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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Lifetime Brands, Inc.    LCUT

LIFETIME BRANDS, INC.

(LCUT)
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LIFETIME BRANDS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/05/2020 | 04:45pm EST
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. 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. Important factors that could cause the
Company's actual results to differ materially from those expressed as
forward-looking statements are set forth in this Quarterly Report in Part II,
Item 1A. Risk Factors, and in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2019 (the "2019 Annual Report on Form 10-K") in
Part I, Item 1A under the heading Risk Factors. Such risks, uncertainties and
other important factors include, among others, risks related to:
•General economic factors and political conditions;
•Exit of the United Kingdom from the European Union;
•Tariffs;
•Indebtedness and compliance with credit agreements;
•Access to the capital markets and credit markets;
•The credit-worthiness of our customers and the counterparties to our
derivatives;
•Restructuring and integration of our European operations;
•Seasonality;
•Liquidity;
•Interest rates;
•Acquisition integration;
•Competition;
•Customer practices;
•Intellectual property, brands and licenses;
•Goodwill;
•International operations;
•Supply chain;
•Foreign exchange rates;
•International trade, including trade negotiations;
•Transportation;
•Product liability;
•Regulatory matters;
•Product development;
•Stock keeping unit rationalization ("SKU Rationalization") initiative;
•Reputation;
•Technology;
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•Personnel;
•Price fluctuations;
•Business interruptions;
•Projections;
•Fixed costs;
•Governance;
•Acquisitions and investments;
•Public health pandemics and related effects, such as the COVID-19 pandemic; and
•Social unrest, including related protests or disturbances.
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 United States Securities and
Exchange Commission (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 Annual Report. 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 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 2019, Kitchenware products and
Tableware products accounted for approximately 79% of the Company's U.S.
segment's net sales and 82% of the Company's consolidated net sales.
The Company markets several product lines within each of its product categories
and under most of the Company's brands, primarily targeting moderate price
points through virtually every major level of trade. The Company believes it
possesses certain competitive advantages based on its brands, its emphasis on
innovation and new product development, and its sourcing capabilities. The
Company owns or licenses a number of leading brands in its industry, including
Farberware®, Mikasa®, Taylor®, KitchenAid®, KitchenCraft®, Pfaltzgraff®, Built
NY®, Rabbit®, Kamenstein®, and MasterClass®. Historically, the Company's sales
growth has come from expanding product offerings within its product categories,
by developing existing brands, acquiring new brands (including complementary
brands in markets outside the U.S.), 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.


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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 and
consulting fees, are not allocated to the specific segments and are reflected as
unallocated corporate expenses.
EQUITY INVESTMENTS
The Company owns approximately 30% 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, 2020 and 2019 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, 2020, Vasconia's Board of
Directors is comprised of fourteen members of whom the Company has designated
three members.
SEASONALITY
The Company's business and working capital needs are highly seasonal, with a
majority of sales occurring in the third and fourth quarters. In 2019 and 2018,
net sales for the third and fourth quarters accounted for 60% and 62% of total
annual net sales, respectively. In anticipation of the pre-holiday shipping
season, inventory levels increase primarily in the June through October time
period. 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.
RESTRUCTURING
During the nine months ended September 30, 2020, the Company's international
segment incurred $0.3 million of restructuring expenses related to severance
associated with the strategic reorganization of the international segment's
product development and sales workforce. The strategic reorganization is the
result of the Company's efforts for product development efficiencies and a
country tailored international sales approach. As of September 30, 2020,
$0.1 million of severance was accrued. The Company does not expect to incur any
additional restructuring charges for these strategic reorganization efforts for
the remainder of 2020.
During the nine months ended September 30, 2019, the Company incurred
$0.4 million of Filament restructuring charges, primarily related to severance.
During the three and nine months ended September 30, 2019, the Company incurred
$0.3 million and $0.7 million of restructuring expenses, primarily related to
severance, for the integration of its legal entities operating in Europe. In
2018, the Company finalized its integration plans for its European operations
and took further steps to consolidate its operations.
RECENT DEVELOPMENTS
The COVID-19 pandemic continues to affect the United States and the rest of the
world. The pandemic has resulted in an increase in sales of certain of the
Company's products as well as a decrease in sales in other of its products. The
Company has experienced a reduction in sales at certain retailers that have been
closed or have had a limited number of stores that are open during the pandemic.
This reduction in sales has been offset by higher sales at retailers that have
remained open. Many of the retailers that remain open provide products that are
deemed essential. In addition, the Company's e-commerce sales have increased
during the pandemic.
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The Company's distribution centers remain operational and continue to support
e-commerce and brick-and-mortar retail customers. The Company has not
experienced disruptions in its supply chain related to the COVID-19 pandemic.
However, in limited instances and categories, increased demand has strained the
manufacturing capacity of certain of the Company's suppliers. Additionally, in
the U.S., the Company has experienced some instances of trucking availability
shortages, resulting in delays of shipments to certain of its customers.
In response to the COVID-19 pandemic, the Company announced and implemented cost
reductions in April 2020. Also in April 2020, the Company's Board of Directors
authorized the postponement of the Company's quarterly cash dividend, which was
to be paid on May 15, 2020, to shareholders of record on May 1, 2020. The
Company set November 16, 2020 as the new record date for such dividend payable
on December 16, 2020.
The Company cannot estimate the length or severity of this pandemic. However the
Company believes that it could have a material adverse impact on its future
sales, results of operations, and cash flows, including the potential impairment
of certain intangible and other long-lived assets.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to the Company's critical accounting
policies and estimates discussed in the 2019 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.
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                             Nine Months Ended
                                                               September 30,                                  September 30,
                                                        2020                    2019                   2020                    2019
Net sales                                                  100.0  %               100.0  %                100.0  %               100.0  %
Cost of sales                                               64.9                   66.2                    64.2                   66.3
Gross margin                                                35.1                   33.8                    35.8                   33.7
Distribution expenses                                        8.4                    8.6                     9.8                    9.8
Selling, general and administrative expenses                17.1                   17.4                    22.0                   23.4
Restructuring expenses                                         -                    0.2                     0.0                    0.3
Goodwill and other impairments                                 -                    4.6                     3.9                    2.0
Income (loss) from operations                                9.6                    3.0                     0.1                   (1.8)
Interest expense                                            (1.8)                  (2.6)                   (2.5)                  (3.1)
Mark to market gain (loss) on interest rate
derivatives                                                  0.0                    0.2                    (0.4)                   0.1

Income (loss) before income taxes and equity in
earnings (losses)                                            7.8                    0.6                    (2.9)                  (4.8)
Income tax provision                                        (1.7)                  (7.0)                   (0.6)                  (1.4)
Equity in earnings (losses), net of taxes                    0.1                   (0.1)                   (0.1)                  (0.1)
Net income (loss)                                            6.2  %                (6.5) %                 (3.5) %                (6.3) %



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                      MANAGEMENT'S DISCUSSION AND ANALYSIS

THREE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THE THREE MONTHS ENDED

                               SEPTEMBER 30, 2019Net Sales
Consolidated net sales for the three months ended September 30, 2020 were $224.8
million, representing an increase of $9.3 million, or 4.3%, as compared to net
sales of $215.5 million for the corresponding period in 2019. In constant
currency, a non-GAAP financial measure, which excludes the impact of foreign
exchange fluctuations and was determined by applying 2020 average rates to 2019
local currency amounts, consolidated net sales increased by $8.4 million, or
3.9%, as compared to consolidated net sales in the corresponding period in 2019.
Net sales for the U.S. segment for the three months ended September 30, 2020
were $201.5 million, an increase of $6.3 million, or 3.2%, as compared to net
sales of $195.2 million for the corresponding period in 2019.
Net sales for the U.S. segment's Kitchenware product category were $119.6
million for the three months ended September 30, 2020, an increase of $20.3
million, or 20.4%, as compared to $99.3 million for the corresponding period in
2019. The increase was mainly driven by higher consumer demand for essential
kitchen tools and gadgets, and cutlery and board products during the pandemic.
Net sales for the U.S. segment's Tableware product category were $51.3 million
for the three months ended September 30, 2020, a decrease of $6.0 million, or
10.5%, as compared to $57.3 million for the corresponding period in 2019. The
decrease was primarily driven by lower sales of dinnerware products in the
wholesale channel, partially offset by an increase in sales of flatware product
in the wholesale channel.
Net sales for the U.S. segment's Home Solutions product category were $30.7
million for the three months ended September 30, 2020, a decrease of $7.9
million, or 20.5%, as compared to $38.6 million for the corresponding period in
2019. The decrease was primarily driven by lower home décor sales due to certain
retailer program initiatives not repeating in 2020 and lower sales in the
private label hydration and back-to-school lunch box category.
Net sales for the International segment were $23.2 million for the three months
ended September 30, 2020, an increase of $2.9 million, or 14.3%, as compared to
net sales of $20.3 million for the corresponding period in 2019. In constant
currency, which excludes the impact of foreign exchange fluctuations, net sales
increased $2.1 million, or 9.9%, as compared to consolidated net sales in the
corresponding period in 2019. The increase in sales, and sales in constant
currency, was primarily driven by an increase in e-commerce sales as well as
improved order fulfillment processes in 2020 compared to the corresponding 2019
period.
Gross margin
Gross margin for the three months ended September 30, 2020 was $78.8 million, or
35.1%, as compared to $72.9 million, or 33.8%, for the corresponding period in
2019.
Gross margin for the U.S. segment was $71.7 million, or 35.6%, for the three
months ended September 30, 2020, as compared to $67.0 million, or 34.3%, for the
corresponding period in 2019. The gross margin increase was primarily due to
changes in product and customer mix.
Gross margin for the International segment was $7.0 million, or 30.2%, for the
three months ended September 30, 2020, as compared to $5.9 million, or 29.1%,
for the corresponding period in 2019. The improvement in gross margin was
attributable to a change in product and customer mix, partially offset by a
provision against slower moving inventory recorded in the current period.



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Distribution expenses
Distribution expenses for the three months ended September 30, 2020 were $19.0
million, as compared to $18.5 million for the corresponding period in 2019.
Distribution expenses as a percentage of net sales were 8.4% for the three
months ended September 30, 2020, as compared to 8.6% for the three months ended
September 30, 2019.
Distribution expenses as a percentage of net sales for the U.S. segment were
approximately 7.6% and 7.2% for the three months ended September 30, 2020 and
2019, respectively. As a percentage of sales shipped from the Company's U.S.
warehouses distribution expenses were 8.4% and 8.8% for the three months ended
September 30, 2020 and 2019, respectively. The improvement reflects the
continued realization of labor management efficiency, and the leverage benefit
of fixed costs on higher sales volume.
Distribution expenses as a percentage of net sales for the International segment
were 15.5% for the three months ended September 30, 2020, compared to 22.2% for
the corresponding period in 2019. Distribution expenses during the three months
ended September 30, 2019 include $0.9 million for the Company's facility
relocation costs. As a percentage of sales shipped from the Company's U.K.
warehouses, excluding the moving and relocation costs for U.K. operations,
distribution expenses were 13.6% and 19.1% for the three months ended
September 30, 2020 and 2019, respectively. The decrease was primarily attributed
to the improvement in the fulfillment of orders and labor efficiencies compared
to the prior period.
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended
September 30, 2020 were $38.3 million, an increase of $0.9 million, or 2.4%, as
compared to $37.4 million for the corresponding period in 2019.
Selling, general and administrative expenses for the U.S. segment were $27.3
million for the three months ended September 30, 2020, as compared to $28.7
million for the corresponding period in 2019. As a percentage of net sales,
selling, general and administrative expenses were 13.5% and 14.7% for the three
months ended September 30, 2020 and 2019, respectively. The decrease was
primarily attributable to lower marketing and selling expenses resulting from
the Company's cost reduction strategy in response to the COVID-19 pandemic. This
was partially offset by higher employee incentive compensation.
Selling, general and administrative expenses for the International segment were
$4.8 million for the three months ended September 30, 2020, as compared to $4.2
million for the corresponding period in 2019. The increase was primarily
attributable to higher sales commissions and leasehold amortization expenses
related to the new facility, offset by lower expenses from COVID-19 actions. In
addition, certain expenses previously classified in distribution expenses are
included in selling, general and administrative expenses in the current quarter.
Unallocated corporate expenses for the three months ended September 30, 2020
were $6.3 million, as compared to $4.5 million for the corresponding period in
2019. The increase was primarily attributable to higher employee incentive
compensation and legal expenses, partially offset by lower professional fees.
Goodwill and infinite-lived intangible asset impairment
For the three months ended September 30, 2019, the Company's qualitative
assessment of goodwill indicated triggering events in its European kitchenware
reporting unit, resulting in the Company performing a quantitative assessment
that resulted in a $9.7 million non-cash goodwill impairment charge.
Interest expense
Interest expense was $4.1 million for the three months ended September 30, 2020
and $5.5 million for the three months ended September 30, 2019 as a result of
lower debt outstanding and a lower interest rate environment.
Mark to market gain (loss) on interest rate derivatives
Mark to market gain on interest rate derivatives was $0.1 million for the three
months ended September 30, 2020 as compared to a mark to market gain on interest
rate derivatives of $0.4 million for the three months ended September 30, 2019.
The mark to market amount represents the change in fair value on the Company's
interest rate derivatives. These derivatives were entered
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into for purposes of locking-in a fixed interest rate on the Company's variable
interest rate debt. The intent of the Company is to hold these derivative
contracts until their maturity. Therefore, the Company expects that this loss
will reverse over time.
Income tax provision
The provision for income taxes includes federal, foreign, state and local income
taxes. The Company used a discrete tax methodology to calculate taxes for the
three months ended September 30, 2020. Management determined that since minimal
changes in projected pre-tax income or loss would result in significant changes
in the estimated annual effective tax rate, the historical method would not
provide a reliable estimate for the three months ended September 30, 2020.
Income tax provision for the three months ended September 30, 2020 was
$3.7 million as compared to an income tax provision of $15.1 million for the
corresponding period in 2019. The Company's effective income tax provision rate
for the three months ended September 30, 2020 was 21.2% as compared to a
provision rate of 857.5% for the corresponding 2019 period. The effective tax
rate for the three months ended September 30, 2020 is consistent with the
federal statutory income tax rate of 21% and includes an increase for state and
local taxes offset by other items that are not material. The effective tax rate
for the three months ended September 30, 2019 differs from the federal statutory
income tax rate primarily due to state and local taxes and the impact of
non-deductible expenses, offset by a benefit for federal credits. Included
within the non-deductible expenses is the European goodwill impairment recorded
in the three months ended September 30, 2019, which is not deductible for income
tax purposes in the foreign jurisdiction.
Equity in earnings (losses)
Equity in earnings of Vasconia, net of taxes, was $0.1 million for the three
months ended September 30, 2020, as compared to equity in losses of Vasconia,
net of taxes, of $0.2 million for the three months ended September 30, 2019.
Vasconia reported income from operations of $3.0 million for the three months
ended September 30, 2020, as compared to loss from operations of $0.6 million
for the three months ended September 30, 2019. The increase is primarily from
improved operating results in the current period in both Vasconia's kitchenware
and aluminum divisions.
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                      MANAGEMENT'S DISCUSSION AND ANALYSIS
     NINE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THE NINE MONTHS ENDED
                               SEPTEMBER 30, 2019Net Sales
Consolidated net sales for the nine months ended September 30, 2020 were $520.0
million, representing an increase of $12.0 million, or 2.4%, as compared to net
sales of $508.0 million for the corresponding period in 2019. In constant
currency, a non-GAAP financial measure, which excludes the impact of foreign
exchange fluctuations and was determined by applying 2020 average rates to 2019
local currency amounts, net sales also increased by $12.0 million, or 2.4%, as
compared to consolidated net sales in the corresponding period in 2019.
Net sales for the U.S. segment for the nine months ended September 30, 2020 were
$463.3 million, an increase of $18.0 million, or 4.0%, as compared to net sales
of $445.3 million for the corresponding period in 2019.
Net sales for the U.S. segment's Kitchenware product category were $283.3
million for the nine months ended September 30, 2020, an increase of $49.1
million, or 21.0%, as compared to $234.1 million for the corresponding period in
2019. The increase was mainly attributable to higher consumer demand in the
e-commerce and wholesale channels for essential kitchen tools and gadgets,
cutlery and boards, and cookware and bakeware products.
Net sales for the U.S. segment's Tableware product category were $98.5 million
for the nine months ended September 30, 2020, a decrease of $14.0 million, or
12.4%, as compared to $112.5 million for the corresponding period in 2019. The
decrease was primarily driven by lower sales of dinnerware products to
brick-and-mortar retailers due to the COVID-19 pandemic; this decrease was
partially offset by increased e-commerce sales.
Net sales for the U.S. segment's Home Solutions product category were $81.5
million for the nine months ended September 30, 2020, a decrease of $17.1
million, or 17.3%, as compared to $98.6 million for the corresponding period in
2019. The decrease was driven by lower sales in the private label hydration
category, and lower home décor sales due to certain retailer program initiatives
not repeating in 2020. This decrease was offset by higher sales resulting from
new programs of branded hydration products in the wholesale channel.
Net sales for the International segment were $56.6 million for the nine months
ended September 30, 2020, a decrease of $6.1 million, or 9.7%, as compared to
net sales of $62.7 million for the corresponding period in 2019. In constant
currency, which excludes the impact of foreign exchange fluctuations, net sales
decreased $6.0 million, or 9.5%, as compared to consolidated net sales in the
corresponding period in 2019. The decrease in sales was driven by several
factors, including lower sales to national and independent retailers resulting
from lower demand and store closures due to COVID-19, offset by increased
e-commerce sales due to higher customer demand in online channels and order
fulfillment operational improvements compared to the corresponding period in
2019.
Gross margin
Gross margin for the nine months ended September 30, 2020 was $185.9 million, or
35.8%, as compared to $171.3 million, or 33.7%, for the corresponding period in
2019.
Gross margin for the U.S. segment was $170.9 million, or 36.9%, for the nine
months ended September 30, 2020, as compared to $149.9 million, or 33.7%, for
the corresponding period in 2019. Gross margin in the 2019 period reflects an
$8.5 million charge for the SKU Rationalization initiative. Excluding the SKU
Rationalization initiative, the gross margin would have been 35.6%. The increase
in gross margin, excluding the SKU Rationalization change, was primarily due to
changes in product mix.
Gross margin for the International segment was $15.0 million, or 26.5%, for the
nine months ended September 30, 2020, as compared to $21.4 million, or 34.1%,
for the corresponding period in 2019. The decrease in gross margin percentage
was primarily due to additional allowances to brick-and-mortar customers and
higher inventory reserves.


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Distribution expenses
Distribution expenses for the nine months ended September 30, 2020 were $50.7
million, as compared to $49.9 million for the corresponding period in 2019.
Distribution expenses as a percentage of net sales were 9.8% for the nine months
ended September 30, 2020 and September 30, 2019.
Distribution expenses as a percentage of net sales for the U.S. segment were
approximately 8.6% and 9.0% for the nine months ended September 30, 2020 and
2019, respectively. Distribution expenses during the nine months ended
September 30, 2019 include $0.2 million for the Company's facility relocation
efforts of its west coast distribution facility. As a percentage of sales
shipped from the Company's U.S. warehouses, excluding relocation expenses,
distribution expenses were 9.0% and 10.3% for the nine months ended
September 30, 2020 and 2019, respectively. The improvement reflects the
continued realization of labor management efficiency and synergy savings as well
as the leverage benefit of fixed costs on higher sales volume.
Distribution expenses as a percentage of net sales for the International segment
were 19.5% for the nine months ended September 30, 2020, compared to 15.9% for
the corresponding period in 2019. Distribution expenses for the nine months
ended September 30, 2020 and 2019 include $1.1 million and $0.9 million,
respectively, of cost related to the Company's facility relocation. As a
percentage of sales shipped from the Company's U.K. warehouses, excluding the
moving and relocation costs for U.K. operations, distribution expenses were
14.7% for the nine months ended September 30, 2020 and 2019.
Selling, general and administrative expenses
Selling, general and administrative expenses for the nine months ended
September 30, 2020 were $114.3 million, a decrease of $4.1 million, or 3.5%, as
compared to $118.4 million for the corresponding period in 2019.
Selling, general and administrative expenses for the U.S. segment were $82.7
million for the nine months ended September 30, 2020, as compared to $85.7
million for the corresponding period in 2019. As a percentage of net sales,
selling, general and administrative expenses were 17.8% and 19.2% for the nine
months ended September 30, 2020 and 2019, respectively. The decrease was
primarily attributable to lower labor costs resulting from the Company's cost
reduction strategy in response to the COVID-19 pandemic, as well as lower
selling and marketing expenses, offset by higher estimates for bad debt expense
related to the economic uncertainties caused by the COVID-19 pandemic.
Selling, general and administrative expenses for the International segment were
$15.7 million for the nine months ended September 30, 2020, as compared to $17.6
million for the corresponding period in 2019. The decrease was primarily
attributable to the realization of cost savings resulting from the Company's
integration efforts, and lower employee and selling expenses resulting from the
Company's cost reduction strategy in response to the COVID-19 pandemic, offset
by higher estimates for bad debt expense related to the economic uncertainties
caused by the COVID-19 pandemic.
Unallocated corporate expenses for the nine months ended September 30, 2020 were
$15.9 million, as compared to $15.1 million for the corresponding period in
2019. The increase was primarily attributable to employee related expenses,
offset by a decrease in executive salary costs and lower professional fees.
Restructuring expenses
During the nine months ended September 30, 2020, the Company's international
segment incurred $0.3 million of restructuring expenses related to severance
associated with the strategic reorganization of the international segment's
product development and sales workforce. The strategic reorganization is the
result of the Company's efforts for product development efficiencies and a
country tailored international sales approach.
During the nine months ended September 30, 2019, the Company incurred
$0.4 million of Filament restructuring charges and $0.7 million of restructuring
expenses, primarily related to severance, for the integration of its legal
entities operating in Europe.
Goodwill and infinite-lived intangible asset impairment
During the nine months ended September 30, 2020, the Company recorded a $20.1
million non-cash goodwill and intangible asset impairment charge related to the
U.S. reporting unit. The impairment charge resulted from, among other factors,
more conservative estimated future cash flows in light of the uncertain market
conditions arising from the COVID-19 pandemic.
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During the nine months ended September 30, 2019, the Company's qualitative
assessment of goodwill indicated triggering events in its European kitchenware
reporting unit, resulting in the Company performing a quantitative assessment,
that resulted in a $9.7 million non-cash goodwill impairment charge.
Interest expense
Interest expense was $13.1 million for the nine months ended September 30, 2020
and $15.5 million for the nine months ended September 30, 2019, primarily as a
result of lower debt outstanding and a lower interest rate environment.
Mark to market gain (loss) on interest rate derivatives
Mark to market loss on interest rate derivatives was $2.3 million for the nine
months ended September 30, 2020 as compared to a mark to market gain on interest
rate derivatives of $0.7 million for the nine months ended September 30, 2019.
The mark to market amount represents the change in the fair value on the
Company's interest rate derivatives. These derivatives were entered into for
purposes of locking-in a fixed interest rate on the Company's variable interest
rate debt. The current period loss was caused by lower interest rates as
compared to the nine months ended September 30, 2019. The intent of the Company
is to hold these derivative contracts until their maturity. Therefore, the
Company expects that this loss will reverse over time.
Income tax provision
The provision for income taxes includes federal, foreign, state and local income
taxes. The Company used a discrete tax methodology to calculate taxes for the
nine months ended September 30, 2020. Management determined that since minimal
changes in projected pre-tax income or loss would result in significant changes
in the estimated annual effective tax rate, the historical method would not
provide a reliable estimate for the nine months ended September 30, 2020.
Income tax provision for the nine months ended September 30, 2020 was
$3.0 million as compared to an income tax provision of $6.8 million for the
corresponding period in 2019. The Company's effective income tax provision rate
for the nine months ended September 30, 2020 was (20.3)% as compared to a
provision rate of (30.0)% for the corresponding 2019 period. The negative rates
for the nine months ended September 30, 2020 and September 30, 2019 reflect tax
expense on a pretax financial reporting loss. The effective rate for the nine
months ended September 30, 2020 differs from the federal statutory income tax
rate of 21% primarily due to state and local taxes, equity based awards, and the
non-deductible portion of the U.S. goodwill impairment recorded in the three
months ended March 31, 2020. The effective tax rate for the nine months ended
September 30, 2019 differs from the federal statutory income tax rate primarily
due to state and local taxes and the impact of non-deductible expenses, offset
by a benefit for federal credits. Included within the non-deductible expenses is
the European goodwill impairment recorded in the three months ended
September 30, 2019, which is not deductible for income tax purposes in the
foreign jurisdiction.
Equity in earnings (losses)
Equity in losses of Vasconia, net of taxes, was $0.2 million for the nine months
ended September 30, 2020, as compared to equity in losses of Vasconia, net of
taxes, of $0.4 million for the nine months ended September 30, 2019. Vasconia
reported income from operations of $3.8 million for the nine months ended
September 30, 2020, as compared to income from operations of $4.1 million for
the nine months ended September 30, 2019. The decrease in income from operations
was attributable to the effect of foreign exchange rates in the translation of
income from operations from MXP to USD.
During the nine months ended September 30, 2020, the Company recognized a loss
of $0.2 million, relating to cumulative translation foreign currency losses that
were recognized to earnings upon the dissolution of Lifetime Brands Do Brasil
Participacoes Ltda., a 100% owned foreign subsidiary. The foreign currency
translation losses related to the notes receivable due to the Company from the
2016 sale of its equity interest in GS International S/A.
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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, 2020, the Company had cash and cash equivalents of $42.7
million, compared to $11.4 million at December 31, 2019. Working capital was
$220.4 million at September 30, 2020, compared to $221.8 million at December 31,
2019. Liquidity, which includes cash and cash equivalents and availability under
the ABL Agreement, was approximately $164.3 million at September 30, 2020.
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, 2020, inventory turnover was 3.1 times, or 119 days, as compared
to 2.6 times, or 142 days, for the three months ended September 30, 2019. The
improvement was a result of programs implemented by the Company to improve the
productivity of its inventory, including the SKU Rationalization initiative
implemented in the second quarter of 2019, along with an increase in consumer
demand for certain products beginning in the second quarter of 2020.
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.
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. Some of the Company's customers may be adversely and materially affected
by the COVID-19 pandemic.
Historically, due to the seasonality of our business our debt balances decline
in the fourth quarter of the calendar year. In the fourth quarter of 2020, we
may shorten payment terms to certain vendors and increase inventory levels to
meet expected 2021 demand. These measures would cause our debt level to be
higher than it would otherwise be if we don't take the aforementioned actions.
Credit Facilities
The Company's credit agreement, dated as of March 2, 2018 (the "ABL Agreement")
with JPMorgan Chase Bank, N.A. ("JPMorgan"), includes a senior secured
asset-based revolving credit facility in the maximum aggregate principal amount
of $150.0 million, which facility will mature on March 2, 2023, and a loan
agreement (the "Term Loan" and together with the ABL Agreement, the "Debt
Agreements") that provides for a senior secured term loan credit facility in the
original principal amount of $275.0 million, which matures on February 28, 2025.
The Term Loan requires the Company to make an annual prepayment of principal
based upon excess cash flow ("Excess Cash Flow"), if any. This estimated amount
is recorded in current maturity of term loan on the unaudited condensed
consolidated balance sheets. Additionally, the Term Loan facility 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. Per
the Debt Agreements, when the Company makes an Excess Cash Flow payment, the
payment is first applied to satisfy the future quarterly required payments in
order of maturity.
The maximum borrowing amount under the ABL Agreement may be increased to up to
$200.0 million if certain conditions are met. One or more tranches of additional
term loans (the "Incremental Facilities") may be added under the Term Loan if
certain conditions are met. The Incremental Facilities may not exceed the sum of
(i) $50.0 million plus (ii) an unlimited amount so long as, in the case of
(ii) only, the Company's secured net leverage ratio, as defined in and computed
pursuant to the Term Loan, is no greater than 3.75 to 1.00, subject to certain
limitations and for the period defined pursuant to the Term Loan.




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As of September 30, 2020 and December 31, 2019, the total availability under the
ABL Agreement was as follows (in thousands):
                                                                  September 30, 2020           December 31, 2019
Maximum aggregate principal allowed                              $          150,000          $          150,000
Outstanding borrowings under the ABL Agreement                              (25,654)                    (32,822)
Standby letters of credit                                                    (2,678)                     (2,288)
Total availability under the ABL Agreement                       $          

121,668 $ 114,890



Availability under the ABL Agreement 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 may mean that the Company will have greater borrowing
availability during the third and fourth quarters of each year. Consequently,
the $150.0 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, 2020           December 31, 2019
Current portion of Term Loan facility:
Term Loan facility payment                                   $                -          $            2,750
Estimated Excess Cash Flow principal payment                             20,000                       7,145
Estimated unamortized debt issuance costs                                (1,478)                     (1,482)
Total Current portion of Term Loan facility                  $           18,522          $            8,413

Non-current portion of Term Loan facility:
Term Loan facility, net of current portion                   $          242,605          $          260,293
Estimated unamortized debt issuance costs                                (4,878)                     (6,012)
Total Non-current portion of Term Loan facility              $          

237,727 $ 254,281




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
Company under the Debt Agreements and any hedging arrangements and cash
management services and the guarantees by its domestic subsidiaries in respect
of those obligations are secured by substantially all of the assets and stock
(but in the case of foreign subsidiaries, limited to 65% of the capital stock in
first-tier foreign subsidiaries and not including the stock of subsidiaries of
such first-tier foreign subsidiaries) owned by the Company and the U.S.
subsidiary guarantors, subject to certain exceptions. Such security interest
consists of (1) a first-priority lien, subject to certain permitted liens, with
respect to certain assets of the Company and its domestic subsidiaries (the "ABL
Collateral") pledged as collateral in favor of lenders under the ABL Agreement
and a second-priority lien in the ABL Collateral in favor of the lenders under
the Term Loan and (2) a first-priority lien, subject to certain permitted liens,
with respect to certain assets of the Company and its domestic subsidiaries (the
"Term Loan Collateral") pledged as collateral in favor of lenders under the Term
Loan and a second-priority lien in the Term Loan Collateral in favor of the
lenders under the ABL Agreement.
Borrowings under the ABL Agreement bear interest, at the Company's option, at
one of the following rates: (i) alternate base rate, defined, for any day, as
the greater of the prime rate, a federal funds and overnight bank funding based
rate plus 0.5% or one-month LIBOR plus 1.0%, plus a margin of 0.25% to 0.75%, or
(ii) LIBOR plus a margin of 1.25% to 1.75%. The respective margins are based
upon the Company's total leverage ratio, as defined in and computed pursuant to
the ABL Agreement. The interest rate on outstanding borrowings under the ABL
Agreement at September 30, 2020 was 1.8%. In addition, the Company pays a
commitment fee of 0.375% on the unused portion of the ABL Agreement.
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-
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month LIBOR, but not less than 1.0%, plus 1.0%, which alternate base rate shall
not be less than 2%, plus a margin of 2.5% or (ii) LIBOR, but not less than 1%,
plus a margin of 3.5%. The interest rate on outstanding borrowings under the
Term Loan at September 30, 2020 was 4.5%.
The Debt Agreements provide for customary restrictions and events of default.
Restrictions include limitations on additional indebtedness, acquisitions,
investments and payment of dividends, among other things. Further, the ABL
Agreement provides that during any period (a) commencing on the last day of the
most recently ended four consecutive fiscal quarters on or prior to the date
availability under the ABL Agreement is less than the greater of $15.0 million
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 $15.0
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, 2020.
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
Consolidated adjusted EBITDA (a non-GAAP financial measure), which is defined in
the Company's Debt Agreements, is used in the calculation of the Fixed Charge
Coverage Ratio, Secured Net Leverage Ratio, Total Leverage Ratio and Total Net
Leverage Ratio, which are required to be provided to the Company's lenders
pursuant to its Debt Agreements.
The following is the Company's consolidated adjusted EBITDA, for the last four
fiscal quarters:
                                                                                  Consolidated
                                                                               adjusted EBITDA for
                                                                                the Four Quarters
                                                                               Ended September 30,
                                                                                      2020
                                                                                 (in thousands)
Three months ended September 30, 2020                                          $         29,228
Three months ended June 30, 2020                                                         12,388
Three months ended March 31, 2020                                                         3,252
Three months ended December 31, 2019                                                     27,873

Consolidated adjusted EBITDA                                                   $         72,741


Capital expenditures for the nine months ended September 30, 2020 were $1.6
million.
Non-GAAP financial measure
Consolidated 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. Consolidated 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.




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The following is a reconciliation of the net income (loss), as reported, to consolidated adjusted EBITDA, for each of the last four quarters and the 12 months ended September 30, 2020:

                                                                     Three Months Ended                                    Twelve Months
                                         December 31,         March 31,          June 30,           September 30,         Ended September
                                             2019                2020              2020                 2020                  30, 2020
                                                                                  (in thousands)
Net (loss) income as reported            $  (14,516)$ (28,164)

$ (3,977)$ 13,913$ (32,744) Undistributed equity losses (earnings), net

                                            (738)              (339)              848                    (147)                  (376)
Income tax (benefit) provision               (5,704)            (3,729)            3,031                   3,711                 (2,691)
Interest expense                              5,590              4,736             4,230                   4,128                 18,684
Mark to market loss (gain) on interest
rate derivatives                                  -              2,251               164                     (99)                 2,316
Depreciation and amortization                 6,344              6,234             6,061                   6,090                 24,729
Goodwill and other impairments               33,242             20,100                 -                       -                 53,342
Stock compensation expense                    1,436              1,326             1,420                   1,575                  5,757

Acquisition and divestment related
expenses                                         55                 47                55                      57                    214
Restructuring expenses                          316                  -               253                       -                    569
Integration charges                             159                  -                 -                       -                    159
Warehouse relocation                          1,689                790               303                       -                  2,782

Consolidated adjusted EBITDA             $   27,873$   3,252

$ 12,388$ 29,228$ 72,741




Consolidated adjusted EBITDA is a non-GAAP financial measure which is defined in
the Company's debt agreements. Consolidated adjusted EBITDA is defined as net
income (loss), adjusted to exclude undistributed equity in (earnings) losses,
income tax (benefit) provision, interest expense, mark to market loss (gain) on
interest rate derivatives, depreciation and amortization, goodwill and other
impairments, stock compensation expense, and other items detailed in the table
above that are consistent with exclusions permitted by our debt agreements.
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 $25.0 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 this agreement, the Company sold to HSBC $43.0 million and
$116.9 million of receivables during the three and nine months ended
September 30, 2020, respectively, and $32.5 million and $81.7 million of
receivables during the three and nine months ended September 30, 2019,
respectively. Charges of $0.1 million and $0.4 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 and
nine months ended September 30, 2020, respectively. Charges of $0.2 million and
$0.4 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 and nine months ended September 30, 2019,
respectively. At September 30, 2020 and 2019, $26.7 million and $17.8 million,
respectively, of receivables sold were outstanding and due to HSBC from
customers.
Derivatives
Interest Rate Swaps
The Company is a party to interest rate swap agreements, with an aggregate
notional value of $75.0 million at September 30, 2020, designated as cash flow
hedges of the Company's exposure to the variability of the payment of interest
on a portion of its
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Term Loan borrowings. The hedge periods of these agreements commenced in April
2018 and expire in March 2023. The notional amounts are reduced over these
periods.

The Company entered into additional interest rate swap agreements, with an
aggregate notional value of $25.0 million at September 30, 2020 that do not meet
the criteria for hedge accounting treatment. As a result, these interest rate
swap agreements are considered non-designated interest rate swaps that serve as
economic hedges of the Company's exposure to the variability of the payment of
interest on a portion of its Term Loan borrowings and expire in February 2025.
The Company's total outstanding notional value of interest rate swaps was $100.0
million at September 30, 2020.
Foreign Exchange Contracts
The Company is a 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 U.S. dollar 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 short-term (i.e., 12 months or less) foreign currency forward
contracts 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 Company's foreign
exchange contracts, that had been designed as hedges in order to apply hedge
accounting, matured in April 2020. At September 30, 2020 the Company did not
have any outstanding foreign exchange contracts.

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, 2020, the Company does not have any foreign currency forward
contract derivatives that are not designated as hedges.
Operating activities
Net cash provided by operating activities was $49.2 million for the nine months
ended September 30, 2020, as compared to net cash used in operating activities
of $40.0 million for the nine months ended September 30, 2019. The change in
2020 as compared to the corresponding 2019 period was primarily attributable to
inventory reduction initiatives commencing in the second quarter of 2019,
including the SKU Rationalization initiative, which impacted 2020 more favorably
than 2019, and payment deferral strategies utilized in response to the COVID-19
pandemic.
Investing activities
Net cash used in investing activities was $1.6 million and $7.6 million for the
nine months ended September 30, 2020 and 2019, respectively. The change in 2020
as compared to the corresponding 2019 period was primarily attributable to
higher capital expenditures in the 2019 period resulting from the Company's U.K.
reorganization and warehouse consolidation efforts.
Financing activities
Net cash used in financing activities was $16.2 million for the nine months
ended September 30, 2020, as compared to net cash provided by of $44.9 million
for the nine months ended September 30, 2019. The change was mainly attributable
to repayments on the Company's revolving credit facility under its ABL Agreement
and the Company's term loan in 2020.
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