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What changed in LIFETIME BRANDS, INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of LIFETIME BRANDS, INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+271 added−306 removedSource: 10-K (2024-03-12) vs 10-K (2023-03-09)

Top changes in LIFETIME BRANDS, INC's 2023 10-K

271 paragraphs added · 306 removed · 208 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

21 edited+3 added−4 removed19 unchanged
Biggest changeThe Company has developed many promotional programs for use in the ordinary course of business to promote sales throughout the year. 6 Table of Contents The Company’s sales and marketing efforts are supported from its principal office and showroom in Garden City, New York, as well as showrooms in New York, New York; Medford, Massachusetts; Atlanta, Georgia; Bentonville, Arkansas; Issaquah, Washington; Pawtucket, Rhode Island; Menomonee Falls, Wisconsin; and Aston, England.
Biggest changeThe Company’s sales and marketing efforts are supported from its principal office and showroom in Garden City, New York, as well as showrooms in New York, New York; Medford, Massachusetts; Atlanta, Georgia; Bentonville, Arkansas; Issaquah, Washington; Pawtucket, Rhode Island; Menomonee Falls, Wisconsin; and Aston, England. 6 Table of Contents The Company generally collaborates with its largest wholesale customers and in many instances produces specific versions of the Company’s product lines with exclusive designs and/or packaging for them.
The Company manufactures its sterling silver products at a leased facility in San 5 Table of Contents Germán, Puerto Rico and fills canisters with spices and assembles spice racks at its owned distribution facility in Winchendon, Massachusetts. BUSINESS SEGMENTS The Company has two reportable operating segments, U.S. and International.
The Company manufactures its sterling silver products at a leased facility in San Germán, Puerto Rico and fills canisters with spices and assembles spice racks at its owned distribution facility in Winchendon, Massachusetts. 5 Table of Contents BUSINESS SEGMENTS The Company has two reportable operating segments, U.S. and International.
The Company also has a subsidiary in the People’s Republic of China (“China”) to supply kitchenware and tableware products to the Chinese market and a subsidiary based in Hong Kong to facilitate the sale of its products to other parts of Asia and smaller markets elsewhere in the world.
The Company also has a subsidiary in the People’s Republic of China (“China”) to supply kitchenware and tableware products to the Chinese market and a subsidiary based in Hong Kong to facilitate the sale of its products to Australia, other parts of Asia and smaller markets elsewhere in the world.
As of December 31, 2022, the Company occupied 27,000 square feet of this facility. SALES AND MARKETING The Company’s sales and marketing staff coordinates directly with its wholesale customers to devise marketing strategies and merchandising concepts and to furnish advice on advertising and product promotion.
As of December 31, 2023, the Company occupied 27,000 square feet of this facility. SALES AND MARKETING The Company’s sales and marketing staff coordinates directly with its wholesale customers to devise marketing strategies and merchandising concepts and to furnish advice on advertising and product promotion.
The Company’s top brands and their respective product categories as of December 31, 2022 are: Brand Licensed/Owned Product Category Farberware® Licensed (1) Kitchenware Mikasa® Owned Tableware and Home Solutions KitchenAid® Licensed Kitchenware Taylor® Owned Kitchenware and Home Solutions Rabbit® Owned Kitchenware Pfaltzgraff® Owned Kitchenware, Tableware and Home Solutions BUILT NY® Owned Home Solutions Sabatier® Licensed Kitchenware Fred® & Friends Owned Kitchenware Kamenstein® Owned Kitchenware S'well® Owned Home Solutions (1) The Company has a royalty free license to utilize the Farberware® brand, primarily for its kitchenware products, for a term that expires in 2195, subject to earlier termination under certain circumstances.
The Company’s top brands and their respective product categories as of December 31, 2023 are: Brand Licensed/Owned Product Category Farberware® Licensed (1) Kitchenware KitchenAid® Licensed Kitchenware Mikasa® Owned Tableware and Home Solutions Taylor® Owned Kitchenware and Home Solutions Pfaltzgraff® Owned Kitchenware, Tableware and Home Solutions BUILT NY® Owned Home Solutions S'well® Owned Home Solutions Fred® & Friends Owned Kitchenware KitchenCraft® Owned Kitchenware Rabbit® Owned Kitchenware Kamenstein® Owned Kitchenware (1) The Company has a royalty free license to utilize the Farberware® brand, primarily for its kitchenware products, for a term that expires in 2195, subject to earlier termination under certain circumstances.
During the year ended December 31, 2022, 2021 and 2020, Amazon.com Inc., (“Amazon”), accounted for 11%, 12% and 10% of consolidated net sales. Sales to Walmart, Costco and Amazon are included in the Company's U.S. and International segments. No other customers accounted for 10% or more of the Company’s sales during these periods.
During the year ended December 31, 2023, 2022 and 2021, Amazon.com Inc., (“Amazon”), accounted for 11%, 11% and 12% of consolidated net sales. Sales to Costco and Amazon are included in the Company’s U.S. and International segments. No other customers accounted for 10% or more of the Company’s sales during these periods.
Additional information regarding the Company’s reportable segments is included in NOTE 13 — BUSINESS SEGMENTS of the Notes to the consolidated financial statements included in Item 15. CUSTOMERS The Company’s wholesale customers include mass market merchants, specialty stores, commercial stores, department stores, warehouse clubs, grocery stores, off-price retailers, food service distributors, pharmacies, food and beverage outlets and e-commerce.
Additional information regarding the Company’s reportable segments is included in NOTE 13 — BUSINESS SEGMENTS of the Notes to the consolidated financial statements included in Item 15. CUSTOMERS The Company’s wholesale customers include mass market merchants, specialty stores, department stores, warehouse clubs, grocery stores, off-price retailers, food service distributors, food and beverage outlets, corporate sales and e-commerce.
As a result, Lifetime Brands Europe Limited’s brand development and design teams, administrative teams, and distribution operate out of one state of the art facility in Aston, England.
Lifetime Brands Europe Limited’s brand development and design teams, administrative teams, and distribution operate out of a state of the art facility in Aston, England.
SEASONALITY The Company’s business and working capital needs are seasonal with a majority of sales occurring in the third and fourth quarters. In 2022, net sales for the third and fourth quarters accounted for 54% of total annual net sales, respectively.
SEASONALITY The Company’s business and working capital needs are seasonal with a majority of sales occurring in the third and fourth quarters. In 2023, net sales for the third and fourth quarters accounted for 57% of total annual net sales, respectively.
The Company also sources products from suppliers across various countries including, Hong Kong, Taiwan, Japan, South Korea, Vietnam, Malaysia, Philippines, Thailand, India, Bangladesh, the United States, Canada, Mexico, Brazil, the U.K., Italy, Portugal, Poland, Sweden, Turkey, Netherlands, Belgium, Germany, Czech Republic, Slovakia, Cambodia, Indonesia and Australia.
The Company also sources products from suppliers across various countries including, Hong Kong, Taiwan, Japan, South Korea, Vietnam, Myanmar, Singapore, Malaysia, Philippines, Thailand, India, Bangladesh, the United States, Mexico, the U.K., Italy, Portugal, Poland, Sweden, Turkey, Belgium, Germany, Czech Republic, Slovakia, Cambodia, Indonesia, and New Zealand.
The Company’s products are sold globally to a diverse customer base including mass market merchants (such as Walmart and Target), specialty stores (such as Bed Bath & Beyond and Dunelm), commercial stores (such as Williams Sonoma and Kohl’s), department stores (such as Macy’s, Belk and John Lewis), warehouse clubs (such as Costco, Sam’s Club and BJs), grocery stores (such as Publix, Kroger, HEB, Meijer, Winn-Dixie, Tesco, Waitrose and Sainsbury’s), off-price retailers (such as TJX Companies, Ross Stores and Big Lots), food service distributors (such as US Foods, Clark Food Service and Jetro), food and beverage outlets (such as Starbucks) and e-commerce (such as Amazon).
The Company’s products are sold globally to a diverse customer base including mass market merchants (such as Walmart and Target), specialty stores (such as Williams Sonoma and Dunelm), department stores (such as Macy’s, Kohl’s and Belk), warehouse clubs (such as Costco, and BJs), grocery stores (such as Publix, Kroger, Meijer, and Winn-Dixie), off-price retailers (such as TJX Companies, Ross Stores and Big Lots), food service distributors (such as US Foods, Clark Food Service and Jetro), food and beverage outlets (such as Starbucks) and e-commerce (such as Amazon).
The Company’s global in-house design and development teams currently consist of approximately 90 professional designers, artists and engineers. Utilizing the latest available design tools, technology and materials, these teams create new products, redesign existing products and create packaging and merchandising concepts.
DESIGN AND INNOVATION At the heart of the Company is a culture of innovation and new product development. The Company’s global in-house design and development teams currently consist of approximately 90 professional designers, artists and engineers. Utilizing the latest available design tools, technology and materials, these teams create new products, redesign existing products and create packaging and merchandising concepts.
During the years ended December 31, 2022, 2021 and 2020, Wal-Mart Stores, Inc., including Sam’s Club and, in the U.K., Asda Superstore, (“Walmart”), accounted for 19%, 18% and 20% of consolidated net sales, respectively. During the years ended December 31, 2022, 2021, and 2020, sales to Costco Wholesale Corporation (“Costco”) accounted for 13%, 12%, and 11% of consolidated net sales.
During the years ended December 31, 2023, 2022 and 2021, Wal-Mart Stores, Inc., including Sam’s Club, (“Walmart”), accounted for 21%, 19% and 18% of consolidated net sales, respectively. During the years ended December 31, 2023, 2022, and 2021, sales to Costco Wholesale Corporation (“Costco”) accounted for 11%, 13%, and 12% of consolidated net sales.
Lifetime Brands Europe Limited is a wholly-owned subsidiary doing business as Kitchen Craft. Kitchen Craft is a leading supplier of kitchenware and tableware products and accessories in the United Kingdom (“U.K.”) and in over 80 other countries. In 2020, the Company completed its consolidation efforts of Lifetime Brands Europe Limited to create operational efficiencies.
Lifetime Brands Europe Limited is a wholly-owned subsidiary doing business as Kitchen Craft. Kitchen Craft is a leading supplier of kitchenware and tableware products and accessories in the United Kingdom (“U.K.”) and in over 80 other countries.
The Company does not believe that the expiration of any of its patents would have a material adverse effect on either of the Company’s segments.
PATENTS AND LICENSES The Company owns approximately 1,090 design and utility patents. The Company does not believe that the expiration of any of its patents would have a material adverse effect on either of the Company’s segments.
The Company also hires seasonal workers at its distribution centers through temporary staffing agencies. None of the Company’s employees are represented by a labor union or subject to collective bargaining agreements, except as required by local law. The Company believes in the importance of the retention, growth and development of our employees.
None of the Company’s employees are represented by a labor union or subject to collective bargaining agreements, except as required by local law. The Company believes in the importance of the retention, growth and development of our employees. The Company believes it offers competitive compensation and benefits packages to its employees.
The Company also holds a license to use the KitchenAid brand subject to a license agreement that will expire in December 2026. The Company originally entered into a licensing arrangement for use of the KitchenAid brand in 2000, and has renewed the license, typically for three to four year periods, since that time.
The Company originally entered into a licensing arrangement for use of the KitchenAid brand in 2000, and has renewed the license, typically for three to four year periods, since that time. HUMAN CAPITAL The Company aspires to hire and retain the best and brightest employees.
The Company also values diversity and inclusion and is striving to create a more diverse workforce and inclusive community. 7 Table of Contents REGULATORY MATTERS The Company and its affiliates are subject to significant regulation by various governmental, regulatory and other administrative authorities.
Further, the Company offers professional development opportunities to cultivate talent throughout the Company. The Company also values diversity and inclusion and aims to foster an inclusive community. 7 Table of Contents REGULATORY MATTERS The Company and its affiliates are subject to significant regulation by various governmental, regulatory and other administrative authorities.
COMPETITION The markets for kitchenware, tableware and other products used in the home including home décor products are highly competitive and include numerous domestic and foreign competitors, some of which are larger than the Company.
COMPETITION The markets for kitchenware, tableware and other products used in the home are highly competitive and include numerous domestic and foreign competitors, some of which are larger than the Company. The primary competitive factors in selling such products are innovative products, brand, quality, aesthetic appeal to consumers, packaging, breadth of product line, distribution capability and selling price.
HUMAN CAPITAL The Company aspires to hire and retain the best and brightest employees. At December 31, 2022, the Company had approximately 1,260 full-time employees, of whom approximately 140 were located in Asia, 210 were located in Europe and 910 were located in the United States and Puerto Rico.
At December 31, 2023, the Company had approximately 1,230 full-time employees, of whom approximately 140 were located in Asia, 200 were located in Europe and 890 were located in the United States and Puerto Rico. The Company also hires seasonal workers at its distribution centers through temporary staffing agencies.
The Company is a Delaware corporation, incorporated on December 22, 1983.
The Company has a presence in Canada through a strategic alliance with a Canadian company to distribute many of the Company’s products in Canada. The Company is a Delaware corporation, incorporated on December 22, 1983.
Removed
The Company has a presence in Mexico and other parts of Latin America (excluding Brazil) through its 24.7% equity interest in Grupo Vasconia, S.A.B. (“Vasconia”), a housewares company and aluminum manufacturer based in Mexico, and a strategic alliance with a Canadian company to distribute many of the Company’s products in Canada.
Added
The Company has developed many promotional programs for use in the ordinary course of business to promote sales throughout the year.
Removed
The Company generally collaborates with its largest wholesale customers and in many instances produces specific versions of the Company’s product lines with exclusive designs and/or packaging for them. DESIGN AND INNOVATION At the heart of the Company is a culture of innovation and new product development.
Added
The Company is planning to expand its manufacturing into Mexico to manufacture certain of the Company’s products. The Company expects these operations to be fully operational in fiscal year 2024.
Removed
The primary competitive factors in selling such products are innovative products, brand, quality, aesthetic appeal to consumers, packaging, breadth of product line, distribution capability and selling price. PATENTS AND LICENSES The Company owns approximately 1,140 design and utility patents.
Added
The Company also holds a license to use the KitchenAid brand for certain products, including products for kitchen tools and gadgets, cutlery and bakeware, subject to a license agreement that will expire in December 2026.
Removed
The Company believes it offers competitive compensation and benefits packages to its employees. Further, the Company offers professional development opportunities to cultivate talent throughout the Company. The Company is focused on employee health and safety initiatives and has implemented protocols during the COVID-19 pandemic to enhance workplace safety, including remote work for certain departments.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

68 edited+13 added−37 removed179 unchanged
Biggest changeFurthermore, even if the Company’s intellectual property rights are not directly challenged, disputes among third parties could lead to the weakening or invalidation of the Company’s intellectual property rights, or other parties such as the Company’s competitors may independently develop technologies that are substantially equivalent or superior to the Company’s technology. 19 Table of Contents The laws of certain foreign countries in which the Company operates or may operate in the future do not protect, and the governments of certain foreign countries do not enforce, intellectual property rights to the same extent as do the laws and government of the U.S., which may negate the Company’s competitive or technological advantages in such markets.
Biggest changeThe laws of certain foreign countries in which the Company operates or may operate in the future do not protect, and the governments of certain foreign countries do not enforce, intellectual property rights to the same extent as do the laws and government of the U.S., which may negate the Company’s competitive or technological advantages in such markets.
Accordingly, the Company is subject to various risks, including: • U.S.-imposed embargoes of sales to specific countries; • foreign import controls (which may be arbitrarily imposed or enforced); • import regulations and duties; • export regulations (which require the Company to comply with stringent licensing regimes); 20 Table of Contents • anti-dumping regulations; • price and currency controls; • exchange rate fluctuations; • dividend remittance restrictions; • expropriation of assets; • war, civil uprisings and riots; • government instability; • the necessity of obtaining governmental approval for new and continuing products and operations; • legal systems or decrees, laws, taxes, regulations, interpretations and court decisions that are not always fully developed and that may be retroactively or arbitrarily applied; • restructuring and integration of the Company's European operations; • public health epidemics; • unanticipated income taxes, excise duties, import taxes, export taxes or other governmental assessments • locating and entering into agreements with third-party logistics providers to assist in certain locations outside the United States.
Accordingly, the Company is subject to various risks, including: • U.S.-imposed embargoes of sales to specific countries; • foreign import controls (which may be arbitrarily imposed or enforced); • import regulations and duties; • export regulations (which require the Company to comply with stringent licensing regimes); • anti-dumping regulations; • price and currency controls; • exchange rate fluctuations; • dividend remittance restrictions; • expropriation of assets; • war, civil uprisings and riots; • government instability; • the necessity of obtaining governmental approval for new and continuing products and operations; • legal systems or decrees, laws, taxes, regulations, interpretations and court decisions that are not always fully developed and that may be retroactively or arbitrarily applied; 19 Table of Contents • restructuring and integration of the Company's European operations; • public health epidemics; • unanticipated income taxes, excise duties, import taxes, export taxes or other governmental assessments • locating and entering into agreements with third-party logistics providers to assist in certain locations outside the United States.
Sales to Walmart, Costco and Amazon are included in the Company's U.S. and International segments. No other customers accounted for 10% or more of the Company’s sales during these periods. A material reduction in sales to the aforementioned or other top customers in the aggregate, could have a significant adverse effect on the Company’s business and operating results.
Sales to Costco and Amazon are included in the Company’s U.S. and International segments. No other customers accounted for 10% or more of the Company’s sales during these periods. A material reduction in sales to the aforementioned or other top customers in the aggregate, could have a significant adverse effect on the Company’s business and operating results.
The success of the Company’s Internet business depends, in part, on factors over which the Company may have limited control. The Company must successfully respond to changing consumer preferences and buying trends relating to Internet usage.
The success of the Company’s online business depends, in part, on factors over which the Company may have limited control. The Company must successfully respond to changing consumer preferences and buying trends relating to Internet usage.
The Company’s leverage and the effects of seasonal fluctuations in its cash flow, borrowing requirements and ability to borrow could have significant negative consequences on the Company’s financial condition and results of operations, including: • impairing the Company’s ability to meet the financial covenants, if and when applicable, contained in the ABL Agreement or to generate cash sufficient to pay interest or principal due under its Debt Agreements, which could result in an acceleration of some or all of the Company’s outstanding debt; • limiting the Company’s ability to borrow money, dispose of assets or sell equity to fund the Company’s working capital, capital expenditures, dividend payments, debt service, strategic initiatives or for other obligations or purposes; • limiting the Company’s flexibility in planning for, or reacting to, changes in the economy, the markets, regulatory requirements, its operations or business; • limiting the Company's ability to enter into derivative agreements to hedge interest rate and foreign exchange risk; • making the Company more highly leveraged than some of its competitors, which may place the Company at a competitive disadvantage; • making the Company more vulnerable to downturns in the economy or its business; • requiring a substantial portion of the Company’s cash flow from operations to make interest payments; • making it more difficult for the Company to satisfy other obligations; • risking credit rating downgrades of the Company, which could increase future debt costs and limit the future availability of debt financing; and 11 Table of Contents • preventing the Company from borrowing additional funds as needed or taking advantage of business opportunities as they arise, pay cash dividends or repurchase common stock.
The Company’s leverage and the effects of seasonal fluctuations in its cash flow, borrowing requirements and ability to borrow could have significant negative consequences on the Company’s financial condition and results of operations, including: • impairing the Company’s ability to meet the financial covenants, if and when applicable, contained in the Debt Agreements or to generate cash sufficient to pay interest or principal due under its Debt Agreements, which could result in an acceleration of some or all of the Company’s outstanding debt; • limiting the Company’s ability to borrow money, dispose of assets or sell equity to fund the Company’s working capital, capital expenditures, dividend payments, debt service, strategic initiatives or for other obligations or purposes; • limiting the Company’s flexibility in planning for, or reacting to, changes in the economy, the markets, regulatory requirements, its operations or business; • limiting the Company’s ability to enter into derivative agreements to hedge interest rate and foreign exchange risk; • making the Company more highly leveraged than some of its competitors, which may place the Company at a competitive disadvantage; • making the Company more vulnerable to downturns in the economy or its business; • requiring a substantial portion of the Company’s cash flow from operations to make interest payments; • making it more difficult for the Company to satisfy other obligations; • risking credit rating downgrades of the Company, which could increase future debt costs and limit the future availability of debt financing; and • preventing the Company from borrowing additional funds as needed or taking advantage of business opportunities as they arise, pay cash dividends or repurchase common stock.
In the event that the U.S. government or foreign governments enact new climate change laws or regulations or make changes to existing laws or 23 Table of Contents regulations, compliance with applicable laws or regulations may result in increased manufacturing costs for the Company’s products, such as by requiring investment in new pollution control equipment or changing the ways in which certain of the Company’s products are made.
In the event that the U.S. government or foreign governments enact new climate change laws or regulations or make changes to existing laws or regulations, compliance with applicable laws or regulations may result in increased manufacturing costs for the Company’s products, such as by requiring investment in new pollution control equipment or changing the ways in which certain of the Company’s products 22 Table of Contents are made.
This could, in turn, substantially reduce the Company’s revenues, increase credit risk and have a material adverse effect on the Company’s results of operations, financial condition and cash flows. If the Company is unable to effectively manage its existing Internet business, the Company's reputation and operating results may be harmed.
This could, in turn, substantially reduce the Company’s revenues, increase credit risk and have a material adverse effect on the Company’s results of operations, financial condition and cash flows. If the Company is unable to effectively manage its existing online business, the Company's reputation and operating results may be harmed.
In addition, the Company must keep up to date with competitive technology trends, including the use of improved technology, creative user interfaces and other Internet marketing tools such as paid search, which may increase its costs and which may not succeed in increasing sales or attracting customers.
In addition, the Company must keep up to date with competitive technology trends, including the use of improved technology, creative user interfaces and other online marketing tools such as paid search, which may increase its costs and which may not succeed in increasing sales or attracting customers.
The Company’s failure to successfully respond to these risks and uncertainties might adversely affect the sales in its Internet business, as well as damage the Company’s reputation and brands. Demand for new products and the inability to develop and introduce new competitive products at favorable profit margins could adversely affect the Company’s performance and prospects for future growth.
The Company’s failure to successfully respond to these risks and uncertainties might adversely affect the sales in its online business, as well as damage the Company’s reputation and brands. Demand for new products and the inability to develop and introduce new competitive products at favorable profit margins could adversely affect the Company’s performance and prospects for future growth.
While the Company now collect, remits and reports sales tax in states that it does business, it is possible that Company’s effective income tax rate, the cost of the Company’s e-commerce business, and the growth of its e-commerce business could be materially adversely effected other new laws or regulations governing the internet and e-commerce.
While the Company now collects, remits and reports sales tax in states that it does business, it is possible that Company’s effective income tax rate, the cost of the Company’s e-commerce business, and the growth of its e-commerce business could be materially adversely effected other new laws or regulations governing the Internet and e-commerce.
Accordingly, Taylor Parent’s influence over the Company and the consequences of such control could have a material adverse effect on the Company’s business and business prospects and negatively impact the trading price of its common stock. Item 1B. Unresolved Staff Comments None 24 Table of Contents
Accordingly, Taylor Parent’s influence over the Company and the consequences of such control could have a material adverse effect on the Company’s business and business prospects and negatively impact the trading price of its common stock. Item 1B. Unresolved Staff Comments None. 23 Table of Contents
The Company has made significant efforts to secure its computer network to mitigate the risk of possible cyber-attacks, including, but not limited to, data breaches, and is continuously working to upgrade its existing information technology systems and provide employee awareness training around phishing, malware, and other cyber risks to ensure that the Company is protected, to the greatest extent possible, against cyber risks and security breaches.
The Company has made significant efforts to secure its computer network to mitigate the risk 21 Table of Contents of possible cyber-attacks, including, but not limited to, data breaches, and is continuously working to upgrade its existing information technology systems and provide employee awareness training around phishing, malware, and other cyber risks to ensure that the Company is protected, to the greatest extent possible, against cyber risks and security breaches.
To the extent that consultants, vendors, key employees or other third parties apply technology independently developed by them or by others to the Company’s proposed products in the absence of a valid license or suitable non-disclosure or assignment of inventions provisions, disputes may arise as to the ownership of or rights to use such technology, which may not be resolved in the Company’s favor.
To the extent that consultants, vendors, key employees or other third parties apply technology independently developed by them or by others to the Company’s proposed products in the absence of a valid license or suitable non-disclosure or assignment of inventions provisions, 18 Table of Contents disputes may arise as to the ownership of or rights to use such technology, which may not be resolved in the Company’s favor.
Significant changes or financial difficulties, including consolidations of ownership, restructurings, bankruptcies, 15 Table of Contents liquidations or other events that affect retailers, could result in fewer retailers selling the Company’s products, reliance on a smaller group of customers, an increase in the risk of extending credit to these customers or limitations on the Company’s ability to collect amounts due from these customers.
Significant changes or financial difficulties, including consolidations of ownership, restructurings, bankruptcies, liquidations or other events that affect retailers, could result in fewer retailers selling the Company’s products, reliance on a smaller group of customers, an increase in the risk of extending credit to these customers or limitations on the Company’s ability to collect amounts due from these customers.
The cost of producing and distributing the Company’s products is also sensitive to energy costs, duties and tariffs. For example, freight costs increased in 2021 and continued to fluctuate in 2022. The Company is unable to determine to what extent, if any, it will be able to pass future cost increases through to its customers.
The cost of producing and distributing the Company’s products is also sensitive to energy costs, duties and tariffs. For example, freight costs increased in 2021, continued to fluctuate in 2022 and began to decrease in 2023. The Company is unable to determine to what extent, if any, it will be able to pass future cost increases through to its customers.
The cost of compliance with customers’ demands could have a material adverse effect on the Company’s business, results of operations and financial condition. Many of the Company’s wholesale customers are significantly larger than the Company, have greater financial and other resources and also purchase goods directly from vendors in Asia and elsewhere.
The cost of compliance with customers’ demands could have a material adverse effect on the Company’s business, results of operations and financial condition. 14 Table of Contents Many of the Company’s wholesale customers are significantly larger than the Company, have greater financial and other resources and also purchase goods directly from vendors in Asia and elsewhere.
If the Chinese renminbi should appreciate against the U.S. dollar, the costs of the Company’s products will likely rise over time because of the impact the strengthening renminbi will have on the Company’s cost of sales, and the Company may not be able to pass on these price increases to its customers.
If the Chinese renminbi should appreciate against the U.S. dollar, the costs of the Company’s products will likely rise over time because of the impact the strengthening renminbi will have on the Company’s cost 12 Table of Contents of sales, and the Company may not be able to pass on these price increases to its customers.
The Company’s projections are based on management’s best estimate of sales using historical sales data and other information deemed relevant. These projections are highly subjective since sales can fluctuate substantially based on the demands of retail customers and due to other risks described in this Annual Report.
The Company’s projections are based on management’s best estimate of sales using historical sales data and other information deemed relevant. These projections 13 Table of Contents are highly subjective since sales can fluctuate substantially based on the demands of retail customers and due to other risks described in this Annual Report.
These general economic factors include, among others: • recession, inflation, deflation, unemployment and other factors adversely affecting consumer spending patterns generally; • conditions affecting the retail environment for the home and other matters that influence consumer spending in the home retail industry specifically; • conditions affecting the housing markets; • consumer credit availability and consumer debt levels; • material input costs, including fuel and energy costs, freight costs, and labor cost inflation; • foreign currency translation; • interest rates and the ability to hedge interest rate risks; • government policies including tax policies relating to value-added taxes, import and export duties and quotas, anti-dumping regulations and related tariffs, import and export controls and social compliance standards; • the impact of natural disasters, conflicts and terrorist activities; • public health epidemics, such as the COVID-19 pandemic; • unfavorable economic conditions in the United States, the U.K., continental Europe, Asia and elsewhere; • political unrest, war, terrorism, geopolitical uncertainties, trade policies and sanctions, including the repercussions of the military conflict between Russia and Ukraine; • unstable economic and political conditions, lack of legal regulation enforcement, civil unrest and potential accompanying shifts in laws and regulations; and The occurrence of negative events related to any of the foregoing may adversely impact the Company’s results of operations and financial condition .
These general economic factors include, among others: • recession, inflation, deflation, unemployment and other factors adversely affecting consumer spending patterns generally; • conditions affecting the retail environment for the home and other matters that influence consumer spending in the home retail industry specifically; • conditions affecting the housing markets; • consumer credit availability and consumer debt levels; • material input costs, including fuel and energy costs, freight costs, and labor cost inflation; • foreign currency translation; • interest rates and the ability to hedge interest rate risks; • government policies including tax policies relating to value-added taxes, import and export duties and quotas, anti-dumping regulations and related tariffs, import and export controls and social compliance standards; • the impact of natural disasters, conflicts and terrorist activities; • public health epidemics, such as the COVID-19 pandemic; • unfavorable economic conditions in the United States, the U.K., continental Europe, Asia and elsewhere; • political unrest, war, terrorism, geopolitical uncertainties, trade policies and sanctions, including the repercussions of the military conflict in Ukraine, Israel and surrounding areas (and any broadening of the conflict); • the impact of the U.K.’s exit from the European Union; • unstable economic and political conditions, lack of legal regulation enforcement, civil unrest and potential accompanying shifts in laws and regulations; and The occurrence of negative events related to any of the foregoing may adversely impact the Company’s results of operations and financial condition .
These regulations and laws may cover 21 Table of Contents taxation, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online payment services, broadband residential Internet access and the characteristics and quality of products and services.
These regulations and laws may cover taxation, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online payment services, broadband residential Internet access and the characteristics and quality of products and services.
During the years ended December 31, 2022, 2021 and 2020, sales to Costco Wholesale Corporation (“Costco”) accounted for 13%, 12%, and 11% of consolidated net sales. During the year ended December 31, 2022, 2021 and 2020, Amazon.com Inc., (“Amazon”), accounted for 11%, 12% and 10% of consolidated net sales.
During the years ended December 31, 2023, 2022 and 2021, sales to Costco Wholesale Corporation (“Costco”) accounted for 11%, 13%, and 12% of consolidated net sales. During the year ended December 31, 2023, 2022 and 2021, Amazon.com Inc., (“Amazon”), accounted for 11%, 11% and 12% of consolidated net sales.
Significant portions of the Company’s business are dependent on trade names, trademarks and patents, some of which are licensed from third parties. In 2022, sales of licensed brands accounted for approximately 14% of the Company’s gross sales. The Company’s licenses for many of these brands require it to pay royalties based on sales.
Significant portions of the Company’s business are dependent on trade names, trademarks and patents, some of which are licensed from third parties. In 2023, sales of licensed brands accounted for approximately 17% of the Company’s gross sales. The Company’s licenses for many of these brands require it to pay royalties based on sales.
For further discussion of the Company's legal proceedings refer to NOTE 14 — COMMITMENTS AND CONTINGENCIES to the Company's consolidated financial statements included in this Annual Report on Form 10-K.
For further discussion of the Company’s legal proceedings refer to NOTE 14 — COMMITMENTS AND CONTINGENCIES to the Company ’ s consolidated financial statements included in this Annual Report on Form 10-K.
The Company is also vulnerable to certain additional risks and uncertainties associated with the Internet, including: changes in required technology interfaces, website downtime and other technical failures, costs and technical issues as the Company upgrades its website software, computer viruses, changes in applicable federal and state regulations, security breaches, data breaches, and consumer privacy concerns.
The Company is also vulnerable to certain additional risks and uncertainties associated with operating an online business, including: changes in required technology interfaces, website downtime and other technical failures, costs and technical issues as the Company upgrades its website software, computer viruses, changes in applicable federal and state regulations, security breaches, data breaches, and consumer privacy concerns.
The Company may incur some of these costs directly and others may be passed on to the Company from its third-party suppliers. The Company also may incur costs associated with government inquiries and investigations.
The Company may incur some of these costs directly, while other costs may be passed on to the Company from its third-party suppliers. The Company also may incur costs associated with government inquiries and investigations.
Bankruptcy Code; (iv) liquidate or dissolve the business and affairs of the Company; (v) take any Board of Directors action to seek an amendment to the Company’s Certificate of Incorporation or approve, or recommend that the Company’s stockholders approve, an amendment to the Company’s Amended and Restated Bylaws, except as required by Delaware Law (as defined in the merger agreement) or other applicable law and other than amendments that would not materially and disproportionately affect Taylor Parent; (vi) incur additional debt in excess of $100 million in the aggregate, subject to certain exceptions; (vii) acquire or dispose of assets or a business, in each case with an individual value in excess of $100 million; (viii) terminate the employment of the Chief Executive Officer, other than for cause (in which case the Company shall consult in good faith with Taylor Parent on a replacement Chief Executive Officer); or (ix) adopt a stockholder rights plan that does not exempt as “grandfathered persons” the stockholders party to the Stockholders Agreement and their affiliates from being deemed “acquiring persons” due to their beneficial ownership of the common stock of the Company upon the public announcement of adoption of such stockholder rights plan (it being understood that no such plan shall restrict any stockholder party to the Stockholders Agreement or its affiliates from acquiring, in the aggregate, common stock up to the level of their aggregate percentage beneficial ownership as of the public announcement of the adoption of such stockholder rights plan).
Bankruptcy Code; (iv) liquidate or dissolve the business and affairs of the Company; (v) take any Board of Directors action to seek an amendment to the Company’s Certificate of Incorporation or approve, or recommend that the Company’s stockholders approve, an amendment to the Company’s Amended and Restated Bylaws, except as required by Delaware Law (as defined in the merger agreement) or other applicable law and other than amendments that would not materially and disproportionately affect Taylor Parent; (vi) incur additional debt in excess of $100 million in the aggregate, subject to certain exceptions; (vii) acquire or dispose of assets or a business, in each case with an individual value in excess of $100 million; or (viii) adopt a stockholder rights plan that does not exempt as “grandfathered persons” the stockholders party to the Stockholders Agreement and their affiliates from being deemed “acquiring persons” due to their beneficial ownership of the common stock of the Company upon the public announcement of adoption of such stockholder rights plan (it being understood that no such plan shall restrict any stockholder party to the Stockholders Agreement or its affiliates from acquiring, in the aggregate, common stock up to the level of their aggregate percentage beneficial ownership as of the public announcement of the adoption of such stockholder rights plan).
Any or all of these ESG and sustainability initiatives may result in significant operational changes and expenditures, reduced demand for our products, cause us reputational harm, and could materially adversely affect our business, financial condition, and results of operations.
Any or all of these ESG and sustainability initiatives and regulations are likely to result in significant operational changes and expenditures, reduced demand for our products, cause us reputational harm, and could materially adversely affect our business, financial condition, and results of operations.
The Company’s wholesale customers include mass market merchants, specialty stores, commercial stores, department stores, warehouse clubs, grocery stores, off-price retailers, food service distributors, pharmacies, food and beverage outlets and e-commerce.
The Company’s wholesale customers include mass market merchants, specialty stores, department stores, warehouse clubs, grocery stores, off-price retailers, food service distributors, food and beverage outlets, corporate sales and e-commerce.
Changes at the Company’s large customers, or actions taken by them, and consolidation in the retail industry could materially adversely affect the Company’s operating results. During the years ended December 31, 2022, 2021 and 2020, Wal-Mart Stores, Inc., including Sam’s Club and, in the U.K., Asda Superstore, (“Walmart”), accounted for 19%, 18% and 20% of consolidated net sales, respectively.
Changes at the Company’s large customers, or actions taken by them, and consolidation in the retail industry could materially adversely affect the Company’s operating results. During the years ended December 31, 2023, 2022 and 2021, Wal-Mart Stores, Inc., including Sam’s Club, (“Walmart”), accounted for 21%, 19% and 18% of consolidated net sales, respectively.
Any failure by the Company to be in compliance with applicable environmental laws and regulations or any new laws and regulations in the future could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company’ executives and other key employees are critical to the Company’s success.
Any finding that the Company is not in compliance with applicable environmental laws and regulations or any new laws and regulations in the future could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company’ executives and other key employees are critical to the Company’s success.
A disruption from such third‑party suppliers, manufacturers or service providers, capacity constraints, production disruptions, price increases, quality control issues, recalls or other decreased availability of parts and products could adversely affect our ability to meet our commitments to customers and have a material adverse effect on our business, financial condition and results of operations. 17 Table of Contents The Company’s international trade activity subjects it to transportation risks.
A disruption from such third‑party suppliers, manufacturers or service providers, capacity constraints, production disruptions, price increases, quality control issues, recalls or other decreased availability of parts and products could adversely affect our ability to meet our commitments to customers and have a material adverse effect on our business, financial condition and results of operations.
The licensor is a joint venture of which the Company is a 50% owner.
The licensor is a joint venture of which the Company is a 50% 17 Table of Contents owner.
During the last few years there have also been significant changes to U.S. trade policies, sanctions, legislation, treaties and tariffs, including, but not limited to, trade policies and tariffs affecting China. These changes have, in certain cases, increased our costs of doing business.
A majority of the Company’s products are sourced from vendors in China. During the last several years there have also been significant changes to U.S. trade policies, sanctions, legislation, treaties and tariffs, including, but not limited to, trade policies and tariffs affecting China. These changes have, in certain cases, increased our costs of doing business.
If SOFR increases, the Company may not be able to rely on the Receivables Purchase Agreement, which could have a material and adverse effect upon the Company’s financial condition, results of operations and cash flows. The replacement of the LIBOR benchmark interest rate with SOFR could increase the Company's borrowing costs.
If SOFR increases, the Company may not be able to rely on the Receivables Purchase Agreement, which could have a material and adverse effect upon the Company’s financial condition, results of operations and cash flows.
Similarly, geopolitical risks, including instability resulting from civil unrest, political demonstrations, strikes and armed conflict or other crises, such as Russia’s invasion of Ukraine, and the resulting sanctions could change the global supply chain dynamics and demand.
Similarly, geopolitical risks, including instability resulting from civil unrest, political demonstrations, strikes and armed conflict or other crises, such as conflicts in Ukraine, Israel and surrounding areas (and any broadening of the conflict), and resulting sanctions could change the global supply chain dynamics and demand.
The Company imports its products for delivery to its distribution centers, as well as arranges for its customers to import goods to which title has passed overseas or at a port of entry.
The Company’s international trade activity subjects it to transportation risks. The Company imports its products for delivery to its distribution centers, as well as arranges for its customers to import goods to which title has passed overseas or at a port of entry.
Sales of KitchenAid branded products, to a lesser extent, also represent a material portion of the Company’s sales. The Company also holds a license to use the KitchenAid brand subject to a license agreement that will expire in December 2026.
Sales of KitchenAid branded products, to a lesser extent, also represent a material portion of the Company’s sales. The Company also holds a license to use the KitchenAid brand for certain products, including products for kitchen tools and gadgets, cutlery and bakeware, subject to a license agreement that will expire in December 2026.
The Term Loan will be repaid in quarterly payments of principal equal to 0.25% of the original aggregate principal amount of the Term Loan, which payments commenced June 30, 2018. The Term Loan requires the Company to make an annual mandatory prepayment of principal based upon excess cash flow (the “Excess Cash Flow”), if any.
The Term Loan will be repaid in quarterly payments of principal equal to 1.25% of the original aggregate principal amount of the Term Loan, which payments will commence on March 31, 2024. The Term Loan requires the Company to make an annual mandatory prepayment of principal based upon excess cash flow (the “Excess Cash Flow”), if any.
The Company self-insures a substantial portion of the costs of employee healthcare and workers compensation. This could result in higher volatility in the Company’s earnings and exposes the Company to higher financial risks.
Increases in the cost of employee benefits could materially adversely impact the Company’s financial results and cash flows. The Company self-insures a substantial portion of the costs of employee healthcare and workers compensation. This could result in higher volatility in the Company’s earnings and exposes the Company to higher financial risks.
In 2018, the Company utilized the proceeds of borrowings under the Debt Agreements (i) to repay in full all existing indebtedness for borrowed money under its former credit agreement and (ii) to finance, in part, the acquisition of Filament, the refinancing of certain indebtedness of Filament and its subsidiaries, and the payment of fees and expenses in connection with the foregoing.
At December 31, 2023, borrowings under the Debt Agreements represented approximately 32% of total capital (indebtedness plus stockholders’ equity). 10 Table of Contents In 2018, the Company utilized the proceeds of borrowings under the Debt Agreements (i) to repay in full all existing indebtedness for borrowed money under its former credit agreement and (ii) to finance, in part, the acquisition of Filament, the refinancing of certain indebtedness of Filament and its subsidiaries, and the payment of fees and expenses in connection with the foregoing.
There can be no assurance that the Company would be able to reduce its cost base to offset any such price concessions, which could adversely impact its results of operations and cash flows. 9 Table of Contents The Company may be materially adversely affected by the exit of the U.K. from the European Union.
There can be no assurance that the Company would be able to reduce its cost base to offset any such price concessions, which could adversely impact its results of operations and cash flows. 9 Table of Contents The Company’s business may be materially adversely affected by the imposition of tariffs and other trade policies implemented by the U.S. and other governments.
The Company's increased dependence on third parties for cloud-based systems may also subject the Company to further cyber threats, such as the identified Log4J vulnerability. There can be no assurance that the Company will not suffer a material adverse effect resulting from vulnerabilities in widely deployed software used by third parties.
The Company’s increased dependence on third parties for cloud-based systems may also subject the Company to further cyber threats. There can be no assurance that the Company will not suffer a material adverse effect resulting from vulnerabilities in widely deployed software used by third parties. The Company sells consumer products which involve an inherent risk of product liability claims.
Climate change, environmental, social and governance and sustainability initiatives may result in regulatory or structural industry changes that could require significant operational changes and expenditures, reduce demand for the Company’s products and adversely affect our business, financial condition, and results of operations.
This potential negative impact on the Company’s e-commerce business could have a material adverse effect on the Company’s overall business, results of operations and financial condition. 20 Table of Contents Climate change, environmental, social and governance and sustainability initiatives may result in regulatory or structural industry changes that could require significant operational changes and expenditures, reduce demand for the Company’s products and adversely affect our business, financial condition, and results of operations.
At December 31, 2022, goodwill, net of accumulated impairment charges totaled $33.2 million; indefinite-lived intangibles assets, net of accumulated impairment charges totaled $49.6 million; finite-lived intangible assets, net of accumulated impairment charges and accumulated amortization totaled $131.1 million.
At December 31, 2023, goodwill, net of accumulated impairment charges totaled $33.2 million; indefinite-lived intangibles assets, net of accumulated impairment charges totaled $42.0 million; finite-lived intangible assets, net of accumulated impairment charges and accumulated amortization totaled $123.9 million.
Changes in labor or other laws may be enacted, in China or in other countries in which the Company does business, which could have a material adverse effect on the Company’s operations and/or those of the Company’s suppliers. In addition, any indirect supply chain disruptions due to the conflict in Ukraine may further complicate existing supply chain constraints.
Changes in labor or other laws may be enacted, in China or in other countries in which the Company does business, which could have a material adverse effect on the Company’s operations and/or those of the Company’s suppliers.
This overall trend has negatively affected many brick-and-mortar retailers, which has been exacerbated by the ongoing COVID-19 pandemic. If the Company’s brick-and-mortar retail customers fail to maintain or grow their overall market position through the integration of physical retail presence and digital retail, these customers 16 Table of Contents may experience financial difficulties including store closures, bankruptcies or liquidations.
If the Company’s brick-and-mortar retail customers fail to maintain or grow their overall market position through the integration of physical retail presence and digital retail, these customers may experience financial difficulties including store closures, bankruptcies or liquidations.
The Company’s ability to meet the covenants or requirements in its Debt Agreements may be affected by events beyond the Company’s control, and the Company may not be able to satisfy such covenants and requirements.
These requirements could limit the Company’s ability to obtain future financing and may prevent the Company from taking advantage of attractive business opportunities. The Company’s ability to meet the covenants or requirements in its Debt Agreements may be affected by events beyond the Company’s control, and the Company may not be able to satisfy such covenants and requirements.
The Company’s inability to come to favorable agreements with its suppliers or to pass increased costs through to the Company’s customers could materially and adversely affect its financial condition or results of operations.
The Company’s inability to come to favorable agreements with its suppliers or to pass increased costs through to the Company’s customers could materially and adversely affect its financial condition or results of operations. Intellectual property risks The loss of certain licenses or material changes in royalty rates could materially adversely affect the Company’s operating margin and cash flow.
The Company sells consumer products which involve an inherent risk of product liability claims. The marketing of certain of the Company’s consumer products involve an inherent risk of product liability claims or recalls or other regulatory or enforcement actions initiated by the U.S.
The marketing of certain of the Company’s consumer products involve an inherent risk of product liability claims or recalls or other regulatory or enforcement actions initiated by the U.S. Consumer Product Safety Commission, by the Office of Fair Trading in the U.K., by other regulatory authorities or through private causes of action.
Accordingly, to keep pace within a competitive retail environment, the Company uses and will continue to evaluate new technologies to improve the efficiency of designing new innovative products.
Accordingly, to keep pace within a competitive retail environment, the Company uses and will continue to evaluate new technologies to improve the efficiency of designing new innovative products. The failure or compromise of any of these systems or technologies could have a material adverse effect on the Company’s business and results of operations.
Currency controls may limit the Company’s ability to convert currencies into U.S. dollars or other currencies, as needed, to pay dividends or make other payments from funds held by subsidiaries in countries imposing such controls, which could adversely affect the Company’s liquidity. 13 Table of Contents If the Company expands its international operations, it will be subject to increased foreign exchange variability which could have a material adverse effect on the Company’s results of operations.
The Company is also subject to the risks of currency controls and devaluations. Currency controls may limit the Company’s ability to convert currencies into U.S. dollars or other currencies, as needed, to pay dividends or make other payments from funds held by subsidiaries in countries imposing such controls, which could adversely affect the Company’s liquidity.
The Company has historically achieved growth through acquisitions, investments and joint ventures. The Company seeks acquisition opportunities that complement and expand its operations, some of which are based outside the United States.
The Company’s inability to complete future acquisitions or strategic alliances and/or integrate acquired businesses could have a material adverse effect on the Company’s business and results of operations. The Company has historically achieved growth through acquisitions, investments and joint ventures. The Company seeks acquisition opportunities that complement and expand its operations, some of which are based outside the United States.
Decreased demand or the need to reduce inventories can lower the Company’s ability to absorb certain sourcing costs and adversely affect its results of operations.
Furthermore, the Company’s gross margins depend, in part, on its ability to spread sourcing costs, of which a significant portion are fixed, over its products sold. Decreased demand or the need to reduce inventories can lower the Company’s ability to absorb certain sourcing costs and adversely affect its results of operations.
Despite our continuous efforts to ensure the security of the Company’s computer networks, any future cyber incidents could compromise our information technology systems, which could impact operations and confidential information could be misappropriated, which could lead to negative publicity, loss of sales and profits or cause the Company to incur significant costs to reimburse third- parties for damages, which could adversely impact profits.
Any cybersecurity incidents could lead to negative publicity, loss of sales and profits or cause the Company to incur significant costs to reimburse third- parties for damages, which could adversely impact profits.
Interruption of supplies from any of the Company’s vendors, or the loss of one or more key vendors, could have a negative effect on the Company’s business and operating results.
The Company does not have access to its vendors’ financial 16 Table of Contents information and the Company is unable to assess its vendors’ financial condition, including their liquidity. Interruption of supplies from any of the Company’s vendors, or the loss of one or more key vendors, could have a negative effect on the Company’s business and operating results.
Because the Company’s ability to forecast product demand and the timing of related sales requires significant subjective input, future sales and net income could vary materially from the Company’s projections. 14 Table of Contents Increases in the cost of employee benefits could materially adversely impact the Company’s financial results and cash flows.
Additionally, changes in retailer inventory management strategies could make the Company’s inventory management more difficult. Because the Company’s ability to forecast product demand and the timing of related sales requires significant subjective input, future sales and net income could vary materially from the Company’s projections.
The Company's credit agreement, dated as of March 2, 2018 (as amended, the “ABL Agreement” and together with the Term Loan the “Debt Agreements”) provides for, among other things, a maximum aggregate principal amount of $200.0 million and will mature on August 25, 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 credit agreement, dated as of March 2, 2018 (as amended, the “ABL Agreement” and as amended, the “Term Loan” the “Debt Agreements”) provides for, among other things, a maximum aggregate principal amount of $200.0 million and will mature on August 25, 2027.
Consumers are increasingly embracing shopping online and through mobile commerce applications, and this trend has been significantly increasing in response to the COVID-19 pandemic. As a result, an increasing portion of total consumer expenditures with retailers is occurring online and through mobile commerce applications.
As a result, an increasing portion of total consumer expenditures with retailers is occurring online and through mobile commerce applications. This overall trend has negatively affected many brick-and-mortar retailers.
In addition, significant portions of the Company’s selling, general and administrative expenses, including leased showrooms, are fixed, as they neither increase nor decrease proportionally with sales. Furthermore, the Company’s gross margins depend, in part, on its ability to spread sourcing costs, of which a significant portion are fixed, over its products sold.
The Company’s business requires it to maintain large distribution facilities in its key markets, which represent high fixed rental costs relating to its leased facilities. In addition, significant portions of the Company’s selling, general and administrative expenses, including leased showrooms, are fixed, as they neither increase nor decrease proportionally with sales.
The Company may be unable to generate cash sufficient to pay when due the principal of, interest on, or other amounts due with respect to, its indebtedness. In addition, the Company’s business is seasonal with a significant amount of its revenue realized during the latter portion of the year.
In 2023, the Term Loan was amended to extend the maturity of $150 million of the Term Loan. The Company may be unable to generate cash sufficient to pay when due the principal of, interest on, or other amounts due with respect to, its indebtedness.
As a result of this and other covenants within the Debt Agreements, the Company may be limited in its ability to incur additional debt, make investments or undertake certain other business activities. These requirements could limit the Company’s ability to obtain future financing and may prevent the Company from taking advantage of attractive business opportunities.
The Term Loan requires the Company to maintain a maximum Total Net Leverage Ratio of 5.00 to 1.00 as of the last day of its fiscal quarters. As a result of this and other covenants within the Debt Agreements, the Company may be limited in its ability to incur additional debt, make investments or undertake certain other business activities.
The failure or compromise of any of these systems or technologies could have a material adverse effect on the Company’s business and results of operations. 22 Table of Contents The Company is subject to cyber security risks and may incur increasing costs in efforts to minimize those risks and to comply with regulatory standards.
The Company is subject to cyber security risks and may incur increasing costs in efforts to minimize those risks and to comply with regulatory standards.
The Company’s borrowings bear interest at floating rates. An increase in interest rates would adversely affect the Company’s profitability. To the extent that the Company’s access to credit may be restricted because of its own performance, its bank lenders’ performances or conditions in the capital markets generally, the Company would not be able to operate normally.
To the extent that the Company’s access to credit may be restricted because of its own performance, its bank lenders’ performances or conditions in the capital markets generally, the Company would not be able to operate normally. 11 Table of Contents The Company’s Receivables Purchase Agreement also depends upon the Secured Overnight Financing rate (“SOFR”), as it is a component of the discount rate applicable to the agreement.
Therefore, the Company’s borrowing needs fluctuate widely based upon its seasonal working capital requirements.
In addition, the Company’s business is seasonal with a significant amount of its revenue realized during the latter portion of the year. Therefore, the Company’s borrowing needs fluctuate widely based upon its seasonal working capital requirements.
If insurance coverage is not available or obtainable on acceptable terms, the Company may be required to pay costs associated with adverse future events. The Company must successfully manage the demand, supply, and operational challenges associated with the actual or perceived effects of the COVID-19 pandemic.
If insurance coverage is not available or obtainable on acceptable terms, the Company may be required to pay costs associated with adverse future events. Liquidity and financial risks The Company has substantial indebtedness and the highly seasonal nature of the Company’s business impacts its borrowing needs.
Consumer Product Safety Commission, by the Office of Fair Trading in the U.K., by other regulatory authorities or through private causes of action. The Company has in the past, and may have in the future, recalls (both voluntary and involuntary) of its products.
The Company has in the past, and may have in the future, recalls (both voluntary and involuntary) of its products.
For example, in August 2021 a wholly-owned subsidiary of the Company received a Notice of Liability from the Department of Justice on behalf of the EPA, and in September 2021, the subsidiary submitted a good faith offer to conduct additional testing and remedial design, which is under consideration by the EPA.
For example, in August 2021 a wholly-owned subsidiary of the Company received a Notice of Liability from the Department of Justice on behalf of the EPA. Negotiations in connection with the Notice culminated in a Consent Decree for Remedial Design and Remedial Action at Operable Unit One of the San German Groundwater Contamination Site (“Consent Decree”).
Liquidity and financial risks The Company has substantial indebtedness and the highly seasonal nature of the Company’s business impacts its borrowing needs. The Company has a substantial amount of indebtedness and is dependent on the availability of its bank loan facilities to finance its liquidity needs.
The Company has a substantial amount of indebtedness and is dependent on the availability of its bank loan facilities to finance its liquidity needs. As of December 31, 2023, the Company had $210.4 million of consolidated debt outstanding under a senior secured term loan credit facility and senior secured asset-based revolving credit facility.
Removed
Net sales attributable to the Company's 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.
Added
On November 14, 2023, the Company entered into Amendment No. 2 of the senior secured term loan credit facility, dated as of March 2, 2018, (as amended, the “Term Loan”), which among other things, reduced the outstanding principal amount of $150.0 million and extended the maturity to August 26, 2027.
Removed
These operations continue to face risks and potential disruptions related to the withdrawal of the U.K. from the European Union, commonly referred to as “Brexit.” Although the U.K. and the European Union have entered into a trade and cooperation agreement, the long-term nature of the U.K.’s relationship with the European Union remains unclear.
Added
The Company’s borrowings bear interest at floating rates. An increase in interest rates would adversely affect the Company’s profitability. For example, in 2023 interest expense increased by $4.5 million compared to the prior year as a result of a higher interest rate environment.
Removed
For example, Brexit could lead to potentially divergent laws and regulations, such as with respect to data protection and data transfer laws, that could be costly and complicate compliance efforts.
Added
If the Company expands its international operations, it will be subject to increased foreign exchange variability which could have a material adverse effect on the Company’s results of operations. The Company’s business requires it to maintain large fixed costs that can affect its profitability.
Removed
While we continue to monitor these developments, the full effect of Brexit on our operations is uncertain and our business could be harmed by trade disputes or political differences between the U.K. and the European Union in the future. Significant uncertainty remains regarding the impact of the U.K.’s exit from the European Union.
Added
Consumers are increasingly embracing shopping online and through mobile commerce applications. This trend accelerated during the COVID-19 15 Table of Contents pandemic due to fear of infection, stay-at-home orders, quarantine policies and restrictions on travel, trade, and brick-and-mortar retail business operations.
Removed
The uncertainty surrounding the consequences of the U.K.’s exit could adversely impact the U.K. economy, customers and investor confidence. 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.
Added
In addition, any indirect supply chain disruptions due to the conflict in Ukraine, Israel and surrounding areas (and any broadening of the conflict), may further complicate existing supply chain constraints.
Removed
The Company’s business may be materially adversely affected by the imposition of tariffs and other trade policies implemented by the U.S. and other governments. A majority of the Company’s products are sourced from vendors in China.
Added
Specifically, in connection with the conflict in Israel and the surrounding areas, the Houthi movement, which controls parts of Yemen, has launched a number of attacks on marine vessels in the Red Sea. The Red Sea is an important maritime route for international trade.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeProperties The following table lists the principal properties at which the Company operated its business at December 31, 2022: Location Description Size (square feet) Owned/ Leased Rialto, California (1) West Coast warehouse and distribution facility 703,000 Leased Robbinsville, New Jersey (1) Principal East Coast warehouse and distribution facility 700,000 Leased Aston, England (2) Offices, showroom, warehouse and distribution facility 250,000 Leased Winchendon, Massachusetts (1) Warehouse and distribution facility, and spice packing line 175,000 Owned Garden City, New York (3) Corporate headquarters/main showroom 159,000 Leased Medford, Massachusetts (1) Offices, showroom, warehouse and distribution facility 69,000 Leased Las Cruces, New Mexico (1) Offices, warehouse and distribution facility 56,000 Leased San Germán, Puerto Rico (1) Sterling silver manufacturing facility 55,000 Leased Oak Brook, Illinois (1) Offices 18,000 Leased Seattle, Washington (1) Offices 17,500 Leased Shanghai, China (3) Offices 16,300 Leased New York, New York (1) Offices and showrooms 12,000 Leased Atlanta, Georgia (1) Showrooms 11,000 Leased Guangzhou, China (3) Offices 10,000 Leased Bentonville, Arkansas (1) Offices and showroom 7,000 Leased Newtown, Pennsylvania (1) Offices 5,900 Leased Pawtucket, Rhode Island (1) Offices and showroom 4,900 Leased Menomonee Falls, Wisconsin (1) Showroom 4,000 Leased Kowloon, Hong Kong (3) Offices 2,585 Leased Tianjin, China (3) Offices 2,400 Leased Minneapolis, Minnesota (1) Offices 1,956 Leased Issaquah, Washington (1) Offices and showroom 1,125 Leased (1) Location primarily used by the U.S. segment.
Biggest changeProperties The following table lists the principal properties at which the Company operated its business at December 31, 2023: Location Description Size (square feet) Owned/ Leased Rialto, California (1) West Coast warehouse and distribution facility 703,000 Leased Robbinsville, New Jersey (1) Principal East Coast warehouse and distribution facility 700,000 Leased Aston, England (2) Offices, showroom, warehouse and distribution facility 250,000 Leased Winchendon, Massachusetts (1) Warehouse and distribution facility, and spice packing line 175,000 Owned Garden City, New York (3) Corporate headquarters/main showroom 159,000 Leased Las Cruces, New Mexico (1) Offices, warehouse and distribution facility 56,000 Leased San Germán, Puerto Rico (1) Sterling silver manufacturing facility 55,000 Leased Medford, Massachusetts (1) Offices, showroom, warehouse and distribution facility 44,000 Leased Oak Brook, Illinois (1) Offices 18,000 Leased Seattle, Washington (1) Offices 17,500 Leased Shanghai, China (3) Offices 16,300 Leased New York, New York (1) Offices and showrooms 12,000 Leased Atlanta, Georgia (1) Showrooms 11,000 Leased Guangzhou, China (3) Offices 10,000 Leased Bentonville, Arkansas (1) Offices and showroom 7,000 Leased Newtown, Pennsylvania (1) Offices 5,900 Leased Pawtucket, Rhode Island (1) Offices and showroom 4,900 Leased Menomonee Falls, Wisconsin (1) Showroom 4,000 Leased Tianjin, China (3) Offices 2,400 Leased Minneapolis, Minnesota (1) Offices 1,956 Leased Kowloon, Hong Kong (3) Offices 1,814 Leased Issaquah, Washington (1) Offices and showroom 1,125 Leased (1) Location primarily used by the U.S. segment.
(2) Location used by the International segment. (3) Location used by all segments. 25 Table of Contents
(2) Location used by the International segment. (3) Location used by both segments. 25 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHemscott Group Index New Peer Group Nasdaq Market Index 12/31/2017 (1)(2) $ 100.00 $ 100.00 $ 100.00 $ 100.00 12/31/2018 $ 61.62 $ 62.47 $ 95.86 $ 97.16 12/31/2019 $ 43.51 $ 67.74 $ 118.22 $ 132.81 12/31/2020 $ 97.11 $ 80.47 $ 146.61 $ 192.47 12/31/2021 $ 103.19 $ 85.90 $ 185.01 $ 235.15 12/31/2022 $ 49.78 $ 53.61 $ 125.14 $ 158.65 (1) The graph assumes $100 was invested as of the close of trading on December 31, 2017 and dividends were reinvested.
Biggest changeHemscott Group Index New Peer Group Nasdaq Market Index 12/31/2018 (1)(2) $ 100.00 $ 100.00 $ 100.00 $ 100.00 12/31/2019 $ 70.62 $ 108.44 $ 123.33 $ 136.69 12/31/2020 $ 157.60 $ 128.82 $ 152.95 $ 198.10 12/31/2021 $ 167.46 $ 137.51 $ 193.01 $ 242.03 12/31/2022 $ 80.79 $ 85.83 $ 130.55 $ 163.28 12/31/2023 $ 73.55 $ 59.80 $ 142.56 $ 236.17 (1) The graph assumes $100 was invested as of the close of trading on December 31, 2018 and dividends were reinvested.
The Company is authorized to issue 100 shares of Series A Preferred stock and 2,000,000 shares of Series B Preferred stock, none of which were issued or outstanding at December 31, 2022. For a discussion of dividends paid by the Company in 2022 and 2021, refer to Item 7.
The Company is authorized to issue 100 shares of Series A Preferred stock and 2,000,000 shares of Series B Preferred stock, none of which were issued or outstanding at December 31, 2023. For a discussion of dividends paid by the Company in 2023 and 2022, refer to Item 7.
Measurement points are at the last trading day of each of the fiscal years ended December 31, 2018, 2019, 2020, 2021 and 2022.
Measurement points are at the last trading day of each of the fiscal years ended December 31, 2019, 2020, 2021, 2022 and 2023.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock is traded under the symbol “LCUT” on the Nasdaq Global Select Market (“Nasdaq”). At February 28, 2023, the Company estimates that there were approximately 3,359 record holders of the Company’s common stock.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock is traded under the symbol “LCUT” on the Nasdaq Global Select Market (“Nasdaq”). At February 29, 2024, the Company estimates that there were approximately 3,881 record holders of the Company’s common stock.
All rights reserved. Copyright 1980-2023. Index Data: Copyright NASDAQ OMX, Inc. Used with permission.
All rights reserved. Copyright 1980-2024. Index Data: Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved. Item 6. [Reserved] 28 Table of Contents
Removed
All rights reserved. 28 Table of Contents The table below sets forth information regarding issuer purchases of equity securities: Period Total number of shares purchased (1) Average price paid per share Total number of shares purchased as part of publicly announced plans or programs (2) Maximum approximate dollar value of shares that may yet be purchased under the plans or programs subsequent to end of period (2) October 1 - October 31, 2022 — $ — — $ 15,322,269 November 1 - November 30, 2022 84,946 $ 7.43 84,946 $ 14,688,468 December 1 - December 31, 2022 139,523 $ 8.13 122,506 $ 13,679,980 (1) The repurchased shares were acquired other than as part of a publicly announced plan or program.
Removed
The Company repurchased these securities in connection with its Amended and Restated 2000 Long Term Incentive Plan which allows participants to use shares to satisfy certain tax liabilities arising from the vesting of restricted stock. The number above does not include unvested shares forfeited back to the Company pursuant to the terms of the Company’s stock compensation plans.
Removed
(2) On March 14, 2022, the Company announced that its Board of Directors authorized the repurchase of up to $20.0 million of the Company’s common stock, replacing the Company's previously-authorized $10.0 million share repurchase program. The repurchase authorization permits the Company to effect the repurchases from time to time through open market purchases and privately negotiated transactions.
Removed
During the three months ended December 31, 2022, the Company repurchased 207,452 shares for a total cost of $1.6 million and thereafter retired the shares. Item 6. [Reserved] 29 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

104 edited+46 added−53 removed52 unchanged
Biggest changeThe effective tax rate in 2022 and 2021 was driven primarily by state and local tax expenses, nondeductible expenses, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. 35 Table of Contents Equity in (losses) earnings The Company’s equity in earnings, net of tax, for 2022 and 2021 are as follows: Year Ended December 31, 2022 2021 (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.
Biggest changeThe effective tax rate in 2023 and 2022 was driven primarily by state and local tax expenses, nondeductible expenses, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.
The 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.
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 3.25 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.
The Company believes that the following discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the Company’s consolidated financial condition and results of operations and require management’s most difficult, subjective and complex judgments. 36 Table of Contents Goodwill, intangible assets and long-lived assets Goodwill and intangible assets deemed to have indefinite lives are not amortized but, instead, are subject to an annual impairment assessment.
The Company believes that the following discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the Company’s consolidated financial condition and results of operations and require management’s most difficult, subjective and complex judgments. 34 Table of Contents Goodwill, intangible assets and long-lived assets Goodwill and intangible assets deemed to have indefinite lives are not amortized but, instead, are subject to an annual impairment assessment.
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. However, if circumstances were to adversely change, the Company may seek alternative sources of liquidity including debt and/or equity financing.
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.
Incidental items that are immaterial in the context of the contract are expensed as incurred. 38 Table of Contents LIQUIDITY AND CAPITAL RESOURCES The Company’s principal sources of funds consists of cash provided by operating activities, borrowings available under its revolving credit facility and from time-to-time working capital reductions.
Incidental items that are immaterial in the context of the contract are expensed as incurred. 36 Table of Contents LIQUIDITY AND CAPITAL RESOURCES 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 does not enter into such contracts for speculative purposes and, as of December 31, 2022, the Company does not have any foreign currency forward contract derivatives that are not designated as hedges. These foreign exchange contracts have been designated as hedges in to order to apply hedge accounting.
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. These foreign exchange contracts have been designated as hedges in to order to apply hedge accounting.
Accordingly, the Company has recorded its proportionate share of Vasconia's net income (reduced for amortization expense related to the customer relationships acquired) for the years ended December 31, 2022, 2021, and 2020 in the accompanying consolidated statements of operations.
Accordingly, the Company has recorded its proportionate share of Vasconia's net income (reduced for amortization expense related to the customer relationships acquired) for the years ended December 31, 2023, 2022, and 2021 in the accompanying consolidated statements of operations.
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®.
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 40 Table of Contents 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.
Adjusted EBITDA is defined as net income (loss), adjusted to exclude undistributed equity in losses (earnings), income tax provision, interest expense, depreciation and amortization, mark to market gain on interest rate derivatives, intangible asset impairments, stock compensation expense, and other items detailed in the table above that are consistent with exclusions permitted by our debt agreements.
Adjusted EBITDA is defined as net income (loss), adjusted to exclude undistributed equity in (earnings) losses, income tax provision (benefit), interest expense, depreciation and amortization, mark to market (gain) loss on interest rate derivatives, stock compensation expense, and other items detailed in the table above that are consistent with exclusions permitted by our debt agreements.
To indicate the transfer of control, the Company 37 Table of Contents 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 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.
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”) and the cost of capital.
In 2022, 2021 and 2020, net sales for the third and fourth quarters accounted for 54%, 56% and 62% of total annual net sales, respectively. The current market conditions and shifts in both consumer and retailer purchasing patterns has impacted the seasonality of the Company's net sales compared to historical trend.
In 2023, 2022 and 2021, net sales for the third and fourth quarters accounted for 57%, 54% and 56% of total annual net sales, respectively. The current market conditions and shifts in both consumer and retailer purchasing patterns has impacted the seasonality of the Company's net sales compared to historical trend.
All foreign currency 43 Table of Contents 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.
(2) Adjusted EBITDA is a non-GAAP financial measure which is defined in the Company’s debt agreements.
(2) Adjusted EBITDA is a non-GAAP financial measure that is defined in the Company’s debt agreements.
The Company has segmented its operations to reflect the manner in which management reviews and evaluates its results of operations. EQUITY INVESTMENTS The Company owns 24.7% interest in Grupo Vasconia S.A.B (“Vasconia”), an integrated manufacturer of aluminum products and one of Mexico's largest housewares companies.
The Company has segmented its operations to reflect the manner in which management reviews and evaluates its results of operations. EQUITY INVESTMENTS The Company owns 24.7% interest in Grupo Vasconia S.A.B (“Vasconia”), an integrated manufacturer of aluminum products and a housewares company in Mexico.
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.
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.
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%.
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 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%.
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 interest rate on outstanding borrowings under the Term Loan at December 31, 2022 was 7.9%. The Debt Agreements provide for customary restrictions and events of default. Restrictions include limitations on additional indebtedness, liens, acquisitions, investments and payment of dividends, among other things.
The interest rate on outstanding borrowings under the Term Loan at December 31, 2023 was 11.0%. 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.
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.
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.
For a discussion of 2021 compared to 2020 refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations", in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
For a discussion of 2022 compared to 2021 refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations”, in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Cash used in investing activities Net cash used in investing activities was $20.9 million in 2022, compared to $1.1 million in 2021. The change from 2022 compared to 2021 was attributable to the cash consideration of $18.0 million paid for the acquisition of S'well.
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 2023 compared to 2022 was attributable to the cash consideration of $18.0 million paid for the acquisition of S’well in 2022.
The Company does not hedge the translation of foreign currency profits into USD, as the Company regards this as an accounting exposure rather than an economic exposure. The aggregate gross notional values of foreign exchange contracts at December 31, 2022 and 2021 was $6.3 million and $22.6 million, respectively.
The Company 42 Table of Contents 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.
Actual amounts borrowed and interest rates may vary over time. Leases The Company has operating leases for corporate offices, distribution facilities, manufacturing plants, and certain vehicles. As of December 31, 2022, the Company had fixed lease payment obligations of $109.7 million, with $19.1 million payable within 12 months.
Actual amounts borrowed and interest rates may vary over time. 43 Table of Contents Leases The Company has operating leases for corporate offices, distribution facilities, manufacturing plants, and certain vehicles. As of December 31, 2023, the Company had fixed lease payment obligations of $101.7 million, with $19.0 million payable within 12 months.
Year Ended December 31, 2022 2021 2020 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 64.2 64.8 64.4 Gross margin 35.8 35.2 35.6 Distribution expenses 10.3 9.4 9.5 Selling, general and administrative expenses 21.3 18.1 20.3 Wallace facility remediation expense 0.7 0.1 — Goodwill and other intangible asset impairments — 1.7 2.6 Restructuring expenses 0.2 — — Income from operations 3.3 5.9 3.2 Interest expense (2.4) (1.8) (2.2) Mark to market gain (loss) on interest rate derivatives 0.3 0.1 (0.3) Income before income taxes and equity in (losses) earnings 1.2 4.2 0.7 Income tax provision (0.8) (1.9) (1.3) Equity in (losses) earnings, net of taxes (1.2) 0.1 0.2 Net (loss) income (0.8) % 2.4 % (0.4) % MANAGEMENT’S DISCUSSION AND ANALYSIS 2022 COMPARED TO 2021 Net Sales Net sales for the year ended December 31, 2022 were $727.7 million, a decrease of $135.2 million, or 15.7%, compared to net sales of $862.9 million in 2021.
Year Ended December 31, 2023 2022 2021 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 62.9 64.2 64.8 Gross margin 37.1 35.8 35.2 Distribution expenses 10.1 10.3 9.4 Selling, general and administrative expenses 22.2 21.3 18.1 Intangible asset impairments — — 1.7 Restructuring expenses 0.1 0.2 — Wallace facility remediation expense — 0.7 0.1 Income from operations 4.7 3.3 5.9 Interest expense (3.2) (2.4) (1.8) Mark to market (loss) gain on interest rate derivatives (0.1) 0.3 0.1 Gain on extinguishments of debt, net 0.1 — — Income before income taxes and equity in (losses) earnings 1.5 1.2 4.2 Income tax provision (0.9) (0.8) (1.9) Equity in (losses) earnings, net of taxes (1.8) (1.2) 0.1 Net (loss) income (1.2) % (0.8) % 2.4 % 31 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS 2023 COMPARED TO 2022 Net Sales Net sales for the year ended December 31, 2023 were $686.7 million, a decrease of $41.0 million, or 5.6%, compared to net sales of $727.7 million in 2022.
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.
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.
Further, the Company’s non-GAAP information may be different from the non-GAAP information provided by other companies including other companies within the home retail industry. 41 Table of Contents The following is a reconciliation of net income (loss) as reported to adjusted EBITDA for the years ended December 31, 2022 and 2021 and each fiscal quarter of 2022 and 2021: Three Months Ended Year Ended March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 December 31, 2022 (in thousands) Net income (loss) as reported $ 380 $ (3,460) (6,358) $ 3,272 $ (6,166) Undistributed equity (earnings) losses, net (416) (334) 8,159 2,058 9,467 Income tax provision (benefit) 1,673 (98) 1,845 2,308 5,728 Interest expense 3,767 3,732 4,581 5,125 17,205 Depreciation and amortization 4,899 5,038 4,598 5,001 19,536 Mark to market (gain) loss on interest rate derivatives (1,049) (304) (637) 19 (1,971) Stock compensation expense 1,174 1,365 1,026 281 3,846 Acquisition related expenses 1,119 75 109 170 1,473 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, before limitation $ 12,825 $ 6,951 $ 18,772 $ 19,654 $ 58,202 Pro forma projected synergies adjustment (3) 3,590 Pro forma adjusted EBITDA, before limitation (5) 61,792 Permitted non-recurring charge limitation (4) (3,589) Pro forma Adjusted EBITDA (5) $ 12,825 $ 6,951 $ 18,772 $ 19,654 $ 58,203 (1) For the year ended December 31, 2022, the warehouse relocation and redesign expenses included $0.5 million of expenses related to the International segment and $0.1 million of expenses related to the U.S. segment.
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 . 41 Table of Contents Three Months Ended Year Ended March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 December 31, 2022 (in thousands) Net income (loss) as reported $ 380 $ (3,460) $ (6,358) $ 3,272 $ (6,166) Undistributed equity (earnings) losses, net (416) (334) 8,159 2,058 9,467 Income tax provision (benefit) 1,673 (98) 1,845 2,308 5,728 Interest expense 3,767 3,732 4,581 5,125 17,205 Depreciation and amortization 4,899 5,038 4,598 5,001 19,536 Mark to market (gain) loss on interest rate derivatives (1,049) (304) (637) 19 (1,971) Stock compensation expense 1,174 1,365 1,026 281 3,846 Acquisition related expenses 1,119 75 109 170 1,473 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, before limitation $ 12,825 $ 6,951 $ 18,772 $ 19,654 $ 58,202 Pro forma projected synergies adjustment (3) 3,590 Pro forma adjusted EBITDA, before limitation (5) 61,792 Permitted non-recurring charge limitation (4) (3,589) Pro forma Adjusted EBITDA (5) $ 12,825 $ 6,951 $ 18,772 $ 19,654 $ 58,203 (1) For the year ended December 31, 2022, the warehouse relocation and redesign expenses included $0.5 million of expenses related to the International segment and $0.1 million of expenses related to the U.S. segment.
In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2022 average rates to 2021 local currency amounts, net sales decreased $127.7 million, or 14.9%, as compared to consolidated net sales in the corresponding period in 2021.
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, net sales decreased $41.0 million, or 5.6%, as compared to consolidated net sales in the corresponding period in 2022.
Dividends Dividends were declared in 2022 and 2021 as follows: Dividend per share Date declared Date of record Payment date $0.0425 March 9, 2021 May 3, 2021 May 17, 2021 $0.0425 June 24, 2021 August 2, 2021 August 16, 2021 $0.0425 August 3, 2021 November 1, 2021 November 15, 2021 $0.0425 November 2, 2021 January 31, 2022 February 14, 2022 $0.0425 March 8, 2022 May 2, 2022 May 16, 2022 $0.0425 June 23, 2022 August 1, 2022 August 15, 2022 $0.0425 August 2, 2022 November 1, 2022 November 15, 2022 $0.0425 November 1, 2022 February 1, 2023 February 15, 2023 On March 8, 2023, the Board of Directors declared a quarterly dividend of $0.0425 per share payable on May 15, 2023 to shareholders of record on May 1, 2023.
Dividends Dividends were declared in 2023 and 2022 as follows: Dividend per share Date declared Date of record Payment date $0.0425 March 8, 2022 May 2, 2022 May 16, 2022 $0.0425 June 23, 2022 August 1, 2022 August 15, 2022 $0.0425 August 2, 2022 November 1, 2022 November 15, 2022 $0.0425 November 1, 2022 February 1, 2023 February 15, 2023 $0.0425 March 8, 2023 May 1, 2023 May 15, 2023 $0.0425 June 22, 2023 August 1, 2023 August 15, 2023 $0.0425 August 2, 2023 November 1, 2023 November 15, 2023 $0.0425 November 7, 2023 February 1, 2024 February 15, 2024 On March 8, 2024, the Board of Directors declared a quarterly dividend of $0.0425 per share payable on May 15, 2024 to shareholders of record on May 1, 2024.
(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.
(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.
As of December 31, 2022 and 2021, the total availability under the ABL Agreement were as follows (in thousands): December 31, 2022 December 31, 2021 Maximum aggregate principal allowed $ 189,411 $ 150,000 Outstanding borrowings under the ABL Agreement (10,424) — Standby letters of credit (2,765) (3,659) Total availability under the ABL agreement $ 176,222 $ 146,341 Availability under the ABL Agreement is limited to the lesser of the $200.0 million commitment thereunder and the borrowing base and therefore depends on the valuation of certain current assets comprising the borrowing base.
As of December 31, 2023 and 2022, the total availability under the ABL Agreement were as follows (in thousands): December 31, 2023 December 31, 2022 Maximum aggregate principal allowed $ 181,919 $ 189,411 Outstanding borrowings under the ABL Agreement (60,395) (10,424) Standby letters of credit (2,894) (2,765) Total availability under the ABL agreement $ 118,630 $ 176,222 Availability under the ABL Agreement is limited to the lesser of the $200.0 million commitment thereunder and the borrowing base and therefore depends on the valuation of certain current assets comprising the borrowing base.
The borrowing capacity under the ABL Agreement will depend, in part, on eligible levels of accounts receivable and inventory that fluctuate regularly. Due to the seasonality of the Company’s business, this mean that the Company may have greater borrowing availability during the third and fourth quarters of each year.
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 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.
Future interest obligations associated with debt and interest rate swaps total $40.7 million, with $18.8 million payable within 12 months. The future interest obligations are estimated by assuming the amounts outstanding under the Company's debt agreements and the interest rates as of December 31, 2022 remain consistent to the end of the debt agreements.
Future interest obligations associated with debt and interest rate swaps total $65.1 million, with $19.4 million payable within 12 months. The future interest obligations are estimated by assuming the amounts outstanding under the Company’s debt agreements and the interest rates as of December 31, 2023 remain consistent to the end of the debt agreements.
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.
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, 2023, Vasconia's Board of Directors was comprised of 11 members of whom the Company had no designated members.
Capital expenditures Capital expenditures for the year ended December 31, 2022 were $3.0 million. Derivatives Interest Rate Swap Agreements The Company's net total outstanding notional value of interest rate swaps was $50 million at December 31, 2022.
Capital expenditures Capital expenditures for the year ended December 31, 2023 were $2.8 million. Derivatives Interest Rate Swap Agreements The Company’s net total outstanding notional value of interest rate swaps was $25 million at December 31, 2023.
This was partially offset by lower compensation expense. The increase in selling, general and administrative expense as a percentage of net sales is due to the unfavorable impact of fixed costs on lower sales volume. SG&A expenses for 2022 for the International segment were $17.0 million, a decrease of $3.7 million, or 17.9%, compared to $20.7 million for 2021.
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 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. Post-retirement benefit The Company assumed retirement benefit obligations, which are paid to certain former executives of a business acquired in 2006.
Post-retirement benefit The Company assumed retirement benefit obligations, which are paid to certain former executives of a business acquired in 2006. As of December 31, 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.
At December 31, 2022 and 2021, the Company had cash and cash equivalents of $23.6 million and $28.0 million, respectively, and working capital of $270.4 million at December 31, 2022, compared to $270.8 million at December 31, 2021.
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.
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. At December 31, 2021, borrowings under the Company’s ABL Agreement were nil and $252.1 million was outstanding under the Term Loan.
At December 31, 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, 2022, borrowings under the Company’s ABL Agreement were $10.4 million and $245.9 million was outstanding under the Term Loan.
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.
Distribution expenses as a percentage of net sales were 10.3% and 9.4% in 2022 and 2021. Distribution expenses as a percentage of net sales for the U.S. segment were approximately 9.1% in 2022 and 8.0% in 2021. Distribution expenses in 2022 include $0.1 million for the Company's distribution operation redesign costs.
Distribution expenses as a percentage of net sales for the U.S. segment were approximately 8.8% in 2023 and 9.1% in 2022. 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. warehouses.
Covenant Calculations Adjusted EBITDA (a non-GAAP financial measure), which is defined in the Company’s Debt Agreements, is used in the calculation of the Fixed Charge Coverage Ratio, Secured Net Leverage Ratio, Total Leverage Ratio and Total Net Leverage Ratio, which are required to be provided to the Company’s lenders pursuant to its Debt Agreements.
Covenant Calculations Adjusted EBITDA (a non-GAAP financial measure), which is defined in the Company’s Debt Agreements, is used in the calculation of the Fixed Charge Coverage Ratio, Secured Net Leverage Ratio, Total Leverage Ratio and Total Net Leverage Ratio, which are required to be provided to the Company’s lenders pursuant to its Debt Agreements. 39 Table of Contents Non-GAAP financial measure Adjusted EBITDA is a non-GAAP financial measure within the meaning of Regulation G and Item 10(e) of Regulation S-K, each promulgated by the SEC.
The Company performed its annual impairment assessment of its U.S. reporting unit as of October 1, 2022 by comparing the fair value of the reporting unit with its carrying value. The Company performed the analysis using a discounted cash flow and market multiple method.
The Company performed the analysis using a discounted cash flow and market multiple method. As of October 1, 2023, the fair value of the U.S. reporting unit exceeded the carrying value of goodwill by 4%.
The current and non-current portions of the Company’s Term Loan facility included in the consolidated balance sheets are presented as follows (in thousands): December 31, 2022 December 31, 2021 Current portion of Term Loan facility: Estimated Excess Cash Flow principal payment $ — $ 7,200 Estimated unamortized debt issuance costs — (1,429) 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 Estimated unamortized debt issuance costs (3,054) (3,054) Total Non-current portion of Term Loan facility $ 242,857 $ 241,873 As of December 31, 2022, there is no Excess Cash Flow Payment due for 2023.
The current and non-current portions of the Company’s Term Loan facility included in the consolidated balance sheets are presented as follows (in thousands): December 31, 2023 December 31, 2022 Current portion of Term Loan facility: Term Loan facility payment $ 7,500 $ — Estimated unamortized debt issuance costs (2,758) — Total Current portion of Term Loan facility $ 4,742 $ — Non-current portion of Term Loan facility: Term Loan facility, net of current portion $ 142,500 $ 245,911 Estimated unamortized debt issuance costs (6,666) (3,054) Total Non-current portion of Term Loan facility $ 135,834 $ 242,857 As of December 31, 2023, there is no Excess Cash Flow Payment due for 2024.
Cash used in financing activities Net cash used in financing activities was $7.6 million in 2022 compared to $44.0 million in 2021.
Cash used in financing activities Net cash used in financing activities was $61.1 million in 2023 compared to $7.6 million in 2022.
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.
Indebtedness 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.
RESTRUCTURING 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 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. In 2022, the Company’s 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 payment was made in 2023.
Restructuring expenses 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 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. In 2022, the Company’s 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 payment was made in 2023.
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.
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.
As of October 1, 2022, the fair value of the Company’s indefinite-lived trade names exceeded their respective carrying values by 12%. Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
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.
As of October 1, 2022, the fair value of the U.S. reporting unit exceeded the carrying value of goodwill by 10%. The Company completed the quantitative impairment analysis for its indefinite-lived assets as of October 1, 2022, by comparing the fair value of the indefinite-lived trade names to their respective carrying value using a relief from royalty method.
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%.
The net loss of $0.3 million was included in equity in earnings, net of taxes, in the accompanying consolidated statements of operations for the year ended December 31, 2021. 30 Table of Contents On July 29, 2021, the Company sold 2.2 million shares further reducing its ownership from approximately 27% to 24.7% in Vasconia for net cash proceeds of approximately $3.1 million, as a result the Company recorded a gain of $1.0 million, after decreasing the Company’s investment balance.
On July 29, 2021, the Company sold 2.2 million shares further reducing its ownership from approximately 27% to 24.7% in Vasconia for net cash proceeds of approximately $3.1 million, as a result the Company recorded a gain of $1.0 million, after decreasing the Company’s investment balance. The gain on the sale resulted in a tax expense of $0.1 million.
In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2022 average exchange rates to 2021 local currency amounts, net sales decreased approximately 31.1%. The decrease was due to similar factors as was experienced in the U.S. segment.
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 generally weak demand in European channels caused by macroeconomic factors.
Per the Term Loan, when the Company makes an Excess Cash 39 Table of Contents 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.
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. 37 Table of Contents The maximum borrowing amount under the ABL Agreement may be increased to up to $250.0 million if certain conditions are met.
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 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.
Net sales for the U.S. segment in 2022 were $669.2 million, a decrease of $101.4 million, or 13.2%, compared to net sales of $770.6 million in 2021. Net sales for the U.S. segment’s Kitchenware product category in 2022 were $402.9 million, a decrease of $84.9 million, or 17.4%, compared to net sales of $487.8 million in 2021.
Net sales for the U.S. segment in 2023 were $633.1 million, a decrease of $36.1 million, or 5.4%, compared to net sales of $669.2 million in 2022. Net sales for the U.S. segment’s Kitchenware product category in 2023 were $386.7 million, a decrease of $16.2 million, or 4.0%, compared to net sales of $402.9 million in 2022.
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.
Additionally, a loss of $2.0 million was recognized for the proportionate share of the diluted ownership for amounts previously recognized in accumulated other comprehensive loss. The net loss of $0.3 million was included in equity in earnings, net of taxes, in the accompanying consolidated statements of operations for the year ended December 31, 2021.
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. 34 Table of Contents 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.
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.
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.
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 net sales decrease in the U.S. segment’s Kitchenware product category was driven by lower sales for kitchen tools and gadgets, cutlery and board, and bakeware products. Net sales for the U.S. segment’s Tableware product category in 2022 were $148.8 million, a decrease of $18.4 million, or 11.0%, compared to net sales of $167.2 million for 2021.
The net sales decrease in the U.S. segment’s Kitchenware product category was driven by lower sales for kitchen tools and gadgets, cutlery and board, and bakeware products.
Management also uses this non-GAAP information as an indicator of business performance. Adjusted EBITDA, as discussed above, is also one of the measures used to calculate financial covenants required to be provided to the Company’s lenders pursuant to its Debt Agreements.
Adjusted EBITDA, as discussed above, is also one of the measures used to calculate financial covenants required to be provided to the Company’s lenders pursuant to its Debt Agreements. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, the Company’s financial performance measures prepared in accordance with GAAP.
This was partially offset by payments for stock repurchases in the 2022 period. MATERIAL CASH REQUIREMENTS The Company’s material cash requirements include the following: Debt 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.
MATERIAL CASH REQUIREMENTS The Company’s material cash requirements include the following: Debt 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.
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.
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.
Distribution expenses as a percentage of net sales for the International segment were approximately 23.8% in 2022 and 20.3% in 2021, respectively. Distribution expenses in 2022 include $0.5 million for the Company’s relocation costs for its new warehouse distribution facility in the Netherlands.
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 the relocation expenses, distribution expenses, were 22.3% and 21.5% f or 2023 and 2022, re spectively.
The decrease from 2022 compared to 2021 was attributable to lower net income generated in 2022 compared to 2021 and timing of payments for accounts payable and accrued expenses, offset by a decrease in inventory investment and the timing of collections related to the Company's accounts receivable.
Cash provided by operating activities Net cash provided by operating activities was $56.4 million in 2023, compared to $24.3 million in 2022. 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.
The mark to market amount represents the change in the fair value on the Company's interest rate derivatives that have not been designated as hedging instruments. These derivatives were entered into for purposes of locking-in a fixed interest rate on the Company's variable interest rate debt. The increase in gain was a result of increases in interest rates during 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.
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.
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.
On November 1, 2022, the Company entered into a transition agreement with Jeffrey Siegel, which provides for termination of his employment with the Company, effective March 31, 2023. The transition agreement amends Mr. Siegel’s employment agreement which was to expire on December 31, 2022.
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.
On November 1, 2022, the Company entered into a transition agreement with Jeffrey Siegel, which provides for termination of his employment with the Company, effective March 31, 2023. The transition agreement amends Mr. Siegel’s employment agreement which was to expire on December 31, 2022.
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.
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. 33 Table of Contents 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 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 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.
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.
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.
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).
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 Company recorded equity in (losses) earnings of Vasconia, net of taxes, of $(3.3) million, $1.8 million and $1.5 million for the years ended December 31, 2022, 2021 and 2020, respectively. SEASONALITY The Company’s business and working capital needs are seasonal, with a majority of sales occurring in the third and fourth quarters.
The Company continues to apply the equity method of accounting. 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.
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 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.
The net loss, including taxes, of $0.5 million was included in equity in earnings, net of taxes, in the accompanying consolidated statements of operations for the year ended December 31, 2021. The Company continues to apply the equity method of accounting.
Additionally, a loss of $1.4 million was 29 Table of Contents 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.
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.
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 decrease was across both tableware and flatware sales. Net sales for the U.S. segment’s Home Solutions products category in 2022 were $117.5 million, an increase of $1.9 million, or 1.6%, compared to net sales of $115.6 million in 2021.
Net sales for the U.S. 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.
The increase in gross margin percentage was attributable to customer mix and sales price increases, partially offset by the impact of fixed overhead costs on lower sales volume in 2022. Distribution expenses Distribution expenses were $74.9 million for the 2022 period as compared to $80.8 million for the 2021 period.
However, this was partially offset by an increase in gross margin percentage was attributable to lower product costs and inbound freight rates. Distribution expenses Distribution expenses were $69.2 million for the 2023 period as compared to $74.9 million for the 2022 period. Distribution expenses as a percentage of net sales were 10.1% and 10.3% in 2023 and 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+1 added−0 removed8 unchanged
Biggest changeThe Company manages its exposure to counterparty credit risk by dealing with counterparties who are international financial institutions with investment grade credit ratings. Although the Company’s credit risk is the replacement cost at the estimated fair value of these instruments, the Company believes that the risk of incurring credit risk losses as a result of counterparty nonperformance is remote.
Biggest changeAlthough the Company’s credit risk is the replacement cost at the estimated fair value of these instruments, the Company believes that the risk of incurring credit risk losses as a result of counterparty nonperformance is remote. The Company does not enter into derivative financial instruments for trading purposes. Item 8.
For the year ended December 31, 2022, approximately 8% of the Company’s net sales revenue was in foreign currencies, compared to 9% for the year ended December 31, 2021. These sales were primarily denominated in U.K. pounds, Euros and Canadian dollars. The Company makes most of its inventory purchases from Asia and uses the U.S. dollar for such purchases.
For the year ended December 31, 2023, approximately 8% of the Company’s net sales revenue was in foreign currencies, compared to 8% for the year ended December 31, 2022. These sales were primarily denominated in U.K. pounds, Euros and Canadian dollars. The Company makes most of its inventory purchases from Asia and uses the U.S. dollar for such purchases.
In the Company’s consolidated statements of operations, foreign exchange gains and losses are recognized in SG&A expense. A hypothetical 10% change in exchange rates, with the U.S. dollar as the functional and reporting currency, would result in an increase of approximately $0.9 million in SG&A expenses.
In the Company’s consolidated statements of operations, foreign exchange gains and losses are recognized in SG&A expense. A hypothetical 10% change in exchange rates, with the U.S. dollar as the functional and reporting currency, would result in an increase of approximately $1.2 million in SG&A expenses.
The Company does not hedge the translation of foreign currency profits into USD, as the Company regards this as an accounting exposure rather than an economic exposure. The aggregate gross notional values of foreign exchange contracts at December 31, 2022 and 2021 was $6.3 million and $22.6 million, respectively.
The Company does not hedge the translation of foreign currency profits into USD, as the Company regards this as an accounting exposure rather than an economic exposure. The aggregate gross notional values of foreign exchange contracts at December 31, 2023 and 2022 was $9.8 million and $6.3 million, respectively.
The Company entered into interest rate swap agreement in April 2018 to manage interest rate exposure in connection with its variable interest rate borrowings with an aggregate notional value of $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.
The Company entered into interest rate swap agreements in June 2019, to manage interest rate exposure in connection with its variable interest rate borrowings with an aggregate notional value of $25.0 million at December 31, 2023.
The Company does not enter into derivative financial instruments for trading purposes. Item 8. Financial Statements and Supplementary Data The Company’s consolidated financial statements and accompanying notes listed in Part IV, Item 15 commencing on page F-1 are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None
Financial Statements and Supplementary Data The Company’s consolidated financial statements and accompanying notes listed in Part IV, Item 15 commencing on page F-1 are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
A hypothetical and instantaneous 100 basis point increase in the Company’s variable interest rates would increase interest expense by approximately $2.6 million over a twelve month period. The sensitivity analysis above assumes interest rate changes are instantaneous and parallel shifts in the yield curve occur. Interest rate swaps expose the Company to counterparty credit risk for nonperformance.
A hypothetical and instantaneous 100 basis point increase 44 Table of Contents in the Company’s variable interest rates would increase interest expense by approximately $2.3 million over a twelve month period. The sensitivity analysis above assumes interest rate changes are instantaneous and parallel shifts in the yield curve occur.
As of December 31, 2022, approximately $206.3 million of the Company’s debt carries a variable rate of interest, as compared to $177.1 million at December 31, 2021. The remainder of the debt at December 31, 2022 45 Table of Contents (approximately $50.0 million) carries a fixed rate of interest through the use of interest rate swaps.
As of December 31, 2023, approximately $185.4 million of the Company’s debt carries a variable rate of interest, as compared to $206.3 million at December 31, 2022. The remainder of the debt at December 31, 2023 (approximately $25.0 million) carries a fixed rate of interest through the use of interest rate swaps.
Added
Interest rate swaps expose the Company to counterparty credit risk for nonperformance. The Company manages its exposure to counterparty credit risk by dealing with counterparties who are international financial institutions with investment grade credit ratings.

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