Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Annual Report on Form 10-K. The following discussion and analysis focuses on our financial results for the years ended December 31, 2023 and 2022 and year-to-year comparisons between these years. A discussion of our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 is included in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and disclosure of contingent assets and liabilities (if any). Actual results could differ from those estimates.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition: Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Sales taxes are excluded from revenue. At contract inception, we assess the goods and services promised in our contracts with customers and identify a performance obligation for each promised good or service that is distinct. We have elected to account for shipping and handling activities performed after a customer obtains control of the goods as activities to fulfill the promise to transfer the goods, and therefore these activities are not assessed as a separate service to customers. The amount of revenue recognized varies primarily with price concessions and changes in returns. We offer price concessions to our customers for incentive offerings, special pricing agreements, price competition, promotions or other volume-based arrangements. We determine whether price concessions offered to our customers are a reduction of the transaction price and revenue or are advertising expense, depending on whether we receive a distinct good or service from our customers and, if so, whether we can reasonably estimate the fair value of that distinct good or service. We evaluated such agreements with our customers and determined they should be accounted for as variable consideration.
To estimate variable consideration, we apply both the expected value method and most likely amount method based on the form of variable consideration, according to which method would provide the better prediction. The expected value method involves a probability weighted determination of the expected amount, whereas the most likely amount method identifies the single most likely outcome in a range of possible amounts.
We monitor our estimates of variable consideration, which includes returns and price concessions, and periodically make adjustments to the carrying amounts as appropriate. During 2023, there were no material adjustments to the aforesaid estimates and our past results of operations have not been materially affected by a change in these estimates. Although there can be no assurances, we are not aware of any circumstances that would be reasonably likely to materially change these estimates in the future.
Retirement Benefit Plans: We maintain two defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. Our policy is to periodically make contributions to fund the defined benefit pension plans within the range allowed by applicable regulations. The defined benefit pension plan assets consist primarily of government and corporate bonds. There is no guarantee the actual return on the plans’ assets will equal the expected long-term rate of return on plan assets or that the plans will not incur investment losses.
17
Table of Contents
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Historically, we employed a total return on investment approach whereby a mix of equities and fixed income investments were used to maximize the long-term return of plan assets for a prudent level of risk. During 2022, our Board approved the termination of our U.S. defined benefit pension plan (the “Plan”) with an effective date of September 30, 2022. The termination process is still ongoing and is expected to be completed in 2024. In light of the Plan termination process, volatility in the market and the funding status, the Plan transferred a significant portion of its assets to lower risk investments in 2022 to move towards a liability driven investing strategy whereby the assets are primarily fixed income investments. The fixed income investments that were chosen under this strategy, while not precisely the same, are meant to parallel the investments selected in determining the discount rate used to calculate our pension liability.
For the Non-U.S. Plan, the expected long-term rate of return on defined benefit plan assets reflects our expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. In establishing the expected long-term rate of return assumption for plan assets, we consider the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as a forward-looking rate of return. The historical and forward-looking rates of return are used to determine our estimated rate of return assumption.
Expected returns for the U.S. pension plan are based on a calculated market-related value for U.S. pension plan assets. Expected returns for the non-U.S. pension plan are based on fair market value for non-U.S. pension plan assets. Under this methodology, asset gains and losses resulting from actual returns that differ from our expected returns which are recognized ratably in the market-related value of assets over three years.
The basis for the selection of the discount rate for each plan is determined by matching the timing of the payment of the expected obligations under the defined benefit plans against the corresponding yield of high-quality corporate bonds of equivalent maturities.
Changes to the estimate of any of these factors could result in a change to our pension obligation causing a related increase or decrease in reported net operating results in the period of change in the estimate. Because the 2023 assumptions are used to calculate 2024 pension expense amounts, a one percentage-point change in the expected long-term rate of return on plan assets would result in a change in pension expense for 2024 of approximately $0.3 million for the plans. A one percentage-point change in the discount rate would result in a change in pension expense for 2024 of less than $0.1 million. A one percentage-point increase in the discount rate would have lowered the plans’ projected benefit obligation as of the end of 2023 by approximately $1.0 million; while a one percentage-point decrease in the discount rate would have raised the plans’ projected benefit obligation as of the end of 2023 by approximately $1.1 million.
18
Table of Contents
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
RESULTS OF OPERATIONS
Our results of operations were as follows for the years ended December 31:
2023 Compared with 2022
Year Ended December 31
2023 % of Revenue 2022 % of Revenue $ Change % Change
Amortization of intangible assets 200 — % 200 — % — — %
Effective income tax rate 20.4 % 22.1 %
The following table identifies the components of the change in revenue for 2023compared with 2022:
Revenue
(Decrease) increase from:
Unit volume and product mix 9,527
Foreign currency 3,254
Average sales price (28,105)
Revenue- Revenue decreased $15.3 million, or 2.4% over the prior year due primarily to lower average selling price. Revenue decreased in the U.S., Canadian, and Latin American Consumer markets. Partially offsetting these revenue decreases was an increase in the Mexican Consumer market. The Global Commercial market had decreased revenue compared to 2022, when revenue grew 50% due to a continued strong rebound in the food service and hospitality industries from pandemic-driven demand softness, as well as the Company's new products, line extensions and sales initiatives.
Gross profit - Gross profit margin increased to 23.0% in the current year compared to 20.1% in the prior year due to lower product costs and favorable product mix.
Selling, general and administrative expenses - Selling, general and administrative expenses increased $18.3 million due primarily to the $10.0 million insurance recovery recognized during the first quarter of 2022 which did not recur. Additionally, there was an increase in employee-related costs in the current year that was partially offset by a decrease in outside services.
Interest expense - Interest expense, net decreased $1.6 million due to decreased average borrowings outstanding under the HBB Facility, partially offset by higher interest rates.
19
Table of Contents
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Other expense (income), net - Other expense (income), net decreased $1.4 million. In 2023, other expense (income), net includes currency gains of $0.3 million in the current year compared to currency losses of $1.9 million in 2022. This decrease is driven by the liquidation of the Brazilian subsidiary, which resulted in $2.1 million of accumulated other comprehensive losses being released into other expense (income), net during the first quarter of 2022. Additionally, during 2022, we recorded a $0.3 million pension settlement charge which did not recur.
Income tax expense - The effective tax rate on income was 20.4% and 22.1% for the twelve months ended December 31, 2023 and 2022, respectively. The effective tax rate was lower for the twelve months ended December 31, 2023 due to the favorable impact of foreign operations in the current year.
LIQUIDITY AND CAPITAL RESOURCES
Our cash flows are provided by dividends paid or distributions made by HBB. The only material assets held by us are the investment in our consolidated subsidiary. As a result, certain statutory limitations or regulatory or financing agreements could affect the levels of distributions allowed to be made by its subsidiary. We have not guaranteed any of the obligations of HBB.
Our principal sources of cash to fund liquidity needs are: (1) cash generated from operations and (2) borrowings available under the HBB Facility. Our primary use of funds consists of working capital requirements, operating expenses, payment of dividends, repurchase of shares, capital expenditures and payments of principal and interest on debt. As of December 31, 2023, we had cash and cash equivalents of $15.4 million, compared to $0.9 million as of December 31, 2022. We believe our liquidity and access to capital markets will be adequate to fund our cash requirements for the next 12 months and for the foreseeable future.
The Company has an agreement with a third-party administrator to provide an accounts payable tracking system which facilitates a participating supplier’s ability to monitor and voluntarily elect to sell payment obligations owed by the Company to the designated third-party financial institution. Participating suppliers can sell one or more of the Company’s payment obligations at their sole discretion. The Company has no economic interest in a supplier’s decision to sell one or more of its payment obligations. The Company’s rights and obligations with respect to such payment obligations, including amounts due and scheduled payment terms, are not impacted by suppliers’ decisions to sell amounts under these arrangements. The agreement has a limit of $60.0 million in payment obligations ($85.0 million during peak season from August to January). There is no requirement to provide assets pledged as security or other forms of guarantees under the agreement. The Company pays the third-party administrator based upon the original payment terms negotiated with participating suppliers. The payment of these obligations by the Company is included in cash used in operating activities in the Consolidated Statement of Cash Flows. As of December 31, 2023 and 2022, the Company has $55.0 million and $23.3 million, respectively, in outstanding payment obligations that are presented in Accounts payable on the Consolidated Balance Sheets. Of these totals, the third-party financial institution has made payments to participating suppliers to settle $48.9 million and $23.3 million, respectively, of our outstanding payment obligations.
We do not rely on the supplier finance program as a means to manage our cash flow, as our payment terms to the third-party financial institution are the same as our terms to our participating suppliers. Therefore, we do not face a material risk if any party terminates the agreement. Our participation has not had a material impact on our Consolidated Balance Sheets, Statement of Cash Flows or liquidity.
The following table presents selected cash flow information:
Year Ended December 31
(In thousands)
Net cash provided by (used for) operating activities $ 88,636 $ (3,418)
Net cash provided by (used for) investing activities $ (5,174) $ (2,279)
Net cash provided by (used for) financing activities $ (70,072) $ 5,575
20
Table of Contents
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
December 31, 2023 Compared with December 31, 2022
Operating activities - Net cash provided by operating activities was $88.6 million compared to cash used for operating activities of $3.4 million in 2022 primarily due to our focus on net working capital improvement. Net working capital provided cash of $49.5 million in 2023 compared to a use of cash of $39.0 million in 2022. Net cash provided by accounts payable was $37.5 million in 2023 compared to $69.9 million used in 2022. Net cash provided by inventory was $30.8 million in 2023 compared to $26.4 million provided in 2022. Trade receivables used net cash of $18.8 million during 2023 compared to $4.5 million provided in the prior year due to timing of collections.
Investing activities - Net cash used for investing activities increased in 2023 compared to 2022 related to $1.6 million in secure loan payments made to HealthBeacon and internal-use software development costs.
Financing activities - Net cash used for financing activities was $70.1 million in 2023 compared to cash provided by financing activities of $5.6 million in 2022. The change is due to our focus on net working capital improvement and a significant reduction in borrowings outstanding on the HBB Facility.
Capital Resources
The HBB Facility expires in June 2025. We expect to continue to borrow against the facility and make voluntary repayments within the next twelve months. Repayment of the HBB Facility is due on June 30, 2025, therefore all borrowings are classified as long term debt as of December 31, 2023. The obligations under the HBB Facility are secured by substantially all of HBB’s assets.
As of December 31, 2023, the borrowing base under the HBB Facility was $148.1 million and borrowings outstanding were $50.0 million. As of December 31, 2023, the excess availability under the HBB Facility was $98.1 million.
The maximum availability under the HBB Facility is governed by a borrowing base derived from advance rates against eligible trade receivables, inventory and trademarks of the borrowers, as defined in the HBB Facility. Borrowings bear interest at a floating rate, which can be a base rate, Secured Overnight Financing Rate (SOFR) or bankers’ acceptance rate, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective December 31, 2023, for base rate loans and SOFR loans denominated in U.S. dollars were 0.00% and 1.55%, respectively. The applicable margins, effective December 31, 2023, for base rate loans and bankers’ acceptance loans denominated in Canadian dollars were 0.00% and 1.55%, respectively. The HBB Facility also requires a fee of 0.25% per annum on the unused commitment. The margins and unused commitment fee under the HBB Facility are subject to quarterly adjustment based on average excess availability. The weighted average interest rate applicable to the HBB Facility for the year ended December 31, 2023 was 4.25%, including the floating rate margin and the effect of the interest rate swap agreements described below.
To reduce the exposure to changes in the market rate of interest, we have entered into interest rate swap agreements for a portion of the HBB Facility. Terms of the interest rate swap agreements require us to receive a variable interest rate and pay a fixed interest rate.
The HBB Facility includes restrictive covenants, which, among other things, limit the payment of dividends, subject to achieving availability thresholds. Dividends are not to exceed $7.0 million during any calendar year to the extent that for the thirty days prior to the dividend payment date, and after giving effect to the dividend payment, HBB maintains excess availability of at least $18.0 million. Dividend amounts are discretionary to the extent that for the thirty days prior to the dividend payment date, and after giving effect to the dividend payment, HBB maintains excess availability of at least $30.0 million. The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility. As of December 31, 2023, we were in compliance with all financial covenants in the HBB Facility.
We maintain an arrangement with a financial institution to sell certain U.S. trade receivables on a non-recourse basis.
21
Table of Contents
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of Hamilton Beach Holding as of December 31, 2023:
Payments Due by Period
Revolving credit agreements $ 50,000 $ — $ 50,000 $ — $ — $ — $ —
Variable interest payments on HBB Facility 3,537 2,474 1,063 — — — —
Our variable interest payments are calculated based upon our anticipated payment schedule and the December 31, 2023 base rate and applicable margins, as defined in the HBB Facility. A 0.25% increase in the base rate would increase our estimated total annual interest payments on the HBB Facility by approximately $0.3 million.
Our purchase and other obligations are primarily for accounts payable, open purchase orders and accrued payroll and incentive compensation.
An event of default, as defined in the HBB Facility and in our operating and finance lease agreements, could cause an acceleration of the payment schedule. No such event of default for us has occurred or is anticipated to occur.
Given the funded status of the two defined benefit pension plans, we do not expect to contribute to the pension plans in 2024. Pension benefit payments are made from assets of the pension plans.
Off Balance Sheet Arrangements
We have not entered into any off balance sheet financing arrangements.
Recently Issued and Adopted Accounting Standards
Refer to Note 1 to the consolidated financial statements for discussion of recently issued and adopted accounting standards.
22
Table of Contents
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
FORWARD-LOOKING STATEMENTS
The statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this Annual Report on Form 10-K that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Such risks and uncertainties include, without limitation: (1) uncertain or unfavorable global economic conditions and impacts from global military conflicts; (2) the Company’s ability to source and ship products to meet anticipated demand; (3) the Company’s ability to successfully manage constraints throughout the global transportation supply chain; (4) changes in the sales prices, product mix or levels of consumer purchases of small electric and specialty housewares appliances; (5) changes in consumer retail and credit markets, including the increasing volume of transactions made through third-party internet sellers; (6) bankruptcy of or loss of major retail customers or suppliers; (7) changes in costs, including transportation costs, of sourced products; (8) delays in delivery of sourced products; (9) changes in or unavailability of quality or cost effective suppliers; (10) exchange rate fluctuations, changes in the import tariffs and monetary policies and other changes in the regulatory climate in the countries in which the Company operates or buys and/or sells products; (11) the impact of tariffs on customer purchasing patterns; (12) product liability, regulatory actions or other litigation, warranty claims or returns of products; (13) customer acceptance of, changes in costs of or delays in the development of new products; (14) increased competition, including consolidation within the industry; (15) changes in customers’ inventory management strategies; (16) shifts in consumer shopping patterns, gasoline prices, weather conditions, the level of consumer confidence and disposable income as a result of economic conditions, unemployment rates or other events or conditions that may adversely affect the level of customer purchases of the Company’s products; (17) changes mandated by federal, state and other regulation, including tax, health, safety or environmental legislation; (18) the Company’s ability to identify, acquire or develop, and successfully integrate, new businesses or new product lines; and (19) other risk factors, including those described in the Company’s filings with the Securities and Exchange Commission, including, but not limited to, this Annual Report on Form 10-K. Furthermore, the future impact of unfavorable economic conditions, including inflation, changing interest rates, availability of capital markets and consumer spending rates remains uncertain. In uncertain economic environments, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, results of operations, cash flows and financial position.
23
Table of Contents
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We enter into certain financing arrangements that require interest payments based on floating interest rates. As such, our financial results are subject to changes in the market rate of interest. There is an inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. To reduce the exposure to changes in the market rate of interest, we have entered into interest rate swap agreements for a portion of its floating rate financing arrangements. We do not enter into interest rate swap agreements for trading purposes. Terms of the interest rate swap agreements require us to receive a variable interest rate and pay a fixed interest rate.
For the purpose of risk analysis, we use sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in interest rates. We assume that a loss in fair value is an increase to its liabilities. The fair value of our interest rate swap agreements was a receivable of $4.0 million as of December 31, 2023. A hypothetical 10% relative decrease in interest rates would cause a decrease of $0.2 million in the fair value of interest rate swap agreements and the resulting fair value would be a receivable of $3.8 million. Additionally, a hypothetical 10% relative increase in interest rates would cause an increase of $0.2 million in the fair value of interest rate swap agreements and the resulting fair value would be a receivable of $4.2 million. Neither would have a material impact to our interest expense, net of $3.0 million as of December 31, 2023.
FOREIGN CURRENCY EXCHANGE RATE RISK
We operate internationally through our foreign operating subsidiaries and enter into transactions denominated in foreign currencies, principally the Canadian dollar, the Mexican peso and, to a lesser extent, the Chinese yuan and Brazilian real. As such, our financial results are subject to the variability that arises from exchange rate movements. The fluctuation in the value of the U.S. dollar against other currencies affects the reported amounts of revenue, expenses, assets and liabilities. The potential impact of currency fluctuation increases as international expansion increases.
We use forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies and not for trading purposes. These contracts generally mature within twelve months and require us to buy or sell the functional currency in which the applicable subsidiary operates and buy or sell U.S. dollars at rates agreed to at the inception of the contracts.
For the purpose of risk analysis, we use sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in foreign currency exchange rates. We assume that a loss in fair value is either a decrease to its assets or an increase to its liabilities. The fair value of our foreign currency exchange contracts was a net payable of $0.5 million as of December 31, 2023. Assuming a hypothetical 10% weakening of the U.S. dollar as of December 31, 2023, the fair value of foreign currency-sensitive financial instruments, which represents forward foreign currency exchange contracts, would be decreased by $2.5 million compared with its fair value as of December 31, 2023.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is set forth in the Financial Statements and Supplementary Data contained in Part IV of this Form 10-K and is hereby incorporated herein by reference to such information.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements with accountants on accounting and financial disclosure for the two-year period ended December 31, 2023 that would require disclosure pursuant to this Item 9.
24
Table of Contents
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures: As required by Exchange Act Rule 13a-15(b), Company management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2023.
Management’s Report on Internal Control over Financial Reporting: Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this evaluation, management concluded that it maintained effective internal control over financial reporting as of December 31, 2023. The Company’s effectiveness of internal control over financial reporting as of December 31, 2023 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 15 of this Form 10-K and incorporated herein by reference.
Changes in Internal Control over Financial Reporting: There were no changes in the Company’s internal control over financial reporting identified during the fourth quarter of 2023, in connection with the evaluation by the Company’s management required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. OTHER INFORMATION
None of the Company's directors or "officers" (as defined in Rule 16a-1(f) promulgated under the Exchange Act) adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K, during the Company's fiscal quarter ended December 31, 2023.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to our Directors will be set forth in the 2024 Proxy Statement under the subheadings “Part II — Proposals To Be Voted On At The 2024 Annual Meeting — Proposal 1 — Election of Directors — Director Nominee Information,” which information is incorporated herein by reference.
Information with respect to the audit review committee and the audit review committee financial expert will be set forth in the 2024 Proxy Statement under the subheadings “Part I — Corporate Governance Information — Board Committees,” and “Part I — Corporate Governance Information — Description of Committees,” which information is incorporated herein by reference. Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 by our Directors, executive officers and holders of more than ten percent of the Company’s equity securities will be set forth in the 2024 Proxy Statement under the subheading “Part IV — Other Important Information — Delinquent Section 16(a) Reports,” which information is incorporated herein by reference.
Information regarding our executive officers is included in this Form 10-K under the subheading “Information about our Executive Officers” of Part I.
We have adopted a code of business conduct and ethics applicable to all Company personnel, including the principal executive officer, principal financial officer, principal accounting officer or controller, or other persons performing similar functions. The code of business conduct and ethics, entitled the “Code of Corporate Conduct,” is posted on our website at www.hamiltonbeachbrands.com/investors/corporate-governance. If we make any amendments to, or grant any waiver from, the code that are required to be disclosed pursuant to the Securities Exchange Act of 1934, we will make such
disclosure on our website.
25
Table of Contents
Item 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be set forth in the 2024 Proxy Statement under the headings “Part III — Executive Compensation Information” which information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners and management will be set forth in the 2024 Proxy Statement under the subheading “Part IV — Other Important Information — Beneficial Ownership of Class A Common and Class B Common,” which information is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information with respect to certain relationships and related transactions will be set forth in the 2024 Proxy Statement under the subheadings “Part I — Corporate Governance Information — Review and Approval of Related Person Transactions,” which information is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to principal accountant fees and services will be set forth in the 2024 Proxy Statement under the heading “Part II — Proposals To Be Voted On At The 2024 Annual Meeting — Proposal 4 — Ratification of the Appointment of Ernst & Young LLP as the Company’s Independent Registered Public Accounting Firm for 2024,” which information is incorporated herein by reference.
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Documents that are filed as part of this report
The response to Item 15(a)(1) is set forth beginning at page F-1 of this Form 10-K.
(a)(2) Financial Statement Schedules
The response to Item 15(a)(2) is set forth beginning at page F-35 of this Form 10-K.
(a)(3) and (b) Exhibits required by Item 601 of Regulation S-K
The response to Item 15(a)(3) and (b) is set forth as follows:
(3) Articles of Incorporation and By-laws.
(4) Instruments defining the rights of security holders, including indentures.
4.3 Description of the Company's Securities is attached hereto as Exhibit 4.3.
26
Table of Contents
(10) Material Contracts.
27
Table of Contents
28
Table of Contents
(21) Subsidiaries of the registrant.
21.1 A list of the subsidiaries of the Company is attached hereto as Exhibit 21.
(23) Consents of experts and counsel.
23.1 Consent of Ernst & Young LLP.
(31) Rule 13a-14(a)/15d-14(a) Certifications.
(97) Policy relating to recovery of erroneously awarded compensation
97.1 Policy relating to recovery of erroneously awarded compensation
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
29
Table of Contents
Item 16. Form 10-K Summary
None.
30
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Hamilton Beach Brands Holding Company
(Registrant)
Signature Title Date
Sally M. Cunningham
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Gregory H. Trepp
/s/ Sally M. Cunningham
/s/ Mark R. Belgya
Mark R. Belgya Director March 6, 2024
/s/ J.C. Butler, Jr.
J.C. Butler, Jr. Director March 6, 2024
/s/ Paul D. Furlow
Paul D. Furlow Director March 6, 2024
/s/ John P. Jumper
John P. Jumper Director March 6, 2024
/s/ Dennis W. LaBarre
Dennis W. LaBarre Director March 6, 2024
/s/ Michael S. Miller
Michael S. Miller Director March 6, 2024
/s/ Alfred M. Rankin, Jr.
Alfred M. Rankin, Jr. Director March 6, 2024
31
Table of Contents
Signature Title Date
/s/ Thomas T. Rankin
Thomas T. Rankin Director March 6, 2024
/s/ James A. Ratner
James A. Ratner Director March 6, 2024
/s/ Clara R. Williams
Clara R. Williams Director March 6, 2024
32
Table of Contents
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 15(a)(1) AND (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 2023
HAMILTON BEACH BRANDS HOLDING COMPANY
GLEN ALLEN, VIRGINIA
F-1
Table of Contents
FORM 10-K
ITEM 15(a)(1) AND (2)
HAMILTON BEACH BRANDS HOLDING COMPANY
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of Hamilton Beach Brands Holding Company are incorporated by reference in Item 8:
Consolidated Statements of Operations F-6
Consolidated Statements of Comprehensive Income (Loss) F-7
Consolidated Balance Sheets F-8
Consolidated Statements of Cash Flows F-9
Consolidated Statements of Equity F-10
Notes to Consolidated Financial Statements F-11
The following consolidated financial statement schedule of Hamilton Beach Brands Holding Company is included in Item 15(a)(2):
Schedule II — Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions or are inapplicable, or the required information is shown in the consolidated financial statements, and therefore have been omitted.
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Hamilton Beach Brands Holding Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Hamilton Beach Brands Holding Company (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), cash flows and equity for each of the three years in the period ended December 31, 2023, and the related notes and Financial Statement Schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 6, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-3
Table of Contents
Valuation of customer price concession accrual
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2017.
Cleveland, Ohio
March 6, 2024
F-4
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Hamilton Beach Brands Holding Company
Opinion on Internal Control Over Financial Reporting
We have audited Hamilton Beach Brands Holding Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Hamilton Beach Brands Holding Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2023 consolidated financial statements of the Company and our report dated March 6, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 6, 2024
F-5
Table of Contents
HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
(In thousands, except per share data)
Basic earnings (loss) per share $ 1.80 $ 1.81 $ 1.54
Diluted earnings (loss) per share $ 1.80 $ 1.81 $ 1.53
See notes to consolidated financial statements.
F-6
Table of Contents
HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31
(In thousands)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 1,859 (2,997) 726
Reclassification of foreign currency adjustments into earnings — 2,085 —
Reclassification of hedging activities into earnings 1,631 346 386
Reclassification of pension adjustments into earnings 370 629 419
Total other comprehensive income (loss), net of tax $ 1,251 $ 2,325 $ 3,233
See notes to consolidated financial statements.
F-7
Table of Contents
HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
December 31
(In thousands)
Assets
Current assets
Prepaid expenses and other current assets 9,457 12,643
Liabilities and stockholders’ equity
Current liabilities
Stockholders’ equity
Preferred stock, par value $0.01 per share — —
Accumulated other comprehensive loss (10,667) (11,918)
Total liabilities and stockholders’ equity $ 384,702 $ 388,950
See notes to consolidated financial statements.
F-8
Table of Contents
HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
(In thousands)
Operating activities
Brazil foreign currency loss — 2,085 —
Net changes in operating assets and liabilities:
Affiliate payable — — (505)
Net cash provided by (used for) operating activities 88,636 (3,418) 17,857
Investing activities
Expenditures for property, plant and equipment (3,419) (2,279) (11,844)
Issuance of secured loan (1,605) — —
Net cash provided by (used for) investing activities (5,174) (2,279) (11,844)
Financing activities
Purchase of treasury stock (3,074) (2,979) —
Financing fees paid — (47) (114)
Other financing — — (134)
Net cash provided by (used for) financing activities (70,072) 5,575 (7,266)
Cash, cash equivalents and restricted cash
Reconciliation of cash, cash equivalents and restricted cash
Restricted cash included in prepaid expenses and other current assets 72 62 48
Restricted cash included in other non-current assets 937 915 977
Total cash, cash equivalents and restricted cash $ 16,379 $ 1,905 $ 2,150
See notes to consolidated financial statements.
F-9
Table of Contents
HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except per share data)
Issuance of common stock, net of conversions 3 (1) (2) — — — —
Stock compensation expense — — 3,103 — — — 3,103
Other comprehensive income (loss) — — — — — 2,428 2,428
Reclassification adjustment to net income — — — — — 805 805
Issuance of common stock, net of conversions 4 (2) (2) — — — —
Purchase of treasury stock — — — (2,979) — — (2,979)
Stock compensation expense — — 3,424 — — — 3,424
Other comprehensive income (loss) — — — — — (735) (735)
Reclassification adjustment to net income (loss) — — — — — 3,060 3,060
Issuance of common stock, net of conversions 5 (2) (1) — — — 2
Purchase of treasury stock — — — (3,074) — — (3,074)
Stock compensation expense — — 5,394 — — — 5,394
Other comprehensive income (loss) — — — — — (750) (750)
Reclassification adjustment to net income (loss) — — — — — 2,001 2,001
See notes to consolidated financial statements.
F-10
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 1 - Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Throughout this Annual Report on Form 10-K and the notes to consolidated financial statements, references to “Hamilton Beach Holding”, “the Company”, “we”, “us” and “our” and similar references are to Hamilton Beach Brands Holding Company and its subsidiaries on a consolidated basis unless otherwise noted or as the context otherwise requires. Hamilton Beach Brands Holding Company is a holding company and operates through its indirect, wholly owned subsidiary Hamilton Beach Brands, Inc., a Delaware corporation (“HBB”). HBB is the Company’s single reportable segment.
We are a leading designer, marketer and distributor of a wide range of branded small electric household and specialty housewares appliances, as well as commercial products for restaurants, bars and hotels.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the financial statements of the Company and have been prepared in accordance with U.S. generally accepted accounting principles (GAAP).Intercompany balances and transactions have been eliminated.
Segment Information
As of December 31, 2023, HBB is the Company’s single reportable operating segment. The Company’s reportable segment is determined based on (1) financial information reviewed by the chief operating decision maker (“CODM”) (2) operational structure of the Company which is designed and managed to share resources across the entire suite of products offered by the business, and (3) the basis upon which the CODM makes resource allocation decisions. Since the Company operates in one reportable segment, all required financial segment information can be found in the consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and disclosure of contingent assets and liabilities (if any). Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid investments with original maturities of three months or less.
Trade Receivables
Allowances for doubtful accounts are maintained against trade receivables for estimated losses resulting from the inability of customers to make required payments. These allowances are based on both recent trends of certain customers estimated to be a greater credit risk as well as general trends of the entire customer pool. Accounts are written off against the allowance when it becomes evident collection will not occur.
The Company maintains significant trade receivables balances with several large retail customers. As of December 31, 2023 and 2022, receivables from the Company’s five largest customers represented 72% and 73%, respectively, of HBB’s net trade receivables. The Company’s significant credit concentration is uncollateralized; however, historically, minimal credit losses have been incurred.
F-11
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Accounts payable - Supplier Finance Program
The Company has an agreement with a third-party administrator to provide an accounts payable tracking system which facilitates a participating supplier’s ability to monitor and voluntarily elect to sell payment obligations owed by the Company to the designated third-party financial institution. Participating suppliers can sell one or more of the Company’s payment obligations at their sole discretion. The Company has no economic interest in a supplier’s decision to sell one or more of its payment obligations. The Company’s rights and obligations with respect to such payment obligations, including amounts due and scheduled payment terms, are not impacted by suppliers’ decisions to sell amounts under these arrangements. The agreement has a limit of $60.0 million in payment obligations ($85.0 million during peak season from August to January). There is no requirement to provide assets pledged as security or other forms of guarantees under the agreement. The Company pays the third-party administrator based upon the original payment terms negotiated with participating suppliers. The payment of these obligations by the Company is included in cash used in operating activities in the Consolidated Statement of Cash Flows. As of December 31, 2023 and 2022, the Company has $55.0 million and $23.3 million, respectively, in outstanding payment obligations that are presented in Accounts payable on the Consolidated Balance Sheets. Of these totals, the third-party financial institution has made payments to participating suppliers to settle $48.9 million and $23.3 million, respectively, of our outstanding payment obligations.
Transfer of Financial Assets
The Company has entered into an arrangement with a financial institution to sell certain U.S. trade receivables on a non-recourse basis. Under the terms of the agreement, the Company receives cash proceeds and retains no rights or interest and has no obligations with respect to the sold receivables. These transactions, which are accounted for as sold receivables, result in a reduction in trade receivables because the agreement transfers effective control over and risk related to the receivables to the buyer. Under this arrangement, the Company derecognized $128.7 million, $118.5 million and $140.7 million of trade receivables during 2023, 2022 and 2021, respectively. The losses incurred on sold receivables in the consolidated results of operations for the years ended December 31, 2023, 2022 and 2021 were not material. The Company does not carry any servicing assets or liabilities. Cash proceeds from this arrangement are reflected as operating activities.
Inventory
Inventory is stated at the lower of cost or net realizable value with cost determined under the first-in, first-out (“FIFO”) method. Adjustments to the carrying value are recorded for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions.
Assets Held for Sale
During the fourth quarter of 2020, the Company committed to a plan to sell its Brazilian subsidiary and determined that it met all of the criteria to classify the assets and liabilities of this business as held for sale. In April 2021, the Company made the decision to wind down the Brazilian subsidiary and enter into a licensing agreement with a third party to service the Brazilian market. The carrying amounts of the assets were reclassified to held and used during the second quarter of 2021. During the first quarter of 2022, the criteria for substantially complete liquidation were met, and $2.1 million of accumulated other comprehensive losses were released into other expense (income), net in the consolidated results of operations during the three months ended March 31, 2022.
F-12
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Property, Plant and Equipment
Property, plant and equipment are measured at cost less accumulated depreciation, amortization and accumulated impairment losses. Depreciation and amortization are recorded generally using the straight-line method over the estimated useful lives of the assets. Estimated lives for buildings are up to 40 years, and for machinery, equipment and furniture and fixtures range from three to seven years. Leasehold improvements are depreciated over the shorter of the estimated useful life or the term of the lease. The units-of-production method is used to amortize certain tooling for sourced products. Costs incurred to develop software for internal use are capitalized and amortized over the estimated useful life of the software. Gains or losses from the sale of assets are included in selling, general and administrative expenses. Repairs and maintenance are charged to expense as incurred. Interest is capitalized for qualifying long-term capital asset projects as a part of the historical cost of acquiring the asset.
The Company evaluates long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset. Fair value is estimated at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of acquisitions over the estimated fair value of the net assets acquired. Goodwill is not amortized but evaluated at least annually for impairment. The Company conducts its annual test for impairment as of October 1 of each year and it may be conducted more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. Using a qualitative assessment in the current year, the Company determined that it was more-likely-than-not that the goodwill was not impaired and a quantitative test for impairment was not required.
Intangible assets with finite lives are amortized over their estimated useful lives, which represent the period over which the asset is expected to contribute directly or indirectly to future cash flows. Intangible assets with finite lives are reviewed for impairment whenever events and circumstances indicate the carrying value of such assets may not be recoverable and exceed their fair value. If an impairment loss exists, the carrying amount of the intangible asset is adjusted to a new cost basis. The new cost basis is amortized over the remaining useful life of the asset.
No impairment has been recognized for identifiable intangible assets or goodwill for any period presented.
Environmental Liabilities
The Company and environmental consultants are investigating or remediating historical environmental contamination at some current and former sites operated by the Company or by businesses has acquired. Liabilities for environmental matters are recorded in the period when it is determined to be probable and reasonably estimable that the Company will incur costs. When only a range of amounts is reasonably estimable and no amount within the range is more probable than another, the Company records the low end of the range. Environmental liabilities are recorded on an undiscounted basis and associated expense is recorded in selling, general and administrative expenses. When recovery of a portion of an environmental liability is probable, such amounts are recognized as a reduction to selling, general and administrative expenses and included in prepaid expenses and other current assets (current portion) and other non-current assets until settled.
F-13
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales taxes are excluded from revenue. At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promised good or service that is distinct. The Company has elected to account for shipping and handling activities performed after a customer obtains control of the goods as activities to fulfill the promise to transfer the goods, and therefore these activities are not assessed as a separate service to customers. The amount of revenue recognized varies primarily with price concessions and changes in returns. The Company offers price concessions to its customers for incentive offerings, special pricing agreements, price competition, promotions or other volume-based arrangements. The Company determines whether price concessions offered to its customers are a reduction of the transaction price and revenue or are advertising expense, depending on whether the Company receives a distinct good or service from its customers and, if so, whether the Company can reasonably estimate the fair value of that distinct good or service. The Company evaluated such agreements with its customers and determined they should be accounted for as variable consideration.
To estimate variable consideration, the Company applies both the expected value method and most likely amount method based on the form of variable consideration, according to which method would provide the better prediction. The expected value method involves a probability weighted determination of the expected amount, whereas the most likely amount method identifies the single most likely outcome in a range of possible amounts.
Product Development Costs
Expenses associated with the development of new products and changes to existing products are charged to expense as incurred. These costs, included in selling, general and administrative expenses, amounted to $12.4 million, $11.8 million and $8.6 million in 2023, 2022 and 2021, respectively.
Foreign Currency
Assets and liabilities of foreign operations are translated into U.S. dollars at the fiscal year-end exchange rate. Revenue and expenses of all foreign operations are translated using average monthly exchange rates prevailing during the year. The related translation adjustments, including translation on long-term intra-entity foreign currency transactions, are recorded as a separate component of stockholders’ equity.
Financial Instruments
Financial instruments held by the Company include cash and cash equivalents, trade receivables, accounts payable, revolving credit agreements, interest rate swap agreements and forward foreign currency exchange contracts. The Company does not hold or issue financial instruments or derivative financial instruments for trading purposes. Interest rate swap agreements and forward foreign currency exchange contracts held by the Company have been designated as hedges of forecasted cash flows. The Company holds these derivative contracts with high-quality financial institutions and limits the amount of credit exposure to any one institution. The Company does not currently hold any nonderivative instruments designated as hedges or any derivatives designated as fair value hedges.
The Company uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies. The Company offsets fair value amounts related to foreign currency exchange contracts executed with the same counterparty. These contracts hedge firm commitments and forecasted transactions relating to cash flows associated with sales and purchases denominated in currencies other than the subsidiaries’ functional currencies. Changes in the fair value of forward foreign currency exchange contracts that are effective as hedges are recorded in accumulated other comprehensive income (loss) (“AOCI”). Deferred gains or losses are reclassified from AOCI to the Consolidated Statements of Operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in cost of sales.
F-14
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The Company uses interest rate swap agreements to partially reduce risks related to floating rate financing agreements that are subject to changes in the market rate of interest. Terms of the interest rate swap agreements require the Company to receive a variable interest rate and pay a fixed interest rate. The Company’s interest rate swap agreements and its variable rate financings are predominately based upon SOFR (Secured Overnight Financing Rate). For cash flow hedges, the Company formally assesses, both at inception and on a quarterly basis thereafter, whether the designated derivative instrument is highly effective in offsetting changes in cash flows of the hedged item. Changes in the fair value of interest rate swap agreements that are effective as hedges are recorded in AOCI. Deferred gains or losses are reclassified from AOCI to the Consolidated Statements of Operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in interest expense, net. The Company discontinues hedge accounting prospectively when the derivative is not highly effective as a hedge, the underlying hedged transaction is no longer probable or the hedging instrument expires, is sold, terminated or exercised.
The Company periodically enters into foreign currency exchange contracts that do not meet the criteria for hedge accounting. These derivatives are used to reduce the Company’s exposure to foreign currency risk related to forecasted purchase or sales transactions or forecasted intercompany cash payments or settlements. Gains and losses on these derivatives are included in other expense, net.
Cash flows from hedging activities are reported in the Consolidated Statements of Cash Flows in the same classification as the hedged item, generally as a component of cash flows from operations.
Fair Value Measurements
The Company defines the fair value measurement of its financial assets and liabilities as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
A fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.
Described below are the three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3 - Unobservable inputs are used when little or no market data is available.
The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.
Stock Compensation
Pursuant to the Executive Long-Term Equity Incentive Plan (the “Executive Plan”) established in September 2017, and amended and restated in March 2022, the Company grants shares of Class A Common, subject to transfer restrictions, as a means of retaining and rewarding selected employees for long-term performance. Shares awarded under the Executive Plan are fully vested and entitle the stockholder to all rights of common stock ownership except that shares may not be assigned, pledged or otherwise transferred during the restriction period. In general, the restriction period ends after three, five or ten years from the award date or at the earliest of (1) three years after the participant’s retirement date, or (2) the participant’s death or permanent disability. The Company issued 169,227, 150,062 and 158,272 shares of Class A Common in the years ended December 31, 2023, 2022 and 2021, respectively. After the issuance of these shares, there were 553,341 shares of Class A Common available for issuance under this plan. Stock compensation expense related to the Executive Plan was $4.2 million, $2.3 million and $2.1 million for the years ended December 31, 2023, 2022 and 2021, respectively, and was based on the fair value of Class A Common on the grant date.
F-15
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The Company also has a stock compensation plan for non-employee directors of the Company under which a portion of the annual retainer for each non-employee director is paid in transfer-restricted shares of Class A Common. For the year ended December 31, 2023, $110,000 ($150,000 for the Chairman) of the non-employee director’s annual retainer of $175,000 ($250,000 for the Chairman) was paid in transfer-restricted shares of Class A Common. For the year ended December 31, 2022, $110,000 ($150,000 for the Chairman) of the non-employee director’s annual retainer of $175,000 ($250,000 for the Chairman) was paid in transfer-restricted shares of Class A Common. Shares awarded under the plan are fully vested and entitle the stockholder to all rights of common stock ownership except that shares may not be assigned, pledged or otherwise transferred during the restriction period. In general, the transfer restriction period ends at the earliest of (1) ten years after the Quarter Date with respect to which such Required Shares were issued or transferred, (2) the date of the director’s death or date the director terminates service as a director due to permanent disability, (3) five years (or earlier with the approval of the Board) after the director’s date of retirement from the Board, or (4) the date the director has both retired from the Board and has reached age 70. Pursuant to this plan, the Company issued 100,238, 90,223 and 57,735 shares in the years ended December 31, 2023, 2022 and 2021, respectively. In addition to the mandatory retainer fee received in transfer-restricted stock, directors may elect to receive shares of Class A Common in lieu of cash for up to 100% of the balance of their annual retainer, committee retainer and any committee chairman’s fees. These voluntary shares are not subject to any restrictions. There were no shares issued under voluntary elections in 2023 and 2022. Total shares issued under voluntary elections were 1,768 in 2021. After the issuance of these shares, there were 93,408 shares of Class A Common available for issuance under this plan. Stock compensation expense related to these awards was $1.2 million, $1.1 million and $1.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. Stock compensation expense represents fair value based on the market price of the shares of Class A Common on the grant date.
Leases
The Company adopted Topic 842 on January 1, 2022. The Company determines whether an arrangement is a lease at inception, considering whether the contract conveys a right to control the use of the identified asset for a period of time in exchange for consideration. Leases are classified as operating or finance leases at the commencement date of the lease. Operating leases are included in Right-of-use lease assets, Lease liabilities and Lease liabilities, non-current on the Consolidated Balance Sheets.
Right-of-use lease assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. Lease liabilities are classified between current and non-current liabilities based on their contractual payment terms. The right-of-use lease asset includes prepaid rent and reflects the unamortized balance of lease incentives. The Company’s leases may include renewal options, and the renewal option is included in the lease term if it is concluded that it is reasonably certain that we will exercise that option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company has operating leases for real estate, equipment and production specific tooling assets used by our third-party suppliers. The Company has finance leases for certain equipment. The Company has elected not to record short-term leases with initial terms of twelve months or less in its Consolidated Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense for finance leases is recognized on a straight-line basis over the lease term unless a purchase option is exercised to transfer title at the end of the lease term in which case the expense is amortized over the useful life of the asset. Variable lease payments that do not depend on an index or a rate, such as the Company’s proportionate share of actual costs for utilities, common area maintenance, insurance and property taxes, are excluded from the measurement of the lease liability, unless subject to fixed minimum requirements, and are recognized as variable lease cost when the obligation for that payment is incurred. The Company combines lease and non-lease components as a single component for all asset classes. Lease expense is classified as cost of sales or selling, general and administrative expenses in its Consolidated Statements of Operations based on the use of the leased item.
As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company’s estimated incremental borrowing rate reflects a secured rate based on recent debt issuances, its estimated credit rating, lease term, as well as publicly available data for instruments with similar characteristics.
F-16
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Treasury Stock
The Company records the aggregate purchase price of treasury stock at cost and includes treasury stock as a reduction to stockholders’ equity.
Income Taxes
Tax law requires certain items to be included in the tax return at different times than the items are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible for tax purposes, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities using currently enacted tax rates. The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the provision for income taxes in the period that includes the enactment date. The Company is required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted law and tax rates for the appropriate tax jurisdictions to determine the amount of such deferred tax assets and liabilities. Changes in the calculated deferred tax assets and liabilities may occur in certain circumstances, including statutory income tax rate changes, statutory tax law changes or changes in the Company’s structure or tax status.
The Company’s tax assets, liabilities and tax expense are supported by historical earnings and losses and the Company’s best estimates and assumptions of future earnings by jurisdiction. The Company assesses whether a valuation allowance should be established against the Company’s deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. This assessment considers, among other matters, scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of recent operations. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates the Company is using to manage the underlying businesses. When the Company determines, based on all available evidence, that it is more likely than not that deferred tax assets will not be realized, a valuation allowance is established.
Accounting Standards Adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326)," which requires an entity to recognize and present financial assets at the net amount expected to be collected. This guidance replaces the current incurred loss impairment methodology for recognizing credit losses for financial assets and requires consideration of a broader range of reasonable and supportable information for estimating credit losses. The Company considers a combination of factors, such as historical losses, the aging of trade receivables, customers’ financial strength, credit standing and payment and default history in determining the appropriate estimate of expected credit losses. The Company adopted ASU 2016-13 and related amendments for the fiscal year beginning January 1, 2023; however, the adoption of this guidance did not have a material impact on the Company’s financial condition, results of operations or cash flows.
In September 2022, the FASB issued ASU 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” The new accounting rules create certain disclosure requirements for a buyer in a supplier finance program. The new accounting rules require qualitative and quantitative disclosures including key terms of the program, balance sheet presentation of related amounts, and the obligation amount the buyer has confirmed as valid to the finance provider, including a rollforward of the obligation. Only the amount of the obligation outstanding is required to be disclosed in interim periods. The accounting rules do not impact the recognition, measurement, or financial statement presentation of supplier finance program obligations. The Company adopted this guidance in the first quarter of 2023. The new accounting rules did not have an impact on the Company’s financial condition, results of operations or cash flows. The Company included a new disclosure in accordance with the new accounting rules. The annual requirement for the rollforward of the obligation is not effective until the fiscal year beginning January 1, 2024. The Company is planning to adopt at this time.
F-17
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Recently Issued Accounting Standards
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which updates reportable segment disclosure requirements on an annual and interim basis. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Updates should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently in the process of evaluating the impact of the new requirements but does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances income tax disclosure requirements primarily involving more detailed disclosure for income taxes paid and the effective tax rate reconciliation. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively but retrospective application is permitted. The Company is currently in the process of evaluating the impact of the new requirements but does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.
NOTE 2 - Property, Plant and Equipment, Net
Property, plant and equipment, net includes the following:
December 31
Property, plant and equipment, at cost 72,599 70,096
Less allowances for depreciation and amortization 45,198 42,266
Depreciation expense from property, plant and equipment, net for the years ended December 31, 2023, 2022 and 2021 was $4.2 million, $4.7 million, and $4.7 million, respectively.
NOTE 3 - Intangible Assets
Intangible assets other than goodwill, which are subject to amortization, consist of the following:
Gross Carrying Amount Accumulated Amortization Net Balance
Balance as of December 31, 2023
Balance as of December 31, 2022
Amortization expense for intangible assets was $0.2 million for each of the years presented in the consolidated statements of operations.
F-18
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Expected annual amortization expense of intangible assets for the next five years is $0.2 million. The remaining useful life of the trademark intangible asset is approximately 6.5 years.
NOTE 4 - Current and Long-Term Financing
Financing arrangements exist at the subsidiary level. Hamilton Beach Brands Holding Company has not guaranteed any borrowings of its subsidiaries.
The following table summarizes HBB’s available and outstanding borrowings:
December 31
Total outstanding borrowings:
Weighted average stated interest rate on total borrowings 6.84 % 3.80 %
Including swap settlements, interest paid on total debt was $3.0 million, $4.5 million and $2.8 million during 2023, 2022 and 2021, respectively. Interest capitalized was not material in 2023, 2022 and 2021.
HBB has a $150.0 million senior secured floating-rate revolving credit facility (the “HBB Facility”) that expires in June 2025. Repayment of the HBB Facility is due on June 30, 2025, therefore all borrowings are classified as long-term debt as of December 31, 2023. The obligations under the HBB Facility are secured by substantially all of HBB’s assets. The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility. As of December 31, 2023, HBB was in compliance with all financial covenants in the HBB Facility.
The maximum availability under the HBB Facility is governed by a borrowing base derived from advance rates against eligible trade receivables, inventory and trademarks of the borrowers, as defined in the HBB Facility. Borrowings bear interest at a floating rate, which can be a base rate, SOFR or bankers’ acceptance rate, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective December 31, 2023, for base rate loans and SOFR loans denominated in U.S. dollars were 0.00% and 1.55%, respectively. The applicable margins, effective December 31, 2023, for base rate loans and bankers’ acceptance loans denominated in Canadian dollars were 0.00% and 1.55%, respectively. The HBB Facility also requires a fee of 0.25% per annum on the unused commitment. The margins and unused commitment fee under the HBB Facility are subject to quarterly adjustment based on average excess availability.
To reduce the exposure to changes in the market rate of interest, HBB has entered into interest rate swap agreements for a portion of the HBB Facility. Terms of the interest rate swap agreements require HBB to receive a variable interest rate and pay a fixed interest rate.
Dividends are not to exceed $7.0 million during any calendar year to the extent that for the thirty days prior to the dividend payment date, and after giving effect to the dividend payment, HBB maintains excess availability of not less than $18.0 million. Dividend amounts are discretionary to the extent that for the thirty days prior to the dividend payment date, and after giving effect to the dividend payment, HBB maintains excess availability of not less than $30 million. The Company expects to continue to borrow against the facility and make voluntary repayments within the next twelve months.
F-19
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 5 - Fair Value Disclosure
Recurring Fair Value Measurements
The Company measures its derivatives at fair value using significant observable inputs, which is Level 2 as defined in the fair value hierarchy. The Company uses a present value technique that incorporates the SOFR swap curve, foreign currency spot rates and foreign currency forward rates to value its derivatives, including its interest rate swap agreements and foreign currency exchange contracts. The Company also incorporates the effect of HBB and counterparty credit risk into the valuation.
Other Fair Value Measurement Disclosures
The carrying amounts of cash and cash equivalents, trade receivables and accounts payable approximate fair value due to the short-term maturities of these instruments. The fair value of the HBB Facility, including book overdrafts, which approximate book value, were determined using current rates offered for similar obligations taking into account HBB’s credit risk, which is Level 2 as defined in the fair value hierarchy.
There were no transfers into or out of Levels 1, 2 or 3 during the years ended December 31, 2023 and 2022.
NOTE 6 - Derivative Financial Instruments
Foreign Currency Derivatives
HBB held forward foreign currency exchange contracts with total notional amounts of $16.9 million and $11.3 million as of December 31, 2023 and 2022, respectively, denominated primarily in Canadian dollars and Mexican pesos. The fair value of these contracts approximated a payable of $0.5 million as of December 31, 2023 and a receivable of $0.1 million as of December 31, 2022.
Forward foreign currency exchange contracts that qualify for hedge accounting are used to hedge transactions expected to occur within the next twelve months. The mark-to-market effect of forward foreign currency exchange contracts that are considered effective as hedges has been included in AOCI.
Interest Rate Derivatives
HBB has interest rate swaps that hedge interest payments on its one-month SOFR borrowings. All swaps have been designated as cash flow hedges.
The following table summarizes the notional amounts, related rates and remaining terms of interest rate swap agreements for HBB as of December 31, in millions:
Notional Amount Average Fixed Rate Remaining Term at
Interest rate swaps $ 25.0 $ 50.0 1.6 % 0.9 % Extending to January 2024
Interest rate swaps $ 25.0 $ — 1.4 % — % Extending to January 2028
The fair value of HBB’s interest rate swap agreements was a receivable of $4.0 million as of December 31, 2023 and a receivable of $5.4 million as of December 31, 2022. The mark-to-market effect of interest rate swap agreements that are considered effective as hedges has been included in AOCI. The interest rate swap agreements held by HBB on December 31, 2023 are expected to continue to be effective as hedges.
F-20
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following table summarizes the fair value of derivative instruments as of December 31, as recorded in the Consolidated Balance Sheets:
Asset Derivatives Liability Derivatives
Interest rate swap agreements
Long-term Other non-current assets 3,501 4,539 Other long-term liabilities — —
Foreign currency exchange contracts
NOTE 7 - Leasing Arrangements
On January 1, 2022, the Company adopted ASU 2016-02, “Leases (Topic 842)”, which at commencement of the Company’s leases, requires recognition of right-of-use assets and corresponding liabilities based on the present value of future lease payments over the lease term. Some of the Company’s leases, primarily those for real estate assets, may contain both lease and non-lease components, the Company has elected to combine and account for lease and non-lease components as a single lease component. Leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheets and lease expense for these leases are recognized on a straight-line basis over the lease term. The Company’s leases have remaining lease terms of one month to 11 years, some of which include options to extend the leases for up to 5 years. The renewal option is included in the lease term if it is concluded that it is reasonably certain that the Company will exercise that option.
The assets associated with the Company’s leases primarily consist of real estate and equipment. Real estate leases are comprised of warehouses, corporate headquarters and sales offices. Equipment leases include office and warehouse equipment as well as Company specific tooling used by third-party suppliers in the production process. Payments under these lease arrangements may be fixed or variable.
December 31
Finance lease cost
Amortization of leased assets 29 —
Interest on lease liabilities 14 —
Finance lease cost 43 —
(1) Primarily related to production specific tooling assets provided by third-party suppliers which are included in product purchases.
(2) Leases with an initial term of 12 months or less
During the second quarter of 2023, the Company recognized a $0.5 million impairment charge related to the consolidation of warehouses and the intention to sub-lease to a third-party, which is included within cost of sales in the Consolidated Statement of Operations. The impairment was measured using a discounted cash flow based on the marketed rate of the warehouse and the time expected to identify a sub-lessor.
F-21
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following table presents supplemental cash flow and non-cash information related to leases:
December 31
The following table reconciles the undiscounted future lease payments for operating and finance leases to the lease liabilities recorded in the Consolidated Balance Sheet as of December 31, 2023:
Undiscounted Future Lease Payments
Total lease payments 60,183
Less: impact of discounting 12,091
Present value of lease payments $ 48,092
The following table summarizes the weighted-average lease term and discount rate.
December 31
Weighted average remaining lease term - operating leases 9.0 9.7
Weighted average remaining lease term - finance leases 4.5 0.0
Weighted average discount rate - operating leases (1) 5.0 % 4.8 %
Weighted average discount rate - finance leases (1) 7.6 % — %
(1) The discount rates used to present value the lease liabilities are based on estimates of the Company’s incremental borrowing rate.
As of December 31, 2023, the Company did not have any additional material operating or finance leases that had not yet commenced.
NOTE 8 - Stockholders' Equity and Earnings Per Share
Capital Stock
The authorized capital stock of the Company consists of Class A Common, Class B Common and one series of Preferred stock. Voting, dividend, conversion and liquidation rights of the Preferred stock are established by the Board upon issuance of such Preferred stock.
The Company’s Class A Common is traded on the New York Stock Exchange under the ticker symbol “HBB.” Because of transfer restrictions on Class B Common, no trading market has developed, or is expected to develop, for the Class B Common.
F-22
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Subject to the rights of the holders of any series of preferred stock, each share of Class A Common will entitle the holder of the share to one vote on all matters submitted to stockholders, and each share of the Company’s Class B Common will entitle the holder of the share to ten votes on all such matters. Subject to the rights of the preferred stockholders, each share of Class A Common and Class B Common will be equal in respect of rights to dividends, except that in the case of dividends payable in stock, only Class A Common will be distributed with respect to Class A Common and only Class B Common will be distributed with respect to Class B Common. As the liquidation and dividend rights are identical, any distribution of earnings would be allocated to Class A and Class B stockholders on a proportionate basis, and accordingly the net income per share for each class of common stock is identical.
The following table sets forth the Company’s authorized capital stock information:
December 31
Preferred stock, par value $0.01 per share
Preferred stock outstanding — —
Class A Common stock, par value $0.01 per share
(1) Class B Common converted to Class A Common were 228 shares during 2023 and 156 shares 2022.
(2) The Company issued Class A Common of 270 during 2023 and 240 during 2022 related to the Company’s stock compensation plan.
Stock Repurchase Program
In November 2023, the Company’s Board approved a stock repurchase program for the purchase of up to $25 million of the Company’s Class A Common outstanding starting January 1, 2024 and ending December 31, 2025. The Company's previously authorized share buyback program was approved by the Company’s Board in February 2022 for the purchase of up to $25 million of the Company’s Class A Common outstanding starting February 22, 2022 and ending December 31, 2023.
During the years ended December 31, 2023 and 2022, the Company repurchased 250,772 and 261,049 shares for an aggregate purchase price of $3.1 million and $3.0 million, respectively. There were no share repurchases during the year ended December 31, 2021.
F-23
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Accumulated Other Comprehensive Income (Loss)
The following table summarizes changes in accumulated other comprehensive income (loss) by component and related tax effects for periods shown:
Reclassification adjustment to net income (loss) — 557 654 1,211
Reclassification adjustment to net income (loss) — 2,231 474 2,705
Earnings per share
The weighted average number of shares of Class A Common and Class B Common outstanding used to calculate basic and diluted earnings (loss) per share were as follows:
Dilutive effect of share-based compensation awards 24 26 50
Basic earnings (loss) per share $ 1.80 $ 1.81 $ 1.54
Diluted earnings (loss) per share $ 1.80 $ 1.81 $ 1.53
NOTE 9 - Revenue
Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services, which includes an estimate for variable consideration.
The Company’s warranty program to the consumer consists generally of an assurance-type limited warranty lasting for varying periods of up to ten years for electric appliances, with the majority of products having a warranty of one to three years. There is no guarantee to the consumer as the Company may repair or replace, in its discretion, products returned under warranty. Accordingly, the Company determined that no separate performance obligation exists.
The Company’s products are not sold with a general right of return. Subject to certain terms and conditions, however, the Company will agree to accept a portion of products sold that, based on historical experience, are estimated to be returned for reasons such as product failure and excess inventory stocked by the customer. Product returns, customer programs and incentive offerings, including special pricing agreements, price competition, promotions and other volume-based incentives are accounted for as variable consideration.
F-24
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)