What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-03-12 compared with 2023-03-09 · 205 added, 230 removed, 317 unchanged (58% of the section changed)

8 unchanged sentences

and one category, Home Solutions, which comprises other products used in the home (thermal beverageware, bath scales, weather and outdoor household products, food storage, neoprene travel products and home décor).

In 2022, Kitchenware products and Tableware products accounted for approximately 82% of the Company’s U.S.

net sales and 84% of the Company’s consolidated net sales.

In 2021, Kitchenware products and Tableware products accounted for approximately 85% of the Company’s U.S.

net sales and 87% of the Company’s consolidated net sales.

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

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

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

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

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

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EQUITY INVESTMENTS

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

The Company owns 24.7% interest in Grupo Vasconia S.A.B (“Vasconia”), an integrated manufacturer of aluminum products and a housewares company in Mexico.

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

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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, 2022, Vasconia's Board of Directors is comprised of 11 members of whom the Company has designated two members.

As of December 31, 2023, Vasconia's Board of Directors was comprised of 11 members of whom the Company had no designated 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%.

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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.

Additionally, a loss of $1.4 million was

recognized for the proportionate share of the reduced ownership for amounts previously recognized in accumulated other comprehensive loss.

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

1 unchanged sentence

The Company recorded equity in (losses) earnings of Vasconia, net of taxes, of $(5.8) million, $(3.3) million and $1.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.

During the years ended December 31, 2023 and December 31, 2022, equity in losses included non-cash impairment charges of $6.8 million and $6.2 million, respectively, 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, the continued decline in the operating results of Vasconia and the downgrade in Vasconia’s debt rating.

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

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

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, 2023, the Company incurred $0.8 million of restructuring expense in connection with the termination of the Company’s Executive Chairman as described below.

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 incurred $0.4 million of restructuring expense in connection 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.

The payment was made in 2023.

In 2022, the Company incurred $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 terminated his employment with the Company, effective March 31, 2023.

The transition agreement amended 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.

The employment agreement provided for a one-time payment, which was paid on April 7, 2023.

The one-time payment of $1.4 million, was recognized over the remaining employment period with $0.6 million recognized in the fourth quarter of 2023 and the remaining $0.8 million recognized in 2023.

RECENT DEVELOPMENTS

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 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.

economy, customers and investor confidence.

The U.K.'s exit also could adversely impact the export of products between the U.K.

and the European Union.

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

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

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.

domiciled businesses were $45.7 million for the year ended December 31, 2022, and represent approximately 6% of the Company’s consolidated net sales for the period.

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

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

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

The global economy has experienced relatively high inflation in 2023, which has in part been caused by supply chain disruptions and higher consumer spending.

The rise in inflation contributed to higher prices, increased transportation and labor cost and impacted consumer spending and buying patterns.

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

Inflation rates started to decrease in the second half of 2023 and retailers’ ordering patterns began to normalize.

However, impacts of high interest rates have resulted in higher interest expense on the Company’s outstanding borrowings and may impact consumer spending and buying patterns into 2024.

Additionally, the recent attacks on commercial vessels in the Red Sea, may cause supply chain disruptions resulting in shipping delays and an increase in transportation costs.

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 2023 and expects that these trends have continued in 2024.

EFFECT OF ADOPTION OF ACCOUNTING PRINCIPLES

Adopted accounting pronouncements

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.

Effective January 1, 2023, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments.

This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses, to include historical experience, current conditions and reasonable and supportable forecasts.

The Company adopted this guidance on a modified retrospective basis and the adoption did not have a material impact on the Company’s consolidated financial statements.

New accounting pronouncements

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

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

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

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

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

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

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures:

which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements.

The new guidance is effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis.

Early adoption is permitted.

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

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

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures:

This guidance is intended to enhance the transparency and decision usefulness of income tax disclosures.

The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information.

Early adoption is permitted.

The new guidance is effective for public business entities for annual periods beginning after December 15, 2024 on a prospective basis.

Retrospective application is permitted.

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

RESULTS OF OPERATIONS

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Selling, general and administrative expenses 22.2 21.3 18.1

Wallace facility remediation expense 0.7 0.1 —

Goodwill and other intangible asset impairments — 1.7 2.6

Intangible asset impairments

Restructuring expenses 0.1 0.2 —

Wallace facility remediation expense

Income from operations

Interest expense (3.2) (2.4) (1.8)

Mark to market gain (loss) on interest rate derivatives

Mark to market (loss) gain on interest rate derivatives

(0.1) 0.3 0.1

Gain on extinguishments of debt, net

Income before income taxes and equity in (losses) earnings

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

The decrease was attributable to, generally, lower sales in the first half of 2023 due to retail inventory rightsizing, which began in the second quarter of 2022, warehouse programs not repeated in 2023 and a specialty retailer that closed its stores in early 2023.

Notwithstanding the decline and the repositioning, in addition, the decrease was partially offset by higher sales in the second half of 2023 as retailers' ordering patterns normalized most notably in the off-price and e-commerce channel.

Net sales for the U.S.

segment’s Tableware product category in 2023 were $138.3 million, a decrease of $10.5 million, or 7.1%, compared to net sales of $148.8 million for 2022.

The decrease was across both tableware and flatware sales.

The decrease was attributable to, generally, lower sales in the first half of 2023 due to retail inventory rightsizing, which began in the second quarter of 2022, warehouse programs not repeated in 2023, and a specialty retailer that closed its stores in early 2023.

This was partially offset by higher sales to off-price retailers.

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 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.

segment’s Home Solutions products category in 2023 were $108.1 million, a decrease of $9.4 million, or 8.0%, compared to net sales of $117.5 million in 2022.

The decrease was due to lower hydration product sales primarily through the corporate sales channel.

Net sales for the International segment in 2023 were $53.6 million, a decrease of $4.9 million, or 8.4%, compared to net sales of $58.5 million for 2022.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2023 average exchange rates to 2022 local currency amounts, net sales decreased approximately 8.5%.

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.

The decrease was due to generally weak demand in European channels caused by macroeconomic factors.

Gross margin for 2023 was $254.6 million, or 37.1%, compared to $260.3 million, or 35.8%, for the corresponding period in 2022.

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segment was $236.5 million, or 37.4%, for 2023, compared to $241.1 million, or 36.0%, for 2022.

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.

The decrease in gross margin dollars was due to lower sales.

However, it was largely offset by a significant improvement in gross margin percentage due to lower inbound freight rates and favorable product mix.

Gross margin for the International segment was $18.1 million, or 33.8%, for 2023, compared to $19.2 million, or 32.8%, for 2022.

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.

The decrease in gross margin dollars was due to lower sales.

However, this was partially offset by an increase in gross margin percentage was attributable to lower product costs and inbound freight rates.

Distribution expenses

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segment were approximately 8.8% in 2023 and 9.1% in 2022.

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 in 2023 and 2022 include $0.6 million and $0.1 million, respectively, for redesign costs related to the Company’s U.S.

As a percentage of sales shipped from the Company’s warehouses, excluding warehouse redesign expenses, distribution expenses were 9.4% and 10.1% f or 2023 and 2022.

The decrease in the expenses as a percentage of sales was a result of lower storage expenses, improved labor management efficiencies resulting in a decrease of employee expenses, and pallet expenses, partially offset by higher labor rates and real estate taxes.

Distribution expenses as a percentage of net sales for the International segment were approximately 25.0% in 2023 and 23.8% in 2022, respectively.

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.

As a percentage of sales shipped from the Company’s warehouses, excluding the relocation expenses, distribution expenses, were 22.3% and 21.5% f or 2023 and 2022, re spectively.

The increase in the expense as a percentage of sales was primarily attributed to lower shipment volume resulting in an unfavorable impact on fixed expenses.

Selling, general and administrative expenses

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SG&A expenses for 2023 for the U.S.

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

segment we re $117.4 million, a decrease of $0.8 million, or 0.7% , compared to $118.2 million for 2022.

As a percentage of net sales, SG&A expenses were 18.5% for 2023, compared to 17.7% for 2022.

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 decrease in the expenses was attributable to cost incurred in the prior year for integration costs related to the S’well acquisition and financing fees on receivables sold to HSBC.

This was partially offset by higher incentive compensation expenses and the provision for doubtful accounts primarily related to significant declines in financial condition of a customer.

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 2023 for the International segment were $15.7 million, a decrease of $1.3 million, or 7.6%, compared to $17.0 million for 2022.

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.

As a percentage of net sales, SG&A expense s was 29.3% for 2023, compared to 29.1% for 2022.

The International segment expenses decreased primarily due to lower foreign currency exchange losses.

Unallocated corporate expenses for 2023 were $19.5 million, compared to $19.3 million for 2022.

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

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.

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

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

The increase was driven by higher incentive compensation expense, partially offset by lower salary costs, as a result of the elimination of the Executive chairman role as of March 31, 2023 and lower stock compensation expense.

Restructuring expenses

During the year ended December 31, 2023, the Company incurred $0.8 million of restructuring expense in connection with the termination of the Company’s Executive Chairman as described below.

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 incurred $0.4 million of restructuring expense in connection 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.

The payment was made in 2023.

In 2022, the Company incurred $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 terminated his employment with the Company, effective March 31, 2023.

The transition agreement amended 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.

The employment agreement provided for a one-time payment, which was paid on April 7, 2023.

The one-time payment of $1.4 million, was recognized over the remaining employment period with $0.6 million recognized in the fourth quarter of 2022 and the remaining $0.8 million recognized in 2023.

Wallace facility remediation expense

For the period ended December 31, 2022, in connection with the Wallace EPA Matter (as described in NOTE 14 — COMMITMENTS AND CONTINGENCIES, the “Wallace EPA Matter”), the Company recorded an expense of $5.1 million, for the estimated liability for remediation cost related to the Wallace EPA Matter.

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

Interest expense

Interest expense for 2023 was $21.7 million, compared to $17.2 million for 2022 .

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 $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 increase was a result of higher interest rates on outstanding borrowings in the current period, partially offset by lower average outstanding borrowings.

Mark to market (loss) gain on interest rate derivatives

Mark to market loss on interest rate derivatives was $(0.5) million for the year ended December 31, 2023, as compared to a mark to market gain on interest rate derivatives of $2.0 million for the year ended December 31, 2022 .

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.

The decrease was attributable to the change in the fair value at the end of December 31, 2022 due to increases in interest rates.

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

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

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

Gain on extinguishments of debt, net

Gain on extinguishments of debt, net was $0.8 million for the year ended December 31, 2023, consisting of a $1.5 million gain in connection with the repurchase of $47.2 million in principal amount of the Term Loan, and $0.7 million of loss recorded on the prepayment of Term Loan principal in connection with Amendment No.

2 to the Term Loan.

Refer to NOTE 8 — DEBT for further details of these transactions.

Income tax provision

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Equity in (losses) earnings

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

Year Ended December 31,

(in thousands)

Vasconia equity in earnings, net of taxes $ (3,300) $ 1,769

Net loss on dilution in Vasconia ownership — (297)

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

Impairment on investment in Vasconia (6,167) —

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

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.

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

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

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

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

Equity in losses of Vasconia, net of taxes, was $12.7 million for the year ended December 31, 2023, as compared to equity in losses of Vasconia, net of taxes, of $9.5 million for the year ended December 31, 2022.

Vasconia reported loss from operations for 2023 of $10.9 million, as compared to loss of $1.6 million for 2022 and reported net loss of $23.6 million in 2023 and net loss of $13.2 million in 2022.

The decrease in income from operations was primarily attributable to decreased operating results in 2023.

The effect of the translation of the Company’s investment, as well as the translation of Vasconia’s balance sheet, resulted in an increase of the investment of $2.0 million during the year ended December 31, 2023 and a decrease of the investment of $0.3 million during the year ended December 31, 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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For goodwill, impairment testing is based upon the best information available using a combination of the discounted cash flow method, a form of the income approach, and the guideline public company method, a form of the market approach.

The significant assumptions used under the income approach, or discounted cash flow method, are projected net sales, projected earnings before interest, tax, depreciation and amortization (“EBITDA”), terminal growth rates, and the cost of capital.

Projected net sales, projected EBITDA and terminal growth rates were determined to be significant assumptions because they are three primary drivers of the projected cash flows in the discounted cash flow fair value model.

Projected net sales and projected EBITDA were determined to be significant assumptions because they are the primary drivers of the projected cash flows in the discounted cash flow fair value model.

Cost of capital was also determined to be a significant assumption as it is the discount rate used to calculate the current fair value of those projected cash flows.

For the guideline public company method, significant assumptions relate to the selection of appropriate guideline companies and related valuation multiples used in the market analysis.

Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results.

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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.

Projected net sales for the related brands and royalty rates were determined to be significant assumptions because they are the primary drivers of the projected cash flows in the relief from royalty model.

Cost of capital was also determined to be a significant assumption as it is the discount rate used to calculate the current fair value of those projected cash flows.

The Company performed an interim impairment test of the goodwill in the U.S.

reporting unit as of September 30, 2023 , by comparing its fair value with its carrying value.

The analysis was performed by using a discounted cash flow and market multiple method.

Based upon the analysis performed, the Company determined that the fair value of the Company's U.S.

reporting unit exceeded its carrying value, and therefore goodwill was not impaired.

As of September 30, 2023, the fair value of the U.S.

reporting unit exceeded the carrying value of goodwill by 4%.

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

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reporting unit exceeded the carrying value of goodwill by 4%.

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%.

As of December 31, 2023, the Company assessed the carrying value of goodwill and determined, based on qualitative factors, that no impairment indicators existed for goodwill.

The carrying value of the goodwill for the U.S reporting unit was $33.2 million as of December 31, 2023.

Indefinite-lived trade names

The Company performed an interim quantitative impairment analysis as of September 30, 2023 , of its indefinite-lived trade names by comparing the fair value of the indefinite-lived trade names to their respective carrying values.

The Company values its indefinite-lived trade names using a relief-from-royalty approach, which assumes the value of the trade name is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the trade name and instead licensed the trade name from another company.

The Company determined that the fair value of all its indefinite-lived trade names were above their respective carrying values, and therefore its indefinite-lived intangible assets were not impair ed.

In connection with the interim impairment analysis, the Company determined that one trade name, previously estimated to contribute to cash flows indefinitely, has a definite life.

Accordingly, the trade name will be reclassified from indefinite-lived to finite-lived or amortizable intangible assets as of October 1, 2023.

The trade name will be amortized over an estimated useful life of 15 years.

As of September 30, 2023, the fair value of the Company’s indefinite-lived trade name exceeded the respective carrying value by 7%.

The Company completed the quantitative impairment analysis for its indefinite-lived asset as of October 1, 2023, by comparing the fair value of the indefinite-lived trade name to its respective carrying value using a relief from royalty method.

As of October 1, 2023, the fair value of the Company’s indefinite-lived trade name exceeded its respective carrying value by 7%.

As of December 31, 2023, the Company assessed the carrying value of its indefinite-lived trade name and determined based on qualitative factors that no impairment existed.

The carrying value of the Company’s indefinite-lived trade name was $42.0 million as of December 31, 2023.

Long-lived assets

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.

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These incentives and promotions typically include arrangements such as cooperative advertising, buydowns, volume rebates and discounts.

These arrangements represent forms of variable consideration, and an estimate of sales returns are reflected as reductions in net sales in the Company’s consolidated statements of operations.

These sales incentives and promotions represent variable consideration and are reflected as reductions in net sales in the Company’s consolidated statements of operations.

While many of the sales incentives and promotions are contractually agreed upon with the Company’s customers, certain of the sales incentives and promotions are non-contractual and require the Company to estimate the amount of variable consideration based on historical experience and other known factors or as the most likely amount in a range of possible outcomes.

These estimates are based on historical experience and other known factors or as the most likely amount in a range of possible outcomes.

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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.

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, 2023 and 2022, the Company had cash and cash equivalents of $16.2 million and $23.6 million, respectively, and working capital of $224.4 million at December 31, 2023, compared to $270.4 million at December 31, 2022.

The current ratio (current assets to current liabilities) was 2.5 to 1.0 at December 31, 2023, compared to 3.1 to 1.0 at December 31, 2022.

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

The decrease in the current ratio was primarily due to lower inventory level compared to the prior year and timing of payments for current obligations.

At December 31, 2023, borrowings under the Company’s ABL Agreement were $60.4 million and $150.0 million was outstanding under the Term Loan.

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.

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.

Liquidity as of December 31, 2023 was $133.9 million, consisting of $16.2 million of cash and cash equivalents, $89.4 million of availability under the ABL Agreement, limited by the Term Loan financial covenant, and $28.3 million of available funding under the Receivables Purchase Agreement.

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.

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, 2023 inventory turnover was 2.5 times, or 145 days, as compared to 2.1 times, or 170 days, for the three months ended December 31, 2022.

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.

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 12 months.

Inventory turns have improved due to lower inventory levels at December 31, 2023 compared to the prior year.

On February 7, 2024, in connection with the Wallace EPA Matter, the Company provided financial assurance of $5.6 million in the form of a letter of credit.

This reduces the availability under the revolving credit facility by the same amount.

The Company believes that availability under the revolving credit facility under its ABL Agreement, cash on hand and cash flows from operations are sufficient to fund the Company’s operations for the next 12 months.

However, if circumstances were to adversely change, the Company may seek alternative sources of liquidity including debt and/or equity financing.

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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

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 ABL Agreement provides for a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $200.0 million, which will mature on August 26, 2027.

On November 14, 2023, the Company entered into Amendment No.

2 (the “Term Loan Amendment”) to amend the Loan Agreement, dated as of March 2, 2018, among the Company, as borrower, the other loan parties from time to time party thereto, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (as amended, the “Term Loan”).

The Term Loan has a principal amount of $150.0 million, and matures on August 26, 2027.

The Term Loan requires the Company to make quarterly payments of principal each equal to 1.25% of the aggregate principal amount of the Term Loan, commencing on March 31, 2024, with the remaining balance payable on the maturity date.

The Term Loan requires the Company to make an annual prepayment of principal, beginning with those for the fiscal year ending December 31, 2024, 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.

Per the Term Loan, when the Company makes an Excess Cash Flow prepayment, 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 maximum borrowing amount under the ABL Agreement may be increased to up to $250.0 million if certain conditions are met.

One or more tranches of additional term loans (the “Incremental Term Facilities”) may be added under the Term Loan if certain conditions are met.

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

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

Due to the seasonality of the Company’s business, this mean that it 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.

The Company’s borrowing capacity may be further limited by the Term Loan financial covenant of 5.00 to 1.00 maximum Total Net Leverage Ratio.

As of December 31, 2023, the availability under the ABL Agreement, limited by the Term Loan financial covenant, was $89.4 million.

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

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Current portion of Term Loan facility:

Estimated Excess Cash Flow principal payment $ — $ 7,200

Term Loan facility payment $ 7,500 $ —

Estimated unamortized debt issuance costs (2,758) —

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As of December 31, 2023, there is no Excess Cash Flow Payment due for 2024.

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 Term Loan facility was reduced to $150.0 million at December 31, 2023 from $245.9 million at December 31, 2022 through the following transactions:

• On June 8, 2023, the Company completed the repurchase of $47.2 million in principal amount of the Term Loan, for $95 per $100 of principal.

The repurchase was executed by way of a reverse Dutch auction, pursuant to and in accordance with the terms and conditions provided for in the Term Loan.

In connection therewith, debt issuance costs of $0.5 million were written off and fees of $0.4 million were incurred.

The gain on the early retirement of the Term Loan was $1.5 million, net of fees and expenses.

• In connection with the Term Loan Amendment, the Company reduced its outstanding principal by a net amount of $48.7 million through a voluntary prepayment of principal (in accordance with the terms of the original Term Loan Agreement), net of the issuance of new proceeds and an extension of a portion of existing Term Loan.

In connection with the Term Loan Amendment that Company incurred fees of $9.1 million, which will be amortized over the life of the debt using the effective interest method.

The Company recognized a loss of of $0.7 million of unamortized debt issuance costs on the partial extinguishment for the portion of the Term Loan that was repaid.

As of December 31, 2023, the future principal payments of the Term Loan are as follows (in thousands):

Total $ 150,000

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.

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.

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:

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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 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 interest rate on outstanding borrowings under the ABL Agreement at December 31, 2023 was between 6.47% and 6.72%.

In addition, the Company paid a commitment fee of 0.25% on the unused portion of the ABL Agreement during the year ended December 31, 2023.

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 0.50% 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%.

(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 4.5% or (ii) Adjusted Term SOFR (Term SOFR plus the Term SOFR Adjustment) for the applicable interest period, but not less than 1.0%, plus a margin of 5.5%.

The interest rate on outstanding borrowings under the Term Loan at December 31, 2023 was 11.0%.

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

Under the Term Loan, the Total Net Leverage Ratio is not permitted to be greater than 5.00 to 1.00 determined as of the end of each fiscal quarters.

Further, the ABL Agreement provides that during any period (a) commencing on the last day of the most recently ended four consecutive fiscal quarters on or prior to the date availability under the ABL Agreement is less than the greater of $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, 2023.

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

The following is a reconciliation of net income (loss) as reported to adjusted EBITDA for the years ended December 31, 2022 and 2021 and each fiscal quarter of 2022 and 2021:

The following is a reconciliation of net (loss) income as reported to adjusted EBITDA for the years ended December 31, 2023 and 2022 and each fiscal quarter of 2023 and 2022:

Three Months Ended Year Ended

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(in thousands)

Net income (loss) as reported

Net (loss) income as reported

$ (8,805) $ (6,520) 4,206 $ 2,707 $ (8,412)

Undistributed equity (earnings) losses, net

Undistributed equity losses, net

2,777 5,863 1,047 2,978 12,665

Income tax provision (benefit)

Income tax (benefit) provision

(1,348) 1,242 3,015 3,313 6,222

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Depreciation and amortization 4,870 4,925 4,821 4,955 19,571

Mark to market (gain) loss on interest rate derivatives

Mark to market loss (gain) on interest rate derivatives

234 (197) 98 364 499

Stock compensation expense 861 1,011 898 917 3,687

Contingent consideration fair value adjustments — (50) — (600) (650)

(Gain) loss on extinguishments of debt, net

— (1,520) — 759 (761)

Acquisition related expenses 490 242 186 407 1,325

Restructuring expenses 856 — — — 856

Warehouse relocation and redesign expenses (1)

497 73 59 — 629

S'well integration costs (2)

Warehouse redesign expenses (1)

194 157 176 51 578

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)

Adjusted EBITDA (2)

$ 5,465 $ 10,681 $ 19,693 $ 21,469 $ 57,308

(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 (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 .

(1) For the year ended December 31, 2023, the warehouse redesign expenses related to the U.S.

(2) 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 losses, income tax (benefit) provision, interest expense, depreciation and amortization, mark to market loss (gain) on interest rate derivatives, stock compensation expense, gain (loss) on extinguishments of debt, net, 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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$ 380 $ (3,460) $ (6,358) $ 3,272 $ (6,166)

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

S’well integration costs (2)

781 864 250 — 1,895

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

Adjusted EBITDA (2)

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) 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) 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 Executive Chairman’s cessation of service in such role, 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.

Capital expenditures

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The Company’s net total outstanding notional value of interest rate swaps was $25 million at December 31, 2023.

The Company designated a portion of these interest rate swaps as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings.

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

The original notional values are reduced over these periods.

The aggregate notional value was $25.0 million at December 31, 2022.

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

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 December 31, 2023.

Foreign Exchange Contracts

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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.

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, 2023 and 2022 was $9.8 million and $6.3 million, respectively.

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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, 2023, the Company does not have any foreign currency forward contract derivatives that are not designated as hedges.

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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

$0.0425 March 8, 2023 May 1, 2023 May 15, 2023

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Net cash provided by operating activities was $56.4 million in 2023, compared to $24.3 million in 2022.

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.

The increase from 2023 compared to 2022 was attributable timing of payments for accounts payable and accrued expenses, partially offset by timing of collections related to the Company’s accounts receivable and a reduction in inventory levels.

Cash used in investing activities

Net cash used in investing activities was $2.8 million in 2023, compared to $20.9 million in 2022.

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

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

Cash used in financing activities

Net cash used in financing activities was $61.1 million in 2023 compared to $7.6 million in 2022.

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.

The change from 2023 compared to 2022 was attributable to higher repayments of the Term Loan in the 2023 period compared to the 2022 period and financing costs incurred in connection with the Amendment No.

2 to the Term Loan.

This was partially offset by higher proceeds from the revolving credit facility in the 2023 and decreased payments for stock repurchases in the 2023 period.

MATERIAL CASH REQUIREMENTS

The Company’s material cash requirements include the following:

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.

As of December 31, 2023, the Company had an outstanding Term Loan facility, which matures on August 26, 2027, for an aggregate principal amount of $150.0 million, with $7.5 million amounts due within 12 months.

Future interest obligations associated with debt and interest rate swaps total $65.1 million, with $19.4 million payable within 12 months.

3 unchanged sentences

As of December 31, 2023, the Company had fixed lease payment obligations of $101.7 million, with $19.0 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.

As of December 31, 2022, the estimated minimum royalties payable under these agreements amounted to $35.1 million, with $8.1 million payable within 12 months.

The Company has license agreements that require the payment of minimum royalties on sales of licensed products.

As of December 31, 2023, the estimated minimum royalties payable under the noncancellable term of these agreements amounted to $8.3 million, with $8.1 million payable within 12 months.

Post-retirement benefit

1 unchanged sentence

As of December 31, 2023, the estimated discounted obligations under the agreements with the former executives amounted to $5.6 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.

In connection with the Wallace EPA Matter, the Company’s estimated remediation liability of $5.6 million is expected to be paid within 12 months.

On February 7, 2024, the Company provided financial assurance of $5.6 million in the form of a letter of credit.

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