subject to certain exceptions. Such security interest consists of (1) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and its domestic subsidiaries (the “ABL Collateral”) pledged as collateral in favor of lenders under the ABL Agreement and a second-priority lien in the ABL Collateral in favor of the lenders under the Term Loan and (2) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and its domestic subsidiaries (the “Term Loan Collateral”) pledged as collateral in favor of lenders under the Term Loan and a second-priority lien in the Term Loan Collateral in favor of the lenders under the ABL Agreement. 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 (or Euro Interbank Offered Rate “EURIBOR” for borrowings denominated in Euro; 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. 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: (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 0.50% or one-month LIBOR plus 1.0%, plus a margin of 2.50% or (ii) LIBOR plus a margin of 3.50%. The interest rate on outstanding borrowings under the Term Loan at December 31, 2021 was 4.5%. The debt agreements provide for customary restrictions and events of default. Restrictions include limitations on additional indebtedness, acquisitions, investments and payment of dividends, among other things. Further, the ABL Agreement provides that 40 Table of Contents 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. The Company expects that it will continue to borrow and repay funds, subject to availability, under the ABL Agreement based on working capital and other corporate needs. Covenant Calculations 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 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. 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. 41 Table of Contents 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 March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021 December 31, 2021 (in thousands) Net income (loss) as reported $ 3,067 $ 5,789 12,571 $ (626) $ 20,801 Subtract out: Undistributed equity losses (earnings), net 247 (393) (195) (466) (807) Add back: Income tax provision 2,416 1,832 5,589 6,704 16,541 Interest expense 4,014 3,819 3,835 3,856 15,524 Depreciation and amortization 5,958 5,765 5,837 4,960 22,520 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 Warehouse relocation expenses (1) — — — 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. 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, 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 March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 December 31, 2020 (in thousands) 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) Income tax (benefit) provision (3,729) 3,031 3,711 6,853 9,866 Interest expense 4,736 4,230 4,128 4,183 17,277 Depreciation and amortization 6,234 6,061 6,090 6,279 24,664 Mark to market loss (gain) on interest rate derivatives 2,251 164 (99) (172) 2,144 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 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. 42 Table of Contents Capital expenditures Capital expenditures for the year ended December 31, 2021 were $4.0 million. Derivatives Interest Rate Swap Agreements The Company's net total outstanding notional value of interest rate swaps was $75 million at December 31, 2021. The Company designated a portion of these interest rate swaps as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The hedge periods of these agreements commenced in April 2018 and expire in March 2023. The original notional values are reduced over these periods. The aggregate notional value was $50.0 million at December 31, 2021. In June 2019, the Company entered into additional interest rate swap agreements, with an aggregate notional value of $25.0 million at December 31, 2021. These non-designated interest rate swaps serve as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings and expire in February 2025. Foreign Exchange Contracts The Company is a party from time to time to certain foreign exchange contracts, primarily to offset the earnings impact related to fluctuations in foreign currency exchange rates associated with inventory purchases denominated in foreign currencies. Fluctuations in the value of certain foreign currencies as compared to the USD may positively or negatively affect the Company’s revenues, gross margins, operating expenses, and retained earnings, all of which are expressed in USD. 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 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 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. The Company attempts to minimize these risks by primarily using foreign currency forward contracts and by maintaining counterparty credit limits. These hedging activities provide only limited protection against currency exchange and credit risk. Factors that could influence the effectiveness of the Company’s hedging programs include currency markets and availability of hedging instruments and liquidity of the credit markets. All foreign currency forward contracts that the Company enters into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure. 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. Dividends Dividends were declared in 2021 and 2020 as follows: Dividend per share Date declared Date of record Payment date $0.0425 March 10, 2020 November 16, 2020 December 16, 2020 $0.0425 June 25, 2020 August 3, 2020 August 17, 2020 $0.0425 August 4, 2020 November 2, 2020 November 16, 2020 $0.0425 November 3, 2020 January 29, 2021 February 12, 2021 $0.0425 March 9, 2021 May 3, 2021 May 17, 2021 $0.0425 June 24, 2021 August 2, 2021 August 16, 2021 $0.0425 August 3, 2021 November 1, 2021 November 15, 2021 $0.0425 November 2, 2021 January 31, 2022 February 14, 2022 On March 8, 2022, the Board of Directors declared a quarterly dividend of $0.0425 per share payable on May 16, 2022 to shareholders of record on May 2, 2022. 43 Table of Contents Cash provided by operating activities 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 $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: Debt 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. Leases 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. Royalties 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.