Hamilton Beach(HBB) - 2022 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for Hamilton Beach Brands Holding Company, covering the first quarter of 2022 Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Hamilton Beach Brands Holding Company for the three months ended March 31, 2022, and comparative periods Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time, reflecting its financial position | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | March 31, 2021 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | :------------------------------ | | Total Assets | $390,500 | $382,504 | $339,341 | | Total Current Assets | $326,446 | $318,360 | $286,910 | | Total Liabilities | $277,342 | $280,225 | $256,642 | | Total Current Liabilities | $139,080 | $164,176 | $137,954 | | Total Stockholders' Equity | $113,158 | $102,279 | $82,699 | - Total assets increased by $8.0 million from December 31, 2021, to March 31, 2022, and by $51.2 million year-over-year from March 31, 2021[7] - Total stockholders' equity increased by $10.9 million from December 31, 2021, to March 31, 2022, and by $30.5 million year-over-year from March 31, 2021[7] Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income over specific periods, illustrating its operational performance | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | :--------- | | Revenue | $146,351 | $149,249 | $(2,898) | (1.9)% | | Gross profit | $28,230 | $31,693 | $(3,463) | (10.9)% | | Operating profit (loss) | $12,747 | $5,264 | $7,483 | 142.2% | | Net income (loss) | $7,173 | $2,876 | $4,297 | 149.4% | | Basic and diluted EPS | $0.51 | $0.21 | $0.30 | 142.9% | - Net income increased by 149.4% to $7.173 million in Q1 2022 compared to $2.876 million in Q1 2021[9] - Operating profit increased by 142.2% to $12.747 million in Q1 2022, primarily due to a significant decrease in selling, general and administrative expenses[9][59] Consolidated Statements of Comprehensive Income (Loss) This statement presents net income alongside other comprehensive income items, providing a complete view of changes in equity from non-owner sources | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net income (loss) | $7,173 | $2,876 | | Total other comprehensive income (loss), net of tax | $4,334 | $47 | | Comprehensive income (loss) | $11,507 | $2,923 | - Total other comprehensive income (loss) significantly increased to $4.334 million in Q1 2022 from $47 thousand in Q1 2021, driven by cash flow hedging activity and reclassification of foreign currency adjustments into earnings[12] Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows from operating, investing, and financing activities, showing liquidity and solvency | Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by (used for) operating activities | $(20,755) | $(1,889) | | Net cash provided by (used for) investing activities | $(406) | $(1,746) | | Net cash provided by (used for) financing activities | $21,014 | $2,693 | | Increase (decrease) in cash for the period | $(73) | $(1,027) | | Cash and cash equivalents at period end | $1,022 | $1,375 | - Net cash used for operating activities increased significantly to $20.755 million in Q1 2022 from $1.889 million in Q1 2021, primarily due to changes in net working capital[15][66] - Net cash provided by financing activities increased to $21.014 million in Q1 2022 from $2.693 million in Q1 2021, driven by increased net borrowing on the revolving credit facility[15][67] Consolidated Statements of Changes in Equity This statement details the changes in each component of stockholders' equity over a period, including net income, dividends, and other comprehensive income | Metric | Balance, January 1, 2022 (in thousands) | Balance, March 31, 2022 (in thousands) | Balance, January 1, 2021 (in thousands) | Balance, March 31, 2021 (in thousands) | | :--------------------------------------- | :-------------------------------------- | :------------------------------------- | :-------------------------------------- | :------------------------------------- | | Total Stockholders' Equity | $102,279 | $113,158 | $80,105 | $82,699 | | Net income (loss) | - | $7,173 | - | $2,876 | | Cash dividends | - | $(1,392) | - | $(1,302) | | Other comprehensive income (loss), net of tax | - | $2,321 | - | $(191) | - Total stockholders' equity increased from $102.279 million at January 1, 2022, to $113.158 million at March 31, 2022, primarily due to net income and other comprehensive income[18] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements, clarifying accounting policies and specific items NOTE 1—Basis of Presentation and Recently Issued Accounting Standards This note outlines the company's business operations, adoption plans for new accounting standards, and discusses the Brazilian subsidiary wind-down and an insurance recovery - Hamilton Beach Brands Holding Company operates through its wholly-owned subsidiary, Hamilton Beach Brands, Inc. (HBB), focusing on small electric household and specialty housewares appliances, as well as commercial products[20] - The company is an emerging growth company and will lose this status as of December 31, 2022[23] - The company recognized a $10.0 million insurance recovery in Q1 2022 for losses from unauthorized transactions by former employees at its Mexican subsidiaries, which was collected in April 2022[29] - The Brazilian subsidiary wind-down was substantially completed in Q1 2022, resulting in $2.1 million of accumulated other comprehensive losses being released into other expense (income), net[28] NOTE 2—Transfer of Financial Assets This note describes the company's practice of selling US trade receivables on a non-recourse basis to a financial institution for working capital financing - The company sells US trade receivables on a non-recourse basis to finance working capital[30] Trade Receivables Derecognized | Period | Trade Receivables Derecognized (in millions) | | :-------------------------------- | :----------------------------------------- | | Three months ended March 31, 2022 | $27.6 | | Three months ended March 31, 2021 | $29.8 | | Year ended December 31, 2021 | $140.7 | NOTE 3—Fair Value Disclosure This note details the fair value measurements of the company's financial instruments, primarily derivatives, using Level 2 inputs Fair Value of Financial Instruments | Description | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | March 31, 2021 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | :------------------------------ | | Assets: | | | | | Interest rate swap agreements | $2,056 | $0 | $0 | | Foreign currency exchange contracts | $0 | $73 | $0 | | Liabilities: | | | | | Interest rate swap agreements | $0 | $871 | $924 | | Foreign currency exchange contracts | $383 | $41 | $249 | - The company measures derivatives at fair value using Level 2 inputs, incorporating LIBOR swap curve, foreign currency spot/forward rates, and credit risk[33] NOTE 4—Stockholders' Equity This note provides details on the company's authorized and issued capital stock, including Class A and Class B Common Stock, and summarizes changes in accumulated other comprehensive loss Capital Stock Issued | Stock Type | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | March 31, 2021 (in thousands) | | :--------------------------------------- | :------------------------------------ | :------------------------------------- | :------------------------------------ | | Class A Common issued | 10,566 | 10,267 | 10,186 | | Class B Common issued | 3,869 | 4,000 | 4,037 | | Class B Common converted to Class A (Q1 2022) | 131 | - | - | | Class B Common converted to Class A (Q1 2021) | - | - | 8 | Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss Component | Balance, January 1, 2022 (in thousands) | Balance, March 31, 2022 (in thousands) | | :----------------------------------------------- | :-------------------------------------- | :------------------------------------- | | Foreign Currency | $(9,877) | $(7,524) | | Deferred Gain (Loss) on Cash Flow Hedging | $(638) | $1,318 | | Pension Plan Adjustment | $(3,728) | $(3,703) | | Total | $(14,243) | $(9,909) | NOTE 5—Revenue This note describes the company's revenue recognition policies, including variable consideration, and disaggregates revenue by type of good or service - Revenue is recognized when control of goods or services is transferred to customers, including estimates for variable consideration such as product returns and price concessions[38][40] Revenue by Type of Good or Service | Type of good or service | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :---------------------- | :--------------------------------------------- | :--------------------------------------------- | | Consumer products | $129,760 | $139,513 | | Commercial products | $15,080 | $8,593 | | Licensing | $1,511 | $1,143 | | Total revenues | $146,351 | $149,249 | - Commercial product revenue increased by 75.5% ($6.487 million) in Q1 2022 compared to Q1 2021, while Consumer product revenue decreased by 7.0% ($9.753 million)[44] NOTE 6—Contingencies This note addresses various legal and regulatory proceedings, including product liability, patent infringement, and environmental claims, detailing accrued obligations - The company is a defendant in a legal proceeding seeking to hold it liable for an $8.1 million judgment against The Kitchen Collection, LLC, which the company believes is without merit[47] Environmental Obligations | Environmental Obligations | March 31, 2022 (in millions) | December 31, 2021 (in millions) | March 31, 2021 (in millions) | | :-------------------------------- | :----------------------------- | :------------------------------ | :----------------------------- | | Accrued undiscounted obligations | $3.4 | $3.4 | $3.1 | | Reasonably possible additional expenses | $0 to $1.7 | - | - | NOTE 7—Income Taxes This note details the company's provision for income taxes and the effective tax rates for interim periods, highlighting impacting factors Effective Tax Rate | Period | Effective Tax Rate | | :-------------------------------- | :----------------- | | Three months ended March 31, 2022 | 32.0% | | Three months ended March 31, 2021 | 34.2% | - The effective tax rate for Q1 2022 was unfavorably impacted by interest and penalties on unrecognized tax benefits and a valuation allowance on foreign deferred tax assets related to the Brazil liquidation[52] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, focusing on the first quarter of 2022 compared to 2021 CRITICAL ACCOUNTING POLICIES AND ESTIMATES This section confirms no material changes to critical accounting policies and estimates from the prior annual report - No material changes to critical accounting policies and estimates from the Company's Annual Report on Form 10-K for the year ended December 31, 2021[54] RESULTS OF OPERATIONS This section analyzes the company's operational performance, including revenue, gross profit, and operating profit, for the first quarter of 2022 versus 2021 - The company's business is seasonal, with a majority of revenue and operating profit typically occurring in the second half of the year due to the fall holiday-selling season[55] First Quarter of 2022 Compared with First Quarter of 2021 Revenue decreased by 1.9% due to lower sales volume, partially offset by price increases, while operating profit significantly increased due to an insurance recovery and lower employee costs Consolidated Results of Operations | Metric | 2022 (in thousands) | 2021 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Revenue | $146,351 | $149,249 | $(2,898) | (1.9)% | | Cost of sales | $118,121 | $117,556 | $565 | 0.5% | | Gross profit | $28,230 | $31,693 | $(3,463) | (10.9)% | | Selling, general and administrative expenses | $15,433 | $26,379 | $(10,946) | (41.5)% | | Operating profit (loss) | $12,747 | $5,264 | $7,483 | 142.2% | | Net income (loss) | $7,173 | $2,876 | $4,297 | 149.4% | | Effective income tax rate | 32.0% | 34.2% | - | - | Components of Revenue Change | Component of Revenue Change | Amount (in thousands) | | :-------------------------- | :-------------------- | | Unit volume and product mix | $(12,268) | | Foreign currency | $(26) | | Average sales price | $9,396 | | Total Change | $(2,898) | - Gross profit margin decreased from 21.2% in Q1 2021 to 19.3% in Q1 2022, primarily due to product and customer mix, and unrecovered shipping container costs despite price increases[58] - Selling, general and administrative expenses decreased by $10.9 million, mainly due to a $10.0 million insurance recovery and lower employee-related costs[59] - Other expense (income), net increased significantly to $1.466 million in Q1 2022 from $0.171 million in Q1 2021, driven by $2.1 million in currency losses from the Brazilian subsidiary liquidation[60] LIQUIDITY AND CAPITAL RESOURCES This section analyzes the company's ability to generate and manage cash, including operating cash flows, investing activities, and financing arrangements Liquidity The company's primary sources of cash are operations and its $150.0 million senior secured revolving credit facility, with cash used in operating activities increasing significantly in Q1 2022 - Principal sources of cash are cash from operations and borrowings under the $150.0 million HBB Facility, which expires June 30, 2025[63][64] Cash Flow Activities | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by (used for) operating activities | $(20,755) | $(1,889) | | Net cash provided by (used for) investing activities | $(406) | $(1,746) | | Net cash provided by (used for) financing activities | $21,014 | $2,693 | - Net cash used for operating activities increased to $20.8 million in Q1 2022, primarily due to a $24.9 million use of cash from net working capital, compared to $2.5 million in Q1 2021[66] - Inventory increased due to longer lead times from supply chain and transportation disruptions[66] Capital Resources The company's capital resources are primarily supported by the HBB Facility, with $29.1 million in excess availability, and it uses interest rate swaps to manage floating interest rate exposure - At March 31, 2022, the HBB Facility had a borrowing base of $148.4 million, with $119.3 million outstanding and $29.1 million in excess availability[68] - The weighted average interest rate for the HBB Facility was 2.4% for Q1 2022, including the effect of interest rate swap agreements[69] - The company uses interest rate swap agreements with notional values totaling $50.0 million at an average fixed rate of 0.95% to reduce exposure to floating interest rates[70] - HBB was in compliance with all financial covenants under the HBB Facility at March 31, 2022[72] Contractual Obligations, Contingent Liabilities and Commitments This section confirms no material changes to contractual obligations, contingent liabilities, and commitments from the prior annual report - No material changes to contractual obligations, contingent liabilities, and commitments from the Company's Annual Report on Form 10-K for the year ended December 31, 2021[74] Off Balance Sheet Arrangements This section confirms no material changes to off-balance sheet arrangements from the prior annual report - No material changes to off-balance sheet arrangements from the Company's Annual Report on Form 10-K for the year ended December 31, 2021[75] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, specifically interest rate and foreign currency exchange rate risks, and mitigation strategies INTEREST RATE RISK The company is exposed to interest rate risk from floating-rate debt and uses interest rate swap agreements to convert a portion of this debt to fixed rates - The company's financial results are subject to changes in market interest rates due to floating-rate financing[79] - Interest rate swap agreements are used to reduce exposure to changes in market interest rates, converting variable rates to fixed rates[79] - A hypothetical 10% decrease or increase in interest rates would cause a $0.3 million change in the fair value of interest rate swap agreements, which would not materially impact interest expense[80] FOREIGN CURRENCY EXCHANGE RATE RISK The company faces foreign currency exchange rate risk from international transactions, primarily in Canadian dollars, Mexican pesos, Chinese Yuan, and Brazilian Real, using forward contracts for mitigation - International operations expose the company to foreign currency exchange rate variability, mainly with the Canadian dollar, Mexican peso, Chinese Yuan, and Brazilian Real[81] - Forward foreign currency exchange contracts are used to partially reduce transaction risks, generally maturing within twelve months[82] - A hypothetical 10% weakening of the US dollar would decrease the fair value of foreign currency-sensitive financial instruments by $2.0 million[83] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2022[85] - No material changes in internal control over financial reporting were identified during the quarter ended March 31, 2022[86] Part II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section incorporates by reference the information on legal proceedings detailed in Note 6 'Contingencies' of the financial statements - Information on legal proceedings is incorporated by reference from Note 6 'Contingencies' in Part I of this Form 10-Q[89] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes to the risk factors from the Company's Annual Report on Form 10-K for the year ended December 31, 2021[90] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company's Board approved a stock repurchase program for up to $25 million of Class A Common Stock, with no repurchases occurring in Q1 2022 or 2021 - The Board approved a stock repurchase program for up to $25 million of Class A Common Stock, effective from February 22, 2022, to December 31, 2023[91] - No share repurchases occurred during the three months ended March 31, 2022, or March 31, 2021[92] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - No defaults upon senior securities[93] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures to report - No mine safety disclosures[94] Item 5. Other Information This section states that there is no other information to report - No other information to report[95] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibits include certifications (31(i)(1), 31(i)(2), 32) and various XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[96] Signatures This section contains the signature of Michelle O. Mosier, Senior Vice President, Chief Financial Officer and Treasurer, for Hamilton Beach Brands Holding Company - The report is signed by Michelle O. Mosier, Senior Vice President, Chief Financial Officer and Treasurer, on behalf of Hamilton Beach Brands Holding Company[98]