What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-09 compared with 2022-03-09 · 236 added, 196 removed, 311 unchanged (58% of the section changed)

14 unchanged sentences

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®.

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

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

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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%.

As of December 31, 2022, Vasconia's Board of Directors is comprised of 11 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.

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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.

The Company’s business and working capital needs are highly seasonal, with a majority of sales occurring in the third and fourth quarters.

The Company recorded equity in (losses) earnings of Vasconia, net of taxes, of $(3.3) million, $1.8 million and $1.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company’s business and working capital needs are seasonal, with a majority of sales occurring in the third and fourth quarters.

In 2022, 2021 and 2020, net sales for the third and fourth quarters accounted for 54%, 56% and 62% 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.

The current market conditions and shifts in both consumer and retailer purchasing patterns has impacted the seasonality of the Company's net sales compared to historical trend.

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.

The decrease in inventory levels at December 31, 2022 compared to the prior year was a result of the Company's response to changes in retailer purchasing patterns.

The Company's inventory trends may deviate from historical trends due to a change in inventory strategy to react to current market conditions impacting the Company and retailers.

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.

In 2022, the Company's international segment incurred $0.4 million of restructuring expenses related to severance associated with the reorganization of the International segment's workforce.

The reorganization was the result of the Company’s efforts to realign the management and operating structure of the European business in response to changing market conditions.

The Company expects annual savings of $2.3 million associated with the reorganization.

In 2022, the Company’s U.S.

segment accrued $0.4 million related to severance associated with the reorganization of the U.S.

segment’s sales management structure.

The Company accrued $0.6 million of unallocated expense related to the termination payment with its Executive Chairman, Jeffrey Siegel.

On November 1, 2022, the Company entered into a transition agreement with Jeffrey Siegel, which provides for termination of his employment with the Company, effective March 31, 2023.

The transition agreement amends Mr.

Siegel’s employment agreement which was to expire on December 31, 2022.

The employment agreement provides for a one-time payment which will be paid upon the expiration of the transition agreement.

The Company estimates the one-time payment to be approximately $1.4 million, of which $0.6 million was accrued as a restructuring expense in 2022.

The remaining $0.8 million is expected to be recorded over the remaining employment period.

The Company expects annual savings of $1.3 million due to these actions.

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.

The global economy is experiencing accelerated inflation, which has in part been caused by supply chain disruptions and higher consumer spending.

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.

Retailers have responded to the economic challenges by rightsizing inventory levels that were built up by supply chain distributions, and further reducing safety stock and weekly supply on hand.

The Company has been adversely impacted by these trends in 2022 and expects that these trends may continue into 2023.

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.

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.

The exclusion is effective through December 31, 2023.

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

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

Further, the United Kingdom economy has been facing unfavorable economic and market conditions, with high inflation and low consumer confidence due to uncertain geopolitical and economic outlooks.

Net sales attributable to U.K.

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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.

Effective January 1, 2022, the Company adopted 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 adoption did not have a material impact on the Company’s consolidated financial statements.

In connection with the Amendment No.1 of the Term Loan, effective December 29, 2022, the Company adopted ASU 2020-04 and 2022-06, 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 may be applied to contract modifications and hedging relationships as of any date from March 12, 2020 but no later than December 31, 2024 and should be applied on a prospective basis.

The Company applied available practical expedients under Topic 848 to account for modifications, changes in critical terms, and updates to the designated hedged risks as qualifying changes have been made to applicable debt modifications as if they were not substantial.

Application of these practical expedients allowed us to maintain hedge accounting for our interest rate swap contracts.

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

New accounting pronouncements

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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):

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):

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.

Management expects the adoption of ASU 2016-13 will not have a material impact on the Company's consolidated financial statements.

RESULTS OF OPERATIONS

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Selling, general and administrative expenses 21.3 18.1 20.3

Wallace facility remediation expense 0.7 0.1 —

Goodwill and other intangible asset impairments — 1.7 2.6

Restructuring expenses 0.2 — —

Income (loss) from operations

5.9 3.2 (3.2)

Income from operations

Interest expense (2.4) (1.8) (2.2)

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0.3 0.1 (0.3)

Income (loss) before income taxes and equity in earnings

4.2 0.7 (6.0)

Income before income taxes and equity in (losses) earnings

Income tax provision

(0.8) (1.9) (1.3)

Equity in earnings, net of taxes

Net income (loss)

Equity in (losses) earnings, net of taxes

(1.2) 0.1 0.2

Net (loss) income

(0.8) % 2.4 % (0.4) %

MANAGEMENT’S DISCUSSION AND ANALYSIS

2022 COMPARED TO 2021

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 year ended December 31, 2022 were $727.7 million, a decrease of $135.2 million, or 15.7%, compared to net sales of $862.9 million 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, net sales decreased $127.7 million, or 14.9%, as compared to consolidated net sales in the corresponding period in 2021.

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.

segment in 2022 were $669.2 million, a decrease of $101.4 million, or 13.2%, compared to net sales of $770.6 million in 2021.

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.

segment’s Kitchenware product category in 2022 were $402.9 million, a decrease of $84.9 million, or 17.4%, compared to net sales of $487.8 million in 2021.

The net sales decrease in the U.S.

segment’s Kitchenware product category was driven by lower sales for kitchen tools and gadgets, cutlery and board, and bakeware products.

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.

segment’s Tableware product category in 2022 were $148.8 million, a decrease of $18.4 million, or 11.0%, compared to net sales of $167.2 million for 2021.

The decrease was across both tableware and flatware sales.

Net sales for the U.S.

segment’s Home Solutions products category in 2022 were $117.5 million, an increase of $1.9 million, or 1.6%, compared to net sales of $115.6 million in 2021.

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

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

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

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

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

The increase was due to hydration product sales primarily attributable to S'well products, which was acquired on March 2, 2022, and added net sales of $16.9 million, offset by a decrease in home décor sales.

The decrease in the Company's U.S.

segment's net sales occurred in all distribution channels.

This was attributable to inventory buildup at retailers, primarily in the first half of 2022, resulting in a slowing of replenishment orders as retailers reduced safety stock and weeks of supply.

In addition, retail sales declined as consumers shifted their spending toward services and away from goods, including housewares, which surged during the pandemic lock-down period.

Net sales for the International segment in 2022 were $58.5 million, a decrease of $33.8 million, or 36.6%, compared to net sales of $92.3 million for 2021.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2022 average exchange rates to 2021 local currency amounts, net sales decreased approximately 31.1%.

The decrease was due to similar factors as was experienced in the U.S.

However, it was further exacerbated by the impact of higher food and energy inflation in Europe.

In addition, a decrease in the Company's global trading business in Asia driven by lower sales to an Australian distributor.

Gross margin for 2022 was $260.3 million, or 35.8%, compared to $303.3 million, or 35.2%, for the corresponding period in 2021.

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segment was $241.1 million, or 36.0%, for 2022, compared to $274.1 million, or 35.6%, for 2021.

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.

The decrease in gross margin for the U.S.

was due to lower sales.

The improvement in gross margin percentage was due to product mix and a tariff reduction on certain product categories.

Gross margin for the International segment was $19.2 million, or 32.8%, for 2022, compared to $29.2 million, or 31.6%, for 2021.

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.

The decrease in gross margin was due to lower sales.

The increase in gross margin percentage was attributable to customer mix and sales price increases, partially offset by the impact of fixed overhead costs on lower sales volume in 2022.

Distribution expenses

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segment were approximately 9.1% in 2022 and 8.0% in 2021.

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 in 2022 include $0.1 million for the Company's distribution operation redesign costs.

As a percentage of sales shipped from the Company’s warehouses, excluding non-recurring expenses, distribution expenses were 10.1% and 8.7% f or 2022 and 2021.

The increase in the expenses as a percentage of sales was a result of lower shipment volume resulting in an unfavorable impact on fixed expenses, increase in storage fees due to high inventory levels through the third quarter of 2022 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 approximately 23.8% in 2022 and 20.3% in 2021, 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.

Distribution expenses in 2022 include $0.5 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 warehouses, excluding non-recurring expenses, distribution expenses, were 21.5% and 17.4% f or 2022 and 2021, re spectively.

The increase was primarily attributed to lower shipment volume resulting in an unfavorable impact on fixed expenses and higher warehouse supply expenses.

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.

Selling, general and administrative (“SG&A”) expenses for 2022 w ere $154.5 million, a decrease of $1.9 million, or 1.2%, as compared to $156.4 million for 2021.

SG&A expenses for 2022 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.

segment we re $118.2 million, an increase of $6.4 million, or 5.7% , compared to $111.8 million for 2021.

As a percentage of net sales, SG&A expenses were 17.7% for 2022, compared to 14.5% for 2021.

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.

The increase in the expense was attributable to integration costs related to the S'well acquisition, bad debt expense related to significant declines in financial condition of certain customers due to sales declines and very high debt levels, and an increase in advertising expenses.

This was partially offset by lower compensation expense.

The increase in selling, general and administrative expense as a percentage of net sales is due to the unfavorable impact of fixed costs on lower sales volume.

SG&A expenses for 2022 for the International segment were $17.0 million, a decrease of $3.7 million, or 17.9%, compared to $20.7 million for 2021.

As a percentage of net sales, SG&A expense s increased to 29.1% for 2022, compared to 22.4% for 2021.

The international segment expense decreased primarily due to lower amortization expense on intangible assets as a result of the prior year impairment and a decrease in employee expenses.

Unallocated corporate expenses for 2022 were $19.3 million, compared to $23.9 million for 2021.

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.

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

Wallace facility remediation expense

In connection with the Wallace EPA Matter (as described in NOTE 14 — COMMITMENTS AND CONTINGENCIES, the “Wallace EPA Matter”), the Company recorded an additional expense of $5.1 million in 2022 , for the estimated liability for remediation cost related to the Wallace facility.

In 2021, the Company recorded an initial estimate of $0.5 million, related to remedial design portion of the liability.

Refer to NOTE 14 — COMMITMENTS AND CONTINGENCIES for further discussion on this matter.

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.

Due to the current operating results for the International segment as a result of low consumer confidence in the region, 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.

The Company tested the International segment's long-lived assets for impairment and concluded that the fair value exceeded the carrying value of the long-lived assets, concluding no impairment as of December 31, 2022.

In 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.

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

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

Reporting Unit

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

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

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

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

reporting unit exceeded the carrying value of goodwill.

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

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.

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

In 2022, the Company's international segment incurred $0.4 million of restructuring expenses related to severance associated with the reorganization of the International segment's workforce.

The reorganization was the result of the Company’s efforts to realign the management and operating structure of the European business in response to changing market conditions.

The Company expects annual savings of $2.3 million associated with the reorganization.

In 2022, the Company’s U.S.

segment accrued $0.4 million related to severance associated with the reorganization of the U.S.

segment’s sales management structure.

The Company accrued $0.6 million of unallocated expense related to the termination payment with its Executive Chairman, Jeffrey Siegel.

On November 1, 2022, the Company entered into a transition agreement with Jeffrey Siegel, which provides for termination of his employment with the Company, effective March 31, 2023.

The transition agreement amends Mr.

Siegel’s employment agreement which was to expire on December 31, 2022.

The employment agreement provides for a one-time payment which will be paid upon the expiration of the transition agreement.

The Company estimates the one-time payment to be approximately $1.4 million, of which $0.6 million was accrued as a restructuring expense in 2022.

The remaining $0.8 million is expected to be recorded over the remaining employment period.

The Company expects annual savings of $1.3 million due to these actions.

Interest expense

Interest expense for 2022 was $17.2 million, compared to $15.5 million for 2021 .

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

The increase was a result of higher interest rates on outstanding borrowings in the current period.

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 .

Mark to market gain on interest rate derivatives was $2.0 million for the year ended December 31, 2022, as compared to a mark to market gain on interest rate derivatives of $1.1 million for the year ended December 31, 2021 .

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.

The increase in gain was a result of increases in interest rates during 2022.

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

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The Company’s effective tax rate for 2022 was 63.4%, compared to 45.5% for 2021.

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.

Equity in earnings

The effective tax rate in 2022 and 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.

Equity in (losses) earnings

The Company’s equity in earnings, net of tax, for 2022 and 2021 are as follows:

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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

Impairment on investment in Vasconia (6,167) —

Equity in earnings (losses), net of taxes $ (9,467) $ 962

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.

Vasconia reported loss from operations for 2022 of $1.6 million, as compared to income of $15.5 million for 2021 and reported net loss of $13.2 million in 2022 and net income of $7.0 million in 2021.

The decrease in income from operations was primarily attributable to Vasconia’s aluminum division as a result of increases in the price of commodities.

The effect of the translation of the Company’s investment, as well as the translation of Vasconia’s balance sheet, resulted in a decrease of the investment of $0.3 million during the year ended December 31, 2022 and an increase of the investment of $1.0 million during the year ended December 31, 2021.

During the year ended December 31, 2022, the Company recorded an impairment charge of $6.2 million to reduce the carrying value of the Company's investment in Vasconia to its fair value.

The decline in the fair value was determined to be other than temporary due to the decline in the quoted stock price and the decline in the operating results of Vasconia.

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.

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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

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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.

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

The Company also evaluates qualitative factors to determine whether 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.

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

reporting unit as of October 1, 2022 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, 2022, the fair value of the U.S.

reporting unit exceeded the carrying value of goodwill by 10%.

The Company completed the quantitative impairment analysis for its indefinite-lived assets as of October 1, 2022, by comparing the fair value of the indefinite-lived trade names to their respective carrying value using a relief from royalty method.

As of October 1, 2022, the fair value of the Company’s indefinite-lived trade names exceeded their respective carrying values by 12%.

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.

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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.

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

associated shipping terms and customer obligations.

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

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

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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.

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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.

The Company’s principal sources of funds consists of cash provided by operating activities, borrowings available under its revolving credit facility and from time-to-time working capital reductions.

The Company’s primary uses of funds consist of payments of principal and interest on its debt, working capital requirements, capital expenditures and dividends, From time-to-time uses also include acquisitions and repurchases of its common stock.

At December 31, 2022 and 2021, the Company had cash and cash equivalents of $23.6 million and $28.0 million, respectively, and working capital of $270.4 million at December 31, 2022, compared to $270.8 million at December 31, 2021.

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 3.1 to 1.0 at December 31, 2022, compared to 2.3 to 1.0 at December 31, 2021.

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.

The increase in the current ratio was primarily due to operating cash flow used to reduce current obligations.

At December 31, 2022, borrowings under the Company’s ABL Agreement were $10.4 million and $245.9 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.

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

Liquidity, which includes cash and cash equivalents and availability under the ABL Agreement, was approximately $199.8 million at December 31, 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 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 decrease in inventory levels at December 31, 2022 compared to the prior year was a result of the Company's response to changes in retailer purchasing patterns.

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

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For the three months ended December 31, 2022 inventory turnover was 2.1 times, or 170 days, as compared to 2.5 times, or 145 days, for the three months ended December 31, 2021.

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

Inventory turns have slowed due to macroeconomic challenges that companies across industries and retailers in particular faced.

Inflation has led to weaker end market demand.

In connection with the Wallace EPA Matter, the Company expects it will be required to provide financial assurance of $5.6 million in the next 12 months, which it expects to provide in the form of a letter of credit.

This would reduce availability under the revolving credit facility by the same amount.

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 future changes in these conditions.

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.

On August 26, 2022, the Company entered into Amendment No.

2 (the “Amendment”) to the ABL Agreement among the Company, as a Borrower, certain subsidiaries of the Company, as Borrowers and/or Loan Parties, JPMorgan Chase Bank, N.A., as Administrative Agent and a Lender, HSBC Bank USA, National Association and Wells Fargo Bank, National Association, as Co-Documentation Agents and Lenders, and Manufacturers and Traders Trust Company.

The ABL Agreement provides for a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $200.0 million, which facility will mature on August 26, 2027 (subject to an earlier springing maturity date that is 90 days prior to the Term Loan maturity date of February 28, 2025 if the Company’s Term Loan has not been repaid or refinanced by such date).

The Term Loan provides for a senior secured term loan credit facility in the original principal amount of $275.0 million, which matures on February 28, 2025.

On December 29, 2022, the Company entered into Amendment No.

1 to the Term Loan, which replaces the LIBOR-based interest rates with SOFR-based interest rates and modifies the provisions for determining the alternative rate of interest upon the occurrence of certain events relating to the availability of interest rate benchmarks.

The Term Loan requires the Company to make an annual prepayment of principal based upon a percentage of the Company's excess cash flow (“Excess Cash Flow”), if any.

The percentage applied to the Company’s excess cash flow is based on the Company’s Total Net Leverage Ratio (as defined in the Debt Agreements).

When an Excess Cash Flow payment is required, each lender has the option to decline a portion or all of the prepayment amount payable to it.

An estimate of the amount of the Excess Cash Flow payment is recorded in current maturity of term loan on the consolidated balance sheets.

Additionally, the Term Loan requires quarterly payments, which commenced on June 30, 2018, of principal equal to 0.25%, of the original aggregate principal amount of the Term Loan facility, which payments are to be adjusted from time to time to account for prepayments made.

Per the Term Loan, when the Company makes an Excess Cash

Flow payment, the payment is first applied to satisfy the next eight scheduled future quarterly required payments of the Term Loan in order of maturity and then to the remaining scheduled installments on a pro rata basis.

The quarterly principal payments have been satisfied through maturity of the Term Loan by the annual Excess Cash Flow payments made to date.

The maximum borrowing amount under the ABL Agreement may be increased to up to $250.0 million if certain conditions are met but limited to $220.0 million pursuant to the Term Loan.

One or more tranches of additional term loans (the “Incremental Term 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 on a pro forma basis pursuant to the Term Loan, after giving effect to such increase, is no greater than 3.75 to 1.00, subject to certain limitations and for the period defined pursuant to the Term Loan but not to mature earlier than the maturity date of the then existing term loans.

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

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Total availability under the ABL agreement $ 176,222 $ 146,341

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.

Availability under the ABL Agreement is limited to the lesser of the $200.0 million commitment thereunder and the borrowing base and therefore depends on the valuation of certain current assets comprising the borrowing base.

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 mean that the Company may have greater borrowing availability during the third and fourth quarters of each year.

Consequently, the $200.0 million commitment thereunder may not represent actual borrowing capacity.

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Total Non-current portion of Term Loan facility $ 242,857 $ 241,873

As of December 31, 2022, there is no Excess Cash Flow Payment due for 2023.

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

The Excess Cash Flow payment differs from the estimated amount at December 31, 2021 of $7.2 million as certain lenders opted to decline their payments per the terms of the Term Loan.

The Company’s payment obligations under its Debt Agreements are unconditionally guaranteed by its existing and future U.S.

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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.

The obligations of the foreign subsidiary borrowers under the ABL Agreement are secured by security interests in substantially all of the assets of, and stock in, such foreign subsidiary borrowers, subject to certain limitations.

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 security interests in 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.

Such security interests consists of (1) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and certain of its 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 certain

of its 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.

(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 Adjusted Term SOFR plus 1.0% as of a specified date in advance of the determination, but in each case not less than 1.0%, plus a margin of 0.25% to 0.5%, or (ii) Adjusted Term SOFR, which is the Term SOFR Rate for the selected 1, 3 or 6 month interest period plus 0.10% (or Euro Interbank Offered Rate “EURIBOR” for borrowings denominated in Euro;

or Sterling Overnight Index Average “SONIA” for borrowings denominated in Pounds Sterling), but in each case not less than zero, plus a margin of 1.25% to 1.50%.

The respective margins are based upon average quarterly availability, as defined in and computed pursuant to the ABL Agreement.

In addition, the Company pays a commitment fee of 0.20% to 0.25% per annum based on the average daily unused portion of the aggregate commitment under the ABL Agreement.

The interest rate on outstanding borrowings under the ABL Agreement at December 31, 2022 was 3.43%.

In addition, the Company paid a commitment fee of 0.25% to 0.375% on the unused portion of the ABL Agreement during the year ended December 31, 2022.

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%.

(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 0.50% or (z) one-month Adjusted Term SOFR, but not less than 1.0% plus 1.0%, plus a margin of 2.5% or (ii) SOFR for the applicable interest period, multiplied by any statutory reserve rate, but not less than 1.0%, plus a margin of 3.5%.

The interest rate on outstanding borrowings under the Term Loan at December 31, 2022 was 7.9%.

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

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.

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

Further, the ABL Agreement provides that during any period (a) commencing on the last day of the most recently ended four consecutive fiscal quarters on or prior to the date availability under the ABL Agreement is less than the greater of $20.0 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 $20.0 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 December 31, 2022.

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.

Prior to the amendment of the credit agreement, the Company’s ABL provided for an aggregate principal amount of $150.0 million.

Upon entering into the Amendment to the ABL Agreement the Company repaid its outstanding ABL borrowing in the amount of $32.0 million and re-borrowed such amounts under the ABL Agreement, as amended.

Unamortized debt issuance costs that were written off were immaterial.

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.

Covenant Calculations

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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.

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 SEC.

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

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$ 380 $ (3,460) (6,358) $ 3,272 $ (6,166)

Subtract out:

Undistributed equity losses (earnings), net

Undistributed equity (earnings) losses, net

(416) (334) 8,159 2,058 9,467

Income tax provision

Income tax provision (benefit)

1,673 (98) 1,845 2,308 5,728

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Depreciation and amortization 4,899 5,038 4,598 5,001 19,536

Mark to market gain on interest rate derivatives

Mark to market (gain) loss on interest rate derivatives

(1,049) (304) (637) 19 (1,971)

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

Stock compensation expense 1,174 1,365 1,026 281 3,846

Acquisition related expenses 1,119 75 109 170 1,473

Warehouse relocation expenses (1)

Restructuring expenses — — — 1,420 1,420

Warehouse relocation and redesign expenses (1)

497 73 59 — 629

Wallace facility remedial design expense — — 500 — 500

Adjusted EBITDA (2)

S'well integration costs (2)

781 864 250 — 1,895

(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.

Wallace facility remediation expense — — 5,140 — 5,140

Adjusted EBITDA, before limitation $ 12,825 $ 6,951 $ 18,772 $ 19,654 $ 58,202

Pro forma projected synergies adjustment (3)

Pro forma adjusted EBITDA, before limitation (5)

Permitted non-recurring charge limitation (4)

Pro forma Adjusted EBITDA (5)

$ 12,825 $ 6,951 $ 18,772 $ 19,654 $ 58,203

(1) For the year ended December 31, 2022, the warehouse relocation and redesign expenses included $0.5 million of expenses related to the International segment and $0.1 million of expenses related to the U.S.

(2) For the year ended December 31, 2022, S'well integration costs included $0.5 million of expenses related to inventory step up adjustment in connection with S'well acquisition.

(3) Pro forma projected synergies represents the projected cost savings of $2.3 million associated with the reorganization of the International segment’s workforce, $0.9 million associated with the retirement of the Executive Chairman, and $0.4 million associated with reorganization of the U.S.

segment’s sales management structure.

(4) Permitted non-recurring charges include restructuring expenses, integration charges, Wallace facility remediation expense, and warehouse relocation and redesign expenses.

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

(5) 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.

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

Three Months Ended Year Ended

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(in thousands)

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

Undistributed equity (earnings) losses, net

Net income (loss) as reported

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

Income tax (benefit) provision

Undistributed equity losses (earnings), net

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

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 loss (gain) on interest rate derivatives

Mark to market gain on interest rate derivatives

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

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

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

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

Acquisition related expenses 182 72 41 378 673

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

Warehouse relocation expenses (1)

— — — 450 450

Wallace facility remediation expense — — 500 — 500

Adjusted EBITDA (2)

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

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

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

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

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

Capital expenditures

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

The Company purchases 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 purchases foreign currency forward contracts with terms less than 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 aggregate gross notional values of foreign exchange contracts at December 31, 2022 and 2021 was $6.3 million and $22.6 million, respectively.

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

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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.

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

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

Dividends were declared in 2022 and 2021 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 March 9, 2021 May 3, 2021 May 17, 2021

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

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$0.0425 August 2, 2022 November 1, 2022 November 15, 2022

$0.0425 November 2, 2021 January 31, 2022 February 14, 2022

$0.0425 November 1, 2022 February 1, 2023 February 15, 2023

On March 8, 2023, the Board of Directors declared a quarterly dividend of $0.0425 per share payable on May 15, 2023 to shareholders of record on May 1, 2023.

1 unchanged sentence

Net cash provided by operating activities was $24.3 million in 2022, compared to $37.0 million in 2021.

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.

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

Cash used in investing activities

Net cash used in investing activities was $20.9 million in 2022, compared to $1.1 million in 2021.

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.

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

Cash used in financing activities

Net cash used in financing activities was $7.6 million in 2022 compared to $44.0 million in 2021.

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

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

This was partially offset by payments for stock repurchases in the 2022 period.

MATERIAL CASH REQUIREMENTS

The Company’s material cash requirements include the following:

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

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

As of December 31, 2022, the Company had outstanding Term Loan facility, which matures on February 28, 2025, for an aggregate principal amount of $245.9 million, with no amounts due within 12 months.

Future interest obligations associated with debt and interest rate swaps total $40.7 million, with $18.8 million payable within 12 months.

3 unchanged sentences

As of December 31, 2022, the Company had fixed lease payment obligations of $109.7 million, with $19.1 million payable within 12 months.

On January 20, 2023, the Company entered into the third amendment to the existing Medford operating lease.

The amendment will reduce the leased square footage, reduce rent payments beginning in the second quarter of 2023, and extend the lease term from December 2027 to December 2030.

This will increase the total lease payment obligation of approximately $2.0 million.

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

3 unchanged sentences

As of December 31, 2022, the estimated discounted obligations under the agreements with the former executives amounted to $5.7 million, with $0.5 million payable within 12 months.

Termination payment

The Company entered into a transition agreement with its Executive Chairman, Jeffrey Siegel, which terminates his employment with the Company, effective March 31, 2023.

The Company estimates the one-time payment to be approximately $1.4 million, which is payable upon his retirement on March 31, 2023.

Wallace EPA Matter

This would reduce availability under the revolving credit facility by the same amount.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis