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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-Q
__________________________
(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2022
or

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission File Number: 0-19254
__________________________
LIFETIME BRANDS, INC.
(Exact name of registrant as specified in its charter)
__________________________

Delaware | 11-2682486
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)

1000 Stewart Avenue, Garden City, New York, 11530
(Address of principal executive offices) (Zip Code)
(516) 683-6000
(Registrant’s telephone number, including area code)
__________________________
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, $.01 par value |  | LCUT |  | The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ |  | Accelerated filer | ☒
Non-accelerated filer | ☐ |  | Smaller reporting company | ☒
|  |  | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant’s common stock outstanding as of October 31, 2022 was 22,004,268.

Table of Contents
LIFETIME BRANDS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2022
INDEX

|  | Page No.
Part I. | Financial Information |
Item 1. | Financial Statements |
| Condensed Consolidated Balance Sheets – September 30, 2022 (unaudited) and December 31, 2021 | 2
| Condensed Consolidated Statements of Operations (unaudited) – Three and Nine Months Ended September 30, 2022 and 2021 | 3
| Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited) – Three and Nine Months Ended September 30, 2022 and 2021 | 4
| Condensed Consolidated Statements of Stockholders’ Equity (unaudited) –Three and Nine Months Ended September 30, 2022 and 2021 | 5
| Condensed Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended September 30, 2022 and 2021 | 7
| Notes to Condensed Consolidated Financial Statements (unaudited) | 8
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 46
Item 4. | Controls and Procedures | 46
Part II. | Other Information |
Item 1. | Legal Proceedings | 46
Item 1A. | Risk Factors | 46
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 46
Item 5. | Other Information | 47
Item 6. | Exhibits | 48
Signatures | 49

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

| September 30, 2022 |  | December 31, 2021
| (unaudited) |  |
ASSETS |  |  |
CURRENT ASSETS |  |  |
Cash and cash equivalents | $ | 5,930 |  |  | $ | 27,982 |
Accounts receivable, less allowances of $13,984 at September 30, 2022 and $16,544 at December 31, 2021 | 135,343 |  |  | 175,076 |
Inventory | 269,723 |  |  | 270,516 |
Prepaid expenses and other current assets | 10,091 |  |  | 11,499 |
Income taxes receivable | 2,583 |  |  | — |
TOTAL CURRENT ASSETS | 423,670 |  |  | 485,073 |
PROPERTY AND EQUIPMENT, net | 17,737 |  |  | 20,748 |
OPERATING LEASE RIGHT-OF-USE ASSETS | 76,454 |  |  | 86,487 |
INVESTMENTS | 14,424 |  |  | 22,295 |
INTANGIBLE ASSETS, net | 217,526 |  |  | 212,678 |
OTHER ASSETS | 7,117 |  |  | 1,793 |
TOTAL ASSETS | $ | 756,928 |  |  | $ | 829,074 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
CURRENT LIABILITIES |  |  |
Current maturity of term loan | $ | — |  |  | $ | 5,771 |
Accounts payable | 42,960 |  |  | 82,573 |
Accrued expenses | 79,117 |  |  | 112,241 |
Income taxes payable | — |  |  | 604 |
Current portion of operating lease liabilities | 13,859 |  |  | 12,612 |
TOTAL CURRENT LIABILITIES | 135,936 |  |  | 213,801 |
OTHER LONG-TERM LIABILITIES | 16,656 |  |  | 12,616 |
INCOME TAXES PAYABLE, LONG-TERM | 1,472 |  |  | 1,472 |
OPERATING LEASE LIABILITIES | 78,534 |  |  | 90,824 |
DEFERRED INCOME TAXES | 12,981 |  |  | 12,842 |
REVOLVING CREDIT FACILITY | 32,545 |  |  | — |
TERM LOAN | 242,505 |  |  | 241,873 |
STOCKHOLDERS’ EQUITY |  |  |
Preferred stock, $1.00 par value, shares authorized: 100 shares of Series A and 2,000,000 shares of Series B; none issued and outstanding | — |  |  | — |
Common stock, $0.01 par value, shares authorized: 50,000,000 at September 30, 2022 and December 31, 2021; shares issued and outstanding: 22,004,268 at September 30, 2022 and 22,018,016 at December 31, 2021 | 220 |  |  | 220 |
Paid-in capital | 274,301 |  |  | 271,556 |
Retained earnings | 437 |  |  | 17,419 |
Accumulated other comprehensive loss | (38,659) |  |  | (33,549) |
TOTAL STOCKHOLDERS’ EQUITY | 236,299 |  |  | 255,646 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 756,928 |  |  | $ | 829,074 |

See accompanying notes to unaudited condensed consolidated financial statements.
- 2 -

Table of Contents
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30, |
| 2022 |  | 2021 |  | 2022 |  | 2021 |
Net sales | $ | 186,590 |  |  | $ | 224,777 |  |  | $ | 520,621 |  |  | $ | 607,066 |  |
Cost of sales | 118,757 |  |  | 141,662 |  |  | 334,553 |  |  | 391,790 |  |
Gross margin | 67,833 |  |  | 83,115 |  |  | 186,068 |  |  | 215,276 |  |
Distribution expenses | 18,641 |  |  | 18,893 |  |  | 55,239 |  |  | 56,470 |  |
Selling, general and administrative expenses | 36,462 |  |  | 42,042 |  |  | 114,208 |  |  | 116,379 |  |
Wallace facility remediation expense | 5,140 |  |  | 500 |  |  | 5,140 |  |  | 500 |  |
Income from operations | 7,590 |  |  | 21,680 |  |  | 11,481 |  |  | 41,927 |  |
Interest expense | (4,581) |  |  | (3,835) |  |  | (12,080) |  |  | (11,668) |  |
Mark to market gain on interest rate derivatives | 637 |  |  | 120 |  |  | 1,990 |  |  | 664 |  |
Income before income taxes and equity in (losses) earnings | 3,646 |  |  | 17,965 |  |  | 1,391 |  |  | 30,923 |  |
Income tax provision | (1,845) |  |  | (5,589) |  |  | (3,420) |  |  | (9,837) |  |
Equity in (losses) earnings, net of taxes | (8,159) |  |  | 195 |  |  | (7,409) |  |  | 341 |  |
NET (LOSS) INCOME | $ | (6,358) |  |  | $ | 12,571 |  |  | $ | (9,438) |  |  | $ | 21,427 |  |
BASIC (LOSS) INCOME PER COMMON SHARE | $ | (0.30) |  |  | $ | 0.58 |  |  | $ | (0.44) |  |  | $ | 1.00 |  |
DILUTED (LOSS) INCOME PER COMMON SHARE | $ | (0.30) |  |  | $ | 0.57 |  |  | $ | (0.44) |  |  | $ | 0.98 |  |

See accompanying notes to unaudited condensed consolidated financial statements.
- 3 -

Table of Contents
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Net (loss) income | $ | (6,358) |  |  | $ | 12,571 |  |  | $ | (9,438) |  |  | $ | 21,427 |
Other comprehensive (loss) income, net of taxes: |  |  |  |  |  |  |
Translation adjustment | (2,686) |  |  | 240 |  |  | (7,109) |  |  | 4,463 |
Net change in cash flow hedges | 354 |  |  | 992 |  |  | 1,912 |  |  | 1,055 |
Effect of retirement benefit obligations | 29 |  |  | 33 |  |  | 87 |  |  | 101 |
Other comprehensive (loss) income, net of taxes | (2,303) |  |  | 1,265 |  |  | (5,110) |  |  | 5,619 |
Comprehensive (loss) income | $ | (8,661) |  |  | $ | 13,836 |  |  | $ | (14,548) |  |  | $ | 27,046 |

See accompanying notes to unaudited condensed consolidated financial statements.
- 4 -

Table of Contents
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)

|  | Common stock |  | Paid-in capital |  | Retained earnings |  | Accumulated other comprehensive loss |  | Total
|  | Shares |  | Amount |  |  |  |
BALANCE AT DECEMBER 31, 2021 |  | 22,018 |  |  | $ | 220 |  |  | $ | 271,556 |  |  | $ | 17,419 |  |  | $ | (33,549) |  |  | $ | 255,646 |
Net income |  | — |  |  | — |  |  | — |  |  | 380 |  |  | — |  |  | 380 |
Other comprehensive income, net of taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | 521 |  |  | 521 |
Performance shares issued to employees |  | 167 |  |  | 2 |  |  | (2) |  |  | — |  |  | — |  |  | — |
Net issuance of restricted shares granted to employees |  | 207 |  |  | 2 |  |  | (2) |  |  | — |  |  | — |  |  | — |
Stock compensation expense |  | — |  |  | — |  |  | 1,151 |  |  | — |  |  | — |  |  | 1,151 |
Net exercise of stock options |  | 22 |  |  | — |  |  | 233 |  |  | — |  |  | — |  |  | 233 |
Shares effectively repurchased for required employee withholding taxes |  | (45) |  |  | — |  |  | (568) |  |  | — |  |  | — |  |  | (568) |
Stock repurchase |  | (51) |  |  | (1) |  |  | (670) |  |  | — |  |  | — |  |  | (671) |
Dividends (1) |  | — |  |  | — |  |  | — |  |  | (960) |  |  | — |  |  | (960) |
BALANCE AT MARCH 31, 2022 |  | 22,318 |  |  | $ | 223 |  |  | $ | 271,698 |  |  | $ | 16,839 |  |  | $ | (33,028) |  |  | $ | 255,732 |
Net loss |  | — |  |  | — |  |  | — |  |  | (3,460) |  |  | — |  |  | (3,460) |
Other comprehensive loss, net of taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | (3,328) |  |  | (3,328) |
Net issuance of restricted shares granted to employees and directors |  | 54 |  |  | 1 |  |  | (1) |  |  | — |  |  | — |  |  | — |
Stock compensation expense |  | — |  |  | — |  |  | 1,280 |  |  | — |  |  | — |  |  | 1,280 |
Net exercise of stock options |  | 3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Shares effectively repurchased for required employee withholding taxes |  | (30) |  |  | (1) |  |  | (369) |  |  | — |  |  | — |  |  | (370) |
Stock repurchase |  | (286) |  |  | (2) |  |  | 671 |  |  | (4,197) |  |  | — |  |  | (3,528) |
Dividends (1) |  | — |  |  | — |  |  | — |  |  | (958) |  |  | — |  |  | (958) |
BALANCE AT JUNE 30, 2022 |  | 22,059 |  |  | $ | 221 |  |  | $ | 273,279 |  |  | $ | 8,224 |  |  | $ | (36,356) |  |  | $ | 245,368 |
Net loss |  | — |  |  | — |  |  | — |  |  | (6,358) |  |  | — |  |  | (6,358) |
Other comprehensive loss, net of taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,303) |  |  | (2,303) |
Net issuance of restricted shares granted to employees and directors |  | (1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock compensation expense |  | — |  |  | — |  |  | 1,023 |  |  | — |  |  | — |  |  | 1,023 |
Shares effectively repurchased for required employee withholding taxes |  | (1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock repurchase |  | (53) |  |  | (1) |  |  | (1) |  |  | (477) |  |  | — |  |  | (479) |
Dividends (1) |  | — |  |  | — |  |  | — |  |  | (952) |  |  | — |  |  | (952) |
BALANCE AT SEPTEMBER 30, 2022 |  | 22,004 |  |  | $ | 220 |  |  | $ | 274,301 |  |  | $ | 437 |  |  | $ | (38,659) |  |  | $ | 236,299 |

(1) Cash dividends declared per share of common stock were $0.1275 and $0.1275 in the nine months ended September 30, 2022 and 2021, respectively.
- 5 -

Table of Contents

|  | Common stock |  | Paid-in capital |  | Retained earnings |  | Accumulated other comprehensive loss |  | Total
|  | Shares |  | Amount |  |  |  |
BALANCE AT DECEMBER 31, 2020 |  | 21,755 |  |  | $ | 218 |  |  | $ | 268,666 |  |  | $ | 424 |  |  | $ | (39,172) |  |  | $ | 230,136 |
Net income |  | — |  |  | — |  |  | — |  |  | 3,067 |  |  | — |  |  | 3,067 |
Other comprehensive income, net of taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,683 |  | 1,683 |
Performance shares issued to employees |  | 150 |  |  | 1 |  |  | (1) |  |  | — |  |  | — |  |  | — |
Net issuance of restricted shares granted to employees |  | 177 |  |  | 2 |  |  | (2) |  |  | — |  |  | — |  |  | — |
Stock compensation expense |  | — |  |  | — |  |  | 1,439 |  |  | — |  |  | — |  |  | 1,439 |
Net exercise of stock options |  | 44 |  |  | — |  |  | 184 |  |  | — |  |  | — |  |  | 184 |
Shares effectively repurchased for required employee withholding taxes |  | (146) |  |  | (1) |  |  | (2,159) |  |  | — |  |  | — |  |  | (2,160) |
Dividends (1) |  | — |  |  | — |  |  | — |  |  | (943) |  |  | — |  |  | (943) |
BALANCE AT MARCH 31, 2021 |  | 21,980 |  |  | $ | 220 |  |  | $ | 268,127 |  |  | $ | 2,548 |  |  | $ | (37,489) |  |  | $ | 233,406 |
Net income |  | — |  |  | — |  |  | — |  |  | 5,789 |  |  | — |  |  | 5,789 |
Other comprehensive income, net of taxes |  |  |  |  |  |  |  |  |  | 2,671 |  | 2,671 |
Net issuance of restricted shares granted to employees and directors |  | 44 |  |  | 0 |  |  | 0 |  |  | — |  |  | — |  |  | — |
Stock compensation expense |  | — |  |  | — |  |  | 1,323 |  |  | — |  |  | — |  |  | 1,323 |
Net exercise of stock options |  | 50 |  |  | 1 |  |  | 550 |  |  | — |  |  | — |  |  | 551 |
Shares effectively repurchased for required employee withholding taxes |  | (67) |  |  | (1) |  |  | (1,024) |  |  | — |  |  | — |  |  | (1,025) |
Dividends (1) |  | — |  |  | — |  |  | — |  |  | (914) |  |  | — |  |  | (914) |
BALANCE AT JUNE 30, 2021 |  | 22,007 |  |  | $ | 220 |  |  | $ | 268,976 |  |  | $ | 7,423 |  |  | $ | (34,818) |  |  | $ | 241,801 |
Net income |  | — |  |  | — |  |  | — |  |  | 12,571 |  |  | — |  |  | 12,571 |
Other comprehensive income, net of taxes |  |  |  |  |  |  |  |  |  | 1,265 |  | 1,265 |
Stock compensation expense |  | — |  |  | — |  |  | 1,192 |  |  | — |  |  | — |  |  | 1,192 |
Net exercise of stock options |  | 12 |  |  | — |  |  | 142 |  |  | — |  |  | — |  |  | 142 |
Shares effectively repurchased for required employee withholding taxes |  | (1) |  |  | — |  |  | (1) |  |  | — |  |  | — |  |  | (1) |
Dividends (1) |  | — |  |  | — |  |  | — |  |  | (995) |  |  | — |  |  | (995) |
BALANCE AT SEPTEMBER 30, 2021 |  | 22,018 |  |  | $ | 220 |  |  | $ | 270,309 |  |  | $ | 18,999 |  |  | $ | (33,553) |  |  | $ | 255,975 |

(1) Cash dividends declared per share of common stock were $0.1275 and $0.1275 in the nine months ended September 30, 2022 and 2021, respectively.
See accompanying notes to unaudited condensed consolidated financial statements.
- 6 -

Table of Contents
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

| Nine Months Ended September 30,
| 2022 |  | 2021
OPERATING ACTIVITIES |  |  |
Net (loss) income | $ | (9,438) |  |  | $ | 21,427 |
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |  |  |
Depreciation and amortization | 14,535 |  |  | 17,560 |
Amortization of financing costs | 1,305 |  |  | 1,309 |
Mark to market (gain) on interest rate derivatives | (1,990) |  |  | (664) |
Non-cash lease expense | (1,055) |  |  | (1,089) |
Recovery for doubtful accounts | (140) |  |  | (166) |
Stock compensation expense | 3,565 |  |  | 3,973 |
Undistributed losses (earnings) from equity investment, net of taxes | 7,409 |  |  | (341) |
Changes in operating assets and liabilities (excluding the effects of business acquisitions) |  |  |
Accounts receivable | 38,765 |  |  | 659 |
Inventory | (3,694) |  |  | (54,117) |
Prepaid expenses, other current assets and other assets | (177) |  |  | 4,733 |
Accounts payable, accrued expenses and other liabilities | (66,062) |  |  | 24,093 |
Income taxes receivable | (2,583) |  |  | — |
Income taxes payable | (525) |  |  | (2,779) |
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | (20,085) |  |  | 14,598 |
INVESTING ACTIVITIES |  |  |
Purchases of property and equipment | (1,975) |  |  | (3,361) |
Proceeds from sale of shares of equity method investment | — |  |  | 3,061 |
Acquisitions | (17,956) |  |  | (178) |
NET CASH USED IN INVESTING ACTIVITIES | (19,931) |  |  | (478) |
FINANCING ACTIVITIES |  |  |
Proceeds from revolving credit facility | 264,184 |  |  | 16,845 |
Repayments of revolving credit facility | (230,365) |  |  | (42,531) |
Repayments of term loan | (6,216) |  |  | (10,478) |
Payment of financing costs | (882) |  |  | — |
Payments for finance lease obligations | (24) |  |  | (71) |
Payments of tax withholding for stock based compensation | (938) |  |  | (3,186) |
Proceeds from the exercise of stock options | 233 |  |  | 877 |
Payments for stock repurchase | (4,678) |  |  | — |
Cash dividends paid | (2,887) |  |  | (2,913) |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 18,427 |  |  | (41,457) |
Effect of foreign exchange on cash | (463) |  |  | 56 |
DECREASE IN CASH AND CASH EQUIVALENTS | (22,052) |  |  | (27,281) |
Cash and cash equivalents at beginning of period | 27,982 |  |  | 35,963 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 5,930 |  |  | $ | 8,682 |

See accompanying notes to unaudited condensed consolidated financial statements.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Organization and business
Lifetime Brands, Inc. (“the Company”) designs, sources and sells branded kitchenware, tableware and other products used in the home and markets its products under a number of widely-recognized brand names and trademarks, which are either owned or licensed by the Company or through retailers’ private labels and their licensed brands. The Company’s products, which are targeted primarily towards consumers purchasing moderately priced kitchenware, tableware and housewares, are sold through virtually every major level of trade. The Company generally markets several lines within each of its product categories under more than one brand. The Company sells its products directly to retailers (who may resell the Company’s products through their websites) and, to a lesser extent, to distributors. The Company also sells a limited selection of its products directly to consumers through its own websites.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, which consist of normal recurring accruals and non-recurring adjustments, considered necessary for a fair presentation have been included.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
The Company’s business and working capital needs are seasonal, with a majority of sales occurring in the third and fourth quarters. In 2021 and 2020, net sales for the third and fourth quarters accounted for 56% and 62% of total annual net sales, respectively. The increase in the Company's net sales in the first half of the year in 2021 compared to historical trend was a result of increased demand for the Company's products due to shifts in consumer purchasing patterns. In anticipation of the pre-holiday shipping season, inventory levels increase primarily in the June through October time period. In 2022, the Company's inventory trends may deviate from historical trends due to a change in inventory strategy to react to the current market conditions impacting the Company and retailers.
The Company’s current estimates contemplate current and expected future conditions, as applicable, however it is reasonably possible that actual conditions could differ from expectations, which could materially affect the Company’s results of operations and financial position.
Revenue recognition
The Company sells products wholesale, to retailers and distributors, and retail, directly to the consumer. Wholesale sales and retail sales are primarily recognized at the point in time the customer obtains control of the products, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products.
The Company offers various sales incentives and promotional programs to its customers in the normal course of business. These incentives and promotions typically include arrangements such as cooperative advertising, buydowns, volume rebates and discounts. These arrangements and an estimate for products expected to be returned are reflected as reductions of revenue at the time of sale. See NOTE 2 —REVENUE to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.
Cost of sales
Cost of sales consist primarily of costs associated with the production and procurement of product, inbound freight costs, purchasing costs, royalties, and other product procurement related charges.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
Distribution expenses
Distribution expenses consist primarily of warehousing expenses and freight-out expenses. Handling costs of products sold are included in cost of sales.
Accounts receivable
The Company periodically reviews the collectability of its accounts receivable and establishes allowances for estimated losses that could result from the inability of its customers to make required payments, taking into consideration customer credit history and financial condition, industry and market segment information, credit reports, and economic trends and conditions such as the impacts of the COVID-19 pandemic. A considerable amount of judgment is required to assess the ultimate realization of these receivables, including assessing the initial and on-going creditworthiness of the Company’s customers.
The Company also maintains an allowance for anticipated customer deductions. The allowances for deductions are primarily based on contracts with customers. However, in certain cases, the Company does not have a formal contract and, therefore, customer deductions are non-contractual. To evaluate the reasonableness of non-contractual customer deductions, the Company analyzes currently available information and historical trends of deductions.
Receivable purchase agreement
The Company has an uncommitted Receivables Purchase Agreement with HSBC Bank USA, National Association (“HSBC”) as Purchaser (the “Receivables Purchase Agreement”). The sale of accounts receivable, under the Receivables Purchase Agreement with HSBC, is excluded from the Company’s unaudited condensed consolidated balance sheets at the time of sale and the related sale expense is included in selling, general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations. Pursuant to the Receivable Purchase Agreement, the Company sold to HSBC $30.0 million and $109.8 million of receivables during the three and nine months ended September 30, 2022, respectively and $33.7 million and $113.2 million of receivables during three and nine months ended September 30, 2021, respectively. Charges of $0.2 million and $0.1 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the three months ended September 30, 2022 and 2021, respectively. Charges of $0.5 million and $0.3 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022 and 2021, $20.2 million and $15.8 million, respectively, of receivables sold were outstanding and due to HSBC from customers.
Inventory
Inventory consists principally of finished goods sourced from third-party suppliers. Inventory also includes finished goods, work in process and raw materials related to the Company’s manufacture of sterling silver products. Inventory is priced using the lower of cost (first-in, first-out basis) or net realizable value. The Company estimates the selling price of its inventory on a product by product basis based on the current selling environment. If the estimated selling price is lower than the inventory’s cost, the Company reduces the value of the inventory to its net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and transportation.
The components of inventory were as follows (in thousands):

| September 30, 2022 |  | December 31, 2021
Finished goods | $ | 258,781 |  |  | $ | 259,916 |
Work in process | 277 |  |  | 159 |
Raw materials | 10,665 |  |  | 10,441 |
Total | $ | 269,723 |  |  | $ | 270,516 |

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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
Fair value of financial instruments
The Company determined that the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable are reasonable estimates of their fair values because of their short-term nature. The Company determined that the carrying amounts of borrowings outstanding under its ABL Agreement and Term Loan (each as defined in NOTE 7 — DEBT to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q) approximate fair value since such borrowings bear interest at variable market rates.
Derivatives
The Company accounts for derivative instruments in accordance with Accounting Standard Codification (“ASC”) Topic 815, Derivatives and Hedging (“ASC 815”). ASC 815 requires that all derivative instruments be recognized on the balance sheet at fair value as either an asset or liability. Changes in the fair value of derivatives that qualify as hedges and have been designated as part of a hedging relationship for accounting purposes have no net impact on earnings until the hedged item is recognized in earnings. The changes in the fair value of hedges are included in accumulated other comprehensive loss and are subsequently recognized in the Company’s unaudited condensed consolidated statements of operations to mirror the location of the hedged items impacting earnings. Changes in fair value of derivatives that do not qualify as hedging instruments for accounting purposes are recorded in the Company’s unaudited condensed consolidated statements of operations.
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. Additionally, if events or conditions were to indicate the carrying value of a reporting unit may not be recoverable, the Company would evaluate goodwill and other intangible assets for impairment at that time.
As it relates to the goodwill assessment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment testing described in the Financial Accounting Standards Board's (“FASB”) Accounting Standards Update No. (“ASU”) Topic 350, Intangibles – Goodwill and Other. If, after assessing qualitative factors, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative test is unnecessary and the Company’s goodwill is considered to be unimpaired. However, if based on the Company’s qualitative assessment it concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if the Company elects to bypass the qualitative assessment, the Company will proceed with performing the quantitative impairment test.
The Company reviews goodwill and other intangibles that have indefinite lives for impairment annually as of October 1 or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is based upon the best information available, including estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value.
The significant assumptions used under the income approach, or discounted cash flow method, are projected net sales, projected earnings before interest, tax, depreciation and amortization (“EBITDA”), terminal growth rates, and the cost of capital. Projected net sales, projected EBITDA and terminal growth rates were determined to be significant assumptions because they are three primary drivers of the projected cash flows in the discounted cash flow fair value model. Cost of capital was also determined to be a significant assumption as it is the discount rate used to calculate the current fair value of those projected cash flows. For the guideline public company method, significant assumptions relate to the selection of appropriate guideline companies and related valuation multiples used in the market analysis.
Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results. In addition, sustained declines in the Company’s stock price and related market capitalization could impact key assumptions in the overall estimated fair values of its reporting units and could result in non-cash impairment charges that could be material to the Company’s consolidated balance sheet or results of operations. Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting unit, an impairment charge will be recorded to reduce the reporting unit to fair value.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
The Company also evaluates qualitative factors to determine whether impairment indicators exist for its indefinite lived intangibles and performs quantitative tests if required. These tests can include the relief from royalty model or other valuation models.
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. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit or material adverse changes in the business climate that indicate that the carrying amount of an asset may be impaired. When impairment indicators are present, the recoverability of the asset is measured by comparing the carrying value of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset is not recoverable, the impairment to be recognized is measured by the amount by which the carrying amount of each long-lived asset exceeds the fair value of the asset. See NOTE 6 — INTANGIBLE ASSETS to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.
Leases
The Company determines if an arrangement is a lease at the inception of a contract. Operating lease right-of-use (“ROU”) assets are included in operating lease right-of-use assets on the condensed consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the current portion of operating lease liability and operating lease liabilities, respectively, on the condensed consolidated balance sheets. Finance leases are included in property and equipment, net, accrued expenses and other long-term liabilities. The Company’s finance leases are not material to the Company’s condensed consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The operating lease ROU asset may also include any lease payments made, adjusted for any prepaid or accrued rent payments, lease incentives, and initial direct costs incurred. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
For certain equipment leases, the Company applies a portfolio approach to effectively account for any ROU assets and lease liabilities. Leases with an initial term of twelve months or less are not recorded on the balance sheet.
The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized.
Employee healthcare
The Company self-insures certain portions of its health insurance plan. The Company maintains an accrual for estimated unpaid claims and claims incurred but not yet reported (“IBNR”). Although management believes that it uses the best information available to estimate IBNR claims, actual claims may vary significantly from estimated claims.
Restructuring expenses
Costs associated with restructuring activities are recorded at fair value when a liability has been incurred. Generally, a liability has been incurred at the communication date for severance. Charges associated with lease terminations, related to restructuring activities, are recognized at the effective date of the lease modification.
On October 18, 2022, the Company's management approved a reorganization plan related to a reduction in its U.K. workforce. The reorganization is the result of the Company’s efforts to realign the management and operating structure of the U.K. business in response to changing market conditions. The restructuring expense expected to be incurred with this plan is $0.6 million and will be recorded in the fourth quarter of 2022. The Company expects the restructuring to be completed in Q4 2022, and expects annual savings of $2.3 million associated with the plan.
On November 1, 2022, the Company entered into a transition agreement with its Executive Chairman, Jeffrey Siegel, which terminates his employment with the Company on March 31, 2023. The transition agreement amends Mr. Siegel’s employment agreement which was set to expire on December 31, 2022. The employment agreement provides for a one-time termination
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
payment which will now be paid upon the expiration of the transition agreement. The Company estimates the one-time termination payment to be approximately $1.4 million and expects it to be recognized over the remaining employment period.
Adoption of new accounting pronouncements
Effective January 1, 2022, the Company adopted ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.
New accounting pronouncements
Updates not listed below were assessed and either determined to not be applicable or are expected to have a minimal effect on the Company’s financial position, results of operations, and disclosures.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. ASU 2016-13 also provides updated guidance regarding the impairment of available-for-sale debt securities and includes additional disclosure requirements. The new guidance is effective for public business entities that meet the definition of a Smaller Reporting Company, as defined by the Securities and Exchange Commission for interim and annual periods beginning after December 15, 2022. The Company met the definition of a Smaller Reporting Company as of the one-time determination date of November 15, 2019. Early adoption is permitted. Management expects the adoption of ASU 2016-13 will not have a material impact on the Company's consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to account for contract modifications, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate that is expected to be discontinued as a result of reference rate reform. The guidance in ASU 2020-04 may be applied to contract modifications and hedging relationships as of any date from March 12, 2020, but no later than December 31, 2022, and should be applied on a prospective basis. The Company has not yet applied the guidance in ASU 2020-04 and is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
NOTE 2 —REVENUE
The Company sells products wholesale, to retailers and distributors, and sells products retail, directly to consumers. Wholesale sales and retail sales are recognized at the point in time the customer obtains control of the products in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the customer, the customer must have the significant risks and rewards of ownership, and where acceptance is not a formality, the customer must have accepted the product or service. The Company’s principal terms of sale are Free On Board (“FOB”) Shipping Point, or equivalent, and, as such, the Company primarily transfers control and records revenue for product sales upon shipment. Sales arrangements with delivery terms that are not FOB Shipping Point are not recognized upon shipment and the transfer of control for revenue recognition is evaluated based on the associated shipping terms and customer obligations. Shipping and handling fees that are billed to customers in sales transactions are included in net sales and amounted to $1.2 million and $3.2 million for the three and nine months ended September 30, 2022, respectively, and $1.0 million and $2.4 million for the three and nine months ended September 30, 2021, respectively. Net sales exclude taxes that are collected from customers and remitted to the taxing authorities.
The Company offers various sales incentives and promotional programs to its wholesale customers from time to time in the normal course of business. These incentives and promotions typically include arrangements such as cooperative advertising, buydowns, volume rebates and discounts. These arrangements, which represent forms of variable consideration and an estimate of sales returns, are reflected as reductions in net sales in the Company’s unaudited condensed consolidated statements of operations. These estimates are based on historical experience and other known factors or as the most likely amount in a range of possible outcomes. On a quarterly basis, variable consideration is assessed on a portfolio approach in estimating the extent to
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
which the components of variable consideration are constrained. Payment terms vary by customer, but generally range from 30 to 90 days or at the point of sale for the Company’s retail direct sale s.
The Company incurs certain direct incremental costs to obtain contracts with customers, such as sales-related co mmissions, where the recognition period for the related revenue is less than one year. These costs are expensed as incurred and recorded within selling, general and administrative expenses in the unaudited condensed consolidated statements of operations. Incidental items that are immaterial in the context of the contract are expensed as incurred.
The following tables present the Company’s net sales disaggregated by segment, product category and geographic region for the three and nine months ended September 30, 2022 and 2021 (in thousands):

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
U.S. segment |  |  |  |  |  |  |
Kitchenware | $ | 92,587 |  |  | $ | 113,429 |  |  | $ | 291,062 |  |  | $ | 337,051 |
Tableware | 44,515 |  |  | 51,667 |  |  | 101,035 |  |  | 119,188 |
Home Solutions | 35,716 |  |  | 32,628 |  |  | 84,130 |  |  | 84,249 |
Total U.S. segment | 172,818 |  |  | 197,724 |  |  | 476,227 |  |  | 540,488 |
International segment | 13,772 |  |  | 27,053 |  |  | 44,394 |  |  | 66,578 |
Total net sales | $ | 186,590 |  |  | $ | 224,777 |  |  | $ | 520,621 |  |  | $ | 607,066 |
United States | $ | 163,304 |  |  | $ | 189,456 |  |  | $ | 454,356 |  |  | $ | 522,170 |
United Kingdom | 8,676 |  |  | 15,741 |  |  | 27,515 |  |  | 38,376 |
Rest of World | 14,610 |  |  | 19,580 |  |  | 38,750 |  |  | 46,520 |
Total net sales | $ | 186,590 |  |  | $ | 224,777 |  |  | $ | 520,621 |  |  | $ | 607,066 |

NOTE 3 —ACQUISITION
S'well
On March 2, 2022, the Company acquired certain assets of Can't Live Without It, LLC. (dba S'well Bottle and which the Company refers to as “S'well”). The Company paid cash consideration of $18.0 million. The transaction also includes up to $5.0 million in contingent consideration, subject to the acquired brand reaching certain milestones.
The preliminary purchase price was comprised of the following (in thousands):

Cash paid | $ | 17,956 |
Value of contingent consideration | 650 |
Total purchase price | $ | 18,606 |

The value of contingent consideration represents the present value of estimated contingent payments of $0.7 million, related to the attainment of certain net sales contribution targets for the year 2024. Acquisition related costs of $0.9 million were recorded within selling, general and administrative expenses in the unaudited condensed consolidated statements of operations.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
The purchase price was allocated based on the Company’s preliminary estimate of the fair values of the assets acquired and liabilities assumed at the acquisition date, as follows (in thousands):

| Purchase Price Allocation
Accounts receivable | $ | 2,280 |
Inventory | 4,005 |
Fixed assets | 40 |
Intangible assets | 13,000 |
Goodwill | 2,966 |
Accounts payable and accrued expenses | (3,685) |
Total allocated value | $ | 18,606 |

The acquisition is being accounted for as a business combination using the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations (“ASC Topic 805”), which established a new basis of accounting for all identifiable assets acquired and liabilities assumed at fair value. ASC Topic 805 allows the acquiring company to adjust preliminary amounts recognized at the acquisition date to their subsequently determined final fair values during a measurement period, generally up to one year from the date of the acquisition. The preliminary estimated fair values that are not yet finalized relate to the valuation of accounts receivable, inventory, accounts payable, accrued expenses, intangibles, deferred taxes and valuation of the contingent consideration.
The goodwill recognized results from such factors as assembled workforce and the value of other synergies expected from combining operations with the Company. The associated goodwill is deductible for tax purposes over 15 years. Goodwill and the trade name intangible asset are included in the U.S. segment. For financial purposes, the trade name intangible asset is amortized on a straight-line basis over its estimated useful life of 12 years (see NOTE 6 — INTANGIBLE ASSETS).
The condensed consolidated statement of operations includes $8.0 million and $12.4 million of net sales attributable to the S'well brand for the three and nine months ended September 30, 2022, respectively.
Year & Day
On February 26, 2021, the Company acquired the business and certain assets of Year & Day, a designer and distributor of ceramic dinnerware, stainless steel flatware and Italian glassware for cash in the amount of $0.2 million. The assets and operating results of the Year & Day brand are reflected in the Company’s condensed consolidated financial statements in accordance with ASC Topic No. 805, Business Combinations, commencing from the acquisition date. The purchase price was allocated based on the fair values of the assets acquired which consisted of inventory of $0.3 million and liabilities assumed of $(0.1) million.
NOTE 4 — LEASES
The Company has operating leases for corporate offices, distribution facilities, a manufacturing plant, and certain vehicles.
The components of lease expense for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
| 2022 |  | 2021 |  | 2022 |  | 2021 |  |
Operating lease expenses(1): |  |  |  |  |  |  |  |  |
Fixed lease expense | $ | 4,463 |  |  | $ | 4,471 |  |  | $ | 13,392 |  |  | $ | 13,467 |  |  |
Variable lease expense | 1,187 |  |  | 917 |  |  | 3,532 |  |  | 2,844 |  |  |
Total | $ | 5,650 |  |  | $ | 5,388 |  |  | $ | 16,924 |  |  | $ | 16,311 |  |  |

(1) Expenses are recorded within distribution expenses and selling, general and administrative expenses on the unaudited condensed consolidated statement of operations.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
Supplemental cash flow information for lease related liabilities and assets for the nine months ended September 30, 2022 and 2021 were as follows (in thousands):

| Nine Months Ended September 30,
| 2022 |  |  | 2021
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |
Operating cash flows for operating leases | $ | 14,447 |  |  |  | $ | 14,556 |

| Nine Months Ended September 30,
| 2022 |  |  | 2021
Right-of-use assets obtained in exchange for lease obligations: |  |  |  |
Operating leases | $ | 2,477 |  |  |  | $ | 1,307 |

The aggregate future lease payments for operating leases as of September 30, 2022 were as follows (in thousands):

| Operating
2022 (excluding the nine months ended September 30, 2022) | $ | 4,842 |
2023 | 18,879 |
2024 | 18,349 |
2025 | 17,766 |
2026 | 17,063 |
2027 | 12,980 |
Thereafter | 22,595 |
Total lease payments | 112,474 |
Less: Interest | (20,081) |
Present value of lease payments | $ | 92,393 |

Average lease terms and discount rates were as follows:

| September 30, 2022
Operating leases: |
Weighted-average remaining lease term (years) | 6.5
Weighted-average discount rate | 6.1 | %

NOTE 5 —INVESTMENTS
As of September 30, 2022, the Company owned 24.7% of the outstanding capital stock of Grupo Vasconia S.A.B. (“Vasconia”), an integrated manufacturer of aluminum products and one of Mexico’s largest housewares companies. Shares of Vasconia’s capital stock are traded on the Bolsa Mexicana de Valores, the Mexican Stock Exchange. The Quotation Key is VASCONI. The Company accounts for its investment in Vasconia using the equity method of accounting and records its proportionate share of Vasconia’s net income in the Company’s condensed consolidated statements of operations. Accordingly, the Company has recorded its proportionate share of Vasconia’s net income (reduced for amortization expense related to the customer relationships acquired) for the three and nine months ended September 30, 2022 and 2021 in the accompanying unaudited condensed consolidated statements of operations.
On June 30, 2021, Vasconia issued additional shares of its stock, which diluted the Company’s investment ownership from approximately 30% to approximately 27%. The Company recorded a non-cash gain of $1.7 million, increasing the Company’s investment balance. Additionally, a loss of $2.0 million was recognized for the proportionate share of the diluted ownership for amounts previously recognized in accumulated other comprehensive loss. The net loss of $0.3 million was included in equity in
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
earnings, net of taxes, in the accompanying unaudited condensed consolidated statements of operations for the nine months ended September 30, 2021.
On July 29, 2021, the Company sold 2.2 million shares further reducing its ownership from approximately 27% to approximately 25% in Vasconia for net cash proceeds of approximately $3.1 million. As a result, the Company recorded a gain of $1.0 million, after decreasing the Company’s investment balance. The gain on the sale resulted in a tax expense of $0.1 million. Additionally, a loss of $1.4 million was recognized for the proportionate share of the reduced ownership for amounts previously recognized in accumulated other comprehensive loss. The net loss, including taxes, of $0.5 million was included in equity in earnings (losses), net of taxes, in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2021.
The value of the Company’s investment balance has been translated from Mexican Pesos (“MXN”) to U.S. Dollars (“USD”) using the spot rates of MXN 20.13 and MXN 20.46 at September 30, 2022 and December 31, 2021, respectively.
The Company’s proportionate share of Vasconia’s net (loss) income has been translated from MXN to USD using the following exchange rates:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Average exchange rate (USD to MXN) | 20.22 |  | 20.01 |  | 20.02 - 20.50 |  | 20.01 - 20.33

The effect of the translation of the Company’s investment, as well as the translation of Vasconia’s balance sheet, resulted in a decrease to the investment of $0.5 million and an increase of $1.3 million during the nine months ended September 30, 2022 and 2021, respectively. These translation effects are recorded in accumulated other comprehensive loss.
Summarized income statement information for the three and nine months ended September 30, 2022 and 2021 for Vasconia in USD and MXN is as follows (in thousands):

| Three Months Ended September 30,
| 2022 |  | 2021
| USD |  | MXN |  | USD |  | MXN
Net sales | $ | 56,488 |  |  | $ | 1,142,171 |  |  | $ | 61,783 |  |  | $ | 1,236,289 |
Gross profit | 4,405 |  |  | 89,061 |  |  | 12,958 |  |  | 259,285 |
(Loss) income from operations | (5,459) |  |  | (110,380) |  |  | 3,886 |  |  | 77,756 |
Net (loss) income | (8,009) |  |  | (161,936) |  |  | 2,952 |  |  | 59,063 |

| Nine Months Ended September 30,
| 2022 |  | 2021
| USD |  | MXN |  | USD |  | MXN
Net Sales | $ | 187,001 |  |  | $ | 3,785,921 |  |  | $ | 174,468 |  |  | $ | 3,508,858 |
Gross profit | 29,629 |  |  | 600,976 |  |  | 40,837 |  |  | 821,125 |
(Loss) income from operations | (256) |  |  | (3,974) |  |  | 14,169 |  |  | 284,799 |
Net (loss) income | (4,875) |  |  | (98,366) |  |  | 4,562 |  |  | 91,063 |

The Company recorded equity in losses of Vasconia, net of taxes, of $8.2 million and $7.4 million for the three and nine months ended September 30, 2022, respectively. Equity in losses for the three and nine months ended September 30, 2022, included a non-cash charge of $6.2 million for an impairment charge to write-down the Company's investment balance to fair value, as discussed below. The Company recorded equity in earnings of Vasconia, net of taxes, of $0.7 million and $1.2 million for the three and nine months ended September 30, 2021, respectively.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
Included within the Company's unaudited condensed consolidated balance sheets were the following amounts due to and due from Vasconia (in thousands):

Vasconia due to and due from balances | Balance Sheet Location |  | September 30, 2022 |  | December 31, 2021
Amounts due from Vasconia | Prepaid expenses and other current assets |  | $ | 80 |  |  | $ | 80 |
Amounts due to Vasconia | Accrued expenses and Accounts payable |  | (1) |  |  | (146) |

The fair value (based on Level 1 inputs using the quoted stock price) of the Company's investment in Vasconia declined in the third quarter. As a result of the decline in the quoted stock price and the quarterly decline in the operating results of Vasconia the Company determined the decline in fair value was other than temporary. The Company reduced its investment by $6.2 million during the three months ended September 30, 2022 to its fair value. The carrying value of the Company’s investment in Vasconia, after the recorded impairment, was $14.4 million as of September 30, 2022.
As of December 31, 2021, the fair value (based on Level 1 inputs using the quoted stock price) of the Company’s investment in Vasconia was $31.5 million. The carrying value of the Company’s investment in Vasconia was $22.3 million as of December 31, 2021, respectively.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
NOTE 6 — INTANGIBLE ASSETS
Intangible assets consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):

| September 30, 2022 |  | December 31, 2021
| Gross |  |  |  | Accumulated Amortization |  | Net |  | Gross |  | Impairment |  | Accumulated Amortization |  | Net
Goodwill | $ | 33,237 |  |  |  |  | $ | — |  |  | $ | 33,237 |  |  | $ | 30,271 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,271 |
Indefinite-lived intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade names | 49,600 |  |  |  |  | — |  |  | 49,600 |  |  | 49,600 |  |  | — |  |  | — |  |  | 49,600 |
Finite-lived intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Licenses | 15,847 |  |  |  |  | (11,540) |  |  | 4,307 |  |  | 15,847 |  |  | — |  |  | (11,198) |  |  | 4,649 |
Trade names(1) | 54,619 |  |  |  |  | (18,980) |  |  | 35,639 |  |  | 51,856 |  |  | (2,546) |  |  | (23,829) |  |  | 25,481 |
Customer relationships(1) | 143,155 |  |  |  |  | (51,074) |  |  | 92,081 |  |  | 177,245 |  |  | (11,766) |  |  | (65,863) |  |  | 99,616 |
Other (1) | 5,827 |  |  |  |  | (3,165) |  |  | 2,662 |  |  | 6,566 |  |  | (448) |  |  | (3,057) |  |  | 3,061 |
Total | $ | 302,285 |  |  |  |  | $ | (84,759) |  |  | $ | 217,526 |  |  | $ | 331,385 |  |  | $ | (14,760) |  |  | $ | (103,947) |  |  | $ | 212,678 |

(1) The gross value and accumulated amortization at September 30, 2022 reflect a reduction of $44.1 million and $(29.3) million, respectively, for the net $14.8 million impairment charge on finite-lived intangible assets within the international segment during the period ended December 31, 2021.
A summary of the activities related to the Company’s intangible assets for the nine months ended September 30, 2022 consists of the following (in thousands):

| Intangible Assets |  | Goodwill |  | Total Intangible Assets and Goodwill
Goodwill and Intangible Assets, December 31, 2021 | $ | 182,407 |  |  | $ | 30,271 |  |  | $ | 212,678 |
Acquisition of goodwill | — |  |  | 2,966 |  |  | 2,966 |
Acquisition of trade name | 13,000 |  |  | — |  |  | 13,000 |
Foreign currency translation adjustment | (369) |  |  | — |  |  | (369) |
Amortization | (10,749) |  |  | — |  |  | (10,749) |
Goodwill and Intangible Assets, September 30, 2022 | $ | 184,289 |  |  | $ | 33,237 |  |  | $ | 217,526 |

NOTE 7 — DEBT
On August 26, 2022, the Company entered into Amendment No. 2 (the “Amendment”) to the Company’s credit agreement, dated as of March 2, 2018 (as amended, the “ABL Agreement”) among the Company, as a Borrower, certain subsidiaries of the Company, as Borrowers and/or Loan Parties, JPMorgan Chase Bank, N.A., as Administrative Agent and a Lender, HSBC Bank USA, National Association and Wells Fargo Bank, National Association, as Co-Documentation Agents and Lenders, and Manufacturers and Traders Trust Company, as a Lender, that provides for the Company’s ABL facility. The ABL Agreement provides for a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $200.0 million, which facility will mature on August 26, 2027 (subject to an earlier springing maturity date that is 90 days prior to the Term Loan maturity date of February 28, 2025 if the Company’s Term Loan has not been repaid or refinanced by such date).
The Company's loan agreement, dated as of March 2, 2018, (the “Term Loan Agreement” and together with the ABL Agreement, the “Debt Agreements”) provides for a senior secured term loan credit facility in the original principal amount of $275.0 million, which matures on February 28, 2025. The Term Loan Agreement requires the Company to make an annual prepayment of principal based upon a percentage of the Company's excess cash flow, (“Excess Cash Flow”), if any. The percentage applied to the Company’s excess cash flow is based on the Company’s Total Net Leverage Ratio (as defined in the Debt Agreements). When an Excess Cash Flow payment is required, each lender has the option to decline a portion or all of the prepayment amount payable to it. An estimate of the amount of the Excess Cash Flow payment is recorded in current maturity of term loan on the unaudited condensed consolidated balance sheets. Additionally, the Term Loan Agreement requires
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
quarterly payments, which commenced on June 30, 2018, of principal equal to 0.25% of the original aggregate principal amount of the Term Loan facility, which payments are to be adjusted from time to time to account for prepayments made. Per the Term Loan Agreement, when the Company makes an Excess Cash Flow payment, the payment is first applied to satisfy the next eight (8) scheduled future quarterly required payments of the Term Loan in order of maturity and then to the remaining scheduled installments on a pro rata basis. The quarterly principal payments have been satisfied through maturity of the Term Loan by the annual Excess Cash Flow payments made to date.
The maximum borrowing amount under the ABL Agreement may be increased to up to $250.0 million if certain conditions are met and further limited to $220.0 million pursuant to the Term Loan Agreement. One or more tranches of additional term loans (the “Incremental Term Facilities”) may be added under the Term Loan Agreement if certain conditions are met. The Incremental Facilities may not exceed the sum of (i) $50.0 million plus (ii) an unlimited amount so long as, in the case of (ii) only, the Company’s secured net leverage ratio, as defined in and computed on a pro forma basis pursuant to the Term Loan Agreement, after giving effect to such increase, is no greater than 3.75 to 1.00, subject to certain limitations and for the period defined pursuant to the Term Loan Agreement but not to mature earlier than the maturity date of the then existing term loans.
As of September 30, 2022 and December 31, 2021, the total availability under the ABL Agreement was as follows (in thousands):

|  | September 30, 2022 |  | December 31, 2021
Maximum aggregate principal allowed |  | $ | 200,000 |  |  | $ | 150,000 |
Outstanding borrowings under the ABL Agreement |  | (32,545) |  |  | — |
Standby letters of credit |  | (2,765) |  |  | (3,659) |
Total availability under the ABL Agreement |  | $ | 164,690 |  |  | $ | 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. 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 means that the Company may have greater borrowing availability during the third and fourth quarters of each year. Consequently, the $200.0 million commitment thereunder may not represent actual borrowing capacity.
The current and non-current portions of the Company’s Term Loan facility included in the condensed consolidated balance sheets were as follows (in thousands):

|  | September 30, 2022 |  | December 31, 2021 |  |
Current portion of Term Loan facility: |  |  |  |  |  |
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 |  | (3,406) |  |  | (3,054) |  |  |
Total Non-current portion of Term Loan facility |  | $ | 242,505 |  |  | $ | 241,873 |  |  |

The estimated Excess Cash Flow principal payment recorded at September 30, 2022 represents the Company’s estimate for the 2023 Excess Cash Flow payment. The 2022 Excess Cash Flow payment, paid on March 30, 2022, totaled $6.2 million. The Excess Cash Flow payment differs from the estimated amount at December 31, 2021 of $7.2 million as certain lenders opted to decline their payments per the terms of the Term Loan Agreement.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
The Company’s payment obligations under its Debt Agreements are unconditionally guaranteed by its existing and future U.S. subsidiaries with certain minor exceptions. Certain payment obligations under the ABL Agreement are also direct obligations of its foreign subsidiary borrowers designated as such under the ABL Agreement and, subject to limitations on such guaranty, are guaranteed by the foreign subsidiary borrowers, as well as by the Company. The obligations of the foreign subsidiary borrowers under the ABL Agreement are secured by security interests in substantially all of the assets of, and stock in, such foreign subsidiary borrowers, subject to certain limitations. The obligations of the Company under the Debt Agreements and any hedging arrangements and cash management services and the guarantees by its domestic subsidiaries in respect of those obligations are secured by security interests in substantially all of the assets and stock (but in the case of foreign subsidiaries, limited to 65% of the capital stock in first-tier foreign subsidiaries and not including the stock of subsidiaries of such first-tier foreign subsidiaries) owned by the Company and the U.S. subsidiary guarantors, subject to certain exceptions. Such security interests consist of (1) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and certain of its subsidiaries (the “ABL Collateral”) pledged as collateral in favor of lenders under the ABL Agreement and a second-priority lien in the ABL Collateral in favor of the lenders under the Term Loan Agreement and (2) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and certain of its subsidiaries (the “Term Loan Collateral”) pledged as collateral in favor of lenders under the Term Loan Agreement and a second-priority lien in the Term Loan Collateral in favor of the lenders under the ABL Agreement.
Borrowings under the revolving credit facility bear interest, at the Company’s option, at one of the following rates: (i) an alternate base rate, defined, for any day, as the greater of the prime rate, a federal funds and overnight bank funding based rate plus 0.5% or one-month Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus 1.0% as of a specified date in advance of the determination, but in each case not less than 1.0%, plus a margin of 0.25% to 0.50%, or (ii) Adjusted Term SOFR, which is the Term SOFR Rate for the selected 1, 3 or 6 month interest period plus 0.10% (or Euro Interbank Offered Rate “EURIBOR” for borrowings denominated in Euro; or Sterling Overnight Index Average “SONIA” for borrowings denominated in Pounds Sterling), but in each case not less than zero, plus a margin of 1.25% to 1.50%. The respective margins are based upon average quarterly availability, as defined in and computed pursuant to the ABL Agreement. In addition, the Company pays a commitment fee of 0.20% to 0.25% per annum based on the average daily unused portion of the aggregate commitment under the ABL Agreement. The interest rate on outstanding borrowings under the ABL Agreement at September 30, 2022 was between 2.19% and 6.75%.
The Term Loan facility bears interest, at the Company’s option, at one of the following rates: (i) alternate base rate, defined, for any day, as the greater of (x) the prime rate, (y) a federal funds and overnight bank funding based rate plus 0.5% or (z) one-month LIBOR, but not less than 1.0%, plus 1.0%, which alternate base rate shall not be less than 2.0%, plus a margin of 2.5% or (ii) LIBOR for the applicable interest period, multiplied by any statutory reserve rate, but not less than 1.0%, plus a margin of 3.5%. The interest rate on outstanding borrowings under the Term Loan at September 30, 2022 was 6.02%.
The Debt Agreements provide for customary restrictions and events of default. Restrictions include limitations on additional indebtedness, liens, acquisitions, investments and payment of dividends, among other things. Further, the ABL Agreement provides that during any period (a) commencing on the last day of the most recently ended four consecutive fiscal quarters on or prior to the date availability under the ABL Agreement is less than the greater of $20.0 million and 10% of the aggregate commitment under the ABL Agreement at any time and (b) ending on the day after such availability has exceeded the greater of $20.0 million and 10% of the aggregate commitment under the ABL Agreement for 45 consecutive days, the Company is required to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 as of the last day of any period of four consecutive fiscal quarters.
The Company was in compliance with the covenants of the Debt Agreements at September 30, 2022.
Prior to the amendment of the credit agreement, the Company’s ABL provided for an aggregate principal amount of $150.0 million. Upon entering into the Amendment to the ABL agreement the Company repaid its outstanding ABL borrowing in the amount of $32.0 million and re-borrowed such amounts under the ABL Agreement, as amended. Unamortized debt issuance costs that were written off were immaterial.
The Company expects that it will continue to borrow, subject to availability, and repay funds under the ABL Agreement based on working capital and other corporate needs.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
NOTE 8 — DERIVATIVES
Interest Rate Swap Agreements
The Company's total outstanding notional value of interest rate swaps was $50.0 million at September 30, 2022.
The Company designated a portion of these interest rate swaps as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The hedge periods of these agreements commenced in April 2018 and expire in March 2023. The original notional values are reduced over these periods. The aggregate notional value of designated interest rate swaps was $25.0 million at September 30, 2022.
In June 2019, the Company entered into additional interest rate swap agreements, with an aggregate notional value of $25.0 million at September 30, 2022. These non-designated interest rate swaps serve as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings and expire in February 2025.
Foreign Exchange Contracts
The Company is party from time to time to certain foreign exchange contracts, primarily to offset the earnings impact related to fluctuations in foreign currency exchange rates associated with inventory purchases denominated in foreign currencies. Fluctuations in the value of certain foreign currencies as compared to the USD may positively or negatively affect the Company’s revenues, gross margins, operating expenses, and retained earnings, all of which are expressed in USD. Where the Company deems it prudent, the Company engages in hedging programs using foreign currency forward contracts aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings. The Company purchases foreign currency forward contracts with terms less than 18 months to protect against currency exchange risks associated with the payment of merchandise purchases to foreign suppliers. The Company does not hedge the translation of foreign currency profits into USD, as the Company regards this as an accounting exposure rather than an economic exposure.
The aggregate gross notional value of foreign exchange contracts at September 30, 2022 was $3.5 million. These foreign exchange contracts have been designated as hedges in order to apply hedge accounting.
The Company is exposed to market risks as well as changes in foreign currency exchange rates as measured against the USD and each other, and to changes to the credit risk of derivative counterparties. The Company attempts to minimize these risks primarily by using foreign currency forward contracts and by maintaining counterparty credit limits. These hedging activities provide only limited protection against currency exchange and credit risk. Factors that could influence the effectiveness of the Company’s hedging programs include those impacting currency markets and the availability of hedging instruments and liquidity of the credit markets. All foreign currency forward contracts that the Company enters into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure. The Company does not enter into such contracts for speculative purposes, and as of September 30, 2022, the Company did not have any foreign currency forward contract derivatives that are not designated as hedges. These foreign exchange contracts have been designated as hedges in to order to apply hedge accounting.
The fair values of the Company’s derivative financial instruments included in the condensed consolidated balance sheets are presented as follows (in thousands):

Derivatives designated as hedging instruments | Balance Sheet Location |  | September 30, 2022 |  | December 31, 2021
Interest rate swaps | Prepaid expenses and other current assets |  | $ | 179 |  |  | $ | — |
| Accrued expenses |  | — |  |  | 288 |
| Other long-term liabilities |  | — |  |  | 292 |
Foreign exchange contracts | Prepaid expenses and other current assets |  | 663 |  |  | 461 |

Derivatives not designated as hedging instruments | Balance Sheet Location |  | September 30, 2022 |  | December 31, 2021
Interest rate swaps | Other assets |  | $ | 1,310 |  |  | $ | — |
| Other long-term liabilities |  | — |  |  | 680 |

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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
The fair values of the interest rate swaps have been obtained from the counterparties to the agreements and were based on Level 2 observable inputs using proprietary models and estimates about relevant future market conditions. The fair values of the foreign exchange contracts were based on Level 2 observable inputs using quoted market prices for similar assets in an active market. The counterparties to the derivative financial instruments are major international financial institutions. The Company is exposed to credit risk for the net exchanges under these agreements, but not for the notional amounts. As of September 30, 2022, the Company did not anticipate non-performance by any of its counterparties.
The amounts of gains and losses, realized and unrealized, related to the Company’s derivative financial instruments designated as hedging instruments are recognized in other comprehensive (loss) income, net of taxes, as follows (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
Derivatives designated as hedging instruments | 2022 |  | 2021 |  | 2022 |  | 2021
Interest rate swaps | $ | 87 |  |  | $ | 147 |  |  | $ | 570 |  |  | $ | 540 |
Foreign exchange contracts | 267 |  |  | 845 |  |  | 1,342 |  |  | 515 |
| $ | 354 |  |  | $ | 992 |  |  | $ | 1,912 |  |  | $ | 1,055 |

Realized gains and losses on the interest rate swaps that are reported in other comprehensive (loss) income are reclassified into earnings as the interest expense on the debt is recognized. The Company had no terminated or matured interest rate swaps during the three and nine months ended September 30, 2022.
Realized gains and losses on foreign exchange contracts that are reported in other comprehensive (loss) income are reclassified into cost of sales as the underlying inventory purchased is sold.
During the three months ended September 30, 2022, the Company reclassified $0.3 million of cash flow hedges in accumulated other comprehensive losses to earnings. This was comprised of $0.03 million related to realized interest rate swap losses and a gain of $0.3 million related to foreign exchange contracts recognized in cost of sales. During the nine months ended September 30, 2022, the Company reclassified $0.3 million of cash flow hedges in accumulated other comprehensive losses to earnings. This was comprised of $0.3 million related to realized interest rate swap losses and a gain of $0.6 million related to foreign exchange contracts recognized in cost of sales. At September 30, 2022, the estimated amount of existing net gains expected to be reclassified into earnings within the next 12 months was $2.0 million.
During the three months ended September 30, 2021, the Company reclassified $0.5 million of cash flow hedges in accumulated other comprehensive losses to earnings. This was comprised of $0.2 million related to realized interest rate swap losses and a loss of $0.3 million related to foreign exchange contracts recognized in cost of sales. During the nine months ended September 30, 2021, the Company reclassified $1.3 million of cash flow hedges in accumulated other comprehensive losses to earnings. This was comprised of $0.7 million related to realized interest rate swap losses and a loss of $0.6 million related to foreign exchange contracts recognized in cost of sales.
Interest and mark to market gains (losses) related to the Company’s derivative financial instruments not designated as hedging instruments that were recognized in earnings are as follows (in thousands):

|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Derivatives not designated as hedging instruments | Location of gain (loss) |  | 2022 |  | 2021 |  | 2022 |  | 2021
Interest rate swaps | Mark to market gain on interest rate derivatives |  | $ | 637 |  |  | $ | 120 |  |  | $ | 1,990 |  |  | $ | 664 |
| Interest expense |  | 18 |  |  | (116) |  |  | (165) |  |  | (342) |
|  |  | $ | 655 |  |  | $ | 4 |  |  | $ | 1,825 |  |  | $ | 322 |

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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
NOTE 9 — STOCK COMPENSATION
On June 23, 2022, the stockholders of the Company approved an amendment and restatement of the Company's Amended and Restated 2000 Long Term Incentive Plan (the "Plan"). The amendment and restatement of the Plan revised the terms and conditions of the Plan to, among other things, increase the shares available for grant under the Plan by 1,180,000 shares. As of September 30, 2022, there were 1,127,708 shares available for the grant of awards under the Plan, assuming maximum performance of performance-based awards.
Option Awards
A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2022 is as follows:

| Options |  | Weighted- average exercise price |  | Weighted- average remaining contractual life (years) |  | Aggregate intrinsic value (in thousands)
Options outstanding, January 1, 2022 | 1,094,575 |  |  | $ | 13.64 |  |  |  |  |
Grants | 56,000 |  |  | 11.45 |  |  |  |  |
Exercises | (60,000) |  |  | 11.64 |  |  |  |  |
Cancellations | (5,125) |  |  | 10.60 |  |  |  |  |
Expirations | (13,450) |  |  | 13.99 |  |  |  |  |
Options outstanding, September 30, 2022 | 1,072,000 |  |  | 13.65 |  |  | 4.7 |  | $ | 13 |
Options exercisable, September 30, 2022 | 957,125 |  |  | $ | 13.92 |  |  | 4.2 |  | $ | 6 |
Total unrecognized stock option expense remaining (in thousands) | $ | 550 |  |  |  |  |  |  |
Weighted-average years expected to be recognized over | 2.0 |  |  |  |  |  |

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that would have been received by the option holders had all option holders exercised their stock options on September 30, 2022. The intrinsic value is calculated for each in-the-money stock option as the difference between the closing price of the Company’s common stock on September 30, 2022 and the exercise price.
Restricted Stock
A summary of the Company’s restricted stock activity and related information for the nine months ended September 30, 2022 is as follows:

| Restricted Shares |  | Weighted- average grant date fair value
Non-vested restricted shares, January 1, 2022 | 429,601 |  |  | $ | 11.47 |
Grants | 266,713 |  |  | 12.03 |
Vested | (171,924) |  |  | 11.89 |
Cancellations | (6,881) |  |  | 10.92 |
Non-vested restricted shares, September 30, 2022 | 517,509 |  |  | $ | 11.63 |
Total unrecognized compensation expense remaining (in thousands) | $ | 4,771 |  |  |
Weighted-average years expected to be recognized over | 1.7 |  |

The total fair value of restricted stock that vested during the nine months ended September 30, 2022 was $2.1 million.
Performance shares
Each performance award represents the right to receive up to 150% of the target number of shares of common stock. The number of shares of common stock earned will be determined based on the attainment of specified performance goals at the end
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
of the performance period, as determined by the Compensation Committee of the Board of Directors. The shares are subject to the terms and conditions of the Company’s Plan.
A summary of the Company’s performance-based award activity and related information for the nine months ended September 30, 2022 is as follows:

| Performance- based stock awards (1) |  | Weighted- average grant date fair value
Non-vested performance-based awards, January 1, 2022 | 436,330 |  |  | $ | 10.54 |
Grants | 123,000 |  |  | 12.19 |
Achieved performance over target (2) | 12,035 |  |  | 9.20 |
Vested | (166,935) |  |  | 9.20 |
Cancellations | (4,128) |  |  | 10.64 |
Non-vested performance-based awards, September 30, 2022 | 400,302 |  |  | $ | 11.56 |
Total unrecognized compensation expense remaining (in thousands) | $ | 2,461 |  |  |
Weighted-average years expected to be recognized over | 1.7 |  |

(1)Represents the target number of shares to be issued for each performance-based award.
(2)Represents the number of shares earned over target for performance-based awards granted in 2019 based on performance goals attained. These awards vested in the three months ended March 31, 2022.
The total fair value of performance-based awards that vested during the nine months ended September 30, 2022 was $2.0 million.
Cash-settled performance-based awards
Each cash-settled performance-based award represents the right to receive up to 150% of the target number of deferred stock units with payment in cash equivalent to the value of one share of the Company's common stock. The number of deferred stock units earned will be determined based on the attainment of specified performance goals at the end of the performance period, as determined by the Compensation Committee of the Board of Directors. The cash-settled performance-based awards are subject to the terms and conditions of the Company’s Plan.
A summary of the Company’s cash-settled performance-based awards activity and related information for the nine months ended September 30, 2022 is as follows:

| Cash-settled performance-based awards (1) |  | Weighted- average fair value
Non-vested cash-settled performance-based awards, January 1, 2022 | — |  |  | $ | — |
Grants | 87,825 |  |  | 6.85 |
Cancellations | (2,049) |  |  | 10.39 |
Non-vested cash-settled performance-based awards, September 30, 2022 | 85,776 |  |  | $ | 6.77 |
Total unrecognized compensation expense remaining (in thousands) | $ | 464 |  |  |
Weighted-average years expected to be recognized over | 2.3 |  |

(1) Represents the target number of units to be settled in cash.
Compensation expense for cash-settled performance-based awards is recognized over the vesting period and will vary based on remeasurement during the performance period. If achievement of the performance metrics is not probable of achievement during the performance period, compensation expense is reversed. The awards are forfeited if the performance metrics are not achieved as of the end of the performance period. The cash-settled performance-based awards are liability-classified awards and are recorded within other long-term liabilities in the Company's condensed consolidated balance sheet. These awards are
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
remeasured to fair value at the end of each reporting period until settlement. The cash-settled performance-based awards vest at the end of a three year period, as determined by the Compensation Committee.
The Company recorded stock compensation expense as follows (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
Stock Compensation Expense Components | 2022 |  | 2021 |  | 2022 |  | 2021
Equity based stock option expense | $ | 51 |  |  | $ | 95 |  |  | $ | 231 |  |  | $ | 321 |
Restricted and performance-based stock awards expense | 972 |  |  | 1,097 |  |  | 3,223 |  |  | 3,633 |
Stock compensation expense for equity based awards | $ | 1,023 |  |  | $ | 1,192 |  |  | $ | 3,454 |  |  | $ | 3,954 |
Liability based stock option expense | (11) |  |  | 9 |  |  | (17) |  |  | 19 |
Cash-settled performance-based awards expense | 14 |  |  | — |  |  | 128 |  |  | — |
Total Stock Compensation Expense | $ | 1,026 |  |  | $ | 1,201 |  |  | $ | 3,565 |  |  | $ | 3,973 |

NOTE 10 —(LOSS) INCOME PER COMMON SHARE
Basic (loss) income per common share has been computed by dividing net (loss) income by the weighted-average number of shares of the Company’s common stock outstanding during the relevant period. Diluted (loss) income per common share adjusts net (loss) income and basic (loss) income per common share for the effect of all potentially dilutive shares of the Company’s common stock. Anti-dilutive securities are not included in the computation of diluted earnings per share under the treasury stock method.
The calculations of basic and diluted (loss) income per common share for the three and nine months ended September 30, 2022 and 2021 are as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (in thousands, except per share amounts)
Net (loss) income – Basic and Diluted | $ | (6,358) |  |  | $ | 12,571 |  |  | $ | (9,438) |  |  | $ | 21,427 |
Weighted-average shares outstanding – Basic | 21,522 |  |  | 21,549 |  |  | 21,602 |  |  | 21,343 |
Effect of dilutive securities: |  |  |  |  |  |  |
Stock options and other stock awards | — |  |  | 536 |  |  | — |  |  | 621 |
Weighted-average shares outstanding – Diluted | 21,522 |  |  | 22,085 |  |  | 21,602 |  |  | 21,964 |
Basic (loss) income per common share | $ | (0.30) |  |  | $ | 0.58 |  |  | $ | (0.44) |  |  | $ | 1.00 |
Diluted (loss) income per common share | $ | (0.30) |  |  | $ | 0.57 |  |  | $ | (0.44) |  |  | $ | 0.98 |
Antidilutive Securities(1) | 1,682 |  | 337 |  | 1,675 |  | 394

(1) Stock options and other stock awards that have been excluded from the denominator as their inclusion would have been anti-dilutive.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
NOTE 11— INCOME TAXES
Income tax provision of $1.8 million and $3.4 million for the three and nine months ended September 30, 2022, respectively, represent taxes on both U.S. and foreign earnings at a combined effective income tax provision rate of 50.6% and 245.9%, respectively. The effective tax rate for the three and nine months ended September 30, 2022 differs from the federal statutory income tax rate of 21.0% primarily due to foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.
Income tax provision of $5.6 million and $9.8 million for the three and nine months ended September 30, 2021, respectively, represent taxes on both U.S. and foreign earnings at combined effective income tax provision rates of 31.1% and 31.8%, respectively. The effective tax rate for the three and nine months ended September 30, 2021 differs from the federal statutory income tax rate of 21.0% primarily due to state and local tax expense, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.
The Company has identified the following jurisdictions as “major” tax jurisdictions: U.S. Federal, California, Georgia, Illinois, Massachusetts, New Jersey, New York and the United Kingdom.
The audit of the Company's New York State tax returns for years 2015-2019 closed during the quarter ended March 31, 2022 with an immaterial adjustment.
The Company evaluates its tax positions on a quarterly basis and revises its estimates accordingly. There were no material changes to the Company’s uncertain tax positions, interest, or penalties during the three-month periods ended September 30, 2022 and September 30, 2021.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
NOTE 12 – BUSINESS SEGMENTS
The Company has two reportable segments, U.S. and International. The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its operations. The U.S. segment includes the Company’s primary domestic business that designs, markets and distributes its products to retailers, distributors and directly to consumers through its own websites. The International segment consists of certain business operations conducted outside the U.S. Management evaluates the performance of the U.S. and International segments based on net sales and income from operations. Such measures give recognition to specifically identifiable operating costs such as cost of sales, distribution expenses and selling, general and administrative expenses. Certain general and administrative expenses, such as senior executive salaries and benefits, stock compensation, director fees, and accounting, legal fees and consulting fees, are not allocated to the specific segments and are reflected as unallocated corporate expenses.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (in thousands)
Net sales |  |  |  |  |  |  |
U.S. | $ | 172,818 |  |  | $ | 197,724 |  |  | $ | 476,227 |  |  | $ | 540,488 |
International | 13,772 |  |  | 27,053 |  |  | 44,394 |  |  | 66,578 |
Total net sales | $ | 186,590 |  |  | $ | 224,777 |  |  | $ | 520,621 |  |  | $ | 607,066 |
Income from operations |  |  |  |  |  |  |
U.S. | $ | 19,548 |  |  | $ | 30,958 |  |  | $ | 41,404 |  |  | $ | 66,339 |
International | (2,501) |  |  | (2,402) |  |  | (9,691) |  |  | (6,168) |
Unallocated corporate expenses | (9,457) |  |  | (6,876) |  |  | (20,232) |  |  | (18,244) |
Income from operations | $ | 7,590 |  |  | $ | 21,680 |  |  | $ | 11,481 |  |  | $ | 41,927 |
Depreciation and amortization |  |  |  |  |  |  |
U.S. | $ | 4,321 |  |  | $ | 4,624 |  |  | $ | 13,568 |  |  | $ | 13,913 |
International | 277 |  |  | 1,213 |  |  | 967 |  |  | 3,647 |
Total depreciation and amortization | $ | 4,598 |  |  | $ | 5,837 |  |  | $ | 14,535 |  |  | $ | 17,560 |

| September 30, 2022 |  | December 31, 2021
| (in thousands)
Assets |  |  |
U.S. | $ | 661,145 |  |  | $ | 706,000 |
International | 87,270 |  |  | 95,092 |
Unallocated corporate | 8,513 |  |  | 27,982 |
Total Assets | $ | 756,928 |  |  | $ | 829,074 |

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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
NOTE 13 — CONTINGENCIES
Wallace EPA Matter
Wallace Silversmiths de Puerto Rico, Ltd. (“WSPR”), a wholly-owned subsidiary of the Company, operates a manufacturing facility in San Germán, Puerto Rico that is leased from the Puerto Rico Industrial Development Company (“PRIDCO”). In March 2008, the U.S. Environmental Protection Agency (the “EPA”) announced that the San Germán Ground Water Contamination site in Puerto Rico (the “Site”) had been added to the Superfund National Priorities List due to contamination present in the local drinking water supply.
In May 2008, WSPR received from the EPA a Notice of Potential Liability and Request for Information pursuant to 42 U.S.C. Sections 9607(a) and 9604(e) of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). In July 2011, WSPR received a letter from the EPA requesting access to the property that it leases from PRIDCO to conduct an environmental investigation, and the Company granted such access. In February 2013, the EPA requested access to conduct a further environmental investigation at the property. PRIDCO agreed to such access and the Company consented. The EPA conducted a further investigation during 2013 and, in April 2015, notified the Company and PRIDCO that the results from vapor intrusion sampling may warrant the implementation of measures to mitigate potential exposure to sub-slab soil gas. The Company reviewed the information provided by the EPA and requested that PRIDCO, as the property owner, find and implement a solution acceptable to the EPA. While WSPR did not cause the sub-surface condition that resulted in the potential for vapor intrusion, in order to protect the health of its employees and continue its business operations, it has nevertheless implemented corrective action measures to prevent vapor intrusion, such as sealing the floors of the building and conducting periodic air monitoring to address potential exposure.
On August 13, 2015, the EPA released its remedial investigation and feasibility study (“RI/FS”) for the Site. On December 11, 2015, the EPA issued the Record of Decision (“ROD”) for an initial operable unit, electing to implement its preferred remedy which consists of soil vapor extraction and dual-phase extraction/in-situ treatment. This selected remedy includes soil vapor extraction (“SVE”) to address soil (vadose zone) source areas at the Site, impermeable cover as necessary for the implementation of SVE, dual phase extraction in the shallow saprolite zone, and in-situ treatment as needed to address residual sources. The EPA’s total net present worth estimated cost for its selected remedy is $7.3 million. The EPA also designated a second operable unit under which the EPA has and will continue to conduct further investigations to determine the nature and extent of groundwater contamination, as well as a determination by the EPA on the necessity of any further response actions to address groundwater contamination. In February 2017, the EPA indicated that it planned to expand its field investigation for the RI/FS to a second operable unit to further determine the nature and extent of the groundwater contamination at and from the Site and to determine the nature of the remedial action needed to address the contamination. The EPA has requested access to the property occupied by WSPR to install monitoring wells and to undertake groundwater sampling as part of this expanded investigation. WSPR has consented to the EPA’s access request, provided that the EPA receives PRIDCO’s consent, as the property owner. WSPR never used the primary contaminant of concern and did not take up its tenancy at the Site until after the EPA had discovered the contamination in the local water supply. The EPA has also issued notices of potential liability to a number of other entities affiliated with the Site, which used the contaminants of concern.
In December 2018, the Company, WSPR, and other identified potentially responsible parties affiliated with the Site entered into tolling agreements to extend the statute of limitations for potential claims for the recovery of response costs for the initial operable unit under Section 107 of CERCLA. In February 2020, the tolling agreements were extended to November 2020. In November 2020, the tolling agreements were extended to November 2021. In October 2021, the tolling agreements were extended to November 2022. In October 2022, the tolling agreements were extended to November 2023. The tolling agreements do not constitute in any way an admission or acknowledgment of any fact, conclusion of law or liability by the parties to the agreements.
The EPA released its proposed plan for a second operable unit in July 2019. The public comment period for the proposed plan ended on September 10, 2019. On September 30, 2019, the EPA issued the ROD for operable unit 2 (“OU-2”), electing to implement its preferred remedy which consists of in-situ treatment of groundwater and a monitored natural attenuation program including monitoring of the plume fringe at the Site. The EPA’s estimated total net present worth cost for its selected remedy is $17.3 million.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
In August 2021, WSPR received a Notice of Liability from the Department of Justice on behalf of the EPA, and in September 2021, WSPR submitted a good faith offer to conduct additional testing and remedial design, which remains under consideration by the EPA.
The Company has reserved $5.6 million to cover probable and estimable liabilities with respect to the above remedial design and remedial action for the initial operable unit. However, it is not possible at this time for the Company to estimate its share of its ultimate liability related to this matter. In the event of one or more adverse determinations related to this matter, it is possible that the ultimate liability resulting from this matter and the impact on the Company’s results of operations could be material.
U.S. Customs and Border Protection matter
By letter dated August 26, 2019, the Company was advised that U.S. Customs and Border Protection ("CBP") had commenced an investigation, pursuant to 19 U.S.C. §1592, regarding the Company’s tariff classification of certain tableware and kitchenware. The issue centers on whether such merchandise meets the criteria for reduced duty rates as specified sets as those terms are defined in Chapter 69, Note 6(b), Harmonized Tariff System of the United States. The period of investigation is stated to be from August 26, 2014 to the present. Since being notified of the investigation, the Company has obtained a significant amount of evidence that, the Company believes, supports that the imported products were properly classified as specified sets. The Company's counsel filed a Lead Protest and Application for Further Review with CBP on February 5, 2020 (the "Lead Protest") relating to a single shipment made during the investigation period.
CBP approved the Company’s Lead Protest on June 8, 2020 stating that the specified set requirement was fulfilled with respect to the protested shipment based on information provided by the Company. Based on this decision, no additional duties will be owed for the seven tableware collections imported in this shipment.
The Company also compiled and submitted to CBP a complete set of supporting documents for three additional protests (for the remaining 29 tableware collections that were imported by the Company under the protested shipments). One of the additional protests was approved on October 15, 2020; the other two remain pending. If the CBP approves these additional claims and accepts the evidence presented, then no additional duties will be owed for the remaining protested shipments.
Because the period of investigation covers a five-year period, the Company is compiling supporting documentation packages for all tableware collections imported during this period.
In the event CBP accepts the evidence presented, then no additional duties or penalties will be owed. If CBP rejects the Company’s position, then the estimated amount of duties that could be owed is $1.3 million. In such event, it is reasonably possible that additional penalties could be assessed, depending upon the level of culpability found, of up to $2.6 million for negligence and up to $5.2 million for gross negligence. In the event penalties are assessed, the Company will have the opportunity to further contest CBP’s findings and seek cancellation or mitigation of such assessments.
Accordingly, based on the above uncertainties and variables, the Company considers the potential losses related to this matter to be reasonably possible, but not probable. However, in the event of one or more adverse determinations related to this matter, it is possible that the ultimate liability resulting from this matter and the impact on the Company’s results of operations could be material.
Other
The Company is, from time to time, involved in other legal proceedings. The Company believes that other current litigation is routine in nature and incidental to the conduct of the Company’s business and that none of this litigation, individually or collectively, would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
NOTE 14 — OTHER
Cash dividends
Dividends declared in the nine months ended September 30, 2022 were as follows:

Dividend per share |  | Date declared |  | Date of record |  | Payment date
$0.0425 |  | 3/8/2022 |  | 5/2/2022 |  | 5/16/2022
$0.0425 |  | 6/23/2022 |  | 8/1/2022 |  | 8/15/2022
$0.0425 |  | 8/2/2022 |  | 11/1/2022 |  | 11/15/2022

During the nine months ended September 30, 2022, the Company paid dividends of $2.9 million. This included payments made on February 14, 2022, May 16, 2022 and August 15, 2022 of $0.9 million, $0.9 million and $0.9 million to stockholders of record on January 31, 2022, May 2, 2022 and August 1, 2022, respectively, and payments of $0.1 million for dividends payable upon the vesting of restricted shares and performance shares.
In the three months ended September 30, 2022, the Company reduced retained earnings for the accrual of $1.0 million relating to the dividend payable on November 15, 2022. For the nine months ended September 30, 2022, the Company reduced retained earnings for the accrual of $2.9 million relating to the dividend payable on May 16, 2022, August 15, 2022 and November 15, 2022.
On November 1, 2022, the Board of Directors declared a quarterly dividend of 0.0425 per share of common stock payable on February 15, 2023 to stockholders of record on February 1, 2023.
Stock repurchase program
On March 14, 2022, the Company announced that its Board of Directors of the Company authorized the repurchase of up to $20.0 million of the Company’s common stock, replacing the Company’s previously-authorized $10 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. During the nine months ended September 30, 2022, the Company repurchased 389,743 shares for a total cost of $4.7 million and thereafter retired the shares. Please see Part II, Item 2—Unregistered Sales of Equity Securities and Use of Proceeds included in this Quarterly Report on Form 10-Q.
Supplemental cash flow information

| Nine Months Ended September 30,
| 2022 |  | 2021
| (in thousands)
Supplemental disclosure of cash flow information: |  |  |
Cash paid for interest | $ | 10,804 |  |  | $ | 10,279 |
Cash paid for taxes, net of refunds | 6,527 |  |  | 12,616 |
Non-cash investing activities: |  |  |
Net (loss) on dilution and partial sale of Vasconia ownership | $ | — |  |  | $ | (1,673) |

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LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
Components of accumulated other comprehensive loss, net

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (in thousands)
Accumulated translation adjustment: |  |  |  |  |  |  |
Balance at beginning of period | $ | (36,175) |  |  | $ | (31,623) |  |  | $ | (31,752) |  |  | $ | (35,846) |
Translation adjustment during period | (2,686) |  |  | (1,122) |  |  | (7,109) |  |  | 1,059 |
Amounts reclassified from accumulated other comprehensive loss (1) | — |  |  | 1,362 |  |  | — |  |  | 3,404 |
Translation Adjustment | (2,686) |  |  | 240 |  |  | (7,109) |  |  | 4,463 |
Balance at end of period | $ | (38,861) |  |  | $ | (31,383) |  |  | $ | (38,861) |  |  | $ | (31,383) |
Accumulated deferred gains (losses) on cash flow hedges: |  |  |  |  |  |  |
Balance at beginning of period | $ | 1,636 |  |  | $ | (1,062) |  |  | $ | 78 |  |  | $ | (1,125) |
Change in unrealized gains (losses) | 624 |  |  | 528 |  |  | 2,201 |  |  | (255) |
Amounts reclassified from accumulated other comprehensive loss: |  |  |  |  |  |  |
Settlement of cash flow hedge (2) | (270) |  |  | 464 |  |  | (289) |  |  | 1,310 |
Net change in cash flow hedges, net of taxes of $92, $(247), $505, $(301) | 354 |  |  | 992 |  |  | 1,912 |  |  | 1,055 |
Balance at end of period | $ | 1,990 |  |  | $ | (70) |  |  | $ | 1,990 |  |  | $ | (70) |
Accumulated effect of retirement benefit obligations: |  |  |  |  |  |  |
Balance at beginning of period | $ | (1,817) |  |  | $ | (2,133) |  |  | $ | (1,875) |  |  | $ | (2,201) |
Amounts reclassified from accumulated other comprehensive loss: (3) |  |  |  |  |  |  |
Amortization of actuarial loss, net of taxes | 29 |  |  | 33 |  |  | 87 |  |  | 101 |
Balance at end of period | $ | (1,788) |  |  | $ | (2,100) |  |  | $ | (1,788) |  |  | $ | (2,100) |
Total accumulated other comprehensive loss at end of period | $ | (38,659) |  |  | $ | (33,553) |  |  | $ | (38,659) |  |  | $ | (33,553) |

(1)Amounts are recorded in equity in (losses) earnings on the unaudited condensed statements of operations.
(2)Amounts reclassified are recorded in interest expense and cost of sales on the unaudited condensed consolidated statement of operations.
(3)Amounts are recorded in selling, general and administrative expense on the unaudited condensed consolidated statements of operations.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q of Lifetime Brands, Inc. (the “Company” and, unless the context otherwise requires, references to the “Company” shall include its consolidated subsidiaries), contains “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. These forward-looking statements include information concerning the Company’s plans, objectives, goals, strategies, future events, future revenues, performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, in Management’s Discussion and Analysis of Financial Condition and Results of Operations. When used in this Quarterly Report on Form 10-Q, the words “estimates,” “expects,” “intends,” “predicts,” “plans,” “believes,” “may,” “should,” “would,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, those based on the Company’s examination of historical operating trends, are based upon the Company’s current expectations and various assumptions. The Company believes there is a reasonable basis for its expectations and assumptions, but there can be no assurance that the Company will realize its expectations or that the Company’s assumptions will prove correct.
There are a number of risks and uncertainties that could cause the Company’s actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Important factors that could cause the Company’s actual results to differ materially from those expressed as forward-looking statements include, without limitation, those set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report on Form 10-K”) in Part I, Item 1A under the heading Risk Factors, and in the Company’s subsequent filings with the U.S. Securities and Exchange Commission (the “SEC”). Such risks, uncertainties and other important factors include, among others, risks related to:
•Macroeconomic conditions, including inflationary impacts and disruptions to the global supply chain;
•The ongoing impact of the COVID-19 pandemic;
•Increase in supply chain costs, including raw materials, sourcing, transportation and energy;
•The impact of the United Kingdom's exit from the European Union on the Company's U.K. operations;
•The impact of tariffs and trade policies, particularly with respect to China;
•Legislative or regulatory risks relating to climate change;
•Indebtedness, compliance with credit agreements, and access to credit markets;
•Access to the capital markets and credit markets;
•The seasonality of the Company's cash flows;
•The Company's ability to complete acquisitions or successfully integrate acquisitions, such as the recent acquisition of S'well;
•Intense market competition and changing customer practices or preferences;
•Dependence on third-party manufacturers;
•Technology, cybersecurity and data privacy risks;
•Geopolitical conditions, including war, conflict, unrest and sanctions, including those related to the conflict in Ukraine;
•Product liability claims; and
•Reputational risks.
There may be other factors that may cause the Company’s actual results to differ materially from the forward-looking statements. Except as may be required by law, the Company undertakes no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.
The Company is required to file its Annual Reports on Forms 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Form 8-K, and other reports and documents as required from time to time with the SEC. The Company also maintains a website at http://www.lifetimebrands.com. Information contained on this website is not a part of or incorporated by reference into this Quarterly Report on Form 10-Q. The Company makes available on its website the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports as soon as reasonably
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practicable after these reports are filed with or furnished to the SEC. Users can access these reports free of charge on the Company’s website. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding the Company’s electronic filings with the SEC at http://www.sec.gov.
The Company intends to use its website as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Such disclosures will be included on the Company’s website in the ‘Investor Relations’ section. Accordingly, investors should monitor such portion of the Company’s website, in addition to following the Company's press releases, SEC filings and public conference calls and webcasts.
ABOUT THE COMPANY
The Company designs, sources and sells branded kitchenware, tableware and other products used in the home. The Company’s product categories include two categories of products used to prepare, serve, and consume foods: Kitchenware (kitchen tools and gadgets, cutlery, kitchen scales, thermometers, cutting boards, shears, cookware, pantryware, spice racks, and bakeware) and Tableware (dinnerware, stemware, flatware, and giftware); and one category, Home Solutions, which comprises other products used in the home (thermal beverageware, bath scales, weather and outdoor household products, food storage, neoprene travel products and home décor). In 2021, Kitchenware products and Tableware products accounted for approximately 85% of the Company’s U.S. segment’s net sales and 87% of the Company’s consolidated net sales.
The Company markets several product lines within each of its product categories and under most of the Company’s brands, primarily targeting moderate price points through virtually every major level of trade. The Company believes it possesses certain competitive advantages based on its brands, its emphasis on innovation and new product development, and its sourcing capabilities. The Company owns or licenses a number of leading brands in its industry, including Farberware®, KitchenAid®, Taylor®, Mikasa®, KitchenCraft®, Built NY®, Kamenstein®, Pfaltzgraff®, Rabbit®, and Sabatier®. Historically, the Company’s sales growth has come from expanding product offerings within its product categories, developing existing brands, acquiring new brands (including complementary brands in markets outside the United States), and establishing new product categories. Key factors in the Company’s growth strategy have been the selective use and management of the Company’s brands and the Company’s ability to provide a stream of new products and designs. A significant element of this strategy is the Company’s in-house design and development teams that create new products, packaging and merchandising concepts.
RECENT DEVELOPMENTS
D isruptions in the global supply chain have been caused by various factors, including increased demand for containers, limited container capacity and backlog at shipping ports. The global economy is experiencing accelerated inflation, which has in part been caused by the supply chain disruptions, higher consumer spending and low interest rates. Further, the United Kingdom economy has been facing unfavorable economic and market conditions, with high inflation and low consumer confidence due to uncertain geopolitical and economic outlooks. The rise in inflation is contributing to higher prices, which may result in higher input cost for products, increased transportation and labor cost and impact consumer spending and buying patterns. The Company has been adversely impacted by these trends in 2022.
The Company has experienced an increase in delivery times and cost for products shipped from its U.K. warehouse to continental Europe. To remain competitive in the distribution of products within continental Europe, the Company expanded its distribution and warehouse capacity through a third-party operated distribution provider located in the Netherlands in the first quarter of 2022. The Company began shipments from this location in the second quarter of 2022.
On March 23 2022, the United States Trade Representative ("USTR") announced it had reinstated exclusions on certain product categories or harmonized tariff codes retroactive to October 12, 2021. The exclusion is effective through December 31, 2023.
BUSINESS SEGMENTS
The Company has two reportable segments, U.S. and International. The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its operations. The U.S. segment includes the Company’s primary domestic business that designs, markets and distributes its products to retailers, distributors and directly to consumers through its own websites. The International segment consists of certain business operations conducted outside the U.S. Management evaluates the performance of the U.S. and International segments based on net sales and income from operations. Such measures give recognition to specifically identifiable operating costs such as cost of sales, distribution expenses and selling, general and administrative expenses. Certain general and administrative expenses, such as senior executive salaries and
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benefits, stock compensation, director fees, and accounting, legal fees and consulting fees, are not allocated to the specific segments and are reflected as unallocated corporate expenses.
EQUITY INVESTMENTS
As of September 30, 2022, the Company owned 24.7% of the outstanding capital stock of Grupo Vasconia S.A.B. (“Vasconia”), an integrated manufacturer of aluminum products and one of Mexico’s largest housewares companies. Shares of Vasconia’s capital stock are traded on the Bolsa Mexicana de Valores, the Mexican Stock Exchange. The Quotation Key is VASCONI. The Company accounts for its investment in Vasconia using the equity method of accounting and records its proportionate share of Vasconia’s net income in the Company’s condensed consolidated statements of operations. Accordingly, the Company has recorded its proportionate share of Vasconia’s net income (reduced for amortization expense related to the customer relationships acquired) for the three and nine months ended September 30, 2022 and 2021 in the accompanying unaudited condensed consolidated statements of operations. Pursuant to a Shares Subscription Agreement, the Company may designate four persons to be nominated as members of Vasconia’s Board of Directors. As of September 30, 2022, Vasconia’s Board of Directors is comprised of eleven members, of whom the Company has designated two members.
On June 30, 2021, Vasconia issued additional shares of its stock, which diluted the Company’s investment ownership from approximately 30% to approximately 27%. The Company recorded a non-cash gain of $1.7 million, increasing the Company’s investment balance. Additionally, a loss of $2.0 million was recognized for the proportionate share of the diluted ownership for amounts previously recognized in accumulated other comprehensive loss. The net loss of $0.3 million was included in equity in earnings, net of taxes, in the accompanying unaudited condensed consolidated statements of operations for the nine months ended September 30, 2021.
On July 29, 2021, the Company sold 2.2 million shares further reducing its ownership from approximately 27% to approximately 25% in Vasconia for net cash proceeds of approximately $3.1 million. As a result, the Company recorded a gain of $1.0 million, after decreasing the Company’s investment balance. The gain on the sale resulted in a tax expense of $0.1 million. Additionally, a loss of $1.4 million was recognized for the proportionate share of the reduced ownership for amounts previously recognized in accumulated other comprehensive loss. The net loss, including taxes, of $0.5 million was included in equity in earnings (losses), net of taxes, in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2021.
SEASONALITY
The Company’s business and working capital needs are seasonal, with a majority of sales occurring in the third and fourth quarters. In 2021 and 2020, net sales for the third and fourth quarters accounted for 56% and 62% of total annual net sales, respectively. The increase in the Company's net sales in the first half of the year in 2021 compared to historical trend was a result of increased demand for the Company's products due to shifts in consumer purchasing patterns. In anticipation of the pre-holiday shipping season, inventory levels increase primarily in the June through October time period. In 2022, the Company's inventory trends may deviate from historical trends due to a change in inventory strategy to react to the current market conditions impacting the Company and retailers.
Consistent with the seasonality of the Company’s net sales and inventory levels, the Company also experiences seasonality in its inventory turnover and turnover days from one quarter to the next.
The COVID-19 pandemic has caused, and may continue to cause, shifts in some of the Company's selling and purchasing cycles as customers deviate from their historical ordering patterns.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to the Company’s critical accounting estimates discussed in the 2021 Annual Report on Form 10-K in Item 7 under the heading Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates.
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RESULTS OF OPERATIONS
The following table sets forth statements of operations data of the Company as a percentage of net sales for the periods indicated:

| Three Months Ended September 30, |  | Nine Months Ended September 30, |
| 2022 |  | 2021 |  | 2022 |  | 2021 |
Net sales | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |
Cost of sales | 63.6 |  |  | 63.0 |  |  | 64.3 |  |  | 64.5 |  |
Gross margin | 36.4 |  |  | 37.0 |  |  | 35.7 |  |  | 35.5 |  |
Distribution expenses | 10.0 |  |  | 8.4 |  |  | 10.6 |  |  | 9.3 |  |
Selling, general and administrative expenses | 19.5 |  |  | 18.8 |  |  | 21.9 |  |  | 19.2 |  |
Wallace facility remediation expense | 2.8 |  |  | 0.2 |  |  | 1.0 |  |  | 0.1 |  |
Income from operations | 4.1 |  |  | 9.6 |  |  | 2.2 |  |  | 6.9 |  |
Interest expense | (2.5) |  |  | (1.7) |  |  | (2.3) |  |  | (1.9) |  |
Mark to market gain on interest rate derivatives | 0.4 |  |  | 0.1 |  |  | 0.4 |  |  | 0.1 |  |
Income before income taxes and equity in (losses) earnings | 2.0 |  |  | 8.0 |  |  | 0.3 |  |  | 5.1 |  |
Income tax provision | (1.0) |  |  | (2.5) |  |  | (0.7) |  |  | (1.7) |  |
Equity in (losses) earnings, net of taxes | (4.4) |  |  | 0.1 |  |  | (1.4) |  |  | 0.1 |  |
Net (loss) income | (3.4) | % |  | 5.6 | % |  | (1.8) | % |  | 3.5 | % |

MANAGEMENT’S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2021
Net Sales
Consolidated net sales for the three months ended September 30, 2022 were $186.6 million, representing a decrease of $38.2 million, or 17.0%, as compared to net sales of $224.8 million for the corresponding period in 2021. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2022 average rates to 2021 local currency amounts, consolidated net sales decreased by $34.7 million, or 15.7%, as compared to consolidated net sales in the corresponding period in 2021.
Net sales for the U.S. segment for the three months ended September 30, 2022 were $172.8 million, a decrease of $24.9 million, or 12.6%, as compared to net sales of $197.7 million for the corresponding period in 2021.
Net sales for the U.S. segment’s Kitchenware product category were $92.6 million for the three months ended September 30, 2022, a decrease of $20.8 million, or 18.3%, as compared to $113.4 million for the corresponding period in 2021. The decrease was driven by lower sales for kitchen tools and gadgets, cutlery and boards, and bakeware primarily due to inventory buildup at brick-and-mortar and e-commerce retailers.
Net sales for the U.S. segment’s Tableware product category were $44.5 million for the three months ended September 30, 2022, a decrease of $7.2 million, or 13.9%, as compared to $51.7 million for the corresponding period in 2021. The decrease was driven by lower flatware sales to brick-and-mortar retailers.
Net sales for the U.S. segment’s Home Solutions product category were $35.7 million for the three months ended September 30, 2022, an increase of $3.1 million, or 9.5%, as compared to $32.6 million for the corresponding period in 2021. The increase was due to an increase in hydration product sales attributable to S'well, partially offset by lower sales for measurement products.
Net sales for the International segment were $13.8 million for the three months ended September 30, 2022, a decrease of $13.3 million, or 49.1%, as compared to net sales of $27.1 million for the corresponding period in 2021. In constant currency, which excludes the impact of foreign exchange fluctuations, net sales decreased $9.9 million, or 41.9%, as compared to consolidated net sales in the corresponding period in 2021. The decrease was driven by lower sales to brick-and-mortar retailers and e-commerce sales due to low consumer confidence in the region.
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Gross margin
Gross margin for the three months ended September 30, 2022 was $67.8 million, or 36.4%, as compared to $83.1 million, or 37.0%, for the corresponding period in 2021.
Gross margin for the U.S. segment was $63.3 million, or 36.6%, for the three months ended September 30, 2022, as compared to $74.5 million, or 37.7%, for the corresponding period in 2021. The decrease in gross margin was driven by lower sales. The decrease in gross margin percentage for the U.S. was driven by product mix.
Gross margin for the International segment was $4.5 million, or 32.6%, for the three months ended September 30, 2022, as compared to $8.6 million, or 31.7%, for the corresponding period in 2021. The decrease in gross margin was driven by lower sales. The improvement in the gross margin percentage was attributable to product and customer mix.
Distribution expenses
Distribution expenses for the three months ended September 30, 2022 were $18.6 million, as compared to $18.9 million for the corresponding period in 2021. Distribution expenses as a percentage of net sales were 10.0% for the three months ended September 30, 2022, as compared to 8.4% for the three months ended September 30, 2021.
Distribution expenses as a percentage of net sales for the U.S. segment were approximately 9.0% and 7.2% for the three months ended September 30, 2022 and 2021, respectively. As a percentage of sales shipped from the Company’s U.S. warehouses, distribution expenses were 10.4% and 8.4% for the three months ended September 30, 2022 and 2021, respectively. The increase in expenses as a percentage of sales was attributable to lower shipment volume resulting in an unfavorable impact of fixed expenses, increased storage fees due to high inventory levels and higher labor rates.
Distribution expenses as a percentage of net sales for the International segment were 22.5% for the three months ended September 30, 2022, compared to 17.5% for the corresponding period in 2021. As a percentage of sales shipped from the Company’s international warehouses, excluding non-recurring expenses, distribution expenses were 22.9% and 14.5% for the three months ended September 30, 2022 and 2021, respectively. The increase was attributable to lower shipment volume, higher warehouse supply expenses and an increase in business occupancy tax expense for the U.K. warehouse, partially offset by lower labor costs.
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended September 30, 2022 were $36.5 million, a decrease of $5.5 million, or 13.1%, as compared to $42.0 million for the corresponding period in 2021.
Selling, general and administrative expenses for the U.S. segment were $28.3 million for the three months ended September 30, 2022, as compared to $29.3 million for the corresponding period in 2021. As a percentage of net sales, selling, general and administrative expenses were 16.4% and 14.8% for the three months ended September 30, 2022 and 2021, respectively. The decrease was attributable to lower incentive compensation, partially offset by an increase in selling expenses related to advertising and trade shows.
Selling, general and administrative expenses for the International segment were $3.9 million for the three months ended September 30, 2022, as compared to $6.3 million for the corresponding period in 2021. As a percentage of net sales, selling, general and administrative expenses were 28.3% and 23.3% for the three months ended September 30, 2022 and 2021, respectively. The expense decrease was attributable to lower amortization expense on intangible assets as a result of the prior year impairment and lower unfavorable foreign currency exchange losses.
Unallocated corporate expenses for the three months ended September 30, 2022 were $4.3 million, as compared to $6.4 million for the corresponding period in 2021. The current period decrease was driven by lower incentive compensation expense.
Wallace facility remediation expense
In connection with the Wallace EPA matter, the Company recorded an additional expense of $5.1 million for the three months ended September 30, 2022, to increase its estimated liability for remediation cost related to the Wallace facility. For the three months ended September 30, 2021, the Company recorded an initial estimate of $0.5 million, related to remedial design portion of the liability. Refer to NOTE 13 — CONTINGENCIES for further discussion on this matter.
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Interest expense
Interest expense was $4.6 million and $3.8 million for the three months ended September 30, 2022 and 2021, respectively. The increase in expense was a result of higher interest rates on outstanding borrowings in the current period.
Mark to market gain on interest rate derivatives
Mark to market gain on interest rate derivatives was $0.6 million for the three months ended September 30, 2022, as compared to a mark to market gain on interest rate derivatives of $0.1 million for the three months ended September 30, 2021. The increase was attributable to the change in the fair value based on the increase in interest rates. The mark to market amount represents the change in fair value on the Company’s interest rate derivatives that have not been designated as hedging instruments. These derivatives were entered into for purposes of locking-in a fixed interest rate on a portion of the Company’s variable interest rate debt. As of September 30, 2022, the intent of the Company is to hold these derivative contracts until their maturity.
Income taxes
Income tax provision of $1.8 million and income tax provision of $5.6 million for the three months ended September 30, 2022 and 2021, respectively, represent taxes on both U.S. and foreign earnings at a combined effective income tax provision rate of 50.6% and 31.1%, respectively. The effective tax rate for the three months ended September 30, 2022 differs from the federal statutory income tax rate of 21.0% primarily due to foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. The effective tax rate for the three months ended September 30, 2021 differs from the federal statutory income tax rate of 21.0% primarily due to state and local tax expense, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.
Equity in (losses) earnings
Equity in losses of Vasconia, net of taxes, was $8.2 million for the three months ended September 30, 2022, as compared to equity in earnings of Vasconia, net of taxes, of $0.7 million for the three months ended September 30, 2021. Vasconia reported loss from operations of $5.5 million for the three months ended September 30, 2022, as compared to income from operations of $3.9 million for the three months ended September 30, 2021. The decrease in income from operations was primarily attributable to decreased operating results in the current period in Vasconia's kitchenware and aluminum division.
The Company recorded an impairment charge of $6.2 million to reduce the carrying value of the Company's investment in Vasconia to its fair value. The decline in the fair value was determined to be other than temporary due to the decline in the quoted stock price and the quarterly decline in the operating results of Vasconia.
For the three months ended September 30, 2021, the Company recognized a net loss, including taxes, of $0.5 million related to a partial sale of the Company's ownership in its Vasconia investment. The net loss was comprised of a gain of $1.0 million, for the difference between the selling price and the Company’s basis in the sale of shares, offset by tax expense of $0.1 million and a loss of $1.4 million, related to amounts previously recognized in accumulated other comprehensive loss.
MANAGEMENT’S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2021
Net Sales
Consolidated net sales for the nine months ended September 30, 2022 were $520.6 million, a decrease of $86.5 million, or 14.2%, as compared to net sales of $607.1 million for the corresponding period in 2021. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2022 average rates to 2021 local currency amounts, consolidated net sales decreased by $81.8 million, or 13.6%, as compared to consolidated net sales in the corresponding period in 2021.
Net sales for the U.S. segment for the nine months ended September 30, 2022 were $476.2 million, a decrease of $64.3 million, or 11.9%, as compared to net sales of $540.5 million for the corresponding period in 2021.
Net sales for the U.S. segment’s Kitchenware product category were $291.1 million for the nine months ended September 30, 2022, a decrease of $46.0 million, or 13.6%, as compared to $337.1 million for the corresponding period in 2021. The decrease was mainly driven by lower sales for kitchen tools and gadgets, cutlery and board, and bakeware products primarily due to
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inventory buildup at brick-and-mortar and e-commerce retailers. The decrease was partially offset by an increase in sales for barware and wine products attributable to a new warehouse club program in 2022.
Net sales for the U.S. segment’s Tableware product category were $101.0 million for the nine months ended September 30, 2022, a decrease of $18.2 million, or 15.3%, as compared to $119.2 million for the corresponding period in 2021. The decrease came from all product lines due to lower sales to brick-and-mortar retailers and e-commerce sales.
Net sales for the U.S. segment’s Home Solutions product category were $84.1 million for the nine months ended September 30, 2022, a decrease of $0.1 million, or 0.1%, as compared to $84.2 million for the corresponding period in 2021. The decrease was primarily driven by lower sales for measurement and home décor products, partially offset by hydration product sales attributable to S'well.
Net sales for the International segment were $44.4 million for the nine months ended September 30, 2022, a decrease of $22.2 million, or 33.3%, as compared to net sales of $66.6 million for the corresponding period in 2021. In constant currency, which excludes the impact of foreign exchange fluctuations, net sales decreased $17.7 million, or 28.5%, as compared to consolidated net sales in the corresponding period in 2021. The decrease was attributable to lower sales to brick-and-mortar retailers, e-commerce sales and a decrease in the Company’s global trading business in Asia driven by lower sales with an Australian distributor.
Gross margin
Gross margin for the nine months ended September 30, 2022 was $186.1 million, or 35.7%, as compared to $215.3 million, or 35.5%, for the corresponding period in 2021.
Gross margin for the U.S. segment was $172.1 million, or 36.1%, for the nine months ended September 30, 2022, as compared to $193.9 million, or 35.9%, for the corresponding period in 2021. The decrease in gross margin for the U.S. was driven by lower sales. The improvement in gross margin percentage was due to product mix, a tariff reduction on certain product categories and less dependency on non-vessel operating common carriers.
Gross margin for the International segment was $14.0 million, or 31.5%, for the nine months ended September 30, 2022, as compared to $21.4 million, or 32.1%, for the corresponding period in 2021. The decrease in gross margin was driven by lower sales. The decrease in gross margin percentage was due to the impact of fixed overhead costs on lower sales volume for the 2022 period, partially offset by customer mix.
Distribution expenses
Distribution expenses for the nine months ended September 30, 2022 were $55.2 million, as compared to $56.5 million for the corresponding period in 2021. Distribution expenses as a percentage of net sales were 10.6% for the nine months ended September 30, 2022, as compared to 9.3% for the nine months ended September 30, 2021.
Distribution expenses as a percentage of net sales for the U.S. segment were approximately 9.4% and 8.2% for the nine months ended September 30, 2022 and 2021, respectively. Distribution expenses during the nine months ended September 30, 2022 include $0.1 million for the Company’s distribution operation redesign costs. As a percentage of sales shipped from the Company’s U.S. warehouses, excluding non-recurring expenses, distribution expenses were 10.5% and 8.9% for the nine months ended September 30, 2022 and 2021, respectively. The increase in the expenses as a percentage of sales was a result of lower shipment volume resulting in an unfavorable impact of fixed expenses, increased storage fees due to high inventory levels and higher labor rates, partially offset by lower warehouse equipment and supply expenses.
Distribution expenses as a percentage of net sales for the International segment were 23.5% for the nine months ended September 30, 2022, compared to 18.1% for the corresponding period in 2021. Distribution expenses during the nine months ended September 30, 2022 include $0.5 million for the Company’s relocation costs for its new warehouse distribution facility in the Netherlands. As a percentage of sales shipped from the Company’s international warehouse, excluding non-recurring expenses, distribution expenses were 22.2% and 15.4% for the nine months ended September 30, 2022 and 2021, respectively. The increase was primarily attributed to lower shipment volume, higher warehouse supply expenses and an increase in business occupancy tax expense for the U.K. warehouse, partially offset by lower labor costs.
Selling, general and administrative expenses
Selling, general and administrative expenses for the nine months ended September 30, 2022 were $114.2 million, a decrease of $2.2 million, or 1.9%, as compared to $116.4 million for the corresponding period in 2021.
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Selling, general and administrative expenses for the U.S. segment were $85.9 million for the nine months ended September 30, 2022, as compared to $83.2 million for the corresponding period in 2021. As a percentage of net sales, selling, general and administrative expenses were 18.0% and 15.4% for the nine months ended September 30, 2022 and 2021, respectively. The increase was attributable to integration costs related to the S'well acquisition, higher advertising expenses and employee related expenses, partially offset by lower incentive compensation.
Selling, general and administrative expenses for the International segment were $13.2 million for the nine months ended September 30, 2022, as compared to $15.5 million for the corresponding period in 2021. The decrease was primarily attributable to lower amortization expense on intangible assets as a result of the prior year impairment.
Unallocated corporate expenses for the nine months ended September 30, 2022 were $15.1 million, as compared to $17.7 million for the corresponding period in 2021. The decrease was driven by lower incentive compensation expense, partially offset by an increase in legal and professional fees related to the S'well acquisition.
Wallace facility remediation expense
In connection with the Wallace EPA matter, the Company recorded an additional expense of $5.1 million for the nine months ended September 30, 2022, to increase its estimated liability for remediation cost related to the Wallace facility. For the nine months ended September 30, 2021, the Company recorded an initial estimate of $0.5 million, related to remedial design portion of the liability. Refer to NOTE 13 — CONTINGENCIES for further discussion on this matter.
Interest expense
Interest expense was $12.1 million and $11.7 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in expense was a result of higher interest rates on outstanding borrowings in the current period.
Mark to market gain on interest rate derivatives
Mark to market gain on interest rate derivatives was $2.0 million for the nine months ended September 30, 2022, as compared to a mark to market gain on interest rate derivatives of $0.7 million for the nine months ended September 30, 2021. The increase was attributable to the change in the fair value based on the increase in interest rates. The mark to market amount represents the change in fair value on the Company’s interest rate derivatives that have not been designated as hedging instruments. These derivatives were entered into for purposes of locking-in a fixed interest rate on a portion of the Company’s variable interest rate debt. As of September 30, 2022, the intent of the Company is to hold these derivative contracts until their maturity.
Income taxes
Income tax provision of $3.4 million and $9.8 million for the nine months ended September 30, 2022 and 2021, respectively, represent taxes on both US and foreign earnings at combined effective income tax provision rates of 245.9% and 31.8%, respectively. The effective tax rate for the nine months ended September 30, 2022 differs from the federal statutory income tax rate of 21% primarily due to foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. The effective tax rate for the nine months ended September 30, 2021 differs from the federal statutory income tax rate of 21% primarily due to state and local tax expense, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.
Equity in (losses) earnings
Equity in losses of Vasconia, net of taxes, was $7.4 million for the nine months ended September 30, 2022, as compared to equity in earnings of Vasconia, net of taxes, of $1.2 million for the nine months ended September 30, 2021. Vasconia reported loss from operations of $0.3 million for the nine months ended September 30, 2022, as compared to income from operations of $14.2 million for the nine months ended September 30, 2021. The decrease in income from operations was primarily attributable to decreased operating results in the current period in both Vasconia's kitchenware and aluminum divisions.
The Company recorded an impairment charge of $6.2 million to reduce the carrying value of the Company's investment in Vasconia to its fair value. The decline in the fair value was determined to be other than temporary due to the decline in the quoted stock price and the quarterly decline in the operating results of Vasconia.
During the nine months ended September 30, 2021, the Company's ownership in its equity method investment decreased as a result of a dilution of its investment in Vasconia and a subsequent partial sale of its investment. The Company recognized a net loss of $0.3 million related to the dilution of the Company's ownership in its Vasconia investment. The net loss was comprised
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of a loss of $2.0 million, related to amounts that were previously recognized in accumulated other comprehensive loss, net of a non-cash gain of $1.7 million for the difference between the selling price and the Company's basis in the diluted shares.
Additionally, the Company recognized a net loss of $0.5 million related to a partial sale of the Company’s ownership in its Vasconia investment. The net loss was comprised of a loss of $1.0 million, for the difference between the selling price and the Company’s basis in the sale of shares, offset by tax expense of $0.1 million and a loss of $1.4 million, related to amounts previously recognized in accumulated other comprehensive loss.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company’s principal sources of cash to fund liquidity needs were: (i) cash provided by operating activities and (ii) borrowings available under its revolving credit facility under the ABL Agreement, as defined below. The Company’s primary uses of funds consist of working capital requirements, capital expenditures, acquisitions and investments, and payments of principal and interest on its debt.
At September 30, 2022, the Company had cash and cash equivalents of $5.9 million, compared to $28.0 million at December 31, 2021. Working capital was $287.7 million at September 30, 2022, compared to $271.3 million at December 31, 2021. Liquidity, which includes cash and cash equivalents and availability under the ABL Agreement, was approximately $170.6 million at September 30, 2022.
Inventory, a large component of the Company’s working capital, is expected to fluctuate from period to period, with inventory levels higher primarily in the June through October time period. The Company also expects inventory turnover to fluctuate from period to period based on product and customer mix. Certain product categories have lower inventory turnover rates as a result of minimum order quantities from the Company’s vendors or customer replenishment needs. Certain other product categories experience higher inventory turns due to lower minimum order quantities or trending sale demands. For the three months ended September 30, 2022, inventory turnover was 1.7 times, or 219 days, as compared to 2.4 times, or 154 days, for the three months ended September 30, 2021. In the first half of fiscal 2022, the Company increased its inventory levels to address supply chain disruptions and to support anticipated customer demand. However, inventory turns have slowed due to macroeconomic challenges that companies across industries and retailers in particular faced. Inflation has led to weaker end market demand and supply chain disruptions have led to inventory buildup.
In connection with the Wallace EPA Matter, the company expects in the next twelve months it will be required to provide financial assurance of $5.6 million, which it expects to provide in the form of a letter of credit. This would reduce availability under the revolving credit facility.
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 twelve months. However, if circumstances were to adversely change, the Company may seek alternative sources of liquidity including debt and/or equity financing. However, there can be no assurance that any such alternative sources would be available or sufficient or available on terms favorable to the Company.
The Company closely monitors the creditworthiness of its customers. Based upon its evaluation of changes in customers’ creditworthiness, the Company may modify credit limits and/or terms of sale. However, notwithstanding the Company’s efforts to monitor its customers’ financial condition, the Company could be materially adversely affected by changes in customers' creditworthiness in the future.
Credit Facilities
On August 26, 2022, the Company entered into Amendment No. 2 (the “Amendment”) to the Company’s credit agreement, dated as of March 2, 2018 (as amended, the “ABL Agreement”) among the Company, as a Borrower, certain subsidiaries of the Company, as Borrowers and/or Loan Parties, JPMorgan Chase Bank, N.A., as Administrative Agent and a Lender, HSBC Bank USA, National Association and Wells Fargo Bank, National Association, as Co-Documentation Agents and Lenders, and Manufacturers and Traders Trust Company, as a Lender, that provides for the Company’s ABL facility. The ABL Agreement provides for a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $200.0 million, which facility will mature on August 26, 2027 (subject to an earlier springing maturity date that is 90 days prior to the Term Loan maturity date of February 28, 2025 if the Company’s Term Loan has not been repaid or refinanced by such date).
The Company's loan agreement, dated as of March 2, 2018, (the “Term Loan Agreement” and together with the ABL Agreement, the “Debt Agreements”) provides for a senior secured term loan credit facility in the original principal amount of
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$275.0 million, which matures on February 28, 2025. The Term Loan Agreement requires the Company to make an annual prepayment of principal based upon a percentage of the Company's excess cash flow, (“Excess Cash Flow”), if any. The percentage applied to the Company’s excess cash flow is based on the Company’s Total Net Leverage Ratio (as defined in the Debt Agreements). When an Excess Cash Flow payment is required, each lender has the option to decline a portion or all of the prepayment amount payable to it. An estimate of the amount of the Excess Cash Flow payment is recorded in current maturity of term loan on the unaudited condensed consolidated balance sheets. Additionally, the Term Loan Agreement requires quarterly payments, which commenced on June 30, 2018, of principal equal to 0.25% of the original aggregate principal amount of the Term Loan facility, which payments are to be adjusted from time to time to account for prepayments made. Per the Term Loan Agreement, when the Company makes an Excess Cash Flow payment, the payment is first applied to satisfy the next eight (8) scheduled future quarterly required payments of the Term Loan in order of maturity and then to the remaining scheduled installments on a pro rata basis. The quarterly principal payments have been satisfied through maturity of the Term Loan by the annual Excess Cash Flow payments made to date.
The maximum borrowing amount under the ABL Agreement may be increased to up to $250.0 million if certain conditions are met and further limited to $220.0 million pursuant to the Term Loan Agreement. One or more tranches of additional term loans (the “Incremental Term Facilities”) may be added under the Term Loan Agreement if certain conditions are met. The Incremental Facilities may not exceed the sum of (i) $50.0 million plus (ii) an unlimited amount so long as, in the case of (ii) only, the Company’s secured net leverage ratio, as defined in and computed on a pro forma basis pursuant to the Term Loan Agreement, after giving effect to such increase, is no greater than 3.75 to 1.00, subject to certain limitations and for the period defined pursuant to the Term Loan Agreement but not to mature earlier than the maturity date of the then existing term loans.
As of September 30, 2022 and December 31, 2021, the total availability under the ABL Agreement was as follows (in thousands):

|  | September 30, 2022 |  | December 31, 2021
Maximum aggregate principal allowed |  | $ | 200,000 |  |  | $ | 150,000 |
Outstanding borrowings under the ABL Agreement |  | (32,545) |  |  | — |
Standby letters of credit |  | (2,765) |  |  | (3,659) |
Total availability under the ABL Agreement |  | $ | 164,690 |  |  | $ | 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. 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 means that the Company may have greater borrowing availability during the third and fourth quarters of each year. Consequently, the $200.0 million commitment thereunder may not represent actual borrowing capacity.
The current and non-current portions of the Company’s Term Loan facility included in the condensed consolidated balance sheets were as follows (in thousands):

|  | September 30, 2022 |  | December 31, 2021 |  |
Current portion of Term Loan facility: |  |  |  |  |  |
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 |  | (3,406) |  |  | (3,054) |  |  |
Total Non-current portion of Term Loan facility |  | $ | 242,505 |  |  | $ | 241,873 |  |  |

The estimated Excess Cash Flow principal payment recorded at September 30, 2022 represents the Company’s estimate for the 2023 Excess Cash Flow payment. The 2022 Excess Cash Flow payment, paid on March 30, 2022, totaled $6.2 million. The Excess Cash Flow payment differs from the estimated amount at December 31, 2021 of $7.2 million as certain lenders opted to decline their payments per the terms of the Term Loan Agreement.
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The Company’s payment obligations under its Debt Agreements are unconditionally guaranteed by its existing and future U.S. subsidiaries with certain minor exceptions. Certain payment obligations under the ABL Agreement are also direct obligations of its foreign subsidiary borrowers designated as such under the ABL Agreement and, subject to limitations on such guaranty, are guaranteed by the foreign subsidiary borrowers, as well as by the Company. The obligations of the foreign subsidiary borrowers under the ABL Agreement are secured by security interests in substantially all of the assets of, and stock in, such foreign subsidiary borrowers, subject to certain limitations. The obligations of the Company under the Debt Agreements and any hedging arrangements and cash management services and the guarantees by its domestic subsidiaries in respect of those obligations are secured by security interests in substantially all of the assets and stock (but in the case of foreign subsidiaries, limited to 65% of the capital stock in first-tier foreign subsidiaries and not including the stock of subsidiaries of such first-tier foreign subsidiaries) owned by the Company and the U.S. subsidiary guarantors, subject to certain exceptions. Such security interests consist of (1) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and certain of its subsidiaries (the “ABL Collateral”) pledged as collateral in favor of lenders under the ABL Agreement and a second-priority lien in the ABL Collateral in favor of the lenders under the Term Loan Agreement and (2) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and certain of its subsidiaries (the “Term Loan Collateral”) pledged as collateral in favor of lenders under the Term Loan Agreement and a second-priority lien in the Term Loan Collateral in favor of the lenders under the ABL Agreement.
Borrowings under the revolving credit facility bear interest, at the Company’s option, at one of the following rates: (i) an alternate base rate, defined, for any day, as the greater of the prime rate, a federal funds and overnight bank funding based rate plus 0.5% or one-month Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus 1.0% as of a specified date in advance of the determination, but in each case not less than 1.0%, plus a margin of 0.25% to 0.50%, or (ii) Adjusted Term SOFR, which is the Term SOFR Rate for the selected 1, 3 or 6 month interest period plus 0.10% (or Euro Interbank Offered Rate “EURIBOR” for borrowings denominated in Euro; or Sterling Overnight Index Average “SONIA” for borrowings denominated in Pounds Sterling), but in each case not less than zero, plus a margin of 1.25% to 1.50%. The respective margins are based upon average quarterly availability, as defined in and computed pursuant to the ABL Agreement. In addition, the Company pays a commitment fee of 0.20% to 0.25% per annum based on the average daily unused portion of the aggregate commitment under the ABL Agreement. The interest rate on outstanding borrowings under the ABL Agreement at September 30, 2022 was between 2.19% and 6.75%.
The Term Loan facility bears interest, at the Company’s option, at one of the following rates: (i) alternate base rate, defined, for any day, as the greater of (x) the prime rate, (y) a federal funds and overnight bank funding based rate plus 0.5% or (z) one-month LIBOR, but not less than 1.0%, plus 1.0%, which alternate base rate shall not be less than 2.0%, plus a margin of 2.5% or (ii) LIBOR for the applicable interest period, multiplied by any statutory reserve rate, but not less than 1.0%, plus a margin of 3.5%. The interest rate on outstanding borrowings under the Term Loan at September 30, 2022 was 6.02%.
The Debt Agreements provide for customary restrictions and events of default. Restrictions include limitations on additional indebtedness, liens, acquisitions, investments and payment of dividends, among other things. Further, the ABL Agreement provides that during any period (a) commencing on the last day of the most recently ended four consecutive fiscal quarters on or prior to the date availability under the ABL Agreement is less than the greater of $20.0 million and 10% of the aggregate commitment under the ABL Agreement at any time and (b) ending on the day after such availability has exceeded the greater of $20.0 million and 10% of the aggregate commitment under the ABL Agreement for 45 consecutive days, the Company is required to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 as of the last day of any period of four consecutive fiscal quarters.
The Company was in compliance with the covenants of the Debt Agreements at September 30, 2022.
Prior to the amendment of the credit agreement, the Company’s ABL provided for an aggregate principal amount of $150.0 million. Upon entering into the Amendment to the ABL agreement the Company repaid its outstanding ABL borrowing in the amount of $32.0 million and re-borrowed such amounts under the ABL Agreement, as amended. Unamortized debt issuance costs that were written off were immaterial.
The Company expects that it will continue to borrow, subject to availability, and repay funds under the ABL Agreement based on working capital and other corporate needs.
Covenant Calculations
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.
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The Company’s adjusted EBITDA (including pro forma adjustments), for the trailing twelve months ended September 30, 2022 was $69.3 million.
Capital expenditures for the nine months ended September 30, 2022 were $2.0 million.
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. This measure is provided because management of the Company uses this financial measure in evaluating the Company’s on-going financial results and trends, and management believes that exclusion of certain items allows for more accurate period-to-period comparison of the Company’s operating performance by investors and analysts. 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.
Investors should consider this non-GAAP financial measure in addition to, and not as a substitute for, the Company’s financial performance measures prepared in accordance with U.S. GAAP. Further, the Company’s non-GAAP information may be different from the non-GAAP information provided by other companies including other companies within the home retail industry.
The following is a reconciliation of the net (loss) income, as reported, to adjusted EBITDA, for each of the last four quarters and the 12 months ended September 30, 2022:

| Quarter Ended |  | Twelve Months Ended September 30, 2022
| December 31, 2021 |  | March 31, 2022 |  | June 30, 2022 |  | September 30, 2022 |
| (in thousands)
Net (loss) income as reported | $ | (626) |  |  | $ | 380 |  |  | $ | (3,460) |  |  | $ | (6,358) |  |  | $ | (10,064) |
Undistributed equity (earnings) losses, net | (466) |  |  | (416) |  |  | (334) |  |  | 8,159 |  |  | 6,943 |
Income tax provision (benefit) | 6,704 |  |  | 1,673 |  |  | (98) |  |  | 1,845 |  |  | 10,124 |
Interest expense | 3,856 |  |  | 3,767 |  |  | 3,732 |  |  | 4,581 |  |  | 15,936 |
Mark to market (gain) on interest rate derivatives | (398) |  |  | (1,049) |  |  | (304) |  |  | (637) |  |  | (2,388) |
Depreciation and amortization | 4,960 |  |  | 4,899 |  |  | 5,038 |  |  | 4,598 |  |  | 19,495 |
Intangible asset impairments | 14,760 |  |  | — |  |  | — |  |  | — |  |  | 14,760 |
Stock compensation expense | 1,244 |  |  | 1,174 |  |  | 1,365 |  |  | 1,026 |  |  | 4,809 |
Acquisition related expenses | 378 |  |  | 1,119 |  |  | 75 |  |  | 109 |  |  | 1,681 |
Warehouse relocation and redesign expenses(1) | 450 |  |  | 497 |  |  | 73 |  |  | 59 |  |  | 1,079 |
S'well integration costs(2) | — |  |  | 781 |  |  | 864 |  |  | 250 |  |  | 1,895 |
Wallace facility remediation expense | — |  |  | — |  |  | — |  |  | 5,140 |  |  | 5,140 |
Adjusted EBITDA, before limitation | 30,862 |  |  | 12,825 |  |  | 6,951 |  |  | 18,772 |  |  | 69,410 |
Permitted non-recurring charge limitation (3) |  |  |  |  |  |  |  |  | (1,403) |
Adjusted EBITDA(4) |  |  |  |  |  |  |  |  | $ | 68,007 |
Pro forma historical S'well and projected synergies adjustment(5) |  |  |  |  |  |  |  |  | 1,250 |
Pro forma Adjusted EBITDA(4) | $ | 30,862 |  |  | $ | 12,825 |  |  | $ | 6,951 |  |  | $ | 18,772 |  |  | $ | 69,257 |

(1) For the twelve months ended September 30, 2022, the warehouse relocation and redesign expenses included $0.6 million of expenses related to the International segment and $0.5 million of expenses related to the U.S. segment.
(2) For the twelve months ended September 30, 2022, S'well integration costs included $0.5 million of expenses related to inventory step up adjustment in connection with S'well acquisition.
(3) Permitted non-recurring charges include integration charges, Wallace facility remediation expense, and warehouse relocation and redesign expenses. These are permitted exclusions from the Company’s consolidated adjusted EBITDA, subject to limitations, pursuant to the Company’s Debt Agreements.
(4) Adjusted EBITDA is a non-GAAP financial measure that is defined in the Company’s debt agreements. Adjusted EBITDA is defined as net (loss) income, adjusted to exclude undistributed equity in (earnings) losses, income tax provision (benefit), interest expense, mark to market (gain) on interest rate derivatives, depreciation and amortization, intangible asset impairments, stock compensation expense, Wallace facility remediation expense, and other items detailed in the table above that are consistent with exclusions permitted by our debt agreements.
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(5) Pro forma historical S'well and projected synergies adjustment represents a permitted adjustment to the Company’s adjusted EBITDA for the acquisition of S'well on March 2, 2022 pursuant to the Company’s Debt Agreements. Pro forma projected synergies represents the amount of projected cost savings, operating expense reductions and cost saving synergies projected by the Company as a result of actions taken through September 30, 2022 or expected to be taken as of September 30, 2022, net of the benefits realized during the twelve months ended September 30, 2022.
Accounts Receivable Purchase Agreement
To improve its liquidity during seasonally high working capital periods, the Company has an uncommitted Receivables Purchase Agreement with HSBC Bank USA, National Association (“HSBC”) as Purchaser (the “Receivables Purchase Agreement”). Under the Receivables Purchase Agreement, the Company may offer to sell certain eligible accounts receivable (the “Receivables”) to HSBC, which may accept such offer, and purchase the offered Receivables. Under the Receivables Purchase Agreement, following each purchase of Receivables, the outstanding aggregate purchased Receivables shall not exceed $30.0 million. HSBC will assume the credit risk of the Receivables purchased, and the Company will continue to be responsible for all non-credit risk matters. The Company will service the Receivables, and as such servicer, collect and otherwise enforce the Receivables on behalf of HSBC. The term of the agreement is for 364 days and shall automatically be extended for annual successive terms unless terminated. Either party may terminate the agreement at any time upon sixty days’ prior written notice to the other party.
Pursuant to the Receivable Purchase Agreement, the Company sold to HSBC $30.0 million and $109.8 million of receivables during the three and nine months ended September 30, 2022, respectively and $33.7 million and $113.2 million of receivables during three and nine months ended September 30, 2021, respectively. Charges of $0.2 million and $0.1 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the three months ended September 30, 2022 and 2021, respectively. Charges of $0.5 million and $0.3 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022 and 2021, $20.2 million and $15.8 million, respectively, of receivables sold were outstanding and due to HSBC from customers.
Derivatives
Interest Rate Swaps
The Company's total outstanding notional value of interest rate swaps was $50.0 million at September 30, 2022.
The Company designated a portion of these interest rate swaps as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The hedge periods of these agreements commenced in April 2018 and expire in March 2023. The original notional values are reduced over these periods. The aggregate notional value of designated interest rate swaps was $25.0 million at September 30, 2022.
In June 2019, the Company entered into additional interest rate swap agreements, with an aggregate notional value of $25.0 million at September 30, 2022. These non-designated interest rate swaps serve as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings and expire in February 2025.
Foreign Exchange Contracts
The Company is party from time to time to certain foreign exchange contracts, primarily to offset the earnings impact related to fluctuations in foreign currency exchange rates associated with inventory purchases denominated in foreign currencies. Fluctuations in the value of certain foreign currencies as compared to the USD may positively or negatively affect the Company’s revenues, gross margins, operating expenses, and retained earnings, all of which are expressed in USD. Where the Company deems it prudent, the Company engages in hedging programs using foreign currency forward contracts aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings. The Company purchases foreign currency forward contracts with terms less than 18 months to protect against currency exchange risks associated with the payment of merchandise purchases to foreign suppliers. The Company does not hedge the translation of foreign currency profits into USD, as the Company regards this as an accounting exposure rather than an economic exposure.
The aggregate gross notional value of foreign exchange contracts at September 30, 2022 was $3.5 million. These foreign exchange contracts have been designated as hedges in order to apply hedge accounting.
The Company is exposed to market risks as well as changes in foreign currency exchange rates as measured against the USD and each other, and to changes to the credit risk of derivative counterparties. The Company attempts to minimize these risks primarily by using foreign currency forward contracts and by maintaining counterparty credit limits. These hedging activities provide only limited protection against currency exchange and credit risk. Factors that could influence the effectiveness of the
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Company’s hedging programs include those impacting currency markets and the availability of hedging instruments and liquidity of the credit markets. All foreign currency forward contracts that the Company enters into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure. The Company does not enter into such contracts for speculative purposes, and as of September 30, 2022, the Company did not have any foreign currency forward contract derivatives that are not designated as hedges. These foreign exchange contracts have been designated as hedges in to order to apply hedge accounting.
Operating activities
Net cash used in operating activities was $20.1 million for the nine months ended September 30, 2022, as compared to net cash provided by operating activities of $14.6 million for the nine months ended September 30, 2021. The decrease from 2022 compared to 2021 was attributable to a net loss generated in 2022 compared to 2021, timing of payments for accounts payable and accrued expenses, partially offset by timing of collections related to the Company's accounts receivables.
Investing activities
Net cash used in investing activities was $19.9 million and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively. The increase from 2022 compared to 2021 was attributable to the cash consideration of $18.0 million paid for the acquisition of S'well.
Financing activities
Net cash provided by financing activities was $18.4 million and for the nine months ended September 30, 2022, as compared to net cash used in financing activities of $41.5 million for the nine months ended September 30, 2021. The change was mainly attributable to proceeds from the Company's revolving credit facility under its ABL Agreement in the 2022 period and the lower Excess Cash Flow principal payment on the term loan for the 2022 period compared to the 2021 period.
Stock repurchase program
On March 14, 2022, the Company announced that its Board of Directors of the Company authorized the repurchase of up to $20.0 million of the Company’s common stock, replacing the Company’s previously-authorized $10 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. During the nine months ended September 30, 2022, the Company repurchased 389,743 shares for a total cost of $4.7 million and thereafter retired the shares. Please see Part II, Item 2—Unregistered Sales of Equity Securities and Use of Proceeds included in this Quarterly Report on Form 10-Q.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in market risk for changes in foreign currency exchange rates and interest rates from the information provided in Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the 2021 Annual Report on Form 10-K.
Item 4. Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of September 30, 2022, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed by it under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosure.
(b)Changes in Internal Controls
There were no changes in the Company’s internal controls over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a description of the Company’s legal proceedings, please see NOTE 13 — CONTINGENCIES, to the Company's condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, readers should carefully consider the factors discussed in Part I, Item 1A—Risk Factors in the 2021 Annual Report on Form 10-K, and in the Company’s other filings with the SEC, which could materially affect the Company’s business, financial condition, cash flows or future results. There have been no material changes from the risk factors previously disclosed in Part I, Item 1A—Risk Factors in the 2021 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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) |
August 1 - August 31, 2022 |  | 22,725 |  |  | 9.42 |  |  | 22,687 |  |  | 15,586,060 |  |
September 1 - September 30, 2022 |  | 30,265 |  |  | 8.69 |  |  | 30,265 |  |  | 15,322,269 |  |

(1)The repurchased shares include 38 shares acquired other than as part of a publicly announced plan or program. 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 the exercise price of options exercised, certain tax liabilities arising from the exercise of options, and certain tax liabilities arising from the vesting of restricted stock. The foregoing number does not include unvested shares forfeited back to the Company pursuant to the terms of its stock compensation plans.
(2)On March 14, 2022, the Company announced that its Board of Directors of the Company authorized the repurchase of up to $20.0 million of the Company’s common stock, replacing the Company’s previously-authorized $10 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. During the three months ended September 30, 2022, the Company repurchased 52,952 shares for a total cost of $0.5 million and thereafter retired the shares.
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Item 5. Other Information
The information set forth below is included herein, by our option, for the purpose of providing disclosure under “Item 5.02 – Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers” of Form 8-K.
On November 1, 2022, the Company entered into a transition agreement (the “Transition Agreement”) with Jeffrey Siegel, the Company’s Executive Chairman, which amended the terms of the Fourth Amended and Restated Employment Agreement, dated as of June 27, 2019, by and between Mr. Siegel and the Company (the “Employment Agreement”), for the primary purpose of extending the term of the Employment Agreement through March 31, 2023 (the “Transition Termination Date”). The Transition Agreement becomes effective on January 1, 2023 and shall remain in effect until the Transition Termination Date (the “Transition Period”). During the Transition Period, Mr. Siegel shall provide business support and advisory services to the Company and shall be entitled to the following compensation: (i) a base salary equal to $14,000 per month and (ii) continued entitlement to the reimbursements and retirement and welfare benefits set forth in Section 4(d)(i) and Section 4(e) of the Employment Agreement. Mr. Siegel’s 2022 bonus shall be determined and paid pursuant to Section 4(b) of the Employment Agreement, provided that Mr. Siegel shall not be entitled to any other bonus compensation, including in respect of the services provided during the Transition Period. Upon termination of Mr. Siegel’s employment on the Transition Termination Date, he will receive severance equal to the sum of $691,667 and the average of the annual bonuses paid to him for 2020, 2021, and 2022.
The information provided in this Item 5.02 is qualified in its entirety by reference to the terms of the Transition Agreement attached hereto as Exhibit 10.3 and the Employment Agreement referenced hereto as Exhibit 10.4, each of which is incorporated herein by reference.
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Item 6. Exhibits
See the Exhibit Index below, which is incorporated by reference herein.
Exhibit Index

Exhibit No. |  |
31.1 |  | Certification by Robert B. Kay, Chief Executive Officer and Director, pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 |  | Certification by Laurence Winoker, Executive Vice President, Treasurer and Chief Financial Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 |  | Certification by Robert B. Kay, Chief Executive Officer and Director, and Laurence Winoker, Executive Vice President, Treasurer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
10.1 |  | Third Amendment to Amended and Restated Employment Agreement, dated as of August 1, 2022, between the Company and Laurence Winoker (incorporated by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2022)
10.2 |  | Amendment No. 2, dated as of August 26, 2022, by and among the Company, the other Loan Parties party thereto (as defined therein), and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 29, 2022)
10.3 |  | Transition Agreement, dated as of November 1, 2022, by and among the Company and Jeffrey Siegel.
10.4 |  | Fourth Amended and Restated Employment Agreement, dated as of June 27, 2019, between the Company and Jeffrey Siegel (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 28, 2019)
101.INS |  | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB |  | Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL and contained in Exhibit 101

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| Lifetime Brands, Inc. |
| /s/ Robert B. Kay | November 3, 2022
| Robert B. Kay |
| Chief Executive Officer and Director |
| (Principal Executive Officer) |
| /s/ Laurence Winoker | November 3, 2022
| Laurence Winoker |
| Executive Vice President, Treasurer and Chief Financial Officer |
| (Principal Financial and Accounting Officer) |

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