SEC Form 10-Q filed by Hamilton Beach Brands Holding Company
$HBB
Home Furnishings
Consumer Discretionary
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________________________________________________________________________________________________________________________________________________________
FORM 10-Q
| (Mark One) | |||||||||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||||||
| For the quarterly period ended | |||||||||||
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from to | ||||||||
Commission File Number: 001-38214
| (Exact name of registrant as specified in its charter) | |||||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||||||||
| (Address of principal executive offices) | (Zip code) | ||||||||||||||||
| (Registrant’s telephone number, including area code) | |||||||||||||||||
| N/A | |||||||||||||||||
| (Former name, former address and former fiscal year, if changed since last report) | |||||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | þ | Non-accelerated filer | o | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
Number of shares of Class A Common Stock outstanding as of October 25, 2024: 10,098,373
Number of shares of Class B Common Stock outstanding as of October 25, 2024: 3,606,543
HAMILTON BEACH BRANDS HOLDING COMPANY
TABLE OF CONTENTS
| Page Number | |||||||||||||||||
Part I. | FINANCIAL INFORMATION | ||||||||||||||||
Item 1 | Financial Statements | ||||||||||||||||
Item 2 | |||||||||||||||||
Item 3 | |||||||||||||||||
Item 4 | |||||||||||||||||
Part II. | OTHER INFORMATION | ||||||||||||||||
Item 1 | |||||||||||||||||
Item 1A | |||||||||||||||||
Item 2 | |||||||||||||||||
Item 3 | |||||||||||||||||
Item 4 | |||||||||||||||||
Item 5 | |||||||||||||||||
Item 6 | Exhibits | ||||||||||||||||
Part I
FINANCIAL INFORMATION
Item 1. Financial Statements
HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| SEPTEMBER 30 2024 | DECEMBER 31 2023 | SEPTEMBER 30 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Assets | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | ||||||||||||||
| Trade receivables, net | |||||||||||||||||
| Inventory | |||||||||||||||||
| Prepaid expenses and other current assets | |||||||||||||||||
| Total current assets | |||||||||||||||||
| Property, plant and equipment, net | |||||||||||||||||
| Right-of-use lease assets | |||||||||||||||||
| Goodwill | |||||||||||||||||
| Other intangible assets, net | |||||||||||||||||
| Deferred income taxes | |||||||||||||||||
| Deferred costs | |||||||||||||||||
| Other non-current assets | |||||||||||||||||
| Total assets | $ | $ | $ | ||||||||||||||
| Liabilities and stockholders’ equity | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Accounts payable | $ | $ | $ | ||||||||||||||
| Revolving credit agreements | |||||||||||||||||
| Accrued compensation | |||||||||||||||||
| Accrued product returns | |||||||||||||||||
| Lease liabilities | |||||||||||||||||
| Other current liabilities | |||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Revolving credit agreements | |||||||||||||||||
| Lease liabilities, non-current | |||||||||||||||||
| Other long-term liabilities | |||||||||||||||||
| Total liabilities | |||||||||||||||||
| Stockholders’ equity | |||||||||||||||||
Preferred stock, par value $ | |||||||||||||||||
| Class A Common stock | |||||||||||||||||
| Class B Common stock | |||||||||||||||||
| Capital in excess of par value | |||||||||||||||||
| Treasury stock | ( | ( | ( | ||||||||||||||
| Retained earnings | |||||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ( | ||||||||||||||
| Total stockholders’ equity | |||||||||||||||||
| Total liabilities and stockholders’ equity | $ | $ | $ | ||||||||||||||
See notes to unaudited consolidated financial statements.
1
HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| THREE MONTHS ENDED SEPTEMBER 30 | NINE MONTHS ENDED SEPTEMBER 30 | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (In thousands, except per share data) | (In thousands, except per share data) | ||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Amortization of intangible assets | |||||||||||||||||||||||
| Operating profit (loss) | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Pension termination expense | |||||||||||||||||||||||
| Other expense (income), net | |||||||||||||||||||||||
| Income (loss) before income taxes | |||||||||||||||||||||||
| Income tax expense (benefit) | |||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | |||||||||||||||||||
| Basic and diluted earnings (loss) per share | $ | $ | $ | $ | |||||||||||||||||||
| Basic weighted average shares outstanding | |||||||||||||||||||||||
| Diluted weighted average shares outstanding | |||||||||||||||||||||||
See notes to unaudited consolidated financial statements.
2
HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| THREE MONTHS ENDED SEPTEMBER 30 | NINE MONTHS ENDED SEPTEMBER 30 | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | ( | ( | |||||||||||||||||||
| (Loss) gain on long-term intra-entity foreign currency transactions | |||||||||||||||||||||||
| Cash flow hedging activity | ( | ( | |||||||||||||||||||||
| Reclassification of hedging activities into earnings | ( | ( | |||||||||||||||||||||
| Pension plan adjustment | |||||||||||||||||||||||
| Reclassification related to pension termination activity into earnings | |||||||||||||||||||||||
| Reclassification of pension adjustments into earnings | |||||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | $ | $ | |||||||||||||||||||
See notes to unaudited consolidated financial statements.
3
HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| NINE MONTHS ENDED SEPTEMBER 30 | |||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| Operating activities | |||||||||||
| Net income (loss) | $ | $ | |||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock compensation expense | |||||||||||
| Pension termination expense | |||||||||||
| Other | ( | ||||||||||
| Net changes in operating assets and liabilities: | |||||||||||
| Trade receivables | |||||||||||
| Inventory | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable | |||||||||||
| Other liabilities | ( | ( | |||||||||
| Net cash provided by (used for) operating activities | |||||||||||
| Investing activities | |||||||||||
| Expenditures for property, plant and equipment | ( | ( | |||||||||
| Acquisition of business, net of cash acquired | ( | ||||||||||
| Issuance of secured loan | ( | ||||||||||
| Repayment of secured loan | |||||||||||
| Purchase of U.S. Treasury bill | ( | ||||||||||
| Other | ( | ||||||||||
| Net cash provided by (used for) investing activities | ( | ( | |||||||||
| Financing activities | |||||||||||
| Net additions (reductions) to revolving credit agreements | ( | ||||||||||
| Purchase of treasury stock | ( | ( | |||||||||
| Cash dividends paid | ( | ( | |||||||||
| Net cash provided by (used for) financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash | |||||||||||
| Increase (decrease) for the period | |||||||||||
| Balance at the beginning of the period | |||||||||||
| Balance at the end of the period | $ | $ | |||||||||
| Reconciliation of cash, cash equivalents and restricted cash | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in prepaid expenses and other current assets | |||||||||||
| Restricted cash included in other non-current assets | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
See notes to unaudited consolidated financial statements.
4
HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| Class A Common Stock | Class B Common Stock | Capital in Excess of Par Value | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | |||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||
| Net income (loss) | — | — | — | — | ( | — | ( | ||||||||||||||||
| Purchase of treasury stock | — | — | — | ( | — | — | ( | ||||||||||||||||
| Issuance of common stock, net of conversions | — | ( | — | — | — | ||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||
Cash dividends, $ | — | — | — | — | ( | — | ( | ||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | ( | ( | ||||||||||||||||
| Reclassification adjustment to net income (loss) | — | — | — | — | — | ||||||||||||||||||
| Balance, March 31, 2024 | ( | ( | |||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ||||||||||||||||||
| Purchase of treasury stock | — | — | — | ( | — | — | ( | ||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||
Cash dividends, $ | — | — | — | — | ( | — | ( | ||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | ( | ( | ||||||||||||||||
| Reclassification adjustment to net income (loss) | — | — | — | — | — | ( | ( | ||||||||||||||||
| Balance, June 30, 2024 | ( | ( | |||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ||||||||||||||||||
| Purchase of treasury stock | — | — | — | ( | — | — | ( | ||||||||||||||||
| Issuance of common stock, net of conversions | — | ( | — | — | — | ||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||
Cash dividends, $ | — | — | — | — | ( | — | ( | ||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | ( | ( | ||||||||||||||||
| Reclassification adjustment to net income | — | — | — | — | — | ||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||
5
| Balance, January 1, 2023 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||
| Net income (loss) | — | — | — | — | ( | — | ( | ||||||||||||||||
| Issuance of common stock, net of conversions | ( | ( | — | — | — | ||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||
Cash dividends, $ | — | — | — | — | ( | — | ( | ||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | ( | ( | ||||||||||||||||
| Reclassification adjustment to net income (loss) | — | — | — | — | — | ||||||||||||||||||
| Balance, March 31, 2023 | ( | ( | |||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ||||||||||||||||||
| Purchase of treasury stock | — | — | — | ( | — | — | ( | ||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||
Cash dividends, $ | — | — | — | — | ( | — | ( | ||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | ||||||||||||||||||
| Reclassification adjustment to net income (loss) | — | — | — | — | — | ||||||||||||||||||
| Balance, June 30, 2023 | ( | ( | |||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ||||||||||||||||||
| Issuance of common stock, net of conversions | — | ( | — | — | — | ||||||||||||||||||
| Purchase of treasury stock | — | — | — | ( | — | — | ( | ||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||
Cash dividends, $ | — | — | — | — | ( | — | ( | ||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | ( | ( | ||||||||||||||||
| Reclassification adjustment to net loss | — | — | — | — | — | ||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||
See notes to unaudited consolidated financial statements.
6
HAMILTON BEACH BRANDS HOLDING COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(Tabular amounts in thousands, except as noted and per share amounts)
NOTE 1—Basis of Presentation and Recently Issued Accounting Standards
Basis of Presentation
Throughout this Quarterly Report on Form 10-Q and the notes to unaudited 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, fast food chains, bars and hotels, and are a provider of connected devices and software for healthcare management.
The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Operating results for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the remainder of the year due to the highly seasonal nature of the Company’s primary markets. A majority of revenue and operating profit typically occurs in the second half of the calendar year when sales of products to retailers and consumers historically increase significantly for the fall holiday-selling season.
We maintain a $150.0 million senior secured floating-rate revolving credit facility (the “HBB Facility”) that expires on June 30, 2025, within one year after the issuance of these financial statements. We have not yet completed our refinancing of the HBB Facility and, accordingly, all amounts outstanding have been classified as current liabilities. Based on the status of the refinancing and our history of successfully refinancing our debt, we believe that it is probable that the HBB Facility will be refinanced before its maturity. We believe funds available from cash on hand, the HBB Facility and operating cash flows will provide sufficient liquidity to meet our operating needs and commitments arising during the next twelve months.
Accounting Standards Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 the annual period ending December 31, 2024, and the interim periods thereafter. Early adoption is permitted. Updates should be applied retrospectively to all prior periods presented in the financial statements. Adoption of this ASU may result in additional disclosure, but it will not impact the Company’s consolidated financial position, results of operations or cash flows.
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. Adoption of this ASU may result in additional disclosure, but it will not impact the Company’s consolidated financial position, results of operations or cash flows.
7
U.S. Pension Plan Termination
During 2022, the Board approved the termination of our U.S. defined benefit pension plan (the “U.S. Pension Plan”) with an effective date of September 30, 2022. During the third quarter of 2024, the Company remeasured the U.S. Pension Plan since benefit obligations were settled through a combination of lump sum payments to eligible plan participants and the purchase of a group annuity contract in August 2024, under which future benefit obligations were transferred to a third-party insurance company. The remaining benefit obligations through October 2024 will be settled during the fourth quarter of 2024. The remaining balance as of September 30, 2024 is a deferred loss of $0.1 million within Accumulated Other Comprehensive Income. The Company currently expects that all surplus assets remaining after the U.S. Pension Plan termination will be transferred to a qualified replacement plan once all remaining benefit obligations are settled. The surplus assets as of the remeasurement date of August 31, 2024 were $13.3 million which are included within prepaid expenses and other current assets on the Consolidated Balance Sheets. The remeasurement resulted in pre-tax settlement charges of $7.6 million ($5.7 million post-tax) during the three months ended September 30, 2024, which were released from Accumulated Other Comprehensive Income into earnings and are included within Pension termination expense on the Consolidated Statements of Operations.
Accounts payable - Supplier Finance Program
U.S. Treasury Bills
NOTE 2—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 $33.5 million and $104.1 million of trade receivables during the three and nine months ending September 30, 2024, respectively, $30.7 million and $90.0 million of trade receivables during the three and nine months ending September 30, 2023, respectively, and $128.7 million during the year ending December 31, 2023. The loss incurred on sold receivables in the consolidated results of operations for the three and nine months ended September 30, 2024 and 2023 was not
8
NOTE 3—Fair Value Disclosure
The following table presents the Company’s assets and liabilities accounted for at fair value on a recurring basis:
| Description | Balance Sheet Location | SEPTEMBER 30 2024 | DECEMBER 31 2023 | SEPTEMBER 30 2023 | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Interest rate swap agreements | ||||||||||||||||||||||||||
| Current | Prepaid expenses and other current assets | $ | $ | $ | ||||||||||||||||||||||
| Long-term | Other non-current assets | |||||||||||||||||||||||||
| Foreign currency exchange contracts | ||||||||||||||||||||||||||
| Current | Prepaid expenses and other current assets | |||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Foreign currency exchange contracts | ||||||||||||||||||||||||||
| Current | Other current liabilities | |||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
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 Secured Overnight Financing Rate (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, with the exception of U.S. Treasury bills classified as cash and cash equivalents which are measured at amortized cost.
The $150.0 million fair value of the HBB Facility, including book overdrafts, which approximate book value, was determined using current rates offered for similar obligations taking into account the Company’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 three and nine months ended September 30, 2024.
9
NOTE 4—Stockholders’ Equity
Capital Stock
The following table sets forth the Company’s authorized capital stock information:
| SEPTEMBER 30 2024 | DECEMBER 31 2023 | SEPTEMBER 30 2023 | |||||||||||||||
Preferred stock, par value $ | |||||||||||||||||
| Preferred stock authorized | |||||||||||||||||
| Preferred stock outstanding | |||||||||||||||||
Class A Common stock, par value $ | |||||||||||||||||
| Class A Common authorized | |||||||||||||||||
Class A Common issued (1)(2) | |||||||||||||||||
Treasury Stock (3) | |||||||||||||||||
Class B Common stock, par value $ | |||||||||||||||||
| Class B Common authorized | |||||||||||||||||
Class B Common issued (1) | |||||||||||||||||
(1) Class B Common converted to Class A Common were 3 and 8 shares during the three and nine months ending September 30, 2024, respectively, and 4 and 219 during the three and nine months ending September 30, 2023, respectively.
(2) The Company issued Class A Common of 14 and 290 shares during the three and nine months ending September 30, 2024, respectively, and 28 and 244 during the three and nine months ending September 30, 2023, respectively.
(3) On March 5, 2024, a total of 30 mandatory cashless-exercise-award shares of Class A Common were surrendered to the Company by the participants of our Executive Long-Term Equity Incentive Compensation Plan (the “Incentive Plan”) in order to satisfy the participants’ tax withholding obligations with respect to shares of Class A Common awarded under the Incentive Plan on March 5, 2024.
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. This program replaced the previous stock repurchase plan that started February 22, 2022 and ended December 31, 2023. During the three and nine months ended September 30, 2024, the Company repurchased 221,529 and 441,741 shares, respectively, at prevailing market prices for an aggregate purchase price of $5.3 million and $9.3 million, respectively. During the three and nine months ended September 30, 2023, the Company repurchased 82,676 and 139,649 shares, respectively, at prevailing market prices for an aggregate purchase price of $0.9 million and $1.5 million, respectively. During the year ended December 31, 2023, the Company repurchased 250,772 shares for an aggregate purchase price of $3.1 million. As of September 30, 2024, the Company had $15.7 million remaining authorized for repurchase.
10
Accumulated Other Comprehensive Loss: The following table summarizes changes in accumulated other comprehensive loss by component and related tax effects for periods shown:
| Foreign Currency | Deferred Gain (Loss) on Cash Flow Hedging | Pension Plan Adjustment | Total | ||||||||||||||||||||
| Balance, January 1, 2024 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Reclassification adjustment to net income (loss) | |||||||||||||||||||||||
| Tax effects | ( | ( | ( | ||||||||||||||||||||
| Balance, March 31, 2024 | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Reclassification adjustment to net income (loss) | ( | ( | |||||||||||||||||||||
| Tax effects | ( | ( | ( | ||||||||||||||||||||
| Balance, June 30, 2024 | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||
| Reclassification adjustment to net income (loss) | ( | ||||||||||||||||||||||
| Tax effects | ( | ( | |||||||||||||||||||||
| Balance, September 30, 2024 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Balance, January 1, 2023 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Reclassification adjustment to net income (loss) | |||||||||||||||||||||||
| Tax effects | ( | ( | |||||||||||||||||||||
| Balance, March 31, 2023 | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Reclassification adjustment to net income (loss) | |||||||||||||||||||||||
| Tax effects | ( | ( | |||||||||||||||||||||
| Balance, June 30, 2023 | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Reclassification adjustment to net income (loss) | |||||||||||||||||||||||
| Tax effects | ( | ( | ( | ||||||||||||||||||||
| Balance, September 30, 2023 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
NOTE 5—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 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.
Most of 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.
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A description of revenue sources and performance obligations for the Company are as follows:
Consumer and Commercial product revenue
Transactions with both consumer and commercial customers generally originate upon the receipt of a purchase order from a customer, which in some cases are governed by master sales agreements, specifying product(s) that the customer desires. Contracts for product revenue have an original duration of one year
Consumer product revenue consists of sales of small electric household and specialty housewares appliances to traditional brick and mortar and ecommerce retailers, distributors and directly to the end consumer. A majority of this revenue is in North America.
Commercial product revenue consists of sales of products for restaurants, fast-food chains, bars and hotels. Approximately two-thirds of the Company’s commercial sales is in the U.S. and the remaining is in markets across the globe.
License revenue
From time to time, the Company enters into exclusive and non-exclusive licensing agreements which grant the right to use certain of the Company’s intellectual property (“IP”) in connection with designing, manufacturing, distributing, advertising, promoting and selling the licensees’ products during the term of the agreement. The IP that is licensed generally consists of trademarks, trade names, patents, trade dress, logos and/or products (the “Licensed IP”). In exchange for granting the right to use the Licensed IP, the Company receives a royalty payment, which is a function of (1) the total net sales of products that use the Licensed IP and (2) the royalty percentage that is stated in the licensing agreement. The Company recognizes revenue at the later of when the subsequent sales occur or when the performance obligation is satisfied over time. Additionally, the Company enters into agreements which grant the right to use software for healthcare management. The Company receives a license payment which is recognized when the performance obligation is satisfied over time or as usage occurs based on the contract with the customer.
Lease revenue
The Company leases connected devices to specialty pharmacy networks and pharmaceutical companies and is accounted for under Accounting Standards Codification 842, Leases as operating leases.
The following table sets forth Company’s revenue on a disaggregated basis for the three and nine months ended September 30:
| THREE MONTHS ENDED SEPTEMBER 30 | NINE MONTHS ENDED SEPTEMBER 30 | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Type of good or service: | |||||||||||||||||||||||
| Consumer products | $ | $ | $ | $ | |||||||||||||||||||
| Commercial products | |||||||||||||||||||||||
| Licensing | |||||||||||||||||||||||
| Leasing | |||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
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NOTE 6—Contingencies
The Company is involved in various legal and regulatory proceedings and claims that have arisen in the ordinary course of business, including product liability, patent infringement, asbestos related claims, environmental and other claims. Although it is difficult to predict the ultimate outcome of these proceedings and claims, the Company believes the ultimate disposition of these matters will not have a material adverse effect on the financial condition, results of operation or cash flows of the Company. Any costs that the Company estimates will be paid as a result of these claims are accrued when the liability is considered probable and the amount of such costs can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is probable or reasonably possible and which are material, the Company discloses the nature of the contingency and, in some circumstances, an estimate of the possible loss.
Proceedings and claims asserted against the Company are subject to inherent uncertainties and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of an adverse impact on the Company’s financial position and on the results of operations and cash flows for the period in which the ruling occurs, or in future periods.
Environmental matters
The Company is investigating or remediating historical environmental contamination at some current and former sites operated by the Company or by businesses it acquired. Based on the current stage of the investigation or remediation at each known site, the Company estimates the total investigation and remediation costs and the period of assessment and remediation activity required for each site. The estimate of future investigation and remediation costs is primarily based on variables associated with site clean-up, including, but not limited to, physical characteristics of the site, the nature and extent of the contamination and applicable regulatory programs and remediation standards.
No assessment can fully characterize all subsurface conditions at a site. There is no assurance that additional assessment and remediation efforts will not result in adjustments to estimated remediation costs or the time frame for remediation at these sites.
The Company’s estimates of investigation and remediation costs may change if it discovers contamination at additional sites or additional contamination at known sites, if the effectiveness of its current remediation efforts change, if applicable federal or state regulations change or if the Company’s estimate of the time required to remediate the sites changes. The Company’s current estimates may differ materially from original estimates.
As of September 30, 2024, December 31, 2023 and September 30, 2023, the Company had accrued undiscounted obligations of $3.5 million, $3.4 million and $3.4 million, respectively, for environmental investigation and remediation activities. The Company estimates that it is reasonably possible that it may incur additional expenses in the range of zero to $1.7 million related to the environmental investigation and remediation at these sites. As of September 30, 2024, the Company has $0.9 million, classified as restricted cash, associated with reimbursement of environmental investigation and remediation costs from a responsible party in exchange for release from all future obligations for one site. Additionally, the Company has a $1.6 million asset associated with the reimbursement of costs associated with two sites.
NOTE 7—Income Taxes
The Company’s provision for income taxes for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period.
The effective tax rate was 27.4 % and 21.6 % for the three months ended September 30, 2024 and 2023, respectively. The effective tax rate was higher in the three months ended September 30, 2024 due to a valuation allowance on foreign losses in the current year and a tax benefit on foreign income in the prior year that did not recur.
The effective tax rate was 34.7 % and 19.7 % for the nine months ended September 30, 2024 and 2023, respectively. The effective tax rate was higher for the nine months ended September 30, 2024 due to a valuation allowance on foreign losses in the current year and tax benefits on foreign income and credits in the prior year that did not recur.
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NOTE 8—Acquisitions
On February 2, 2024, we completed the acquisition of HealthBeacon PLC (“HealthBeacon”), a medical technology firm and strategic partner of the Company, for €6.9 million (approximately $7.5 million). The transaction was funded with cash on hand.
The acquisition of HealthBeacon was accounted for as a business combination using the acquisition method of accounting. The results of operations for HealthBeacon are included in the accompanying Consolidated Statements of Operations from the acquisition date until September 30, 2024. HealthBeacon had $1.2 million and $2.6 million in revenue and $1.1 million and $3.7 million in operating loss that was included in our consolidated financial statements for the three and nine months ended September 30, 2024, respectively. Pro forma financial information has not been presented, as revenue and expenses related to the acquisition do not have a material impact on the Company’s unaudited consolidated financial statements.
The determination and allocation of purchase price consideration is based on preliminary estimates of fair value; such estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). As of September 30, 2024, the purchase price allocation for HealthBeacon is preliminary as we assess and gather additional information regarding the fair value of the assets acquired and liabilities assumed as of the acquisition date. We may revise our preliminary estimates during the measurement period as third-party valuations are finalized, additional information becomes available and as additional analyses are performed.
There were no adjustments as allowed within the measurement period during the three months ended September 30, 2024.
During the three and nine months ended September 30, 2024, we incurred transaction costs of approximately $0.2 million and $1.3 million, respectively, which are included in Selling, general and administrative expenses.
The following table presents the preliminary value of assets acquired and liabilities assumed and will be finalized pending completion of purchase accounting matters:
| Preliminary Fair Values as of February 2, 2024 | |||||
| Cash and cash equivalents | $ | ||||
| Current assets | |||||
| Property, plant and equipment, net | |||||
| Goodwill | |||||
| Other intangible assets, net | |||||
| Total assets acquired | |||||
| Liabilities, current | |||||
| Liabilities, non-current | |||||
| Total liabilities acquired | |||||
| Purchase Price | $ | ||||
Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in thousands, except as noted and per share data)
Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management’s current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause actual results to differ materially from those described in these forward-looking statements are set forth below under the heading “Forward-Looking Statements.”
HBB is the Company’s single reportable segment.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For a summary of the Company’s critical accounting policies, refer to “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as there have been no material changes from those disclosed in the Annual Report.
RESULTS OF OPERATIONS
The Company’s business is seasonal, and a majority of revenue and operating profit typically occurs in the second half of the year when sales of small electric appliances and kitchenware historically increase significantly for the fall holiday-selling season.
Third Quarter of 2024 Compared with Third Quarter of 2023
| THREE MONTHS ENDED SEPTEMBER 30 | |||||||||||||||||||||||||||||||||||
| Increase / (Decrease) | |||||||||||||||||||||||||||||||||||
| 2024 | % of Revenue | 2023 | % of Revenue | $ Change | % Change | ||||||||||||||||||||||||||||||
| Revenue | $ | 156,667 | 100.0 | % | $ | 153,614 | 100.0 | % | $ | 3,053 | 2.0 | % | |||||||||||||||||||||||
| Cost of sales | 112,765 | 72.0 | % | 113,548 | 73.9 | % | (783) | (0.7) | % | ||||||||||||||||||||||||||
| Gross profit | 43,902 | 28.0 | % | 40,066 | 26.1 | % | 3,836 | 9.6 | % | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | 33,251 | 21.2 | % | 25,591 | 16.7 | % | 7,660 | 29.9 | % | ||||||||||||||||||||||||||
| Amortization of intangible assets | 31 | — | % | 50 | — | % | (19) | (38.0) | % | ||||||||||||||||||||||||||
| Operating profit (loss) | 10,620 | 6.8 | % | 14,425 | 9.4 | % | (3,805) | (26.4) | % | ||||||||||||||||||||||||||
| Interest expense, net | 59 | — | % | 592 | 0.4 | % | (533) | (90.0) | % | ||||||||||||||||||||||||||
| Pension termination expense | 7,595 | 4.8 | % | — | — | % | 7,595 | n/m | |||||||||||||||||||||||||||
| Other expense (income), net | 298 | 0.2 | % | 645 | 0.4 | % | (347) | (53.8) | % | ||||||||||||||||||||||||||
| Income (loss) before income taxes | 2,668 | 1.7 | % | 13,188 | 8.6 | % | (10,520) | (79.8) | % | ||||||||||||||||||||||||||
| Income tax expense (benefit) | 732 | 0.5 | % | 2,848 | 1.9 | % | (2,116) | (74.3) | % | ||||||||||||||||||||||||||
| Net income (loss) | $ | 1,936 | 1.2 | % | $ | 10,340 | 6.7 | % | $ | (8,404) | (81.3) | % | |||||||||||||||||||||||
| Effective income tax rate | 27.4 | % | 21.6 | % | |||||||||||||||||||||||||||||||
The following table identifies the components of the change in revenue:
| Revenue | |||||
| 2023 | $ | 153,614 | |||
| Increase (decrease) from: | |||||
| Unit volume and product mix | 8,425 | ||||
| Average sales price | (4,029) | ||||
| Foreign currency | (1,343) | ||||
| 2024 | $ | 156,667 | |||
Revenue - Revenue increased $3.1 million compared to the prior year due to a more favorable product mix and increased unit volume primarily driven by increased revenue in the US Consumer and Mexican Consumer markets. Additionally, the acquisition of HealthBeacon added a new revenue stream during the year and contributed $1.2 million in revenue for the three months ended September 30, 2024. These increases were partially offset by decreased revenue in the Latin American, Canadian Consumer, and Global Commercial markets.
Gross profit - As a percentage of revenue, gross profit margin increased to 28.0% compared to 26.1% in the prior year primarily due to a favorable product mix and lower product costs.
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Selling, general and administrative expenses (SG&A) - Selling, general and administrative expenses increased by $7.7 million compared to the third quarter of 2023. The increase was primarily driven by higher employee-related costs, including $2.9 million of increased non-cash equity incentive compensation due to stock price appreciation, the addition of $1.8 million of HealthBeacon SG&A expenses, and the absence of a $0.9 million non-recurring insurance recovery in the prior year.
Interest expense, net - Interest expense, net decreased $0.5 million due to decreased average borrowings outstanding under the HBB Facility and lower interest rates compared to the third quarter of 2023.
Pension termination expense - During the third quarter of 2024, a one-time non-cash expense of $7.6 million was incurred in connection with the termination of the Company’s U.S. defined benefit pension plan related to the reclassification of historical unrecognized losses from Accumulated Other Comprehensive Income.
Other expense (income), net - Other expense (income), net includes currency losses of $0.2 million in the current year compared to currency losses of $0.4 million in the prior year.
Income tax expense (benefit) - The effective tax rate was 27.4% and 21.6% for three months ended September 30, 2024 and 2023, respectively. The effective tax rate was higher in the three months ended September 30, 2024 due to a valuation allowance on foreign losses in the current year and a tax benefit on foreign income in the prior year that did not recur.
First Nine Months of 2024 Compared with First Nine Months of 2023
| NINE MONTHS ENDED SEPTEMBER 30 | |||||||||||||||||||||||||||||||||||
| 2024 | % of Revenue | 2023 | % of Revenue | $ Change | % Change | ||||||||||||||||||||||||||||||
| Revenue | $ | 441,184 | 100.0 | % | $ | 418,975 | 100.0 | % | $ | 22,209 | 5.3 | % | |||||||||||||||||||||||
| Cost of sales | 326,732 | 74.1 | % | 330,583 | 78.9 | % | (3,851) | (1.2) | % | ||||||||||||||||||||||||||
| Gross profit | 114,452 | 25.9 | % | 88,392 | 21.1 | % | 26,060 | 29.5 | % | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | 94,595 | 21.4 | % | 78,150 | 18.7 | % | 16,445 | 21.0 | % | ||||||||||||||||||||||||||
| Amortization of intangible assets | 224 | 0.1 | % | 150 | — | % | 74 | 49.3 | % | ||||||||||||||||||||||||||
| Operating profit (loss) | 19,633 | 4.5 | % | 10,092 | 2.4 | % | 9,541 | 94.5 | % | ||||||||||||||||||||||||||
| Interest expense, net | 330 | 0.1 | % | 2,634 | 0.6 | % | (2,304) | (87.5) | % | ||||||||||||||||||||||||||
| Pension termination expense | 7,595 | 1.7 | % | — | — | % | 7,595 | n/m | |||||||||||||||||||||||||||
| Other expense (income), net | 1,354 | 0.3 | % | 390 | 0.1 | % | 964 | 247.2 | % | ||||||||||||||||||||||||||
| Income (loss) before income taxes | 10,354 | 2.3 | % | 7,068 | 1.7 | % | 3,286 | 46.5 | % | ||||||||||||||||||||||||||
| Income tax expense (benefit) | 3,594 | 0.8 | % | 1,395 | 0.3 | % | 2,199 | 157.6 | % | ||||||||||||||||||||||||||
| Net income (loss) | $ | 6,760 | 1.5 | % | $ | 5,673 | 1.4 | % | $ | 1,087 | 19.2 | % | |||||||||||||||||||||||
| Effective income tax rate | 34.7 | % | 19.7 | % | |||||||||||||||||||||||||||||||
The following table identifies the components of the change in revenue:
| Revenue | |||||
| 2023 | $ | 418,975 | |||
| Increase (decrease) from: | |||||
| Unit volume and product mix | 46,765 | ||||
| Average sales price | (24,249) | ||||
| Foreign currency | (307) | ||||
| 2024 | $ | 441,184 | |||
Revenue - Revenue increased by $22.2 million compared to the prior year due to increased unit volume and a more favorable product mix primarily driven by increased revenue in the US Consumer, Mexico Consumer, and Latin American markets. Additionally, the acquisition of HealthBeacon added a new revenue stream during the year and contributed $2.6 million in revenue for the nine months ended September 30, 2024. These increases were partially offset by decreased revenue in the Canadian Consumer market and Global Commercial market.
16
Gross profit - Gross profit margin increased to 25.9% from 21.1% primarily due to lower product costs and a favorable product mix.
Selling, general and administrative expenses (SG&A) - Selling, general and administrative expenses increased $16.4 million compared to 2023. The increase is primarily due to the addition of $5.6 million of HealthBeacon SG&A expenses, higher employee-related costs, including $4.2 million of increased non-cash equity incentive compensation due to stock price appreciation, an increase in outside services and non-recurring items, which include $1.3 million of HealthBeacon transaction costs and the absence of a $0.9 million insurance recovery that occurred in the prior year.
Interest expense, net - Interest expense, net decreased $2.3 million due to decreased average borrowings outstanding under the HBB Facility, and lower interest rates compared to 2023.
Pension termination expense - During the third quarter of 2024, a one-time non-cash expense of $7.6 million was incurred in connection with the termination of the Company’s U.S. defined benefit pension plan related to the reclassification of historical unrecognized losses from Accumulated Other Comprehensive Income.
Other expense (income), net - Other expense (income), net includes currency losses of $0.8 million in the current year compared to currency gains of $0.1 million in the prior year.
Income tax expense (benefit) - The effective tax rate was 34.7% compared to 19.7% in the prior year. The effective tax rate was higher for the nine months ended September 30, 2024 due to a valuation allowance on foreign losses in the current year and tax benefits on foreign income and credits in the prior year that did not recur.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
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 our 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, payments of principal and interest on debt and acquisitions.
The HBB Facility expires on June 30, 2025, within one year after the issuance of these financial statements. We have not yet completed our refinancing of the HBB Facility and, accordingly, all amounts outstanding have been classified as current liabilities. Based on the status of the refinancing and our history of successfully refinancing our debt, we believe that it is probable that the HBB Facility will be refinanced before its maturity. We believe funds available from cash on hand, the HBB Facility and operating cash flows will provide sufficient liquidity to meet our operating needs and commitments arising during the next twelve months.
The following table presents selected cash flow information:
| NINE MONTHS ENDED SEPTEMBER 30 | |||||||||||
| 2024 | 2023 | ||||||||||
| Net cash provided by (used for) operating activities | $ | 35,177 | $ | 68,683 | |||||||
| Net cash provided by (used for) investing activities | $ | (13,038) | $ | (2,436) | |||||||
| Net cash provided by (used for) financing activities | $ | (14,593) | $ | (65,669) | |||||||
Operating activities - Net cash provided by operating activities was $35.2 million, representing more normalized post-pandemic working capital, compared to $68.7 million in the prior year, which benefited from significant excess inventory reduction activities. Net working capital provided cash of $20.3 million in 2024 compared to cash provided of $64.3 million in 2023. The 2024 period benefited from the Company's continued focus on working capital management which led to improvements in days sales outstanding and days payable outstanding. The change in net cash provided by operating activities reflects the net working capital changes partially offset by adjustments to net income for the non-cash stock compensation and pension termination expenses.
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Investing activities - Net cash used for investing activities in 2024 increased compared to 2023 related primarily to the acquisition of HealthBeacon offset by the extinguishment of our secured loan to HealthBeacon in the first quarter of 2024 which provided net cash of $1.6 million. Additionally, the Company used excess cash on hand to invest in a six-month U.S. Treasury bill during the third quarter of 2024.
Financing activities - Net cash used for financing activities was $14.6 million in 2024 compared to net cash used for financing activities of $65.7 million in 2023. The change is due to a decrease in HBB’s net borrowing activity on the HBB Facility. This decrease was partially offset by increased purchases of treasury stock.
Capital Resources
The HBB Facility expires on June 30, 2025. The entire outstanding balance has been classified as a current liability due to the fact the facility expires within one year and has not yet been refinanced. The Company does not expect to make voluntary repayments under the HBB Facility as the rate of return to invest excess cash exceeds the average interest rate of the HBB Facility. A material decrease in interest rates could cause us to re-evaluate.
The obligations under the HBB Facility are secured by substantially all of HBB’s assets. As of September 30, 2024, the borrowing base under the HBB Facility was $148.5 million and borrowings outstanding were $50.0 million. As of September 30, 2024, the excess availability under the HBB Facility was $98.5 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, SOFR or bankers’ acceptance rate, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective September 30, 2024, for base rate loans and SOFR loans denominated in U.S. dollars were 0.0% and 1.55%, respectively. The applicable margins, effective September 30, 2024, for base rate loans and bankers’ acceptance loans denominated in Canadian dollars were 0.0% 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 nine months ended September 30, 2024 was 3.18% 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. We have interest rate swaps with notional values totaling $50.0 million as of September 30, 2024 at an average fixed interest rate of 1.59%.
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 the Company to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility. As of September 30, 2024, we were in compliance with all financial covenants in the HBB Facility.
In December 2015, the Company entered into an arrangement with a financial institution to sell certain U.S. trade receivables on a non-recourse basis. See Note 2 of the unaudited consolidated financial statements.
Contractual Obligations, Contingent Liabilities and Commitments
For a summary of the Company’s contractual obligations, contingent liabilities and commitments, refer to “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations, Contingent Liabilities and Commitments” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as there have been no material changes from those disclosed in the Annual Report.
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Off Balance Sheet Arrangements
For a summary of the Company’s off balance sheet arrangements, refer to “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Off Balance Sheet Arrangements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as there have been no material changes from those disclosed in the Annual Report.
FORWARD-LOOKING STATEMENTS
The statements contained in this Form 10-Q 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, the Annual Report on Form 10-K for the year ended December 31, 2023. 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.
Item 3. 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 our 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 in our receivables. The fair value of the Company’s interest rate swap agreements was an asset of $2.9 million as of September 30, 2024. 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. 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. Neither would have a material impact to the Company’s interest expense, net of $0.3 million for the nine months ended September 30, 2024.
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FOREIGN CURRENCY EXCHANGE RATE RISK
We operate internationally through our foreign operating subsidiaries and enters into transactions denominated in foreign currencies, principally the Canadian dollar, the Mexican peso and, to a lesser extent, the Chinese yuan, Brazilian real and the European Union euro. 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 revenues, 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 spot rates. We assume that a loss in fair value is either a decrease to our assets or an increase to our liabilities. The fair value of our foreign currency exchange contracts was a net receivable of $0.5 million as of September 30, 2024. Assuming a hypothetical 10% weakening of the U.S. dollar as of September 30, 2024, the fair value of foreign currency-sensitive financial instruments, which represents forward foreign currency exchange contracts, would be decreased by $1.2 million compared with its fair value as of September 30, 2024.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Company management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2024. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control Over Financial Reporting
There were no changes, except as noted below, in the Company’s internal control over financial reporting identified during the quarter ended September 30, 2024, 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.
On February 2, 2024, we acquired HealthBeacon, as discussed in Note 8: Acquisitions in Part I, Item 1 in this Quarterly Report on Form 10-Q. We are currently integrating HealthBeacon into our operations and internal control processes, and, as permitted by the SEC rules and regulations, we have not yet included HealthBeacon in our assessment of the effectiveness of our internal control over financial reporting. We anticipate HealthBeacon will be included in management’s evaluation of internal control over financial reporting as of December 31, 2025.
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PART II
OTHER INFORMATION
Item 1 Legal Proceedings
The information required by this Item 1 is set forth in Note 6 “Contingencies” included in the unaudited consolidated financial statements contained in Part I of this Form 10-Q and is hereby incorporated herein by reference to such information.
Item 1A Risk Factors
There are no material changes to the risk factors for the Company from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities (1) | |||||||||||||||||||||||
| (a) | (b) | (c) | (d) | ||||||||||||||||||||
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of the Publicly Announced Program | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program | |||||||||||||||||||
| Month #1 July 1 to 31, 2024 | 79,788 | $ | 18.36 | 79,788 | $ | 19,550,595 | |||||||||||||||||
| Month #2 August 1 to 31, 2024 | 91,484 | $ | 26.54 | 91,484 | $ | 17,122,631 | |||||||||||||||||
| Month #3 September 1 to 30, 2024 | 50,257 | $ | 28.52 | 50,257 | $ | 15,689,476 | |||||||||||||||||
| 221,529 | $ | 24.04 | 221,529 | $ | 15,689,476 | ||||||||||||||||||
(1) 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.
During the three and nine months ended September 30, 2024, the Company repurchased 221,529 and 441,741 shares, respectively, at prevailing market prices for an aggregate purchase price of $5.3 million and $9.3 million, respectively. During the three and nine months ended September 30, 2023, the Company repurchased 82,676 and 139,649 shares, respectively, at prevailing market prices for an aggregate purchase price of $0.9 million and $1.5 million, respectively. During the year ended December 31, 2023, the Company repurchased 250,772 shares for an aggregate purchase price of $3.1 million.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Mine Safety Disclosures
None.
Item 5 Other Information
None of the Company’s directors or "officers" (as defined in Rule 16a-1(f) promulgated under the Exchange Act) adopted terminated
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Item 6 Exhibits
| Exhibit | ||||||||
| Number* | Description of Exhibits | |||||||
| 31(i)(1) | ||||||||
| 31(i)(2) | ||||||||
| 32 | ||||||||
| 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 | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
* Numbered in accordance with Item 601 of Regulation S-K.
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Pursuant to the requirements 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) | ||||||||
| Date: | October 30, 2024 | /s/ Sally M. Cunningham | ||||||
| Sally M. Cunningham | ||||||||
| Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)/(Principal Accounting Officer) | ||||||||
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