What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-03 · 162 added, 261 removed, 215 unchanged (66% of the section changed)

49 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, developing existing brands, acquiring new brands (including complementary brands in markets outside the United States), and establishing new product categories.

2 unchanged sentences

RECENT DEVELOPMENTS

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

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.

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 has been adversely impacted by these trends in 2022.

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

warehouse to continental Europe.

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 global economy is experiencing accelerated inflation, which has in part been caused by the 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 consumer spending and buying patterns.

Retailers have responded to the economic challenges by rightsizing inventory levels, and further reducing safety stock and weekly supply on hand.

Further, the U.K.

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

The Company has been adversely impacted by these trends in 2022 and these trends have continued in 2023.

BUSINESS SEGMENTS

5 unchanged sentences

Management evaluates the performance of the U.S.

and International segments based on net sales and income from operations.

and International segments based on net sales and (loss) income from operations.

Such measures give recognition to specifically identifiable operating costs such as cost of sales, distribution expenses and selling, general and administrative expenses.

Certain general and administrative expenses, such as senior executive salaries and

benefits, stock compensation, director fees, and accounting, legal fees and consulting fees, are not allocated to the specific segments and are reflected as unallocated corporate expenses.

Certain general and administrative expenses, such as senior executive salaries and benefits, stock compensation, director fees, and accounting, legal fees and consulting fees, are not allocated to the specific segments and are reflected as unallocated corporate expenses.

EQUITY INVESTMENTS

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

As of March 31, 2023, 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.

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 and nine months ended September 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 September 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 nine months ended September 30, 2021.

On July 29, 2021, the Company sold 2.2 million shares further reducing its ownership from approximately 27% to approximately 25% in Vasconia for net cash proceeds of approximately $3.1 million.

As a result, the Company recorded a gain of $1.0 million, after decreasing the Company’s investment balance.

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

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

The net loss, including taxes, of $0.5 million was included in equity in earnings (losses), net of taxes, in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2021.

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, 2023 and 2022 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 (the "Vasconia Board").

As of March 31, 2023, the Vasconia Board was comprised of eleven members, of whom the Company had designated two members.

Subsequent to March 31, 2023, the two Company-designated Board members resigned from the Vasconia Board.

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

In 2022 and 2021, net sales for the third and fourth quarters accounted for 54% and 56% 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 to shifts in consumer purchasing patterns.

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 trends.

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

1 unchanged sentence

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.

The COVID-19 pandemic has caused, and may continue to cause, shifts in some of the Company's selling and purchasing cycles as customers deviate from their historical ordering patterns.

CRITICAL ACCOUNTING ESTIMATES

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net sales 100.0 % 100.0 %

3 unchanged sentences

Selling, general and administrative expenses 26.1 21.6

Wallace facility remediation expense 2.8 0.2 1.0 0.1

Income from operations

4.1 9.6 2.2 6.9

Restructuring expenses 0.5 —

(Loss) income from operations

Interest expense (3.7) (2.1)

Mark to market gain on interest rate derivatives

0.4 0.1 0.4 0.1

Income before income taxes and equity in (losses) earnings

2.0 8.0 0.3 5.1

Income tax provision

(1.0) (2.5) (0.7) (1.7)

Mark to market (loss) gain on interest rate derivatives

(Loss) income before income taxes and equity in (losses) earnings

Income tax benefit (provision)

Equity in (losses) earnings, net of taxes

(4.4) 0.1 (1.4) 0.1

Net (loss) income

1 unchanged sentence

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

SEPTEMBER 30, 2021

Consolidated net sales for the three months ended September 30, 2022 were $186.6 million, representing a decrease of $38.2 million, or 17.0%, as compared to net sales of $224.8 million for the corresponding period in 2021.

THREE MONTHS ENDED MARCH 31, 2023 COMPARED TO THE THREE MONTHS ENDED

MARCH 31, 2022

Consolidated net sales for the three months ended March 31, 2023 were $145.4 million, representing a decrease of $37.3 million, or 20.4%, as compared to net sales of $182.7 million for the corresponding period in 2022.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2023 average rates to 2022 local currency amounts, consolidated net sales decreased by $35.4 million, or 19.6%, as compared to consolidated net sales in the corresponding period in 2022.

Net sales for the U.S.

segment for the three months ended September 30, 2022 were $172.8 million, a decrease of $24.9 million, or 12.6%, as compared to net sales of $197.7 million for the corresponding period in 2021.

segment for the three months ended March 31, 2023 were $133.5 million, a decrease of $32.7 million, or 19.7%, as compared to net sales of $166.2 million for the corresponding period in 2022.

Net sales for the U.S.

segment’s Kitchenware product category were $92.6 million for the three months ended September 30, 2022, a decrease of $20.8 million, or 18.3%, as compared to $113.4 million for the corresponding period in 2021.

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

segment’s Kitchenware product category were $85.7 million for the three months ended March 31, 2023, a decrease of $28.4 million, or 24.9%, as compared to $114.1 million for the corresponding period in 2022.

The decrease was driven by lower sales for kitchen tools and gadgets, cutlery and boards, and bakeware.

Net sales for the U.S.

segment’s Tableware product category were $44.5 million for the three months ended September 30, 2022, a decrease of $7.2 million, or 13.9%, as compared to $51.7 million for the corresponding period in 2021.

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

segment’s Tableware product category were $24.0 million for the three months ended March 31, 2023, a decrease of $2.6 million, or 9.8%, as compared to $26.6 million for the corresponding period in 2022.

The decrease was across both tableware and flatware sales.

Net sales for the U.S.

segment’s Home Solutions product category were $35.7 million for the three months ended September 30, 2022, an increase of $3.1 million, or 9.5%, as compared to $32.6 million for the corresponding period in 2021.

The increase was due to an increase in hydration product sales attributable to S'well, partially offset by lower sales for measurement products.

Net sales for the International segment were $13.8 million for the three months ended September 30, 2022, a decrease of $13.3 million, or 49.1%, as compared to net sales of $27.1 million for the corresponding period in 2021.

segment’s Home Solutions product category were $23.8 million for the three months ended March 31, 2023, a decrease of $1.7 million, or 6.7%, as compared to $25.5 million for the corresponding period in 2022.

The decrease was in measurement products, partially offset by hydration products sales attributable to S'well and a private label hydration program.

The decrease in the Company's U.S.

segment’s net sales occurred in all distribution channels.

The decrease was a result of a slowing of replenishment orders as retailers reduce safety stock and weeks of supply.

The decline in retailers’ replenishment orders began in the second quarter of 2022.

In addition, consumers’ spending reduction on our categories' goods has reduced the market size.

Net sales for the International segment were $11.9 million for the three months ended March 31, 2023, a decrease of $4.6 million, or 27.9%, as compared to net sales of $16.5 million for the corresponding period in 2022.

In constant currency, which excludes the impact of foreign exchange fluctuations, net sales decreased $2.6 million, or 18.1%, as compared to consolidated net sales in the corresponding period in 2022.

The decrease was driven by lower sales to brick-and-mortar retailers and e-commerce sales due to low consumer confidence in the region.

Gross margin for the three months ended September 30, 2022 was $67.8 million, or 36.4%, as compared to $83.1 million, or 37.0%, for the corresponding period in 2021.

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

Gross margin for the three months ended March 31, 2023 was $53.8 million, or 37.0%, as compared to $63.1 million, or 34.5%, for the corresponding period in 2022.

Gross margin for the U.S.

segment was $63.3 million, or 36.6%, for the three months ended September 30, 2022, as compared to $74.5 million, or 37.7%, for the corresponding period in 2021.

The decrease in gross margin was driven by lower sales.

The decrease in gross margin percentage for the U.S.

was driven by product mix.

Gross margin for the International segment was $4.5 million, or 32.6%, for the three months ended September 30, 2022, as compared to $8.6 million, or 31.7%, for the corresponding period in 2021.

segment was $48.9 million, or 36.6%, for the three months ended March 31, 2023, as compared to $57.7 million, or 34.7%, for the corresponding period in 2022.

The decrease in gross margin was driven by lower sales.

The improvement in the gross margin percentage was attributable to product and customer mix.

Distribution expenses

Distribution expenses for the three months ended September 30, 2022 were $18.6 million, as compared to $18.9 million for the corresponding period in 2021.

Distribution expenses as a percentage of net sales were 10.0% for the three months ended September 30, 2022, as compared to 8.4% for the three months ended September 30, 2021.

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

segment were approximately 9.0% and 7.2% for the three months ended September 30, 2022 and 2021, respectively.

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

warehouses, distribution expenses were 10.4% and 8.4% for the three months ended September 30, 2022 and 2021, respectively.

The increase in expenses as a percentage of sales was attributable to lower shipment volume resulting in an unfavorable impact of fixed expenses, increased storage fees due to high inventory levels and higher labor rates.

Distribution expenses as a percentage of net sales for the International segment were 22.5% for the three months ended September 30, 2022, compared to 17.5% for the corresponding period in 2021.

As a percentage of sales shipped from the Company’s international warehouses, excluding non-recurring expenses, distribution expenses were 22.9% and 14.5% for the three months ended September 30, 2022 and 2021, respectively.

The increase was attributable to lower shipment volume, higher warehouse supply expenses and an increase in business occupancy tax expense for the U.K.

warehouse, partially offset by lower labor costs.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended September 30, 2022 were $36.5 million, a decrease of $5.5 million, or 13.1%, as compared to $42.0 million for the corresponding period in 2021.

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

segment were $28.3 million for the three months ended September 30, 2022, as compared to $29.3 million for the corresponding period in 2021.

As a percentage of net sales, selling, general and administrative expenses were 16.4% and 14.8% for the three months ended September 30, 2022 and 2021, respectively.

The decrease was attributable to lower incentive compensation, partially offset by an increase in selling expenses related to advertising and trade shows.

Selling, general and administrative expenses for the International segment were $3.9 million for the three months ended September 30, 2022, as compared to $6.3 million for the corresponding period in 2021.

As a percentage of net sales, selling, general and administrative expenses were 28.3% and 23.3% for the three months ended September 30, 2022 and 2021, respectively.

The expense decrease was attributable to lower amortization expense on intangible assets as a result of the prior year impairment and lower unfavorable foreign currency exchange losses.

Unallocated corporate expenses for the three months ended September 30, 2022 were $4.3 million, as compared to $6.4 million for the corresponding period in 2021.

The current period decrease was driven by lower incentive compensation expense.

Wallace facility remediation expense

In connection with the Wallace EPA matter, the Company recorded an additional expense of $5.1 million for the three months ended September 30, 2022, to increase its estimated liability for remediation cost related to the Wallace facility.

For the three months ended September 30, 2021, the Company recorded an initial estimate of $0.5 million, related to remedial design portion of the liability.

Refer to NOTE 13 — CONTINGENCIES for further discussion on this matter.

Interest expense

Interest expense was $4.6 million and $3.8 million for the three months ended September 30, 2022 and 2021, respectively.

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

Mark to market gain on interest rate derivatives

Mark to market gain on interest rate derivatives was $0.6 million for the three months ended September 30, 2022, as compared to a mark to market gain on interest rate derivatives of $0.1 million for the three months ended September 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 September 30, 2022, the intent of the Company is to hold these derivative contracts until their maturity.

Income tax provision of $1.8 million and income tax provision of $5.6 million for the three months ended September 30, 2022 and 2021, respectively, represent taxes on both U.S.

and foreign earnings at a combined effective income tax provision rate of 50.6% and 31.1%, respectively.

The effective tax rate for the three months ended September 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 September 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.

Equity in (losses) earnings

Equity in losses of Vasconia, net of taxes, was $8.2 million for the three months ended September 30, 2022, as compared to equity in earnings of Vasconia, net of taxes, of $0.7 million for the three months ended September 30, 2021.

Vasconia reported loss from operations of $5.5 million for the three months ended September 30, 2022, as compared to income from operations of $3.9 million for the three months ended September 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.

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 quarterly decline in the operating results of Vasconia.

For the three months ended September 30, 2021, the Company recognized a net loss, including taxes, of $0.5 million related to a partial sale of the Company's ownership in its Vasconia investment.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

NINE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THE NINE MONTHS ENDED

SEPTEMBER 30, 2021

Consolidated net sales for the nine months ended September 30, 2022 were $520.6 million, a decrease of $86.5 million, or 14.2%, as compared to net sales of $607.1 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 $81.8 million, or 13.6%, as compared to consolidated net sales in the corresponding period in 2021.

Net sales for the U.S.

segment for the nine months ended September 30, 2022 were $476.2 million, a decrease of $64.3 million, or 11.9%, as compared to net sales of $540.5 million for the corresponding period in 2021.

Net sales for the U.S.

segment’s Kitchenware product category were $291.1 million for the nine months ended September 30, 2022, a decrease of $46.0 million, or 13.6%, as compared to $337.1 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 primarily 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 $101.0 million for the nine months ended September 30, 2022, a decrease of $18.2 million, or 15.3%, as compared to $119.2 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 $84.1 million for the nine months ended September 30, 2022, a decrease of $0.1 million, or 0.1%, as compared to $84.2 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 $44.4 million for the nine months ended September 30, 2022, a decrease of $22.2 million, or 33.3%, as compared to net sales of $66.6 million for the corresponding period in 2021.

In constant currency, which excludes the impact of foreign exchange fluctuations, net sales decreased $17.7 million, or 28.5%, 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 nine months ended September 30, 2022 was $186.1 million, or 35.7%, as compared to $215.3 million, or 35.5%, for the corresponding period in 2021.

Gross margin for the U.S.

segment was $172.1 million, or 36.1%, for the nine months ended September 30, 2022, as compared to $193.9 million, or 35.9%, 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 $14.0 million, or 31.5%, for the nine months ended September 30, 2022, as compared to $21.4 million, or 32.1%, for the corresponding period in 2021.

The improvement in the gross margin percentage for the U.S.

segment was driven by lower inbound freight costs and product mix.

Gross margin for the International segment was $5.0 million, or 42.0%, for the three months ended March 31, 2023, as compared to $5.4 million, or 32.7%, for the corresponding period in 2022.

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, partially offset by customer mix.

The improvement in the gross margin percentage was attributable to lower product costs, inbound freight costs, duty on goods to be sold in the European Union (“EU”) shipped directly into the EU vs.

into the U.K.

and product mix.

Distribution expenses

Distribution expenses for the nine months ended September 30, 2022 were $55.2 million, as compared to $56.5 million for the corresponding period in 2021.

Distribution expenses as a percentage of net sales were 10.6% for the nine months ended September 30, 2022, as compared to 9.3% for the nine months ended September 30, 2021.

Distribution expenses for the three months ended March 31, 2023 were $16.9 million, as compared to $19.2 million for the corresponding period in 2022.

Distribution expenses as a percentage of net sales were 11.6% for the three months ended March 31, 2023, as compared to 10.5% for the three months ended March 31, 2022.

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

segment were approximately 9.4% and 8.2% for the nine months ended September 30, 2022 and 2021, respectively.

Distribution expenses during the nine months ended September 30, 2022 include $0.1 million for the Company’s distribution operation redesign costs.

segment were approximately 10.2% and 9.0% for the three months ended March 31, 2023 and 2022, respectively.

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

warehouses, excluding non-recurring expenses, distribution expenses were 10.5% and 8.9% for the nine months ended September 30, 2022 and 2021, respectively.

The increase in the expenses as a percentage of sales was a result of lower shipment volume resulting in an unfavorable impact of fixed expenses, increased storage fees due to high inventory levels 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 23.5% for the nine months ended September 30, 2022, compared to 18.1% for the corresponding period in 2021.

Distribution expenses during the nine months ended September 30, 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 international warehouse, excluding non-recurring expenses, distribution expenses were 22.2% and 15.4% for the nine months ended September 30, 2022 and 2021, respectively.

The increase was primarily attributed to lower shipment volume, higher warehouse supply expenses and an increase in business occupancy tax expense for the U.K.

warehouse, partially offset by lower labor costs.

distribution expenses were 10.5% and 9.9% for the three months ended March 31, 2023 and 2022, respectively.

The increase in expenses as a percentage of sales was attributable to lower shipment volume resulting in an unfavorable impact of fixed expenses, an increase in storage fees and real estate taxes.

This was partially offset by a decrease in pallet and warehouse supplies expenses.

Distribution expenses as a percentage of net sales for the International segment were 28.0% for the three months ended March 31, 2023, compared to 26.2% for the corresponding period in 2022.

As a percentage of sales shipped from the Company’s international warehouses, excluding non-recurring expenses, distribution expenses were 24.0% and 21.7% for the three months ended March 31, 2023 and 2022, respectively.

The increase was attributable to lower shipment volume, partially offset by lower costs of shipments into Europe as a result of the third-party operated distribution facility in the Netherlands.

Selling, general and administrative expenses

Selling, general and administrative expenses for the nine months ended September 30, 2022 were $114.2 million, a decrease of $2.2 million, or 1.9%, as compared to $116.4 million for the corresponding period in 2021.

Selling, general and administrative expenses for the three months ended March 31, 2023 were $37.9 million, a decrease of $1.6 million, or 4.1%, as compared to $39.5 million for the corresponding period in 2022.

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

segment were $85.9 million for the nine months ended September 30, 2022, as compared to $83.2 million for the corresponding period in 2021.

As a percentage of net sales, selling, general and administrative expenses were 18.0% and 15.4% for the nine months ended September 30, 2022 and 2021, respectively.

The increase was attributable to integration costs related to the S'well acquisition, higher advertising expenses and employee related expenses, partially offset by lower incentive compensation.

Selling, general and administrative expenses for the International segment were $13.2 million for the nine months ended September 30, 2022, as compared to $15.5 million for the corresponding period in 2021.

The decrease was primarily attributable to lower amortization expense on intangible assets as a result of the prior year impairment.

Unallocated corporate expenses for the nine months ended September 30, 2022 were $15.1 million, as compared to $17.7 million for the corresponding period in 2021.

The decrease was driven by lower incentive 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, the Company recorded an additional expense of $5.1 million for the nine months ended September 30, 2022, to increase its estimated liability for remediation cost related to the Wallace facility.

For the nine months ended September 30, 2021, the Company recorded an initial estimate of $0.5 million, related to remedial design portion of the liability.

Refer to NOTE 13 — CONTINGENCIES for further discussion on this matter.

segment were $29.3 million for the three months ended March 31, 2023, as compared to $28.5 million for the corresponding period in 2022.

As a percentage of net sales, selling, general and administrative expenses were 21.9% and 17.1% for the three months ended March 31, 2023 and 2022, respectively.

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

The increase in expense was due to the provision for doubtful accounts in the current period related to significant declines in the financial condition of the Company's customer Bed, Bath and Beyond Inc., partially offset by integration costs related to the S'well acquisition incurred in the prior year.

Selling, general and administrative expenses for the International segment were $3.6 million for the three months ended March 31, 2023, as compared to $5.1 million for the corresponding period in 2022.

As a percentage of net sales, selling, general and administrative expenses were 30.3% and 30.9% for the three months ended March 31, 2023 and 2022, respectively.

The expense decrease was attributable to lower foreign currency exchange losses and lower employee costs.

The reduction in employee costs was a result of the restructuring action taken by the Company in the fourth quarter of 2022.

Unallocated corporate expenses for the three months ended March 31, 2023 were $5.0 million, as compared to $5.9 million for the corresponding period in 2022.

The current period decrease was driven by lower stock compensation expense, legal and professional fees, as prior year included fees related to the S'well acquisition, and salary costs, due to the reduced salary of the Executive Chairman, Jeffrey Siegel, during the transition period which ended on March 31, 2023.

Restructuring expenses

For the three months ended March 31, 2023, the Company accrued $0.8 million of unallocated corporate expense related to the termination payment with its Executive Chairman.

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

The transition agreement amends his employment agreement which was set to expire on December 31, 2022.

The employment agreement provided for a one-time termination payment which was paid in April, 2023.

Interest expense

Interest expense was $12.1 million and $11.7 million for the nine months ended September 30, 2022 and 2021, respectively.

Interest expense was $5.3 million and $3.8 million for the three months ended March 31, 2023 and 2022, respectively.

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

Mark to market gain on interest rate derivatives

Mark to market gain on interest rate derivatives was $2.0 million for the nine months ended September 30, 2022, as compared to a mark to market gain on interest rate derivatives of $0.7 million for the nine months ended September 30, 2021.

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

Mark to market (loss) gain on interest rate derivatives

Mark to market loss on interest rate derivatives was $0.2 million for the three months ended March 31, 2023, as compared to a mark to market gain on interest rate derivatives of $1.0 million for the three months ended March 31, 2022.

The gain recognized for the three months ended March 31, 2022 was attributable to the change in the fair value due to the change in the projected interest rate environment.

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

Income tax provision of $3.4 million and $9.8 million for the nine months ended September 30, 2022 and 2021, respectively, represent taxes on both US and foreign earnings at combined effective income tax provision rates of 245.9% and 31.8%, respectively.

The effective tax rate for the nine months ended September 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 nine months ended September 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.

As of March 31, 2023, the intent of the Company is to hold these derivative contracts until their maturity.

Income tax benefit of $1.3 million and income tax provision of $1.7 million for the three months ended March 31, 2023 and 2022, respectively, represent taxes on both U.S.

and foreign earnings at a combined effective income tax benefit rate of 18.3% and income tax provision rate of 102.2%, respectively.

The effective tax rate for the three months ended March 31, 2023 differs from the federal statutory income tax rate of 21.0% primarily due to state and local tax expense, the impact of non-deductible 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 for the three months ended March 31, 2022 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.

Equity in (losses) earnings

Equity in losses of Vasconia, net of taxes, was $7.4 million for the nine months ended September 30, 2022, as compared to equity in earnings of Vasconia, net of taxes, of $1.2 million for the nine months ended September 30, 2021.

Vasconia reported loss from operations of $0.3 million for the nine months ended September 30, 2022, as compared to income from operations of $14.2 million for the nine months ended September 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.

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.

Equity in losses of Vasconia, net of taxes, was $0.7 million for the three months ended March 31, 2023, as compared to equity in earnings of Vasconia, net of taxes, of $0.4 million for the three months ended March 31, 2022.

For the three months ended March 31, 2023, equity in losses included a non-cash impairment charge of $2.1 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 quarterly decline in the operating results of Vasconia.

During the nine months ended September 30, 2021, the Company's ownership in its equity method investment decreased as a result of a dilution of its investment in Vasconia and a subsequent partial sale of its investment.

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

The net loss was comprised

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

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

The net loss was comprised of a loss 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.

Vasconia reported loss from operations of $1.0 million for the three months ended March 31, 2023, as compared to income from operations of $4.7 million for the three months ended March 31, 2022.

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

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 September 30, 2022, the Company had cash and cash equivalents of $5.9 million, compared to $28.0 million at December 31, 2021.

Working capital was $287.7 million at September 30, 2022, compared to $271.3 million at December 31, 2021.

Liquidity, which includes cash and cash equivalents and availability under the ABL Agreement, was approximately $170.6 million at September 30, 2022.

At March 31, 2023, the Company had cash and cash equivalents of $41.0 million, compared to $23.6 million at December 31, 2022.

Working capital was $267.9 million at March 31, 2023, compared to $270.4 million at December 31, 2022.

Liquidity, which includes cash and cash equivalents, availability under the ABL Agreement, and available funding under the Receivables Purchase Agreement, was approximately $204.9 million at March 31, 2023.

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.

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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 September 30, 2022, inventory turnover was 1.7 times, or 219 days, as compared to 2.4 times, or 154 days, for the three months ended September 30, 2021.

In the first half of fiscal 2022, the Company increased its inventory levels to address supply chain disruptions and to support anticipated customer demand.

However, 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 and supply chain disruptions have led to inventory buildup.

For the three months ended March 31, 2023, inventory turnover was 1.7 times, or 212 days, as compared to 1.8 times, or 205 days, for the three months ended March 31, 2022.

Inventory turns have remained relatively consistent.

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

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

2 (the “Amendment”) to the Company’s credit agreement, dated as of March 2, 2018 (as amended, 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, as a Lender, that provides for the Company’s ABL facility.

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 Company's loan agreement, dated as of March 2, 2018, (the “Term Loan Agreement” and together with the ABL Agreement, the “Debt Agreements”) provides for a senior secured term loan credit facility in the original principal amount of

$275.0 million, which matures on February 28, 2025.

The Term Loan Agreement 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 Company’s loan agreement, dated as of March 2, 2018, (the “Term Loan” and together with the ABL Agreement, the “Debt Agreements”) provides for a senior secured term loan credit 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).

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

Additionally, the Term Loan Agreement 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 Agreement, when the Company makes an Excess Cash Flow payment, the payment is first applied to satisfy the next eight (8) 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.

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, 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 (8) 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 and further limited to $220.0 million pursuant to the Term Loan Agreement.

One or more tranches of additional term loans (the “Incremental Term Facilities”) may be added under the Term Loan Agreement 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 Agreement, 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 Agreement but not to mature earlier than the maturity date of the then existing term loans.

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

September 30, 2022

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 March 31, 2023 and December 31, 2022, the total availability under the ABL Agreement was as follows (in thousands):

March 31, 2023

December 31, 2022

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Consequently, the $200.0 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):

September 30, 2022 December 31, 2021

Current portion of Term Loan facility:

The current and non-current portions of the Company’s Term Loan included in the condensed consolidated balance sheets were as follows (in thousands):

March 31, 2023 December 31, 2022

Current portion of Term Loan:

Estimated Excess Cash Flow principal payment $ 9,000 $ —

Estimated unamortized debt issuance costs (1,409) —

Total Current portion of Term Loan facility $ — $ 5,771

Non-current portion of Term Loan facility:

Term Loan facility, net of current portion $ 245,911 $ 244,927

Total Current portion of Term Loan $ 7,591 $ —

Non-current portion of Term Loan:

Term Loan, net of current portion $ 236,911 $ 245,911

Estimated unamortized debt issuance costs (1,292) (3,054)

Total Non-current portion of Term Loan facility $ 242,505 $ 241,873

The estimated Excess Cash Flow principal payment recorded at September 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.

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 Agreement.

Total Non-current portion of Term Loan $ 235,619 $ 242,857

The estimated Excess Cash Flow principal payment recorded at March 31, 2023 represents the Company’s estimate for the 2024 Excess Cash Flow Payment.

There was no Excess Cash Flow payment due in 2023.

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

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subsidiary guarantors, subject to certain exceptions.

Such security interests consist 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 Agreement 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 Agreement and a second-priority lien in the Term Loan Collateral in favor of the lenders under the ABL Agreement.

Such security interests consist 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 (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:

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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 September 30, 2022 was between 2.19% and 6.75%.

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

(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 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 September 30, 2022 was 6.02%.

The interest rate on outstanding borrowings under the ABL Agreement at March 31, 2023 was between 4.18% and 4.21%.

The Company paid a commitment fee of 0.25% during the three months ended March 31, 2023.

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

(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 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 March 31, 2023 was 8.42%.

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

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 September 30, 2022.

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.

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 March 31, 2023.

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 trailing twelve months ended September 30, 2022 was $69.3 million.

Capital expenditures for the nine months ended September 30, 2022 were $2.0 million.

The Company’s adjusted EBITDA (including pro forma adjustments), for the trailing twelve months ended March 31, 2023 was $49.5 million.

Capital expenditures for the three months ended March 31, 2023 were $0.5 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 (loss) income, as reported, to adjusted EBITDA, for each of the last four quarters and the 12 months ended September 30, 2022:

Quarter Ended Twelve Months Ended September 30, 2022

December 31, 2021 March 31,

2022 June 30,

2022 September 30,

The following is a reconciliation of the net (loss) income, as reported, to adjusted EBITDA, for each of the last four quarters and the 12 months ended March 31, 2023:

Quarter Ended Twelve Months Ended March 31, 2023

June 30, 2022 September 30,

2022 December 31,

2022 March 31,

(in thousands)

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(334) 8,159 2,058 2,777 12,660

Income tax provision (benefit)

Income tax (benefit) provision

(98) 1,845 2,308 (1,348) 2,707

Interest expense 3,732 4,581 5,125 5,336 18,774

Mark to market (gain) on interest rate derivatives

(398) (1,049) (304) (637) (2,388)

Depreciation and amortization 5,038 4,598 5,001 4,870 19,507

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

Mark to market (gain) loss on interest rate derivatives

(304) (637) 19 234 (688)

Stock compensation expense 1,365 1,026 281 861 3,533

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75 109 170 490 844

Restructuring expenses

— — 1,420 856 2,276

Warehouse relocation and redesign expenses (1)

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Adjusted EBITDA, before limitation 6,951 18,772 19,654 5,465 50,842

Pro forma projected synergies adjustment (3)

Pro forma Adjusted EBITDA, before limitation (5)

Permitted non-recurring charge limitation (4)

Adjusted EBITDA (4)

Pro forma historical S'well and projected synergies adjustment (5)

Pro forma Adjusted EBITDA (5)

$ 6,951 $ 18,772 $ 19,654 $ 5,465 $ 49,460

(1) For the twelve months ended September 30, 2022, the warehouse relocation and redesign expenses included $0.6 million of expenses related to the International segment and $0.5 million of expenses related to the U.S.

(2) For the twelve months ended September 30, 2022, S'well integration costs included $0.5 million of expenses related to inventory step up adjustment in connection with S'well acquisition.

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

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

(1) For the twelve months ended March 31, 2023, the warehouse relocation and redesign expenses included $0.04 million of expenses related to the International segment and $0.3 million of expenses related to the U.S.

(2) For the twelve months ended March 31, 2023, 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 $1.7 million associated with the reorganization of the International segment's workforce, $0.7 million associated with the Executive Chairman's cessation of service in such role, and $0.3 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 that is defined in the Company’s debt agreements.

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

(5) 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 September 30, 2022 or expected to be taken as of September 30, 2022, net of the benefits realized during the twelve months ended September 30, 2022.

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

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 $30.0 million and $109.8 million of receivables during the three and nine months ended September 30, 2022, respectively and $33.7 million and $113.2 million of receivables during three and nine months ended September 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 September 30, 2022 and 2021, respectively.

Charges of $0.5 million and $0.3 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 nine months ended September 30, 2022 and 2021, respectively.

At September 30, 2022 and 2021, $20.2 million and $15.8 million, respectively, of receivables sold were outstanding and due to HSBC from customers.

The Company did not sell receivables to HSBC during the three months ended March 31, 2023.

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

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 the three months ended March 31, 2022.

At March 31, 2023 and 2022, zero and $28.1 million, respectively, of receivables sold were outstanding and due to HSBC from customers.

At March 31, 2023, $21.9 million of accounts receivables were available for sale to HSBC, net of applicable charges.

Interest Rate Swaps

The Company's total outstanding notional value of interest rate swaps was $50.0 million at September 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.

The hedge periods of these agreements commenced in April 2018 and expire in March 2023.

The original notional values are reduced over these periods.

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

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

The Company’s total outstanding notional value of interest rate swaps was $25.0 million at March 31, 2023.

These non-designated interest rate swaps were entered into in June 2019 and 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.

The Company’s interest rate swaps that were designated 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 expired in March 2023.

The Company has no designated interest rate swaps at March 31, 2023.

Foreign Exchange Contracts

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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 value of foreign exchange contracts at September 30, 2022 was $3.5 million.

The aggregate gross notional value of foreign exchange contracts at March 31, 2023 was $8.3 million.

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

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These hedging activities provide only limited protection against currency exchange and credit risk.

Factors that could influence the effectiveness of the

Company’s hedging programs include those impacting currency markets and the availability of hedging instruments and liquidity of the credit markets.

Factors that could influence the effectiveness of the Company’s hedging programs include those impacting currency markets and the availability of hedging instruments and liquidity of the credit markets.

All foreign currency forward contracts that the Company enters into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure.

The Company does not enter into such contracts for speculative purposes, and as of September 30, 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 March 31, 2023, 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 used in operating activities was $20.1 million for the nine months ended September 30, 2022, as compared to net cash provided by operating activities of $14.6 million for the nine months ended September 30, 2021.

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

Net cash provided by operating activities was $12.1 million for the three months ended March 31, 2023, as compared to net cash provided by operating activities of $13.4 million for the three months ended March 31, 2022.

The decrease from 2023 compared to 2022 was attributable to a net loss generated in 2023 compared to net income generated in 2022, timing of collections related to the Company's accounts receivables, partially offset by a decrease in inventory investment and the timing of payments for accounts payable and accrued expenses.

Investing activities

Net cash used in investing activities was $19.9 million and $0.5 million for the nine months ended September 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.

Net cash used in investing activities was $0.5 million and $18.4 million for the three months ended March 31, 2023 and 2022, respectively.

The decrease from 2023 compared to 2022 was attributable to the cash consideration of $18.0 million paid for the acquisition of S'well in 2022.

Financing activities

Net cash provided by financing activities was $18.4 million and for the nine months ended September 30, 2022, as compared to net cash used in financing activities of $41.5 million for the nine months ended September 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.

Net cash provided by financing activities was $5.7 million for the three months ended March 31, 2023, as compared to net cash used in financing activities of $8.2 million for the three months ended March 31, 2022.

The change was mainly attributable to proceeds from the Company's revolving credit facility under its ABL Agreement in the 2023 period, partially offset by

payments for stock repurchases compared to repayments on the Company's revolving credit facility under its ABL Agreement and the Excess Cash Flow principal payment on the term loan in the 2022 period.

Stock repurchase program

1 unchanged sentence

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

During the nine months ended September 30, 2022, the Company repurchased 389,743 shares for a total cost of $4.7 million and thereafter retired the shares.

During the three months ended March 31, 2023, the Company repurchased 320,204 shares for a total cost of $2.5 million 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.

2 unchanged sentences

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