What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 197 added, 115 removed, 247 unchanged (56% of the section changed)

54 unchanged sentences

RECENT DEVELOPMENTS

The 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, backlog at U.S.

ports and recent shutdowns impacting ports in China, 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 in 2022.

D isruptions in the global supply chain have been caused by various factors, including increased demand for containers, limited container capacity and backlog at shipping ports.

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

In addition, the global economy is experiencing accelerated inflation, which has in part been caused by the supply chain disruptions, higher consumer spending and low interest rates.

The rise in inflation is contributing to higher prices, which may result in higher input cost for products, increased transportation and labor cost and impact consumer spending and buying patterns.

The Company may be adversely impacted if trends in the global supply chain disruptions and high inflation continue in 2022.

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 expands its distribution and warehouse capacity through a third-party operated distribution provider located in the Netherlands in the first quarter of 2022.

The Company expects to begin shipments from this location in the second quarter of 2022.

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

The Company began shipments from this location in the second quarter of 2022.

On March 23 2022, the United States Trade Representative ("USTR") announced it had reinstated exclusions on certain product categories or harmonized tariff codes retroactive to October 12, 2021.

12 unchanged sentences

EQUITY INVESTMENTS

As of March 31, 2022, the Company owned 24.7% of the outstanding capital stock of Grupo Vasconia S.A.B.

As of June 30, 2022, the Company owned 24.7% of the outstanding capital stock of Grupo Vasconia S.A.B.

(“Vasconia”), an integrated manufacturer of aluminum products and one of Mexico’s largest housewares companies.

1 unchanged sentence

The Quotation Key is VASCONI.

For the period ended March 31, 2021, the Company's investment ownership was 30%.

For the period ended June 30, 2021, the Company's investment ownership was 30%.

The Company's investment ownership decreased to approximately 27% on June 30, 2021 and was further reduced to 24.7% on July 29, 2021 as a result of transactions that occurred in those periods.

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 condensed 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 three months ended March 31, 2022 and 2021 in the accompanying unaudited condensed 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 three and six months ended June 30, 2022 and 2021 in the accompanying unaudited condensed 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 March 31, 2022, Vasconia’s Board of Directors is comprised of eleven members, of whom the Company has designated two members.

As of June 30, 2022, Vasconia’s Board of Directors is comprised of eleven members, of whom the Company has designated two members.

On June 30, 2021, Vasconia issued additional shares of its stock, 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 unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2021.

The Company continues to explore opportunities to sell additional shares of its investment in Vasconia.

1 unchanged sentence

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

The increase in the Company's net sales in the first half of the year in 2021 compared to historical trend was a result of increased demand for the Company's products due shifts in consumer purchasing patterns.

The increase in the Company's net sales in the first half of the year in 2021 compared to historical trend was a result of increased demand for the Company's products due to shifts in consumer purchasing patterns.

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

The Company's inventory levels at March 31, 2022, did not decrease from the previous two quarters, as a result of increased inventory purchases, to maintain inventory availability and meet expected demand, and higher inventory cost.

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.

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

3 unchanged sentences

Selling, general and administrative expenses 25.3 19.4 23.2 19.4

Income from operations

(Loss) income from operations

(0.3) 5.9 1.2 5.4

Interest expense (2.5) (2.0) (2.3) (2.0)

Mark to market gain on interest rate derivatives

Income before income taxes and equity in earnings (losses)

Income tax provision

Equity in earnings (losses), net of taxes

0.2 0.0 0.4 0.1

(Loss) income before income taxes and equity in earnings

(2.6) 3.9 (0.7) 3.5

Income tax benefit (provision)

0.1 (1.0) (0.4) (1.2)

Equity in earnings, net of taxes

0.2 0.2 0.2 0.0

Net (loss) income

(2.3) % 3.1 % (0.9) % 2.3 %

MANAGEMENT’S DISCUSSION AND ANALYSIS

THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO THE THREE MONTHS ENDED

MARCH 31, 2021

Consolidated net sales for the three months ended March 31, 2022 were $182.7 million, representing a decrease of $13.0 million or 6.6%, as compared to net sales of $195.7 million for the corresponding period in 2021.

THREE MONTHS ENDED JUNE 30, 2022 COMPARED TO THE THREE MONTHS ENDED

JUNE 30, 2021

Consolidated net sales for the three months ended June 30, 2022 were $151.3 million, representing a decrease of $35.3 million or 18.9%, as compared to net sales of $186.6 million for the corresponding period in 2021.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2022 average rates to 2021 local currency amounts, consolidated net sales decreased by $33.6 million, or 18.2%, as compared to consolidated net sales in the corresponding period in 2021.

Net sales for the U.S.

segment for the three months ended March 31, 2022 were $166.2 million, a decrease of $10.0 million, or 5.7%, as compared to net sales of $176.2 million for the corresponding period in 2021.

segment for the three months ended June 30, 2022 were $137.2 million, a decrease of $29.4 million, or 17.6%, as compared to net sales of $166.6 million for the corresponding period in 2021.

Net sales for the U.S.

segment’s Kitchenware product category were $114.1 million for the three months ended March 31, 2022, a decrease of $5.9 million, or 4.9%, as compared to $120.0 million for the corresponding period in 2021.

The decrease was mainly driven by timing of customer inventory replenishment and lower sales for kitchen tools and gadgets as prior period sales were benefited by increased demand in the first quarter due to shifts in consumer purchasing patterns.

The decrease was partially offset by higher selling prices and an increase in sales for barware and wine products attributable to a new warehouse club program.

segment’s Kitchenware product category were $84.3 million for the three months ended June 30, 2022, a decrease of $19.3 million, or 18.6%, as compared to $103.6 million for the corresponding period in 2021.

The decrease was driven by lower sales for kitchen tools and gadgets, cutlery and boards, and bakeware due to inventory buildup at brick-and-mortar and e-commerce retailers.

Net sales for the U.S.

segment’s Tableware product category were $26.6 million for the three months ended March 31, 2022, a decrease of $3.6 million, or 11.9%, as compared to $30.2 million for the corresponding period in 2021.

The decrease was attributable to lower dinnerware sales to brick-and-mortar retailers and e-commerce sales.

segment’s Tableware product category were $29.9 million for the three months ended June 30, 2022, a decrease of $7.4 million, or 19.8%, as compared to $37.3 million for the corresponding period in 2021.

The decrease across all product lines was due to lower sales to brick-and-mortar retailers and a warehouse club program for flatware not repeated in 2022.

Net sales for the U.S.

segment’s Home Solutions product category were $25.5 million for the three months ended March 31, 2022, a decrease of $0.5 million, or 1.9%, as compared to $26.0 million for the corresponding period in 2021.

The decrease was primarily driven by lower sales for home décor attributable to supply chain delays and measurement products, partially offset by S'well sales.

Net sales for the International segment were $16.5 million for the three months ended March 31, 2022, a decrease of $3.0 million, or 15.4%, as compared to net sales of $19.5 million for the corresponding period in 2021.

In constant currency, which excludes the impact of foreign exchange fluctuations, net sales decreased $2.5 million, or 13.3%, as compared to consolidated

net sales in the corresponding period in 2021.

The decrease was attributable to the Company's global trading business in Asia driven by lower sales with an Australian distributor.

Gross margin for the three months ended March 31, 2022 was $63.1 million, or 34.5%, as compared to $66.0 million, or 33.7%, for the corresponding period in 2021.

segment’s Home Solutions product category were $23.0 million for the three months ended June 30, 2022, a decrease of $2.7 million, or 10.5%, as compared to $25.7 million for the corresponding period in 2021.

The decrease was due to lower sales for measurement and home décor products, partially offset by hydration product sales attributable to S'well.

Net sales for the International segment were $14.1 million for the three months ended June 30, 2022, a decrease of $6.0 million, or 29.9%, as compared to net sales of $20.1 million for the corresponding period in 2021.

In constant currency, which excludes the impact of foreign exchange fluctuations, net sales decreased $4.2 million, or 22.9%, as compared to consolidated net sales in the corresponding period in 2021.

The decrease was driven by lower sales to brick-and-mortar retailers and e-commerce sales.

Gross margin for the three months ended June 30, 2022 was $55.2 million, or 36.5%, as compared to $66.2 million, or 35.4%, for the corresponding period in 2021.

Gross margin for the U.S.

segment was $57.7 million, or 34.7%, for the three months ended March 31, 2022, as compared to $59.8 million, or 33.9%, for the corresponding period in 2021.

The improvement in gross margin for the U.S.

was primarily driven by a tariff reduction on certain product categories.

Gross margin for the International segment was $5.4 million, or 32.7%, for the three months ended March 31, 2022, as compared to $6.2 million, or 31.8%, for the corresponding period in 2021.The improvement in gross margin was attributable to customer mix.

segment was $50.9 million, or 37.1%, for the three months ended June 30, 2022, as compared to $59.6 million, or 35.8%, for the corresponding period in 2021.

The decrease in gross margin for the U.S.

was driven by lower sales.

The improvement in gross margin percentage was due to product mix, a tariff reduction on certain product categories and less dependency on non-vessel operating common carriers.

Gross margin for the International segment was $4.3 million, or 30.5%, for the three months ended June 30, 2022, as compared to $6.5 million, or 32.3%, for the corresponding period in 2021.

The decrease in gross margin was driven by lower sales.

The decrease in the gross margin percentage was attributable to higher inbound freight cost and impact of fixed overhead costs on lower sales volume for the 2022 period.

Distribution expenses

Distribution expenses for the three months ended March 31, 2022 were $19.2 million, as compared to $18.6 million for the corresponding period in 2021.

Distribution expenses as a percentage of net sales were 10.5% for the three months ended March 31, 2022, as compared to 9.5% for the three months ended March 31, 2021.

Distribution expenses for the three months ended June 30, 2022 were $17.4 million, as compared to $18.9 million for the corresponding period in 2021.

Distribution expenses as a percentage of net sales were 11.5% for the three months ended June 30, 2022, as compared to 10.1% for the three months ended June 30, 2021.

Distribution expenses as a percentage of net sales for the U.S.

segment were approximately 9.0% and 8.7% for the three months ended March 31, 2022 and 2021, respectively.

segment were approximately 10.5% and 9.0% for the three months ended June 30, 2022 and 2021, respectively.

As a percentage of sales shipped from the Company’s U.S.

warehouses, distribution expenses were 9.9% and 8.9% for the three months ended March 31, 2022 and 2021, respectively.

The increase in expenses as a percentage of sales was attributable to lower shipment volume, higher labor rates and an increase in warehouse supply expenses.

Distribution expenses as a percentage of net sales for the International segment were 26.2% for the three months ended March 31, 2022, compared to 17.2% for the corresponding period in 2021.

Distribution expenses during the three months ended March 31, 2022 include $0.4 million for the Company's relocation costs for its new warehouse distribution facility in the Netherlands.

As a percentage of sales shipped from the Company’s international warehouses, excluding non-recurring expenses, distribution expenses were 21.7% and 14.4% for the three months ended March 31, 2022 and 2021, respectively.

warehouses, excluding non-recurring expenses, distribution expenses were 11.3% and 9.4% for the three months ended June 30, 2022 and 2021, respectively.

The increase in expenses as a percentage of sales was attributable to lower shipment volume and higher labor rates, partially offset by lower warehouse equipment and supply expenses.

Distribution expenses as a percentage of net sales for the International segment were 21.4% for the three months ended June 30, 2022, compared to 19.9% for the corresponding period in 2021.

As a percentage of sales shipped from the Company’s international warehouses distribution expenses were 22.1% and 17.5% for the three months ended June 30, 2022 and 2021, respectively.

The increase was attributable to lower shipment volume, labor costs and an increase in business occupancy tax expense for the U.K.

The increase was partially offset by lower shipping cost for shipments into continental Europe as a result of the new distribution center in the Netherlands.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended June 30, 2022 were $38.3 million, an increase of $2.1 million, or 5.8%, as compared to $36.2 million for the corresponding period in 2021.

Selling, general and administrative expenses for the U.S.

segment were $29.1 million for the three months ended June 30, 2022, as compared to $26.4 million for the corresponding period in 2021.

As a percentage of net sales, selling, general and administrative expenses were 21.2% and 15.8% for the three months ended June 30, 2022 and 2021, respectively.

The increase was attributable to integration costs related to the S'well acquisition and an increase in advertising and consulting expenses.

Selling, general and administrative expenses for the International segment were $4.3 million for the three months ended June 30, 2022, as compared to $4.2 million for the corresponding period in 2021.

As a percentage of net sales, selling, general and administrative expenses were 30.5% and 20.8% for the three months ended June 30, 2022 and 2021, respectively.

The expense increase was attributable to unfavorable foreign currency exchange losses, partially offset by lower amortization expense on intangible assets as a result of the prior year impairment.

Unallocated corporate expenses for the three months ended June 30, 2022 were $4.9 million, as compared to $5.7 million for the corresponding period in 2021.

The current period decrease was driven by lower incentive compensation expense, partially offset by an increase in legal and professional fees.

Interest expense

Interest expense was $3.7 million and $3.8 million for the three months ended June 30, 2022 and 2021, respectively.

The decrease in expense was a result of less debt outstanding on the Term Loan.

Mark to market gain on interest rate derivatives

Mark to market gain on interest rate derivatives was $0.3 million for the three months ended June 30, 2022, as compared to a mark to market gain on interest rate derivatives of $0.05 million for the three months ended June 30, 2021.

The mark to market amount represents the change in 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 a portion of the Company’s variable interest rate debt.

As of June 30, 2022, the intent of the Company is to hold these derivative contracts until their maturity.

Income tax benefit of $0.1 million and income tax provision of $1.8 million for the three months ended June 30, 2022 and 2021, respectively, represent taxes on both U.S.

and foreign earnings at a combined effective income tax benefit rate of 2.5% and an income tax provision rate of 25.3%, respectively.

The effective tax rate for the three months ended June 30, 2022 differs from the federal statutory income tax rate of 21.0% primarily due to foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.

The effective tax rate for the three months ended June 30, 2021 differs from the federal statutory income tax rate of 21.0% primarily due to state and local tax expense, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance, net of a benefit related to share based equity compensation.

Equity in earnings

Equity in earnings of Vasconia, net of taxes, was $0.3 million for the three months ended June 30, 2022, as compared to equity in earnings of Vasconia, net of taxes, of $0.7 million for the three months ended June 30, 2021.

Vasconia reported income from operations of $0.5 million for the three months ended June 30, 2022, as compared to income from operations of $6.5 million for the three months ended June 30, 2021.

The decrease in income from operations was primarily attributable to decreased operating results in the current period in Vasconia's kitchenware and aluminum division.

For the three months ended June 30, 2021, 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO THE SIX MONTHS ENDED

JUNE 30, 2021

Consolidated net sales for the six months ended June 30, 2022 were $334.0 million, a decrease of $48.3 million, or 12.6%, as compared to net sales of $382.3 million for the corresponding period in 2021.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2022 average rates to 2021 local currency amounts, consolidated net sales decreased by $46.3 million, or 12.2%, as compared to consolidated net sales in the corresponding period in 2021.

Net sales for the U.S.

segment for the six months ended June 30, 2022 were $303.4 million, a decrease of $39.4 million, or 11.5%, as compared to net sales of $342.8 million for the corresponding period in 2021.

Net sales for the U.S.

segment’s Kitchenware product category were $198.5 million for the six months ended June 30, 2022, a decrease of $25.1 million, or 11.2%, as compared to $223.6 million for the corresponding period in 2021.

The decrease was mainly driven by lower sales for kitchen tools and gadgets, cutlery and board, and bakeware products due to inventory buildup at brick-and-mortar and e-commerce retailers.

The decrease was partially offset by an increase in sales for barware and wine products attributable to a new warehouse club program in 2022.

Net sales for the U.S.

segment’s Tableware product category were $56.5 million for the six months ended June 30, 2022, a decrease of $11.0 million, or 16.3%, as compared to $67.5 million for the corresponding period in 2021.

The decrease came from all product lines due to lower sales to brick-and-mortar retailers and e-commerce sales.

Net sales for the U.S.

segment’s Home Solutions product category were $48.4 million for the six months ended June 30, 2022, a decrease of $3.2 million, or 6.2%, as compared to $51.6 million for the corresponding period in 2021.

The decrease was

primarily driven by lower sales for measurement and home décor products, partially offset by hydration product sales attributable to S'well.

Net sales for the International segment were $30.6 million for the six months ended June 30, 2022, a decrease of $8.9 million, or 22.5%, as compared to net sales of $39.5 million for the corresponding period in 2021.

In constant currency, which excludes the impact of foreign exchange fluctuations, net sales decreased $7.0 million, or 18.6%, as compared to consolidated net sales in the corresponding period in 2021.

The decrease was attributable to lower sales to brick-and-mortar retailers, e-commerce sales and a decrease in the Company’s global trading business in Asia driven by lower sales with an Australian distributor.

Gross margin for the six months ended June 30, 2022 was $118.2 million, or 35.4%, as compared to $132.2 million, or 34.6%, for the corresponding period in 2021.

Gross margin for the U.S.

segment was $108.7 million, or 35.8%, for the six months ended June 30, 2022, as compared to $119.4 million, or 34.8%, for the corresponding period in 2021.

The decrease in gross margin for the U.S.

was driven by lower sales.

The improvement in gross margin percentage was due to product mix, a tariff reduction on certain product categories and less dependency on non-vessel operating common carriers.

Gross margin for the International segment was $9.5 million, or 31.0%, for the six months ended June 30, 2022, as compared to $12.7 million, or 32.2%, for the corresponding period in 2021.

The decrease in gross margin was driven by lower sales.

The decrease in gross margin percentage was due to the impact of fixed overhead costs on lower sales volume for the 2022 period.

Distribution expenses

Distribution expenses for the six months ended June 30, 2022 were $36.6 million, as compared to $37.6 million for the corresponding period in 2021.

Distribution expenses as a percentage of net sales were 11.0% for the six months ended June 30, 2022, as compared to 9.8% for the six months ended June 30, 2021.

Distribution expenses as a percentage of net sales for the U.S.

segment were approximately 9.6% and 8.8% for the six months ended June 30, 2022 and 2021, respectively.

As a percentage of sales shipped from the Company’s U.S.

warehouses, distribution expenses were 10.6% and 9.1% for the six months ended June 30, 2022 and 2021, respectively.

The increase in the expenses as a percentage of sales was a result of lower shipment volume and higher labor rates, partially offset by lower warehouse equipment and supply expenses.

Distribution expenses as a percentage of net sales for the International segment were 24.0% for the six months ended June 30, 2022, compared to 18.6% for the corresponding period in 2021.

Distribution expenses during the six months ended June 30, 2022 include $0.4 million for the Company’s relocation costs for its new warehouse distribution facility in the Netherlands.

As a percentage of sales shipped from the Company’s international warehouse, excluding non-recurring expenses, distribution expenses were 21.9% and 15.9% for the six months ended June 30, 2022 and 2021, respectively.

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

1 unchanged sentence

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended March 31, 2022 were $39.5 million, an increase of $1.4 million, or 3.7%, as compared to $38.1 million for the corresponding period in 2021.

Selling, general and administrative expenses for the six months ended June 30, 2022 were $77.7 million, an increase of $3.4 million, or 4.6%, as compared to $74.3 million for the corresponding period in 2021.

Selling, general and administrative expenses for the U.S.

segment were $28.5 million for the three months ended March 31, 2022, as compared to $27.4 million for the corresponding period in 2021.

As a percentage of net sales, selling, general and administrative expenses were 17.1% and 15.6% for the three months ended March 31, 2022 and 2021, respectively.

The increase was driven by integration cost related to the S'well acquisition.

Selling, general and administrative expenses for the International segment were $5.1 million for the three months ended March 31, 2022, as compared to $5.0 million for the corresponding period in 2021.

As a percentage of net sales, selling, general and administrative expenses were 30.9% and 25.6% for the three months ended March 31, 2022 and 2021, respectively.

The expense increase was attributable to unfavorable foreign currency exchange losses, partially offset by lower amortization expense on intangible assets as a result of the prior year impairment, which reduced the carrying value of the assets to its fair value.

Unallocated corporate expenses for the three months ended March 31, 2022 were $5.9 million, as compared to $5.7 million for the corresponding period in 2021.

The current period increases in legal and professional fees related to the S'well acquisition were offset by lower incentive compensation expense.

segment were $57.6 million for the six months ended June 30, 2022, as compared to $53.8 million for the corresponding period in 2021.

As a percentage of net sales, selling, general and administrative expenses were 19.0% and 15.7% for the six months ended June 30, 2022 and 2021, respectively.

The increase was attributable to integration costs related to the S'well acquisition and an increase in advertising and consulting expenses.

Selling, general and administrative expenses for the International segment were $9.3 million for the six months ended June 30, 2022, as compared to $9.2 million for the corresponding period in 2021.

The increase was primarily attributable to unfavorable foreign currency exchange losses and an increase in advertising expenses, partially offset by lower amortization expense on intangible assets as a result of the prior year impairment.

Unallocated corporate expenses for the six months ended June 30, 2022 were $10.8 million, as compared to $11.4 million for the corresponding period in 2021.

The decrease was driven by lower incentive compensation expense, partially offset by legal and professional fees related to the S'well acquisition.

Interest expense

Interest expense was $3.8 million for the three months ended March 31, 2022 and $4.0 million for the three months ended March 31, 2021.

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

Interest expense was $7.5 million and $7.8 million for the six months ended June 30, 2022 and 2021, respectively.

The decrease in expense was a result of lower debt outstanding on the Term Loan.

Mark to market gain on interest rate derivatives

Mark to market gain on interest rate derivatives was $1.0 million for the three months ended March 31, 2022, as compared to a mark to market gain on interest rate derivatives of $0.5 million for the three months ended March 31, 2021.

The increase was attributable to the change in fair value due to the change in the projected interest rate environment.

Mark to market gain on interest rate derivatives was $1.4 million for the six months ended June 30, 2022, as compared to a mark to market gain on interest rate derivatives of $0.5 million for the six months ended June 30, 2021.

The increase was attributable to the change in the fair value based on the increase in interest rates.

The mark to market amount represents the change in 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 a portion of the Company’s variable interest rate debt.

As of March 31, 2022, the intent of the Company is to hold these derivative contracts until their maturity.

Income tax provision of $1.7 million and $2.4 million for the three months ended March 31, 2022 and 2021, respectively, represent taxes on both U.S.

and foreign earnings at combined effective income tax provision rates of 102.2% and 42.2%, respectively.

The effective tax rate for both the three months ended March 31, 2022 and 2021 differs from the federal statutory income tax rate of 21.0% primarily due to state and local tax expenses, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.

Equity in earnings (losses)

Equity in earnings of Vasconia, net of taxes, was $0.4 million for the three months ended March 31, 2022, as compared to equity in losses of Vasconia, net of taxes, of $0.2 million for the three months ended March 31, 2021.

Vasconia reported income from operations of $4.7 million for the three months ended March 31, 2022, as compared to income from operations of $3.8 million for the three months ended March 31, 2021.

The increase in income from operations was primarily attributable to improved operating results in the current period in Vasconia's aluminum division.

The prior year equity in losses of Vasconia was attributable to losses from discontinued operations recognized for the three months ended March 31, 2021.

As of June 30, 2022, the intent of the Company is to hold these derivative contracts until their maturity.

Income tax provision of $1.6 million and $4.2 million for the six months ended June 30, 2022 and 2021, respectively, represent taxes on both US and foreign earnings at combined effective income tax provision rates of (69.8)% and 32.8%, respectively.

The negative tax rate for the six months ended June 30, 2022 reflects tax expense on a pretax financial reporting loss.

The effective tax rate for the six months ended June 30, 2022 differs from the federal statutory income tax rate of 21% primarily due to foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.

The effective tax rate for the six months ended June 30, 2021 differs from the federal statutory income tax rate of 21% primarily due to state and local tax expense, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance, net of a benefit related to share based equity compensation.

Equity in earnings

Equity in earnings of Vasconia, net of taxes, was $0.8 million for the six months ended June 30, 2022, as compared to equity in earnings of Vasconia, net of taxes, of $0.5 million for the six months ended June 30, 2021.

Vasconia reported income from operations of $5.2 million for the six months ended June 30, 2022, as compared to income from operations of $10.3 million for the six months ended June 30, 2021.

The decrease in income from operations was primarily attributable to decreased operating results in the current period in both Vasconia's kitchenware and aluminum divisions.

For the six months ended June 30, 2021, the Company recognized a net loss of $0.3 million, relating 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 the 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.

LIQUIDITY AND CAPITAL RESOURCES

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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 March 31, 2022, the Company had cash and cash equivalents of $14.8 million, compared to $28.0 million at December 31, 2021.

Working capital was $255.8 million at March 31, 2022, compared to $270.8 million at December 31, 2021.

Liquidity, which includes cash and cash equivalents and availability under the ABL Agreement, was approximately $162.0 million at March 31, 2022.

At June 30, 2022, the Company had cash and cash equivalents of $7.2 million, compared to $28.0 million at December 31, 2021.

Working capital was $247.0 million at June 30, 2022, compared to $270.8 million at December 31, 2021.

Liquidity, which includes cash and cash equivalents and availability under the ABL Agreement, was approximately $134.1 million at June 30, 2022.

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

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Certain other product categories experience higher inventory turns due to lower minimum order quantities or trending sale demands.

For the three months ended March 31, 2022, inventory turnover was 1.8 times, or 205 days, as compared to 2.6 times, or 143 days, for the three months ended March 31, 2021.

The decrease in inventory turnover was attributable to higher inventory levels and higher inventory costs in the current period.

The Company intends to refinance the ABL Agreement on or before its maturity on March 2, 2023.

At March 31, 2022 there were no outstanding borrowings under the ABL Agreement.

For the three months ended June 30, 2022, inventory turnover was 1.4 times, or 270 days, as compared to 2.3 times, or 162 days, for the three months ended June 30, 2021.

The Company increased its inventory levels to address supply chain disruptions and to support anticipated customer demand.

However, inventory turns have slowed in the current quarter due to macroeconomic challenges that companies across industries and retailers in particular faced.

Inflation has led to weaker end market demand and supply chain disruptions have lead inventory buildup.

The Company believes that availability under the revolving credit facility under its ABL Agreement, including anticipated refinancing on it prior to its maturity, cash on hand and cash flows from operations are sufficient to fund the Company’s operations for the next twelve months.

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However, notwithstanding the Company’s efforts to monitor its customers’ financial condition, the Company could be materially adversely affected by changes in customers' creditworthiness in the future.

Some of the Company’s customers may be adversely and materially affected by the COVID-19 pandemic.

Credit Facilities

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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.

As of March 31, 2022 and December 31, 2021, the total availability under the ABL Agreement was as follows (in thousands):

March 31, 2022

As of June 30, 2022 and December 31, 2021, the total availability under the ABL Agreement was as follows (in thousands):

June 30, 2022

December 31, 2021

Maximum aggregate principal allowed $ 150,000 $ 150,000

Outstanding borrowings under the ABL Agreement (20,347) —

Standby letters of credit (2,765) (3,659)

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The borrowing capacity under the ABL Agreement will depend, in part, on eligible levels of accounts receivable and inventory that fluctuate regularly.

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.

Due to the seasonality of the Company’s business, this means that the Company may have greater borrowing availability during the third and fourth quarters of each year.

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 condensed consolidated balance sheets were as follows (in thousands):

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Current portion of Term Loan facility:

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Total Non-current portion of Term Loan facility $ 237,564 $ 241,873

The estimated Excess Cash Flow principal payment recorded at March 31, 2022 represents the Company’s estimate for the 2023 Excess Cash Flow payment.

The estimated Excess Cash Flow principal payment recorded at June 30, 2022 represents the Company’s estimate for the 2023 Excess Cash Flow payment.

The 2022 Excess Cash Flow payment, paid on March 30, 2022, totaled $6.2 million.

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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 March 31, 2022.

The interest rate on outstanding borrowings under the ABL Agreement at June 30, 2022 was between 2.44% and 5.00%.

In addition, the Company pays a commitment fee of 0.375% on the unused portion of the ABL Agreement.

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(i) alternate base rate, defined, for any day, as the greater of (x) the prime rate, (y) a federal funds and overnight bank funding based rate plus 0.5% or (z) one-month LIBOR, but not less than 1.0%, plus 1.0%, which alternate base rate shall not be less than 2.0%, plus a margin of 2.5% or (ii) LIBOR, but not less than 1.0%, plus a margin of 3.5%.

The interest rate on outstanding borrowings under the Term Loan at March 31, 2022 was 4.5%.

The interest rate on outstanding borrowings under the Term Loan at June 30, 2022 was 4.6%.

The Debt Agreements provide for customary restrictions and events of default.

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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 and 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 and 10% of the aggregate commitment under the ABL Agreement for 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 March 31, 2022.

The Company was in compliance with the covenants of the Debt Agreements at June 30, 2022.

The Company expects that it will continue to borrow, subject to availability, and repay funds under the ABL Agreement based on working capital and other corporate needs

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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 Company’s adjusted EBITDA (including pro forma adjustments), for the last twelve months ended March 31, 2022 was $95.1 million.

Capital expenditures for the three months ended March 31, 2022 were $0.4 million.

The Company’s adjusted EBITDA (including pro forma adjustments), for the last twelve months ended June 30, 2022 was $83.4 million.

Capital expenditures for the six months ended June 30, 2022 were $1.5 million.

Non-GAAP financial measure

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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 the net income (loss), as reported, to adjusted EBITDA, for each of the last four quarters and the 12 months ended March 31, 2022:

Quarter Ended Twelve Months Ended March 31, 2022

June 30, 2021 September 30,

2021 December 31,

The following is a reconciliation of the net income (loss), as reported, to adjusted EBITDA, for each of the last four quarters and the 12 months ended June 30, 2022:

Quarter Ended Twelve Months Ended June 30, 2022

September 30, 2021 December 31,

2021 March 31,

2022 June 30,

(in thousands)

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(195) (466) (416) (334) (1,411)

Income tax provision

Income tax provision (benefit)

5,589 6,704 1,673 (98) 13,868

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$ 29,259 $ 30,862 $ 12,825 $ 6,951 $ 83,397

(1) For the twelve months ended March 31, 2022, the warehouse relocation and redesign expenses included $0.5 million of expenses related to the International segment and $0.4 million of expenses related to the U.S.

For the three months ended March 31, 2022, warehouse relocation and redesign expenses included $0.4 million of expenses related to the International segment and $0.1 million of expenses related to the U.S.

(1) For the twelve months ended June 30, 2022, the warehouse relocation and redesign expenses included $0.5 million of expenses related to the International segment and $0.5 million of expenses related to the U.S.

For the three months ended June 30, 2022, warehouse relocation and redesign expenses included $0.1 million of expenses related to the U.S.

(2) For the three months ended June 30, 2022, S'well integration costs included $0.2 million of expenses related to inventory step up adjustment in connection with S'well acquisition.

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

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

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

(4) Pro forma historical S'well and projected synergies adjustment represents a permitted adjustment to the Company’s adjusted EBITDA for the acquisition of S'well on March 2, 2022 pursuant to the Company’s Debt Agreements.

Pro forma projected synergies represents the amount of projected cost savings, operating expense reductions and cost saving synergies projected by the Company as a result of actions taken through March 31, 2022 or expected to be taken as of March 31, 2022, net of the benefits realized during the twelve months ended March 31, 2022.

Pro forma projected synergies represents the amount of projected cost savings, operating expense reductions and cost saving synergies projected by the Company as a result of actions taken through June 30, 2022 or expected to be taken as of June 30, 2022, net of the benefits realized during the twelve months ended June 30, 2022.

Accounts Receivable Purchase Agreement

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

Pursuant to the Receivable Purchase Agreement, the Company sold to HSBC $46.3 million and $40.6 million of receivables during the three months ended March 31, 2022 and 2021, respectively.

Charges of $0.1 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for both the three months ended March 31, 2022 and 2021.

At March 31, 2022 and 2021, $28.1 million and $25.6 million, respectively, of receivables sold were outstanding and due to HSBC from customers.

Pursuant to the Receivable Purchase Agreement, the Company sold to HSBC $33.5 million and $79.8 million of receivables during the three and six months ended June 30, 2022, respectively and $38.9 million and $79.5 million of receivables during three and six months ended June 30, 2021, respectively.

Charges of $0.2 million and $0.1 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the three months ended June 30, 2022 and 2021, respectively.

Charges of $0.3 million and $0.2 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated

statements of operations for the six months ended June 30, 2022 and 2021, respectively.

At June 30, 2022 and 2021, $25.6 million and $14.6 million, respectively, of receivables sold were outstanding and due to HSBC from customers.

Interest Rate Swaps

The Company's total outstanding notional value of interest rate swaps was $69.0 million at March 31, 2022.

The Company's total outstanding notional value of interest rate swaps was $50.0 million at June 30, 2022.

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.

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The original notional values are reduced over these periods.

The aggregate notional value of designated interest rate swaps was $44.0 million at March 31, 2022.

In June 2019, the Company entered into additional interest rate swap agreements, with an aggregate notional value of $25.0 million at March 31, 2022.

The aggregate notional value of designated interest rate swaps was $25.0 million at June 30, 2022.

In June 2019, the Company entered into additional interest rate swap agreements, with an aggregate notional value of $25.0 million at June 30, 2022.

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.

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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 March 31, 2022 was $18.0 million.

The aggregate gross notional values of foreign exchange contracts at June 30, 2022 was $13.5 million.

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

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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 March 31, 2022, the Company did not have any foreign currency forward contract derivatives that are not designated as hedges.

The Company does not enter into such contracts for speculative purposes, and as of June 30, 2022, the Company did 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.

Operating activities

Net cash provided by operating activities was $13.4 million for the three months ended March 31, 2022, as compared to net cash provided by operating activities of $36.3 million for the three months ended March 31, 2021.

The decrease from 2022 compared to 2021 was attributable to timing of payment for accounts payable and accrued expenses, partially offset by timing of collections related to the Company's accounts receivables.

Net cash used in operating activities was $8.9 million for the six months ended June 30, 2022, as compared to net cash provided by operating activities of $42.1 million for the six months ended June 30, 2021.

The decrease from 2022 compared to 2021 was attributable to a net loss generated in 2022 compared to net income in 2021, timing of payments for accounts payable and accrued expenses, partially offset by timing of collections related to the Company's accounts receivables.

Investing activities

Net cash used in investing activities was $18.4 million and $0.9 million for the three months ended March 31, 2022 and 2021, respectively.

Net cash used in investing activities was $19.4 million and $2.7 million for the six months ended June 30, 2022 and 2021, respectively.

The increase from 2022 compared to 2021 was attributable to the cash consideration of $18.0 million paid for the acquisition of S'well.

Financing activities

Net cash used in financing activities was $8.2 million and for the three months ended March 31, 2022, as compared to net cash used in financing activities of $40.8 million for the three months ended March 31, 2021.

The change was mainly attributable to repayments on the Company's revolving credit facility under its ABL Agreement in the 2021 period and the lower Excess Cash Flow principal payment on the term loan for the 2022 period compared to the 2021 period.

Net cash provided by financing activities was $7.7 million and for the six months ended June 30, 2022, as compared to net cash used in financing activities of $42.2 million for the six months ended June 30, 2021.

The change was mainly attributable to

proceeds from the Company's revolving credit facility under its ABL Agreement in the 2022 period and the lower Excess Cash Flow principal payment on the term loan for the 2022 period compared to the 2021 period.

Stock repurchase program

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The repurchase authorization permits the Company to effect the repurchases from time to time through open market purchases and privately negotiated transactions.

During the three months ended March 31, 2022, the Company repurchased 51,145 shares for a total cost of $0.7 million and thereafter retired the shares.

During the three and six months ended June 30, 2022, the Company repurchased 285,646 and 336,791 shares, respectively, for a total cost of $3.5 million and $4.2 million respectively, and thereafter retired the shares.

Please see Part II, Item 2—Unregistered Sales of Equity Securities and Use of Proceeds included in this Quarterly Report on Form 10-Q.

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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-Q

Item 2. Management’s Discussion and Analysis