10-K/A 1 hbbhc201910-ka.htm 10-K/A Document





 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
 
 
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the fiscal year ended December 31, 2019
or
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-38214
HAMILTON BEACH BRANDS HOLDING COMPANY
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
 
31-1236686
(I.R.S. Employer Identification No.)
 
 
 
4421 Waterfront Dr. Glen Allen, VA
(Address of principal executive offices)
 
23060
(Zip Code)
Registrant's telephone number, including area code: (804) 273-9777
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Class A Common Stock, Par Value $0.01 Per Share
HBB
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, Par Value $0.01 Per Share
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
     YES ¨    NO þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
     YES ¨    NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
     YES ¨     NO þ 
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 ¨ 
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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer þ

Non-accelerated filer ¨ 
(Do not check if a smaller reporting company)
Smaller reporting company þ
Emerging growth company þ

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
     YES ¨    NO þ
Aggregate market value of Class A Common Stock and Class B Common Stock held by non-affiliates as of June 30, 2019 (the last business day of the registrant's most recently completed second fiscal quarter): $130,361,017
Number of shares of Class A Common Stock outstanding at July 17, 2020: 9,607,176
Number of shares of Class B Common Stock outstanding at July 17, 2020: 4,062,422
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement for its 2020 annual meeting of stockholders are incorporated herein by reference in Part III of this Form 10-K/A.
 
 
 
 
 

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HAMILTON BEACH BRANDS HOLDING COMPANY
TABLE OF CONTENTS
 
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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PART I
Explanatory Note

This Amendment No. 1 to Form 10-K (this "Amendment" or "Form 10-K/A") amends the Hamilton Beach Brands Holding Company's Annual Report on Form 10-K for the year ended December 31, 2019 originally filed with the Securities and Exchange Commission ("SEC") on February 26, 2020 by the Company (the "Original Filing"). This Amendment restates the Company's previously issued consolidated financial statements as of and for the years ended December 31, 2019, 2018 and 2017. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information. The relevant unaudited interim financial information for each of the quarters during the years ended December 31, 2019 and 2018 has also been restated. See Note 16, Quarterly Results of Operations (Unaudited), in Item 8, Financial Statements and Supplementary Data, for such restated information.

In connection with such restatement, the Company has also revised the selected financial information for the fiscal years ended December 31, 2016 and 2015, to correct errors that the Company has determined to be immaterial, both individually and in the aggregate. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data and Item 6, Selected Financial Data.

Restatement Background
During the quarter ended March 31, 2020, the Company discovered certain accounting irregularities at its Mexican subsidiaries. The Company’s Audit Review Committee of the Board of Directors (the “Audit Review Committee”) commenced an internal investigation, with the assistance of outside counsel and other third party experts.
The Audit Review Committee, after discussion with management of the Company and Ernst & Young LLP, the Company’s independent registered public accounting firm, concluded that the Company’s previously issued consolidated financial statements as of December 31, 2019 and 2018, for the years ended December 31, 2019, 2018 and 2017, each of the quarters during the years ended December 31, 2019 and 2018, and other financial data relating to these periods, including the financial data tables furnished to the SEC on Form 8-K, should no longer be relied upon.
Impact of the Restatement
As a result of this investigation, the Company, along with the Audit Review Committee and its third party experts, concluded that certain former employees at one of the Company’s Mexican subsidiaries engaged in unauthorized transactions with the Company’s Mexican subsidiaries that resulted in expenditures being deferred on the balance sheet beyond the period for which the costs pertained. As a result, the Company recorded a non-cash write-off for certain amounts included in the Company’s historical consolidated financial statements in trade receivables and prepaid expenses and other current assets, among other corrections, related to these transactions, and restated its consolidated financial statements as of December 31, 2019 and 2018, for the years ended December 31, 2019, 2018, and 2017, and each of the quarters during the years ended December 31, 2019 and 2018. The impact of these adjustments was a reduction to net income from continuing operations of $10.0 million for the year ended December 31, 2019, $4.1 million for the year ended December 31, 2018, and $2.0 million for the year ended December 31, 2017. The findings from the internal investigation did not identify any misconduct by any member of the Company's senior management team. During the course of the investigation, certain expenses at the Mexican subsidiaries were found to be incorrectly classified within the consolidated statement of operations and have also been corrected in the restatement.
Other Adjustments

The restatement also includes corrections for other errors identified as immaterial, individually and in the aggregate, to our consolidated financial statements. See Note 2, Restatement of Previously Issued Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data for additional information regarding the corrections.

Control Considerations

In connection with the restatement that resulted from wrongdoing by certain former employees at one of the Company's Mexican subsidiaries and the deficiencies identified at the Mexican subsidiaries, management of the Company has determined that material weaknesses existed in the Company’s internal control over financial reporting as of December 31, 2019. As a result, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2019, and the Company’s management has concluded that its

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internal control over financial reporting was not effective as of December 31, 2019. See Item 9A, Controls and Procedures, for additional information related to these material weaknesses in internal control over financial reporting and the related remedial measures.
Items Amended in this Form 10-K/A

For reasons discussed above, we are filing this Amendment in order to amend the following items in our Original Filing to the extent necessary to reflect the adjustments discussed above and make corresponding revisions to our financial data cited elsewhere in this Amendment.

Part I, Item 1A. Risk Factors.
Part II, Item 6. Selected Financial Data.
Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Part II, Item 8. Financial Statements and Supplementary Data.
Part II, Item 9A. Controls and Procedures.

However, for the convenience of the reader, this Amendment sets forth the Original Filing in its entirety, as amended to reflect the restatement.

This Amendment speaks as of the filing date of the Original Filing and does not reflect events occurring after the filing date of the Original Filing.

The Company has not filed, and does not intend to file, amendments to (i) the Annual Reports on Form 10-K for the years ended December 31, 2018 or 2017, or (ii) the Quarterly Reports on Form 10-Q for the quarters of the years ended December 31, 2019 or 2018. Accordingly, investors should rely only on the financial information and other disclosures regarding the restated periods in this Form 10-K/A or in future filings with the SEC (as applicable), and not on any previously issued or filed reports, earnings releases or similar communications relating to these periods.
 
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), new certifications by the Company’s principal executive officer and principal financial officer are filed herewith as exhibits to this Amendment pursuant to Rule 13a-14(a) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).




Item 1. BUSINESS
General

Hamilton Beach Brands Holding Company is an operating holding company and operates through its two wholly-owned subsidiaries Hamilton Beach Brands, Inc. (“HBB”) and The Kitchen Collection, LLC (“KC”) (collectively “Hamilton Beach Holding” or the “Company”). On October 10, 2019, the Company’s board of directors (the “Board”) approved the wind down of KC and its retail operations. By December 31, 2019, all KC stores were closed and the reportable segment qualifies to be reported as discontinued operations. On January 21, 2020, the Board approved the dissolution of the KC legal entity and a Certificate of Dissolution of Ohio Limited Liability Company was filed with the Ohio Secretary of State.

The only material assets held by Hamilton Beach Brands Holding Company are its investments in its consolidated subsidiaries. Substantially all of its cash flows are provided by dividends paid or distributions made by its subsidiaries. Hamilton Beach Brands Holding Company has not guaranteed any obligations of its subsidiaries.

KC is reported as discontinued operations in all periods presented. HBB is the Company's single reportable segment.

HBB is a leading designer, marketer, and distributor of branded, small electric household and specialty housewares appliances, as well as commercial products for restaurants, bars, and hotels. HBB operates in the consumer, commercial and specialty small appliance markets.


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On September 29, 2017, NACCO Industries, Inc. ("NACCO"), Hamilton Beach Holding's former parent company, spun-off the Company to NACCO stockholders. In the spin-off, NACCO stockholders, in addition to retaining their shares of NACCO common stock, received one share of Hamilton Beach Brands Holding Company Class A common stock ("Class A Common") and one share of Hamilton Beach Brands Holding Company Class B common stock ("Class B Common") for each share of NACCO Class A or Class B common stock. In accordance with applicable authoritative accounting guidance, the Company accounted for the spin-off from NACCO based on the historical carrying value of assets and liabilities. As a result of the distribution of one share of Class A Common and one share of Class B Common for each share of NACCO Class A or NACCO Class B common stock, the earnings per share amounts for the Company for periods prior to the spin-off have been calculated based upon the number of shares distributed in the spin-off. NACCO did not receive any proceeds from the spin-off.

The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports available, free of charge, through its website, www.hamiltonbeachbrands.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The content of our website is not incorporated by reference into this annual report on Form 10-K/A or in any other report or document we file with the SEC, and any references to our website is intended to be inactive textual references only.
Sales and Marketing
HBB designs, markets and distributes a wide range of branded, small electric household and specialty housewares appliances, including, but not limited to, air fryers, blenders, coffee makers, food processors, indoor electric grills, irons, juicers, mixers, slow cookers, toasters and toaster ovens. The Company also sells TrueAir® air purifiers. HBB also designs, markets and distributes commercial products for restaurants, fast food chains, bars and hotels. In 2019, HBB introduced sonic rechargeable toothbrushes under the BrightlineTM brand name through the ecommerce channel. HBB generally markets its “better” and “best” consumer products under the Hamilton Beach® brand and uses the Proctor Silex® brand for the “good” and value price points. HBB participates in the premium or “only-the-best” market with the Hamilton Beach® Professional brand and the Weston® brand game and garden food processing equipment. Additionally, the Company has multiyear licensing agreements to sell a line of countertop appliances and kitchen tools under the Wolf Gourmet® brand and a line of premium garment care products under the CHI® brand. In 2019, HBB began selling the Bartesian® premium cocktail delivery system through an exclusive multiyear agreement. HBB markets its commercial products under the Hamilton Beach Commercial® and the Proctor Silex Commercial® brands. HBB supplies private label products on a limited basis. HBB also licenses certain of its trademarks to various licensees, primarily for use with microwave ovens, compact refrigerators, and water dispensers, among others.
Sales promotion activities are primarily focused on digital marketing channels. HBB promotes certain of its innovative products through the use of television, internet and print advertising.
Customers
Sales in North America are generated predominantly by a network of inside sales employees to mass merchandisers, ecommerce retailers, national department stores, variety store chains, drug store chains, specialty home retailers, distributors, restaurants, bars, hotels and other retail outlets. Wal-Mart Inc. and its global subsidiaries accounted for approximately 33%, 33% and 32% of the HBB’s revenue in 2019, 2018 and 2017, respectively. Amazon.com, Inc. and its subsidiaries accounted for approximately 14%, 10% and 12% of the HBB's revenue in 2019, 2018 and 2017, respectively. HBB’s five largest customers accounted for approximately 58%, 53%, and 54% of the HBB’s revenue for the years ended December 31, 2019, 2018 and 2017, respectively.
Product Warranty
HBB'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 HBB may repair or replace, at its option, those products returned under warranty.
Working Capital
The market for small electric household and specialty housewares appliances is highly seasonal in nature. The majority of HBB's revenue and operating profit typically occurs in the second half of the year due to the fall holiday-selling season. Due to the seasonality of purchases of its products, HBB generally uses a substantial amount of cash or short-term debt to finance inventory in anticipation of the fall holiday-selling season.
Patents, Trademarks, Copyrights and Licenses
HBB holds patents and trademarks registered in the United States ("U.S.") and foreign countries for various products. HBB believes its business is not dependent upon any individual patent, copyright or license, but that the Hamilton Beach®, Proctor Silex®, Hamilton Beach® Professional, and Weston® trademarks are material to its business.

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Product Design and Development
HBB incurred $12.1 million, $11.0 million and $10.4 million in 2019, 2018 and 2017, respectively, on product design and development activities.
Key Suppliers and Raw Material
HBB’s products are supplied to its specifications by third-party suppliers located primarily in China. HBB does not maintain long-term purchase contracts with suppliers and operates mainly on a purchase order basis. HBB generally negotiates the purchases from its foreign suppliers in U.S. dollars.
During 2019, HBB purchased substantially all of its finished products from suppliers in China. HBB purchases its inventory from approximately 63 suppliers, one of which represented more than 10% of purchases during the year ended December 31, 2019. HBB believes the loss of any one supplier would not have a long-term material adverse effect on its business because there are adequate supplier choices available that can meet HBB’s production and quality requirements. However, the loss of a supplier could, in the short term, adversely affect HBB’s business until alternative supply arrangements are secured.
The principal raw materials used by HBB’s third-party suppliers to manufacture its products are plastic, glass, steel, copper, aluminum and packaging materials. HBB believes adequate quantities of raw materials are available from various suppliers.
Competition
The small electric household appliance industry does not have substantial entry barriers. As a result, HBB competes with many manufacturers and distributors of housewares products. Based on publicly available information about the industry, HBB believes it is one of the largest full-line distributors and marketers of small electric household and specialty housewares appliances in North America based on key product categories.
To a lesser degree, HBB product lines compete in South America, Europe, and certain emerging markets such as Brazil and China. The competition in these geographic markets is also fragmented and HBB is not yet a significant participant although our commercial business has generated a strong position in these markets.
As brick and mortar retailers generally purchase a limited selection of branded, small electric appliances, HBB competes with other suppliers for retail shelf space. In the ecommerce channel, HBB must compete with a broad list of competitors. HBB believes the principal areas of competition with respect to its products are product design and innovation, quality, price, product features, supply chain excellence, merchandising, promotion and warranty.
Government Regulation
HBB is subject to numerous federal and state health, safety and environmental regulations. HBB believes the impact of expenditures to comply with such laws will not have a material adverse effect on HBB.
As a marketer and distributor of consumer products, HBB is subject to the Consumer Products Safety Act and the Federal Hazardous Substances Act, which empower the U.S. Consumer Product Safety Commission (“CPSC”) to seek to exclude products that are found to be unsafe or hazardous from the market. Under certain circumstances, the CPSC could require HBB to repair, replace or refund the purchase price of one or more of HBB’s products, or HBB may voluntarily do so.
Throughout the world, electrical appliances are subject to various mandatory and voluntary standards, including requirements in some jurisdictions that products be listed by Underwriters’ Laboratories, Inc. (“UL”) or other similar recognized laboratories. HBB also uses Intertek Testing Services for certification and testing of compliance with UL standards, as well as other national and industry specific standards. HBB endeavors to have its products designed to meet the certification requirements of, and to be certified in, each of the jurisdictions in which they are sold.

Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") requires public companies to disclose whether certain minerals, commonly known as "conflict minerals," are necessary to the functionality or production of a product manufactured by those companies and if those minerals originated in the Democratic Republic of the Congo ("DRC") or an adjoining country. HBB conducts supply-chain due diligence investigations required by the conflict minerals rules and makes disclosures required by the Dodd Frank Act. Our compliance with these investigation and disclosure requirements could adversely affect our ability to sell products to customers that HBB is unable to designate as "DRC conflict free."
Transactions with Related Parties

Mr. Alfred M. Rankin is the former executive chairman of the Company and current non-executive chairman of the Board of the Company. Mr. Rankin provides consulting services to the Company under the terms of a consulting agreement pursuant to

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which Mr. Rankin supports the president and chief executive officer of the Company upon request. Fees for consulting services rendered by Mr. Rankin were $0.5 million for the year ended December 31, 2019. There were no fees for consulting services rendered by Mr. Rankin in 2018.
Employees
As of December 31, 2019, HBB’s work force consisted of approximately 680 employees.

Information about our Executive Officers
There exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was selected.
The following tables set forth, as of February 26, 2020, the name, age, current position and principal occupation and employment during the past five years of the Company’s executive officers.
EXECUTIVE OFFICERS OF THE COMPANY
Name
 
Age
 
Current Position
 
Other Positions
 
 
 
 
 
 
 
Gregory H. Trepp
 
58

 
President and Chief Executive Officer of Hamilton Beach Holding (from September 2017); President and Chief Executive Officer of HBB (from prior to 2014); Chief Executive Officer of KC (from prior to 2014)
 
 
Gregory E. Salyers
 
59

 
Senior Vice President, Global Operations of HBB (from prior to 2014)
 
 
R. Scott Tidey
 
55

 
Senior Vice President, North America Sales and Marketing of HBB (from prior to 2014)
 
 
Michelle O. Mosier
 
54

 
Senior Vice President, Chief Financial Officer and Treasurer of Hamilton Beach Holding (since January 2020); Successor Vice President and Chief Financial Officer of HBB (since October 2018)
 
Chief Financial Officer of United Sporting Companies (from September 2015 to June 2018) a subsidiary of SportsCo Holding, Inc. which filed for Chapter 11 bankruptcy in June 2019, and Controller for Reynolds Groups Holdings Limited (from September 2011 to August 2015).
Dana B. Sykes
 
58

 
Senior Vice President, General Counsel and Secretary of Hamilton Beach Holding (from January 2020); Vice President, General Counsel and Secretary of HBB (from September 2015); Assistant Secretary of KC (from May 2015)
 
From July 2014 to September 2015, Associate General Counsel, Assistant Secretary and Senior Director, Human Resources of HBB. From prior to 2014 to July 2014, Assistant General Counsel and Director, Human Resources of HBB.

Item 1A. RISK FACTORS


The restatement of our financial statements may lead to, among other things, shareholder litigation, loss of investor confidence, negative impacts on our stock price and certain other risks.

We have restated our previously issued consolidated financial statements as of December 31, 2019 and 2018, for the years ended December 31, 2019, 2018 and 2017, and the relevant unaudited interim financial information for each of the quarters during the years ended December 31, 2019 and 2018 to correct misstatements principally related to the write-off of unrealizable assets. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information. As a result of the circumstances giving rise to the restatement, we have become subject to a number of additional risks and uncertainties, including unanticipated costs for accounting and legal fees in connection with or related to the restatement, shareholder litigation and government investigations. Any such proceeding could result in substantial defense costs regardless of the outcome of the litigation or investigation. If we do not prevail in any such litigation, we could be required to pay substantial damages or settlement costs. In addition, the restatement and related matters could impair our reputation and could cause our counterparties to lose confidence in us. Each of these occurrences could have an adverse effect on our business, results of operations, financial condition and stock price.

We have identified material weaknesses in our internal control over financial reporting which, if not timely remediated, may adversely affect the accuracy and reliability of our financial statements, and our reputation, business and stock price, as well as lead to a loss of investor confidence in us.

As described under Item 9A, Controls and Procedures, below, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that material weaknesses in our internal control over financial reporting existed at our Mexican

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subsidiaries as of December 31, 2019 and, accordingly, our internal control over financial reporting and our disclosure controls and procedures were not effective as of such date. We intend to remediate these material weaknesses. While we believe these steps will improve the effectiveness of our internal control over financial reporting and remediate the identified deficiencies, if our remediation efforts are insufficient to address the material weaknesses or we identify additional material weaknesses in our internal control over financial reporting in the future, our ability to analyze, record and report financial information accurately, to prepare our financial statements within the time periods specified by the rules and forms of the SEC and to otherwise comply with our reporting obligations under the federal securities laws will likely be adversely affected. The occurrence of, or failure to remediate, these material weaknesses and any future material weaknesses in our internal control over financial reporting may adversely affect the accuracy and reliability of our financial statements and have other consequences that could materially and adversely affect our business, including an adverse impact on the market price of our common stock, potential actions or investigations by the SEC or other regulatory authorities, shareholder lawsuits, a loss of investor confidence and damage to our reputation.

HBB’s business is sensitive to the strength of the North American consumer markets and weakness in these markets could
adversely affect its business.

The strength of the economy in the U.S., and to a lesser degree in Canada and Mexico, has a significant impact on HBB’s performance. Weakness in consumer confidence and poor financial performance by mass merchandisers, ecommerce retailers, warehouse clubs, department stores or any of HBB’s other customers could result in reduced revenue and profitability. A general slowdown in the consumer sector could result in additional pricing and marketing support pressures on HBB.

HBB is dependent on key customers and the loss of, or significant decline in business from, one or more of its key customers could materially reduce its revenue and profitability and its ability to sustain or grow its business.

HBB relies on several key customers. Although HBB has long-established relationships with many customers, it does not have any long-term supply contracts with these customers, and purchases are generally made using individual purchase orders. A loss of or significant reduction in sales to any key customer could result in significant decreases in HBB’s revenue and profitability and an inability to sustain or grow its business.

HBB must receive a continuous flow of new orders from its large, high-volume retail customers; however, it may be unable to continually meet the needs of those customers. In addition, failure to obtain anticipated orders or delays or cancellations of orders or significant pressure to reduce prices from key customers could impair its ability to sustain or grow its business.
    
As a result of dependence on its key customers, HBB could experience a material adverse effect on its revenue and profitability if any of the following were to occur:
•
the insolvency or bankruptcy of any key customer;
•
a declining market in which customers materially reduce orders or demand lower prices; or
•
a strike or work stoppage at a key customer facility, which could affect both its suppliers and customers.
If HBB were to lose, or experience a significant decline in business from any major customer, or if any major customers were to go bankrupt, HBB might be unable to find alternate distribution outlets.

HBB is subject to foreign currency exchange risk.

HBB’s products are supplied by third-party suppliers located primarily in China. HBB generally negotiates the purchases from its foreign suppliers in U.S. dollars. A weakening of the U.S. dollar against local currencies could result in certain non-U.S. manufacturers increasing the U.S. dollar prices for future product purchases.

As a result of our international operations, we are exposed to foreign currency risks that arise from our normal business operations, including risks in connection with our transactions that are denominated in foreign currencies. In addition, we translate sales and other results denominated in foreign currencies into U.S. dollars for purposes of our consolidated financial statements. As a result, appreciation of the U.S. dollar against these foreign currencies generally will have a negative impact on our reported revenues and profitability, while depreciation of the U.S. dollar against these foreign currencies will generally have a positive effect on reported revenues and profitability.

Any hedging activities HBB engages in may only offset a portion of the adverse financial impact resulting from unfavorable changes in foreign currency exchange rates. HBB cannot predict with any certainty changes in foreign currency exchange rates or the degree to which HBB can mitigate these risks.

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Increases in costs of products may materially reduce our profitability.

Factors that are largely beyond HBB's control, such as movements in in-bound transportation rates and commodity prices for the raw materials needed by suppliers of HBB’s products, may affect the cost of products, and HBB may not be able to pass those costs on to its customers. As an example, HBB’s products require a substantial amount of plastic. Because the primary resource used in plastic is petroleum, the cost and availability of plastic varies to a great extent with the price of petroleum. When the prices of petroleum, as well as steel, aluminum and copper, increase significantly, supplier price increases may materially reduce our profitability.

The increasing concentration of HBB’s branded small electric household and specialty housewares appliance sales among a few retailers and the trend toward private label brands could materially reduce revenue and profitability.

With the growing trend towards the concentration of HBB’s branded small electric household and specialty housewares appliance sales among fewer retailers, HBB is increasingly dependent upon fewer customers whose bargaining strength is growing as a result of this concentration. HBB sells a substantial quantity of products to mass merchandisers, ecommerce retailers, national department stores, variety store chains, drug store chains, specialty home retailers and other retail outlets. As a result, these retailers generally have a large selection of small electric household and specialty housewares appliance suppliers to choose from. In addition, certain of HBB’s larger customers use their own private label brands on household appliances that compete directly with some of HBB’s products. As the retailers in the small electric household appliance industry become more concentrated, competition for sales to these retailers may increase, which could materially reduce our revenue and profitability.

If HBB is unable to continue to enhance existing products, as well as develop and market new products that respond to customer needs and preferences and achieve market acceptance, we may experience a decrease in demand for our products,
which could materially reduce revenue and profitability, which have historically benefited from sales of new products.

HBB may not be able to compete as effectively with competitors, and ultimately satisfy the needs and preferences of customers, unless HBB can continue to enhance existing products and develop new innovative products for the markets in which HBB competes. Product development requires significant financial, technological, and other resources. Product improvements and new product introductions also require significant research, planning, design, development, engineering, and testing at the technological and product process levels and HBB may not be able to timely develop and introduce product improvements or new products. Competitors’ new products may beat HBB’s products to market, be higher quality or more reliable, be more effective with more features, obtain better market acceptance, or render HBB’s products obsolete. Any new products that HBB develops may not receive market acceptance or otherwise generate any meaningful revenue or profit relative to our expectations based on, among other things, commitments to fund advertising, marketing, promotional programs and development.

HBB’s inability to compete effectively with competitors in its industry could result in lost market share and decreased revenue.

The small electric household, specialty housewares appliances and commercial appliance industry does not have substantial entry barriers. As a result, HBB competes with many manufacturers and distributors of housewares products. Additional competitors may also enter this market and cause competition to intensify. For example, some of HBB’s customers have expressed interest in sourcing, or expanding the extent of sourcing, small electric household and commercial appliances directly from manufacturers in Asia. We believe competition is based upon several factors, including product design and innovation, quality, price, product features, merchandising, promotion and warranty. If HBB fails to compete effectively with these manufacturers and distributors, it could lose market share and experience a decrease in revenue, which would adversely affect our results of operations.
 
HBB also competes with established companies, a number of which have substantially greater facilities, personnel, financial and other resources. In addition, HBB competes with its own retail customers, who use their own private label brands, and importers and foreign manufacturers of unbranded products. Some competitors may be willing to reduce prices and accept lower profit margins to compete. As a result of this competition, HBB could lose market share and revenue.

Changes in consumer shopping trends and changes in distribution channels could result in lost market share and decreased revenue and profitability.

Traditional brick-and-mortar retail channels have experienced low growth or declines in recent years, while the ecommerce channel has experienced significant growth. Consumer shopping preferences have shifted, and may continue to shift in the

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future, to distribution channels other than traditional brick-and-mortar retail channels. Success in the ecommerce channel requires providing products at the right price, products that earn strong ratings and reviews and meaningful engagement with online shoppers. HBB has invested in industry leading selling and marketing capabilities, while maintaining its presence in traditional brick-and-mortar retail channels. However, if we are not successful in developing and utilizing ecommerce channels that future consumers may prefer, we may experience a loss in market share and decreased revenue and profitability.

HBB may become subject to claims under foreign laws and regulations, which may be expensive, time-consuming and distracting.

Because HBB has employees, property and business operations outside of the U.S., HBB is subject to the laws and the court systems of many jurisdictions. HBB may become subject to claims outside the U.S. for violations or alleged violations of laws with respect to the current or future foreign operations of HBB. In addition, these laws may be changed or new laws may be enacted in the future. International litigation is often expensive, time-consuming and distracting. As a result, any of these risks could significantly reduce HBB’s profitability and its ability to operate its businesses effectively.

HBB’s obligations relating to environmental matters may exceed our expectations.

HBB is subject to laws and regulations relating to the protection of the environment, including those governing the
management and disposal of hazardous substances. HBB is investigating or remediating historical contamination at some current and former sites related to HBB’s prior manufacturing operations or the operations of businesses HBB acquired. The costs of investigating and remediating historical contamination may increase based on the findings of investigations and the effectiveness of remediation methods. In addition, the discovery of additional contamination at these or other sites could result in significant cleanup costs that could have a material adverse effect on HBB’s financial conditions and results of operations. Future changes to environmental laws could require HBB to incur significant additional expense.

HBB could, under some circumstances, also be held financially liable for or suffer other adverse effects due to environmental violations or contamination caused by prior owners of businesses HBB has acquired. In certain circumstances, HBB’s financial liability for cleanup costs takes into account agreements with an unrelated third party. HBB’s liability for these costs could increase if the unrelated third party does not, or cannot, perform its obligations under those agreements. In addition, under some of the agreements through which HBB has sold real estate, HBB has retained responsibility for certain contingent environmental liabilities arising from pre-closing operations. These liabilities may not arise, if at all, until years after HBB sold these operations and could require us to incur significant additional expenses, which could materially adversely affect HBB’s results of operations and financial condition.

The Company is subject to litigation risk which could adversely affect our financial condition, results of operations and liquidity.

From time to time we are subject to claims involving product liability, infringement of intellectual property and patent rights of third parties and other matters. Any such claims, with or without merit, could be time consuming and expensive, and may require the Company to incur substantial costs and divert the resources of management. Due to the uncertainties of litigation, 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, results of operations and cash flows of the period in which the ruling occurs, or in future periods.
  
To the extent that HBB relies on newly acquired businesses or new product lines to expand its business, these acquisitions or new product lines may not contribute positively to HBB’s earnings because anticipated sales volumes and synergies may not materialize, cost savings may be less than expected or acquired businesses may carry unexpected liabilities.

HBB may acquire partial or full ownership in businesses or may acquire rights to market and distribute particular products or lines of products. The acquisition of a business or of the rights to market specific products or use specific product names may involve a financial commitment by HBB, either in the form of cash or stock consideration. HBB may not be able to acquire businesses and develop products that will contribute positively to HBB’s earnings. Anticipated synergies may not materialize, cost savings may be less than expected, sales of products may not meet expectations or acquired businesses may carry unexpected liabilities.


8

HBB’s business involves the potential for product recalls, which could affect HBB’s revenue and profitability.

As a marketer and distributor of consumer products, HBB is subject to the Consumer Products Safety Act and the Federal Hazardous Substances Act, which empower the CPSC to seek to exclude from the market those products that are found to be unsafe or hazardous. Under certain circumstances, the CPSC could require HBB to repair, replace or refund the purchase price of one or more of our products, or HBB may voluntarily do so. Electrical appliances are subject to various mandatory and voluntary standards. Any repurchases or recalls of our products could be costly to us and could damage our reputation or the value of our brands. If HBB is required to remove, or HBB voluntarily removes our products from the market, our reputation or brands could be tarnished, and HBB might have large quantities of finished products that could not be sold. Furthermore, failure to timely notify the CPSC of a potential safety hazard can result in fines being assessed against HBB. Additionally, laws regulating certain consumer products exist in some states, as well as in other countries in which HBB sells our products, and more restrictive laws and regulations may be adopted in the future. HBB’s results of operations are also susceptible to adverse publicity regarding the quality and safety of our products. In particular, product recalls may result in a decline in sales for a particular product.

HBB’s business subjects it to product liability claims, which could affect the reputation, revenue and profitability of HBB.

HBB faces exposure to product liability claims if one of our products is alleged to have caused property damage, bodily injury or other adverse effects up to a defined self-insured loss limit per claim and maintains product liability insurance for claims above this self-insured level. If a product liability claim is brought against HBB, our revenue and profitability could be affected adversely as a result of negative publicity related to the claim, costs associated with any replacement of the product or expenses related to defending these claims. This could be true even if the claims themselves are ultimately settled for immaterial amounts. In addition, HBB may not be able to maintain product liability insurance on terms acceptable to HBB in the future. If the number of product liability claims HBB experiences exceeds historical amounts, if HBB is unable to maintain product liability insurance or if HBB’s product liability claims exceed the amount of our insurance coverage, HBB’s results of operations and financial condition could be affected adversely.

Government regulations could impose costly requirements on HBB.

The SEC adopted conflict mineral rules under Section 1502 of the Dodd-Frank Act on August 22, 2012. The rules require disclosure of the use of certain minerals, commonly known as “conflict minerals,” which are mined from the DRC and adjoining countries. Since HBB’s supply chain is complex, ultimately it may not be able to designate all products as “DRC conflict free” which may adversely affect its reputation with certain customers. In such event, HBB may also face difficulties in satisfying customers who require products purchased from HBB to be “DRC conflict free”. If HBB is not able to meet such requirements, customers may choose not to purchase HBB products, which could adversely affect sales and the value of portions of HBB’s inventory.

HBB is subject in the ordinary course of its business, in the U.S. and elsewhere, to many statutes, ordinances, rules and regulations that, if violated by HBB or its affiliates, partners or vendors, could have a material adverse effect on HBB’s business. HBB is required to comply with the U.S. Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery, anti-corruption and anti-kickback laws adopted in many of the countries in which HBB does business which prohibit HBB from engaging in bribery or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business and also require maintenance of adequate record-keeping and internal accounting practices to accurately reflect transactions. Under the FCPA, companies operating in the U.S. may be held liable for actions taken by their strategic or local partners or representatives. If HBB does not properly implement and maintain practices and controls with respect to compliance with applicable anti-corruption, anti-bribery and anti-kickback laws, or if HBB fails to enforce those practices and controls properly, HBB may be held responsible for their actions and may become subject to regulatory sanctions, including administrative costs related to governmental and internal investigations, civil and criminal penalties, injunctions and restrictions on HBB’s business and capital raising activities, any of which could materially and adversely affect HBB’s business, results of operations and financial condition.

HBB may be subject to risks relating to increasing cash requirements of certain employee benefits plans, which may affect its financial position.

Because HBB’s defined benefit pension plans are frozen and no longer provide for the accrual of future benefits, the expenses recorded for, and cash contributions required to be made to its defined benefit pension plans are dependent on, changes in market interest rates and the value of plan assets, which, in turn, are dependent on actual investment returns. Significant changes in market interest rates, decreases in the value of plan assets or investment losses on plan assets may require HBB to increase the cash contributed to its defined benefit pension plans which may affect its financial position.

9


HBB depends on third-party suppliers for all of our products, which subjects the Company to risks, including unanticipated increases in expenses, decreases in revenue and disruptions in the supply chain.

HBB is dependent on third-party suppliers for the manufacturing and distribution of our products. Our ability to select reliable suppliers that provide timely deliveries of quality products will impact our success in meeting customer demand. Any supplier inability to timely deliver products that meet desired specifications or any unanticipated changes in suppliers could be disruptive and costly. Any significant failure by HBB to obtain quality products, in sufficient quantities, on a timely basis, and at an affordable cost or any significant delays or interruptions of supply would have a material adverse effect on revenue and profitability. As certain suppliers are primarily based in China, international operations are subject to additional risks including, among others:

•
currency fluctuations;
•
labor unrest;
•
potential political, economic and social instability;
•
restrictions on transfers of funds;
•
import and export duties and quotas;
•
changes in domestic and international customs and tariffs, including embargoes and customs restrictions;
•
uncertainties involving the costs to transport products;
•
long distance shipping routes dependent upon a small group of shipping and rail carriers and import facilities;
•
unexpected changes in regulatory environments;
•
regulatory issues involved in dealing with foreign suppliers and in exporting and importing products;
•
protection of intellectual property;
•
difficulty in complying with a variety of foreign laws;
•
difficulty in obtaining distribution and administrative support;
•
natural or human induced disasters such as earthquakes, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, power or water shortages, telecommunications failures, and medical epidemics or pandemics, including potential consequences from the coronavirus; and
•
potentially adverse tax consequences, including significant changes in tax law.
The foregoing factors could have a material adverse effect on our ability to maintain or increase the supply of products, which may result in material increases in expenses and decreases in revenue and profitability.

The markets for HBB's products are highly seasonal and dependent on consumer spending, which could result in significant variations in revenue and profitability.

Sales of HBB products are related to consumer spending, including general economic conditions affecting disposable consumer income such as unemployment rates, business conditions, interest rates, levels of consumer confidence, energy prices, mortgage rates, the level of consumer debt and taxation. In addition, the retail market for small electric household and specialty housewares appliances are highly seasonal in nature. Accordingly, HBB generally recognizes a substantial portion of our revenue in the second half of the year as sales increase significantly with the fall holiday-selling season. Accordingly, quarter-to-quarter comparisons of past operating results of HBB are meaningful only when comparing equivalent time periods, if at all. Any economic downturn, decrease in consumer spending or shift in consumer spending away from small electric household and specialty housewares appliances may significantly reduce revenue and profitability.

The Company is dependent on key personnel and the loss of these key personnel could significantly reduce its consolidated profitability.

The Company is highly dependent on the skills, experience and services of its and its subsidiaries’ key personnel and the loss of key personnel could have a material adverse effect on its consolidated business, operating results and financial condition. Employment and retention of qualified personnel is important to the successful conduct of Hamilton Beach Holding’s business. Therefore, the Company's success also depends upon its ability to recruit, hire, train and retain current and additional skilled

10

and experienced management personnel. The Company's inability to hire and retain personnel with the requisite skills could impair its ability to manage and operate its consolidated business effectively and could significantly reduce its consolidated profitability.

The financing arrangement of HBB contains various restrictions that could limit operating flexibility.

HBB’s credit facility contains covenants and other restrictions that, among other things, require HBB to satisfy certain financial tests, maintain certain financial ratios and restrict HBB’s ability to incur additional indebtedness. The restrictions and covenants in HBB’s credit facility, and other future financing arrangements may limit HBB’s ability to respond to market conditions, provide for capital investment needs or take advantage of business opportunities by limiting the amount of additional borrowings HBB may incur.

The Company’s business could suffer if information technology systems are disrupted, cease to operate effectively or become subject to a security breach.

The Company relies heavily on information technology systems to operate websites; record and process transactions; respond to customer inquiries; manage inventory; purchase, sell and ship merchandise on a timely basis; and maintain cost-efficient operations. Given the significant number of transactions that are completed annually, it is vital to maintain constant operation of computer hardware and software systems and maintain cybersecurity. The Audit Review Committee of the Company is regularly briefed on cybersecurity matters, however despite the cybersecurity efforts, our information technology systems may be vulnerable from time to time to damage or interruption from computer viruses, power outages, third-party intrusions and other technical malfunctions. If our systems are damaged, or fail to function properly, we may have to make monetary investments to repair or replace the systems and could endure delays in operations.

In addition, we regularly evaluate information technology systems and requirements and from time to time implement modifications and/or upgrades to our information technology systems. Modifications include replacing existing systems with successor systems, making changes to existing systems and acquiring new systems with new functionality. HBB is currently engaged in a multi-year implementation of an enterprise resource planning (“ERP”) system. Such an implementation is a major undertaking from a financial, management, and personnel perspective. The implementation of the ERP system may prove to be more difficult, costly, or time consuming than expected, and there can be no assurance that this system will be beneficial to the extent anticipated. Any disruptions, delays or deficiencies in the design and implementation of our new ERP system could adversely affect our financial position, results of operations and cash flows in addition to the effectiveness of our internal controls over financial reporting.

Any material disruption or slowdown of our systems, including a disruption or slowdown caused by a security breach or our failure to successfully upgrade its systems, could cause information, including data related to customer orders, to be lost or delayed. Such a loss or delay could reduce demand and cause our sales and/or profitability to decline.

Failure to maintain data privacy could have a material adverse effect on our business, financial condition and results of operations.

The Company is subject to certain laws, rules and regulations enacted to protect businesses and personal data (“Privacy Laws”), which may include the General Data Protection Regulation (“GDPR”) and the California Consumer Privacy Act (“CCPA”), as well as industry self-regulatory codes that create new compliance obligations. The administration, enforcement and regulation of Privacy Laws are quickly evolving and subject to changes in interpretation. Future changes in Privacy Laws may require the Company to incur additional and unexpected expenses and may subject the Company to additional compliance risk. Any failure to comply with Privacy Laws could have a material adverse impact on our financial condition and results of operations.

U.S. government trade actions could have a material adverse effect on Hamilton Beach Brands Holding Company’s subsidiaries, financial position, and results of operation.

The U.S. government has taken a number of trade actions that impact or could impact our operations, including imposing tariffs on certain goods imported into the United States. In addition, several governments, including the European Union, China and India, have imposed tariffs on certain goods imported from the United States. As the majority of our products are imported into the United States from China, many of our product lines are subject to the tariffs imposed under Section 301 of US trade law that have been applied to separate lists of Chinese goods. The Section 301 tariffs on goods covered by lists 1, 2, 3 and 4a affect approximately 25% of total HBB purchases on an annualized basis. On December 13, 2019, the United States Trade Representative (USTR) announced a “Phase One” agreement with China pursuant to which the U.S. government

11

agreed to suspend the 15% tariffs on List 4b products. On January 15, 2020, USTR issued a Federal Register notice reducing the rate of Section 301 tariffs on List 4a products to 7.5%, effective February 14, 2020. We are continually evaluating the impact of the current and any possible new tariffs on our supply chain, costs, sales and profitability and are considering strategies to mitigate such impact, including reviewing sourcing options, filing requests for exclusion from the tariffs for certain product lines and working with our suppliers and customers. We can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful. Given the uncertainty regarding the scope and duration of these trade actions by the U.S. government or other countries, as well as the potential for additional trade actions, the impact on our operations and results remains uncertain.

The amount and frequency of dividend payments made on Hamilton Beach Holding’s common stock could change.

The Company's Board has the power to determine the amount and frequency of the payment of dividends. Decisions regarding whether or not to pay dividends and the amount of any dividends are based on earnings, capital, and future expense requirements, financial conditions, contractual limitations and other factors our Board may consider.

Certain members of the Company's extended founding family own a substantial amount of Class A Common and Class B Common, and if they were to act in concert, could control the outcome of director elections and other stockholder votes on significant actions.

Hamilton Beach Holding has two classes of common stock: Class A Common and Class B Common. Holders of Class A Common will be entitled to cast one vote per share and, as of December 31, 2019, accounted for approximately 18.80% of the voting power of Hamilton Beach Holding. Holders of Class B Common are entitled to cast ten votes per share and, as of December 31, 2019, accounted for the remaining voting power of Hamilton Beach Holding. As of December 31, 2019, certain members of the Company's extended founding family held approximately 34.78% of Class A Common and 80.13% of Class B Common. On the basis of this common stock ownership, certain members of the Company's extended founding family could exercise 71.6% of the Company's total voting power. Although there is no voting agreement among such family members, in writing or otherwise, if they were to act in concert, they would exert significant control over the outcome of director elections and other stockholder votes on significant actions, such as certain amendments to the Company's amended and restated certificate of incorporation and sale of the Company or substantially all of its assets. Because such family members could prevent other stockholders from exercising significant influence over significant corporate actions, the Company may be a less attractive takeover target, which could adversely affect the market price of its common stock.

The Company is an “emerging growth company” and as a result of the reduced disclosure requirements applicable to emerging growth companies, the reduced disclosures may make it more difficult to compare our performance with other public companies.

We are an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

In addition, the JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with those of another public company that is neither (i) an emerging growth company nor (ii) an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.

We will remain an emerging growth company for up to five years, although we will lose that status sooner if our revenues exceed $1.07 billion, if we issue more than $1 billion in non-convertible debt in a three-year period, or if we are deemed to be a large accelerated filer under the federal securities laws.

There are risks associated with the wind down of KC.


12

On October 10, 2019, the Board approved the wind down of KC and its retail operations. At December 31, 2019, all stores were closed for business. The Company expects the wind down to continue through the first half of 2020 to facilitate the settlement of remaining liabilities. KC may incur additional costs until the wind down is complete, which may include, contract assignment and termination costs, primarily with respect to store operating leases. The final outcome is dependent upon various factors, many of which are outside of our control, including, without limitation, the actual outcomes of discussions and negotiations with landlords and the counterparties to the contracts we intend to terminate. In addition, the wind down of the KC business involves numerous risks to us, including but not limited to:

•
potential disruption of the operations of the rest of our businesses and diversion of management’s attention from such businesses and operations;
•
exposure to unknown, contingent or other liabilities, including litigation arising in connection with the KC wind down;
•
negative impact on our business relationships, including current relationships with our customers, suppliers, vendors, lessors, licensees and employees; and
•
unintended negative consequences from changes to our business profile.
If any of these or other factors impair the successful implementation of the wind down, we may not be able to realize other business opportunities as we may be required to spend additional time and incur additional expense relating to the wind down that otherwise would be used on the development and expansion of our other businesses, which could adversely impact the Company’s business, operational results, financial position and cash flows.



Item 1B. UNRESOLVED STAFF COMMENTS
    
None.


13

Item 2. PROPERTIES
The following table presents the principal distribution and office facilities owned or leased:
 
 
Owned/
 
 
Facility Location
 
Leased
 
Function(s) (2)
Glen Allen, Virginia
 
Leased
 
Corporate headquarters
Geel, Belgium
 
(1)
 
Distribution center
Shenzhen, People's Republic of China
 
(1)
 
Distribution center
Mexico City, Mexico
 
Leased
 
Mexico sales and administrative headquarters
Olive Branch, Mississippi
 
Leased
 
Distribution center
Picton, Ontario, Canada
 
Leased
 
Distribution center
Belleville, Ontario, Canada
 
Leased
 
Distribution center
Southern Pines, North Carolina
 
Owned
 
Service center for customer returns; catalog distribution center; parts distribution center
Shenzhen, People's Republic of China
 
Leased
 
Administrative office
Markham, Ontario, Canada
 
Leased
 
Canada sales and administration headquarters
City of Sao Paulo, Sao Paulo, Brazil
 
Leased
 
Brazil sales and administrative headquarters
Joinville, Santa Catarina, Brazil
 
(1)
 
Distribution center
Shanghai, People's Republic of China
 
Leased
 
Sales office
Suzhou, People's Republic of China
 
(1)
 
Distribution center
Tultitlan, Mexico
 
(1)
 
Distribution center

(1)
This facility is not owned or leased by HBB. This facility is managed by a third-party distribution provider.
(2)
Sales offices are also leased in several cities in the U.S., Canada, China and Mexico.

Item 3. LEGAL PROCEEDINGS
The information required by this Item 3 is set forth in Note 12 "Contingencies" included in our Financial Statements and Supplementary Data contained in Part IV of this Form 10-K/A and is hereby incorporated herein by reference to such information.
Item 4. MINE SAFETY DISCLOSURES
    
None.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Class A Common is traded on the New York Stock Exchange under the ticker symbol “HBB.” Because of transfer restrictions, no trading market has developed, or is expected to develop, for the Company's Class B Common. The Class B Common is convertible into Class A Common on a one-for-one basis.
The declaration of future dividends, record dates and payout dates for such future dividends will be at the discretion of the Board and will depend on various factors then existing, including earnings, financial condition, results of operations, capital requirements, level of indebtedness, contractual restrictions with respect to the payment of dividends, restrictions imposed by applicable law, general business conditions and other factors that the Board deems relevant.
At December 31, 2019 and 2018, there were 780 and 772, respectively, Class A Common stockholders of record and 902 and 892, respectively, Class B common stockholders of record.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

In May 2018, the Company approved a stock repurchase program for the purchase of up to $25.0 million of the Company's Class A Common Stock outstanding through December 31, 2019. As of December 31, 2019, the Company repurchased 364,893 shares for an aggregate purchase price of $6.0 million. There were no stock repurchases during the three months ended December 31, 2019 and the twelve months ended December 31, 2018 and 2017.

14


On November 5, 2019, the Company's Board adopted a new stock repurchase program for the purchase of up to $25.0 million of the Company's Class A Common outstanding starting January 1, 2020 and ending December 31, 2021.

Item 6. SELECTED FINANCIAL DATA

The following table sets forth the Company's selected historical financial data as of and for each of the periods indicated. Except where indicated, the results of operations, financial position, and cash flows of KC are reflected as discontinued operations for all periods reported. Certain amounts have been restated for the correction of misstatements discussed in Note 2, Restatement of Previously Issued Consolidated Financial Statements and corrected for additional identified out-of-period and uncorrected errors that were not material. This information should be read in conjunction with the “Explanatory Note” immediately preceding Item 1 of this Annual Report on Form 10-K/A, with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10- K/A. The selected consolidated financial information below as of December 31, 2019 and 2018, and for the years ended December 31, 2019, 2018 and 2017, are derived from our audited consolidated financial statements included in this Annual Report on Form 10-K/A. The selected financial data as of December 31, 2017, 2016 and 2015 and for the years ended December 31, 2016 and 2015 are derived from unaudited consolidated financial statements, which were prepared on the same basis as our audited consolidated financial statements and reflect the impact of adjustments to our previously filed financial information.

 
As Restated (2)
 
As Revised (3)
 
Year Ended December 31
 
2019
 
2018
 
2017
 
2016
 
2015
 
(In thousands, except per share amounts)
Operating Statement Data:
 
 
 
 
 
 
 
 
 
Revenue
$
611,786

 
$
630,082

 
$
612,056

 
$
601,006

 
$
616,874

Operating profit
$
26,794

 
$
33,550

 
$
37,956

 
$
39,561

 
$
32,115

 


 


 


 


 
 
Income from continuing operations, net of tax
$
15,093

 
$
23,059

 
$
18,109

 
$
24,277

 
$
18,086

Income (loss) from discontinued operations, net of tax
$
(28,600
)
 
$
(5,361
)
 
$
(2,225
)
 
$
259

 
$
545

Net income (loss)
$
(13,507
)
 
$
17,698

 
$
15,884

 
$
24,536

 
$
18,631

 

 

 

 

 
 
Basic and diluted earnings (loss) per share:

 

 

 

 
 
Continuing operations
$
1.10

 
$
1.68


$
1.32


$
1.78


$
1.32

Discontinued operations
(2.09
)
 
(0.39
)

(0.16
)

0.01


0.04

Basic and diluted earnings (loss) per share
$
(0.99
)
 
$
1.29


$
1.16


$
1.79


$
1.36

 

 

 

 

 
 
Actual shares outstanding at December 31 (1)
13,516

 
13,713

 
13,673

 
13,673

 
13,673

Basic weighted average shares outstanding (1)
13,690

 
13,699

 
13,673

 
13,673

 
13,673

Diluted weighted average shares outstanding (1)
13,726

 
13,731

 
13,685

 
13,673

 
13,673


(1)
On September 29, 2017, NACCO, Hamilton Beach Holding's former parent company, spun-off the Company to NACCO stockholders. The basic and diluted earnings (loss) per share amounts for the Company for all periods prior to the spin-off have been calculated based upon the number of shares distributed in the spin-off.

(2)
The Company restated previously disclosed consolidated financial data for fiscal years 2019, 2018 and 2017, as well as the related balance sheet dates, to correct misstatements principally related to the write-off of unrealizable assets. The restatement also includes corrections for other errors previously identified as immaterial, individually and in the aggregate, to our consolidated financial statements. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information.

(3)
In connection with the restatement, the Company has also revised the selected financial information for the fiscal years ended December 31, 2016 and 2015, to correct for misstatements identified during the investigation. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and

15

Supplementary Data, for additional information regarding the nature of the misstatements. Revisions to the consolidated statement of operations decreased operating profit and net income by $1.6 million and decreased diluted earnings per share by $0.12 for the year ended December 31, 2016. Revisions to the consolidated statement of operations decreased operating profit and net income by $1.1 million and decreased diluted earnings per share by $0.08 for the year ended December 31, 2015.




 
As Restated (3)
 
As Revised (4)
 
Year Ended December 31
 
2019
 
2018
 
2017
 
2016
 
2015
 
(In thousands, except per share amounts and employee data)
Balance Sheet Data at December 31:
 
 
 
 
 
 
 
 
 
Net working capital(2)
$
106,839


$
101,898


$
91,111


$
95,088


$
116,839

Total assets
$
288,664


$
321,419


$
325,276


$
310,141


$
310,643

Short-term portion of revolving credit agreements
$
23,497


$
11,624


$
31,346


$
12,714


$
8,365

Long-term portion of revolving credit agreements
$
35,000


$
35,000


$
20,000


$
26,000


$
50,000

Stockholders' equity
$
36,267


$
56,819


$
42,027


$
62,948


$
81,970

 









Cash Flow Data:









Net cash provided by operating activities from continuing operations
$
221


$
17,955


$
28,303


$
58,025


$
13,535

Net cash used for investing activities from continuing operations
$
(4,122
)

$
(7,759
)

$
(6,177
)

$
(4,788
)

$
(4,775
)
Net cash provided by (used for) financing activities from continuing operations
$
1,062


$
(9,255
)

$
(26,532
)

$
(61,837
)

$
(10,088
)
 









Other Data:









Cash dividends paid to NACCO Industries, Inc.
$
—


$
—


$
38,000


$
42,000


$
15,000

Cash dividends paid(1)
$
4,851


$
4,658


$
1,162


n/a


n/a

Purchase of treasury stock
$
5,960


$
—


$
—


n/a


n/a

Per share data:









Cash dividends paid(1)
$
0.36


$
0.34


$
0.09


n/a


n/a

Market value at December 31 (1)
$
19.10


$
23.46


$
25.69


n/a


n/a

Stockholders' equity at December 31
$
2.68


$
4.14


$
3.07


$
4.60


$
6.00

 














Total employees at December 31 for continuing operations
680


670


650


600


600


(1)
This information is only included for periods subsequent to the spin-off from NACCO.

(2)
Net working capital is defined as trade receivables, net plus inventory less accounts payable.

(3)
The Company restated previously disclosed consolidated financial data for fiscal years 2019, 2018 and 2017, as well as the related balance sheet dates, to correct misstatements principally related to the write-off of unrealizable assets. The restatement also includes corrections for other errors previously identified as immaterial, individually and in the aggregate, to our consolidated financial statements. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information.

(4)
In connection with the restatement, the Company has also revised the selected financial information for the fiscal years ended December 31, 2016 and 2015, to correct for misstatements identified during the investigation. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information regarding the nature of the misstatements. The impact of restatement was a decrease to total assets of $1.0 million and a decrease to stockholders' equity of $4.4 million as of December 31, 2017. The impact of revisions was a decrease to total assets of $0.7 million and a decrease to stockholders' equity of

16

$2.3 million as of December 31, 2016 million and an increase to total assets of $0.5 million and a decrease to stockholders' equity of $1.1 million as of December 31, 2015.








17

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)


RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

The following discussion and analysis should be read in conjunction with the audited consolidated financial statements and notes thereto as of December 31, 2019 and 2018, and for the years ended December 31, 2019, 2018, and 2017, included elsewhere in this Annual Report on Form 10-K/A. This Annual Report on Form 10-K/A restates amounts included in the 2019 Annual Report as of December 31, 2019 and 2018, and for the years ended December 31, 2019, 2018 and 2017. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information. The relevant unaudited interim financial information for each of the quarters during the years ended December 31, 2019 and 2018 has also been restated. See Note 16, Quarterly Results of Operations (Unaudited), in Item 8, Financial Statements and Supplementary Data, for such restated information.

The restatement also includes corrections for other errors previously identified as immaterial, individually and in the aggregate, to our consolidated financial statements. The impact of the restatement is reflected in Management’s Discussion and Analysis of Financial Condition and Results of Operations below.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's 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.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

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 changes in returns. In addition, the Company offers 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 its 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. As of December 31, 2019, we have determined that customer price concessions recorded as a reduction of revenue, certain of which were previously recorded in other current liabilities, meet all of the criteria specified in ASC 210-20, "Balance Sheet Offsetting". Accordingly, amounts related to such arrangements have been classified as a reduction of trade receivables, net as of December 31, 2019 (prior periods have not been adjusted as all the criteria in ASC 210-20 had not previously been met).

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.

The Company monitors its estimates of variable consideration, which includes returns and price concessions, and periodically makes adjustments to the carrying amounts as appropriate. During 2019, there were no material adjustments to the aforesaid estimates and the Company's past results of operations have not been materially affected by a change in these estimates. Although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change these estimates in the future.

18

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)


Retirement Benefit Plans: The Company maintains two defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. The Company's 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 publicly traded stocks and 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.
The expected long-term rate of return on defined benefit plan assets reflects management’s 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, the Company considers 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 for each of the asset classes used to determine the Company's estimated rate of return assumption are based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of the asset classes.
Expected returns for the U.S. pension plan are based on a calculated market-related value for U.S. pension plan assets. Under this methodology, asset gains and losses resulting from actual returns that differ from the Company's expected returns which are recognized ratably in the market-related value of assets over three years. Expected returns for the non-U.S. pension plan are based on fair market value for non-U.S. pension plan assets.
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 material change to the Company's pension obligation causing a related increase or decrease in reported net operating results in the period of change in the estimate. Because the 2019 assumptions are used to calculate 2020 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 2020 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 2020 by 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 2019 by approximately $1.6 million; while a one percentage-point decrease in the discount rate would have raised the plans’ projected benefit obligation as of the end of 2019 by approximately $1.8 million.

Environmental Liabilities: HBB and environmental consultants are investigating or remediating historical environmental contamination at some current and former sites operated by HBB or by businesses it 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 recorded in selling, general, and administrative expenses. When a 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. If the Company's environmental liability balance as of December 31, 2019 were to increase by one percent, the reserve and selling, general, and administrative expenses would increase by less than $0.1 million.
 

19

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

The restatement did not significantly impact the drivers of our consolidated results of operations. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information.

Discussion related to the restated quarterly information is included in Note 16, Quarterly Results of Operations (Unaudited).

The results of operations for Hamilton Beach Holding were as follows for the years ended December 31:

2019 Compared with 2018
 
As Restated
 
Year Ended December 31
 
2019
 
% of Revenue
 
2018
 
% of Revenue
 
$ Change
 
% Change
Revenue
$
611,786


100.0
 %

$
630,082


100.0
%

$
(18,296
)

(2.9
)%
Cost of sales
483,234


79.0
 %

491,030


77.9
%

(7,796
)

(1.6
)%
Gross profit
128,552


21.0
 %

139,052


22.1
%

(10,500
)

(7.6
)%
Selling, general and administrative expenses
100,381


16.4
 %

104,121


16.5
%

(3,740
)

(3.6
)%
Amortization of intangible assets
1,377


0.2
 %

1,381


0.2
%

(4
)

(0.3
)%
Operating profit (loss)
26,794


4.4
 %

33,550


5.3
%

(6,756
)

(20.1
)%
Interest expense, net
2,975


0.5
 %

2,916


0.5
%

59


2.0
 %
Other expense (income), net
(358
)

(0.1
)%

149


—
%

(507
)

(340.3
)%
Income (loss) from continuing operations before income taxes
24,177


4.0
 %

30,485


4.8
%

(6,308
)

(20.7
)%
Income tax expense
9,084


1.5
 %

7,426


1.2
%

1,658


22.3
 %
Net income from continuing operations
15,093


2.5
 %

23,059


3.7
%

(7,966
)

(34.5
)%
Loss from discontinued operations, net of tax
(28,600
)

n/m


(5,361
)

n/m


(23,239
)

n/m

Net (loss) income
$
(13,507
)




$
17,698





$
(31,205
)



Effective income tax rate on continuing operations
37.6
%



24.4
%
 
 
 
 
 
 
The following table identifies the components of the change in revenue for 2019 compared with 2018:
 
As Restated
 
Revenue
2018
$
630,082

(Decrease) increase from:

Unit volume and product mix
(19,613
)
Foreign currency
(1,688
)
Average sales price
3,005

2019
$
611,786


Revenue - Revenue decreased $18.3 million, or 2.9%. The decline is primarily due to lower sales volume in the U.S. consumer, international consumer and global commercial markets. Globally, our ecommerce business grew 27%; however, these gains were more than offset by the adverse impact of tariffs, a loss of placements in the dollar store channel resulting from HBB's decision not to maintain very low margin business, ongoing foot traffic challenges at some retailers and other pressure points facing individual retail companies. Revenue in the global commercial market decreased due primarily to lower volume driven by the adverse impact of tariffs.


20

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)

Gross profit - The decline in gross profit of $10.5 million, or 7.6%, is primarily due to lower sales volume. As a percentage of revenue, gross profit margin declined from 22.1% to 21.0% primarily due to increased inbound freight expenses, the adverse impact of tariffs and unfavorable foreign currency movements.

Selling, general and administrative expenses - The decrease in selling, general and administrative expenses was mainly attributable to a $5.2 million decline in environmental expense due to the reduction to the environmental reserve at one site of $3.2 million related to a change in the expected type and extent of investigation and remediation activities and to a $1.5 million reduction in environmental expense due to the probable recovery of investigation and remediation costs associated with the same site from a responsible party in exchange for release from all future obligations by that party. Additionally, advertising expenses declined $3.1 million and employee-related costs decreased $2.0 million due to reduced incentive compensation expense. These decreases were partially offset by a one-time charge of $3.2 million recorded in the second quarter of 2019 for a contingent loss related to patent litigation. Additionally, certain former employees of one of our Mexican subsidiaries engaged in unauthorized transactions with the Company’s Mexican subsidiaries and in doing so, expenditures were deferred on the balance sheet of the Company's Mexican subsidiaries beyond the period for which the costs pertained. Included in selling, general and administrative expenses are charges of $6.9 million in 2019 compared with charges of $4.9 million in 2018 to write-off unrealizable assets created as a result of these unauthorized transactions. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information.

Other expense (income), net - Other income in 2019 includes currency gains of $0.4 million compared with other expense in 2018 related to currency losses of $0.5 million as the Mexican peso strengthened against the U.S. dollar.

Income tax expense - The Company recognized income tax expense of $9.1 million on income from continuing operations before income taxes of $24.2 million, an effective tax rate of 37.6% compared to income tax expense of $7.4 million, an effective tax rate of 24.4%. The increase in the effective tax rate is primarily due to $2.0 million of deferred tax expense related to a change in judgment regarding the valuation allowance recorded against certain deferred tax assets of KC.
Additionally, certain former employees of one of our Mexican subsidiaries engaged in unauthorized transactions with the Company’s Mexican subsidiaries and in doing so expenditures were deferred on the balance sheet of the Mexican subsidiaries beyond the period for which the costs pertained. Included in selling, general and administrative expenses are non-cash charges to write-off unrealizable assets for which the corresponding tax benefit has been substantially offset by an increase in unrecognized tax benefits.


21

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)

2018 Compared with 2017

The results of operations for Hamilton Beach Holding were as follows for the years ended December 31:
 
Year Ended December 31
 
As Restated
 
 
 
As Restated
 
 
 
 
 
 
 
2018
 
% of Revenue
 
2017
 
% of Revenue
 
$ Change
 
% Change
Revenue
$
630,082


100.0
%

$
612,056


100.0
 %

$
18,026


2.9
 %
Cost of sales
491,030


77.9
%

475,939


77.8
 %

15,091


3.2
 %
Gross profit
139,052


22.1
%

136,117


22.2
 %

2,935


2.2
 %
Selling, general and administrative expenses
104,121


16.5
%

96,780


15.8
 %

7,341


7.6
 %
Amortization of intangible assets
1,381


0.2
%

1,381


0.2
 %

—


—
 %
Operating profit
33,550


5.3
%

37,956


6.2
 %

(4,406
)

(11.6
)%
Interest expense, net
2,916


0.5
%

1,572


0.3
 %

1,344


85.5
 %
Other expense (income), net
149


—
%

(692
)

(0.1
)%

841


(121.5
)%
Income from continuing operations before income taxes
30,485


4.8
%

37,076


6.1
 %

(6,591
)

(17.8
)%
Income tax expense
7,426


1.2
%

18,967


3.1
 %

(11,541
)

(60.8
)%
Net income from continuing operations
23,059


3.7
%

18,109


3.0
 %

4,950


27.3
 %
Loss from discontinued operations, net of tax
(5,361
)

n/m


(2,225
)

n/m


(3,136
)

n/m

Net income
$
17,698





$
15,884





$
1,814




 
 
 
 
 
 
 
 
 
 
 
 
Effective income tax rate on continuing operations
24.4
%



51.2
%
 
 
 
 
 
 
The following table identifies the components of the change in revenue for 2018 compared with 2017:
 
As Restated
 
Revenue
2017
$
612,056

Increase (decrease) from:

Unit volume and product mix
12,910

Average sales price
6,485

Foreign currency
(1,369
)
2018
$
630,082


Revenue - Revenue increased $18.0 million, or 2.9%, primarily due to higher sales volume in the international consumer retail market and increased sales of new and higher-priced products, mainly in the U.S consumer and global commercial markets. Unfavorable foreign currency movements partially offset the increase in revenue as the Mexican peso, Brazilian Real and Canadian dollar weakened against the U.S. dollar during 2018.
    
Gross profit - Gross profit increased mainly due to higher sales volume in the international consumer retail market and increased sales of new and higher-priced products, mainly in the U.S consumer and global commercial markets. As a percentage of revenue, gross profit declined from 22.2% to 22.1% primarily due to increased warehouse, transportation, and product costs.

Selling, general and administrative expenses - The increase in selling, general and administrative expenses was primarily due to increased legal and professional service fees of $2.7 million, higher employee-related expenses of $2.8

22

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)

million and increased advertising expenses of $2.5 million, which were partially offset by the absence of $2.5 million of one-time costs incurred in the prior year to effect the spin-off from NACCO. Legal and professional service fees increased mainly due to patent litigation expenses and the increase in employee-related expenses was mainly due to merit compensation increases, as well as additional headcount to support HBB's strategic initiatives. Advertising expenses increased primarily due to increased consumer advertising campaigns to support the fall holiday-selling season. Included in selling, general and administrative expenses are charges of $4.9 million in 2018 compared with charges of $1.3 million in 2017 to write-off expenditures deferred on the balance sheet as a result of unauthorized transactions entered into by certain former employees of one of our Mexican subsidiaries. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information.

Interest expense, net - Interest expense, net increased $1.3 million primarily due to an increase in average borrowings outstanding under HBB's revolving credit facility.

Other expense, net - Other expense, net increased $0.8 million primarily due to foreign currency gains as the Mexican peso strengthened against the U.S. dollar during the period.

Income tax expense - The Company recognized income tax expense of $7.4 million on income from continuing operations before income taxes of $30.5 million (an effective tax rate of 24.4%). The effective income tax rate on continuing operations decreased from 51.2% in 2017 primarily due to a $4.7 million provisional tax charge resulting from the reduction in the U.S. federal corporate tax rate in 2018 as a result of the Tax Cuts and Jobs Act (the "Tax Act") and the absence of non-deductible spin-off related expenses incurred in the prior year to effect the spin-off from NACCO.
LIQUIDITY AND CAPITAL RESOURCES

Hamilton Beach Brands Holding Company cash flows are provided by dividends paid or distributions made by its subsidiaries. The only material assets held by it are the investments in consolidated subsidiaries. As a result, certain statutory limitations or regulatory or financing agreements could affect the levels of distributions allowed to be made by its subsidiaries. Hamilton Beach Brands Holding Company has not guaranteed any of the obligations of its subsidiaries.

HBB's principal sources of cash to fund liquidity needs are: (i) cash generated from operations and (ii) borrowings available under the revolving credit facility, as defined below. HBB's primary use of funds consists of working capital requirements, capital expenditures, and payments of principal and interest on debt. At December 31, 2019, the Company had cash and cash equivalents for continuing operations of $2.1 million, compared to $4.4 million at December 31, 2018. 

Historically, Hamilton Beach Brands Holding Company would rely on cash flows from KC as well as HBB.  However, given that all of the KC stores have been closed and the Board approved the dissolution of the KC legal entity, KC is no longer considered a source of cash for Hamilton Beach Brands Holding Company.   As of December 31, 2019, KC reported current liabilities in excess of current assets of $24.3 million.   Neither Hamilton Beach Brands Holding Company nor HBB has guaranteed any obligations of KC. 

The following table presents selected cash flow information from continuing operations:
 
As Restated
 
Year Ended December 31
 
2019
 
2018
 
2017
 
(In thousands)
Net cash provided by operating activities from continuing operations
$
222


$
17,955


$
28,303

Net cash used for investing activities from continuing operations
$
(4,122
)

$
(7,759
)

$
(6,177
)
Net cash provided by (used for) financing activities from continuing operations
$
1,062


$
(9,255
)

$
(26,532
)

23

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, 2019 Compared with December 31, 2018
    
Operating activities - Net cash provided by operating activities decreased $17.7 million in 2019 compared to the prior year primarily due to increased trade receivables, partially offset by a decline in inventory. Trade receivables increased primarily due to the timing of collections and increased fourth quarter sales in 2019 compared with prior year. The decline in inventory is primarily due to the continued efficient management of inventory levels.

Investing activities - Net cash used for investing activities from continuing operations decreased $3.6 million in 2019 primarily due to lower capital expenditures related to HBB internal-use software development costs and tooling for new products.

Financing activities - Net cash provided by financing activities from continuing operations was $1.1 million in 2019 compared to a use of cash of $9.3 million in 2018 primarily due to an increase in HBB's net borrowing activity on the revolving credit facility. The increase in borrowings was used to fund net working capital and stock repurchases.

December 31, 2018 Compared with December 31, 2017

Operating activities - Net cash provided by operating activities decreased by $10.3 million in 2018 primarily due to the net changes in operating assets and liabilities. The decrease is primarily due to the changes in working capital and the decline in the accounts payable to NACCO. The change in working capital is attributable to a decrease in accounts payable in 2018 compared with a large increase in 2017, which was partially offset by a decrease in accounts receivable in 2018 compared with a large increase in 2017 and a larger increase in inventory during 2017 compared with 2018. The change in accounts payable is mainly due to the timing of purchases and the change in accounts receivable, after consideration for the effect of the adoption of the new revenue standard in 2018, is mainly attributable to the timing of collections. The increase in inventory is primarily due to lower sales in the second half of 2018 compared with the sales forecast and higher product costs compared to 2017. The decline in the accounts payable to NACCO is primarily due to payments made to NACCO during 2018 under the tax allocation agreement.

Investing activities - Net cash used for investing activities increased primarily due to an increase in capital expenditures for internal-use software development costs and corporate office leasehold improvements.

Financing activities - Net cash used for financing activities decreased $17.3 million primarily due to the absence of the 2017 cash dividends of $38.0 million paid to NACCO, partially offset by a reduction in the revolving credit facility and dividend payments to stockholders.

Capital Resources

HBB maintains a $115.0 million senior secured floating-rate revolving credit facility (the “HBB Facility”) that expires in June 2021. The current portion of borrowings outstanding represents expected voluntary repayments to be made in the next twelve months. The obligations under the HBB Facility are secured by substantially all of HBB's assets. The approximate book value of HBB's assets held as collateral under the HBB Facility was $297.2 million as of December 31, 2019. At December 31, 2019, the borrowing base under the HBB Facility was $114.4 million and borrowings outstanding were $58.3 million. At December 31, 2019, the excess availability under the HBB Facility was $56.1 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, LIBOR or bankers' acceptance rate, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective December 31, 2019, for base rate loans and LIBOR loans denominated in U.S. dollars were 0.0% and 1.75%, respectively. The applicable margins, effective December 31, 2019, for base rate loans and bankers' acceptance loans denominated in Canadian dollars were 0.0% and 1.75%, 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, 2019 was 3.82%, including the floating rate margin and the effect of the interest rate swap agreements described below.


24

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)

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. HBB has interest rate swaps with notional values totaling $35.0 million at December 31, 2019 at an average fixed interest rate of 1.5%. HBB also has delayed-start interest rate swaps with notional values totaling $10.0 million as of December 31, 2019, with fixed rates of 1.7%.

The HBB Facility includes restrictive covenants, which, among other things, limit the payment of dividends to Hamilton Beach Holding, subject to achieving availability thresholds. Under Amendment No. 6 to the HBB Facility, dividends to Hamilton Beach Holding are not to exceed $5.0 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 $15.0 million. Dividends to Hamilton Beach Holding 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 $25.0 million. The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility. At December 31, 2019, HBB was 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. The Company utilizes this arrangement as an integral part of financing working capital. 

HBB believes funds available from cash on hand, the HBB Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration of the HBB Facility.

KC maintained a separate revolving line of credit facility (the "KC Facility") that was secured by substantially all of the assets of KC. The Company's decision to wind down KC and its retail operations constituted an event of default under the KC Facility. As a result, on October 23, 2019, KC and its lender entered into a Forbearance Agreement (the “Forbearance Agreement”). Under the terms of the Forbearance Agreement, the lender agreed to forebear from exercising its rights and remedies as a result of the events of default pending accelerated payment in full of the obligations under the KC facility on or before December 15, 2019. All obligations under the KC Facility were paid in full in accordance with the Forbearance Agreement and the KC Facility was terminated on December 3, 2019.

Contractual Obligations, Contingent Liabilities and Commitments

Following is a table which summarizes the contractual obligations of Hamilton Beach Holding as of December 31, 2019:
 
Payments Due by Period
Contractual Obligations
Total
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
HBB:
 
 
 
 
 
 
 
 
 
 
 
 
 
Revolving credit agreements
$
58,497

 
192

 
58,305

 
$
—

 
$
—

 
$
—

 
$
—

Variable interest payments on HBB Facility
4,140

 
2,244

 
1,896

 
—

 
—

 
—

 
—

Purchase and other obligations
212,312

 
209,040

 
3,157

 
69

 
46

 
—

 
—

Operating lease obligations
31,710

 
6,114

 
4,089

 
1,816

 
1,574

 
1,590

 
16,527

KC:
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchase and other obligations
12,475

 
12,475

 
—

 
—

 
—

 
—

 
—

Operating lease obligations
26,493

 
10,942

 
5,863

 
4,027

 
2,458

 
1,534

 
1,669

Total contractual cash obligations
$
345,627

 
$
241,007

 
$
73,310

 
$
5,912

 
$
4,078

 
$
3,124

 
$
18,196


Not included in the table above, HBB has a long-term liability of approximately $0.4 million for unrecognized tax benefits, including interest and penalties, as of December 31, 2019. At this time, the Company is unable to make a reasonable estimate of the timing of payments due to, among other factors, the uncertainty of the timing and outcome of its audits.


25

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)

HBB’s variable interest payments are calculated based upon HBB's anticipated payment schedule and the December 31, 2019 base rate and applicable margins, as defined in the HBB Facility. A 1/8% increase in the base rate would increase HBB’s estimated total annual interest payments on the HBB Facility by approximately $0.5 million.

HBB's purchase and other obligations are primarily for accounts payable, open purchase orders and accrued payroll and incentive compensation. KC's purchase and other obligations are primarily for accounts payable and accrued employee related costs.

An event of default, as defined in the HBB Facility and in HBB's operating lease agreements, could cause an acceleration of the payment schedule. No such event of default for HBB has occurred or is anticipated to occur.

KC is in default of the lease agreements for KC stores, which could result in acceleration of the payment schedule for those store leases.

Pension funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and the Company’s decisions to contribute above the minimum regulatory funding requirements. As a result, pension funding has not been included in the table above. HBB does not expect to contribute to its pension plans in 2020. Pension benefit payments are made from assets of the pension plans.

Off Balance Sheet Arrangements

The Company has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.

Accounting Standards Adopted

In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715)," which amends the requirements in GAAP related to the income statement presentation of the components of net periodic benefit cost for an entity's sponsored defined benefit pension and other post-retirement plans. The Company adopted this guidance on January 1, 2019. The change in presentation of the components of net periodic pension cost was applied retrospectively which resulted in $0.7 million and $0.9 million of net periodic pension income for the years end December 31, 2018, and 2017, respectively, being reclassified from selling, general and administrative expenses to other expense (income), net.

Accounting Standards Not Yet Adopted

The Company is an emerging growth company and has elected not to opt out of the extended transition period for complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public or nonpublic entities, the Company can adopt the new or revised standard at the time nonpublic entities adopt the new or revised standard.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)," which requires an entity to recognize assets and liabilities for the rights and obligations created by leased assets. For nonpublic entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is planning to adopt ASU 2016-02 for its year ending December 31, 2021 and is currently evaluating to what extent ASU 2016-02 will affect the Company's financial position, results of operations, cash flows and related disclosures.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326)," which requires an entity to recognize credit losses as an allowance rather than as a write-down. For nonpublic entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is planning to adopt ASU 2016-03 for its year ending December 31, 2022 and is currently evaluating to what extent ASU 2016-13 will affect the Company's financial position, results of operations, cash flows and related disclosures.


26

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/A 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 Securities Exchange Act of 1934. 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 with respect to each subsidiary's operations include, without limitation: (1) changes in the sales prices, product mix or levels of consumer purchases of small electric and specialty housewares appliances, (2) changes in consumer retail and credit markets, including the increasing volume of transactions made through third-party internet sellers, (3) bankruptcy of or loss of major retail customers or suppliers, (4) changes in costs, including transportation costs, of sourced products, (5) delays in delivery of sourced products, (6) changes in or unavailability of quality or cost effective suppliers, (7) exchange rate fluctuations, changes in the import tariffs and monetary policies and other changes in the regulatory climate in the countries in which HBB buys, operates and/or sells products, (8) the impact of tariffs on customer purchasing patterns, (9) product liability, regulatory actions or other litigation, warranty claims or returns of products, (10) customer acceptance of, changes in costs of, or delays in the development of new products, (11) increased competition, including consolidation within the industry, (12) 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 HBB products, (13) changes mandated by federal, state and other regulation, including tax, health, safety or environmental legislation, (14) risks associated with the wind down of KC including unexpected costs, contingent liabilities and the potential disruption of our other businesses, (15) the unpredictable nature of the coronavirus and its potential impact on our business, (16) the result of shareholder or governmental actions relating to the restatement of our financial statements and accounting and legal fees that we may incur in connection with the restatement, (17) our ability to successfully remediate the material weaknesses in our internal control over financial reporting disclosed in this Form 10-K/A within the time periods and in the manner currently anticipated, additional material weaknesses or other deficiencies that may arise in the future or our ability to maintain an effective system of internal controls and (18) 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/A for the year ended December 31, 2019.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
HBB enters into certain financing arrangements that require interest payments based on floating interest rates. As such, the Company's 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, HBB has entered into interest rate swap agreements for a portion of its floating rate financing arrangements. The Company does not enter into interest rate swap agreements for trading purposes. Terms of the interest rate swap agreements require HBB to receive a variable interest rate and pay a fixed interest rate.
For purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in interest rates. The Company assumes that a loss in fair value is an increase to its liabilities. The fair value of the Company's interest rate swap agreements was a payable of $0.1 million at December 31, 2019. A hypothetical 10% 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 payable of $0.3 million. Additionally, a hypothetical 10% increase in interest rates would not have a material impact to the Company's interest expense, net of $3.0 million at December 31, 2019.

27

FOREIGN CURRENCY EXCHANGE RATE RISK
HBB operates internationally and enters 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, HBB's 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.
HBB uses 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 HBB 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 purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in foreign currency exchange rates. The Company assumes that a loss in fair value is either a decrease to its assets or an increase to its liabilities. The fair value of the Company's foreign currency exchange contracts was a net payable of $0.3 million at December 31, 2019. Assuming a hypothetical 10% weakening of the U.S. dollar at December 31, 2019, the fair value of foreign currency-sensitive financial instruments, which represents forward foreign currency exchange contracts, would be decreased by $1.1 million compared with its fair value at December 31, 2019.

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/A 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 three-year period ended December 31, 2019 that would require disclosure pursuant to this Item 9.

Item 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures: Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019. At the time of our Original Filing, our Chief Executive Officer and Chief Financial Officer had concluded that our disclosure controls and procedures were effective as of December 31, 2019. Subsequent to the evaluation made in connection with the Original Filing, our Chief Executive Officer and Chief Financial Officer have re-evaluated the effectiveness of our disclosure controls and procedures in connection with the restatement of our consolidated financial statements that resulted from wrongdoing by certain former employees of one of our Mexican subsidiaries. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2019, due to the existence of the material weaknesses in our internal control over financial reporting at our Mexican subsidiaries as described below, our disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.
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 our Chief Executive Officer and our 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 we did not maintain effective internal control over financial reporting as of December 31, 2019 due to the material weaknesses at our Mexican subsidiaries described below.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

28

We identified deficiencies at our Mexican subsidiaries as follows:
•
Review controls performed at our Mexican subsidiaries did not operate effectively as account reconciliations and manual journal entries were not supported by accurate and complete information, which resulted in expenditures being deferred on the balance sheet beyond the period for which the costs pertained and the failure to detect unauthorized transactions deferred on the balance sheet as a result of wrongdoing by certain former employees of one of our Mexican subsidiaries; and

•
Transaction level controls over authorization of spending with vendors, adjusting product costing and selling prices, new customer setup and accounting for price concessions with our customers at our Mexican subsidiaries were not sufficiently designed or operating effectively to provide reasonable assurance regarding the prevention and timely detection of misappropriation of assets.

We have concluded that each of these deficiencies at our Mexican subsidiaries constitutes a material weakness in our internal control over financial reporting.
The Company's effectiveness of internal control over financial reporting as of December 31, 2019 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/A and incorporated herein by reference.

Remediation of Material Weaknesses: We have evaluated the material weaknesses and have developed a plan of remediation to strengthen our internal controls over financial reporting at our Mexican subsidiaries which include the remediation efforts summarized below. Some remediation efforts have been implemented, while others are in the process of being implemented. The remediation efforts are intended to address the deficiencies and enhance our overall internal control environment:
•
Personnel Actions - We have terminated employees of one of our Mexican subsidiaries found to have engaged in misconduct, which included collusion between these employees and vendors and customers of our Mexican subsidiaries in which such employees had an interest. Additional training on our code of conduct will be implemented for all employees of our Mexican subsidiaries.

•
Organizational Enhancements - We have implemented and are in the process of implementing organizational enhancements as follows: (i) augmenting our local accounting team for our Mexican subsidiaries with additional professionals with the relevant levels of accounting and controls knowledge, experience and training in the area of account reconciliations and manual journal entries to validate that account reconciliations and manual journal entries are supported by accurate and complete information; (ii) developing a more comprehensive review process and monitoring controls over the approval for vendor payments, changes to product cost and selling prices, approval for new customer setup including related terms and accounting for price concessions with our customers at our Mexican subsidiaries; and (iii) outsourcing functions at our Mexican subsidiaries where third-party service providers provide expertise or technical skillset, as appropriate.

We believe the measures described above along with other elements of our remediation plan will remediate the material weaknesses identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and have begun to implement the steps described above. We will also continue to review, optimize and enhance our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies or we may modify certain of the remediation measures described above. We will not consider our material weaknesses remediated until the applicable remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting: There have been no changes in the Company's internal control over financial reporting, that occurred during the fourth quarter of 2019, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Item 9B. OTHER INFORMATION
None.


29

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to Directors of the Company will be set forth in the 2020 Proxy Statement under the subheadings “Part II — Proposals To Be Voted On At The 2020 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 2020 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 the Company's Directors, executive officers and holders of more than ten percent of the Company's equity securities will be set forth in the 2020 Proxy Statement under the subheading “Part IV — Other Important Information — Section 16(a) Beneficial Ownership Reporting Compliance,” which information is incorporated herein by reference.
Information regarding the executive officers of the Company is included in this Form 10-K/A as Item 4A of Part I as permitted by Instruction 3 to Item 401(b) of Regulation S-K.
The Company has 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 the Company's website at www.hamiltonbeachbrands.com/investors/corporate-governance.
Item 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be set forth in the 2020 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 2020 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 2020 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 2020 Proxy Statement under the heading “Part II — Proposals To Be Voted On At The 2020 Annual Meeting — Proposal 4 — Ratification of the Appointment of Ernst & Young LLP as the Company's Independent Registered Public Accounting Firm for 2020,” which information is incorporated herein by reference.

PART IV

30

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-2 of this Form 10-K/A.
(a)(2) Financial Statement Schedules
The response to Item 15(a)(2) is set forth beginning at page F-34 of this Form 10-K/A.
(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:

(2) Plan of acquisition, reorganization, arrangement, liquidation or succession.
(3) Articles of Incorporation and By-laws.
(4) Instruments defining the rights of security holders, including indentures.

31

(10) Material Contracts.
10.1
 
10.2
 
10.3
 
10.4
 
10.5*
 
10.6*
 
10.7*
 
10.8*
 
10.9
 
10.10
 
10.11
 
10.12
 
10.13
 
10.14
 
10.15
 





32

10.16
 
10.17
 
10.18
 
10.19
 
10.20*
 
10.21*
 
10.22*
 
10.23*
 
10.24*
 
10.25*
 
10.26*
 
10.27*
 
10.28*
 
10.29
 
10.30
 
10.31*
 


33

10.32*
 
10.33*
 
10.34
 
10.35
 
10.36
 
10.37
 
10.38
 


(23) Consents of experts and counsel.

(31) Rule 13a-14(a)/15d-14(a) Certifications.
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
*
 
Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item15(b) of this Annual Report on Form 10-K/A.

34

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
By:  
/s/ Michelle O. Mosier
 
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)/(Principal Accounting Officer)
 
July 23, 2020
 
Michelle O. Mosier
 
 
 
 

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Hamilton Beach Brands Holding Company hereby appoints Michelle O. Mosier as the true and lawful attorney or attorney-in-fact, with full power of substitution and revocation, for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as director of Hamilton Beach Brands Holding Company, a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K/A for the fiscal year ended December 31, 2019 and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorney or attorney-in-fact full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney or attorney-in-fact substitute or substitutes may lawfully do or cause to be done by virtue hereof.

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
 
 
 
 
Gregory H. Trepp
 
President and Chief Executive Officer (Principal Executive Officer), Director
 
July 23, 2020
 
 
 
 
 
/s/ Michelle O. Mosier
 
 
 
 
Michelle O. Mosier
 
Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)/(Principal Accounting Officer)
 
July 23, 2020
 
 
 
 
 
/s/ Mark R. Belgya
 
 
 
 
Mark R. Belgya
 
Director
 
July 23, 2020
 
 
 
 
 
/s/ J.C. Butler, Jr.
 
 
 
 
J.C. Butler, Jr.
 
Director
 
July 23, 2020
 
 
 
 
 
/s/ Paul D. Furlow
 
 
 
 
Paul D. Furlow
 
Director
 
July 23, 2020


35

Signature
 
Title
 
Date
 
 
 
 
 
/s/ John P. Jumper
 
 
 
 
John P. Jumper
 
Director
 
July 23, 2020
 
 
 
 
 
/s/ Dennis W. LaBarre
 
 
 
 
Dennis W. LaBarre
 
Director
 
July 23, 2020
 
 
 
 
 
/s/ Michael S. Miller
 
 
 
 
Michael S. Miller
 
Director
 
July 23, 2020
 
 
 
 
 
/s/ Alfred M. Rankin, Jr.
 
 
 
 
Alfred M. Rankin, Jr.
 
Director
 
July 23, 2020
 
 
 
 
 
/s/ Thomas T. Rankin
 
 
 
 
Thomas T. Rankin
 
Director
 
July 23, 2020
 
 
 
 
 
/s/ James A. Ratner
 
 
 
 
James A. Ratner
 
Director
 
July 23, 2020
 
 
 
 
 
/s/ Clara R. Williams
 
 
 
 
Clara R. Williams
 
Director
 
July 23, 2020

36

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, 2019

HAMILTON BEACH BRANDS HOLDING COMPANY
GLEN ALLEN, VIRGINIA


F-1

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:
The following consolidated financial statement schedule of Hamilton Beach Brands Holding Company is included in Item 15(a)(2):
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


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders 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, 2019 and 2018, 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, 2019, and the related notes and the 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 February 26, 2020, except for the effect of the material weaknesses described in the second and third paragraphs as to which the date is July 23, 2020, expressed an adverse opinion thereon.

Restatement of 2019, 2018 and 2017 Financial Statements

As discussed in Note 2 to the consolidated financial statements, the 2019, 2018 and 2017 consolidated financial statements have been restated to correct certain misstatements.

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.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017

Cleveland, Ohio
February 26, 2020, except for the effect of the restatement disclosed in Note 2,
as to which the date is July 23, 2020


F-3

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders 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, 2019, 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, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, Hamilton Beach Brands Holding Company (the Company) has not maintained effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

In our report dated February 26, 2020, we expressed an unqualified opinion that the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria. Management has subsequently identified deficiencies in the design and operating effectiveness of its controls related to (1) the Company’s Mexican subsidiaries' review controls as account reconciliations and manual journal entries were not supported by accurate and complete information and failed to detect unauthorized transactions and (2) controls at the Company’s Mexican subsidiaries over authorizations for spending with vendors, adjusting product costs and selling prices, new customer setup and accounting for price concessions with customers, and has further concluded that such deficiencies represented material weaknesses as of December 31, 2019. As a result, management has revised its assessment, as presented in the accompanying Management's Report on Internal Control over Financial Reporting; to conclude that the Company’s internal control over financial reporting was not effective as of December 31, 2019. Accordingly, our present opinion on the effectiveness of December 31, 2019’s internal control over financial reporting as of December 31, 2019, as expressed herein, is different from that expressed in our previous report.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management's assessment. Management has identified material weaknesses in controls related to the Company's Mexican subsidiaries' (1) review controls over account reconciliations and manual journal entries and (2) controls at its Mexican subsidiaries over authorizations for spending with vendors, adjusting product costs and selling prices, new customer setup and accounting for price concessions with customers.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2019 consolidated financial statements of the Company. These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and this report does not affect our report dated February 26, 2020, except for the effect of the restatement disclosed in Note 2 as to which the date is July 23, 2020, which expressed an unqualified opinion on those financial statements.

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 in Item 9A. 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.



F-4

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
February 26, 2020, except for the effect of the material weaknesses
described in the second and third paragraphs above,
as to which the date is July 23, 2020



F-5

HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
 
As Restated
 
Year Ended December 31
 
2019
 
2018
 
2017
 
(In thousands, except per share data)
Revenue
$
611,786

 
$
630,082

 
$
612,056

Cost of sales
483,234

 
491,030

 
475,939

Gross profit
128,552

 
139,052

 
136,117

Selling, general and administrative expenses
100,381

 
104,121

 
96,780

Amortization of intangible assets
1,377

 
1,381

 
1,381

Operating profit
26,794

 
33,550

 
37,956

Interest expense, net
2,975

 
2,916

 
1,572

Other expense (income), net
(358
)
 
149

 
(692
)
Income from continuing operations before income taxes
24,177

 
30,485

 
37,076

Income tax expense
9,084

 
7,426

 
18,967

Net income from continuing operations
15,093

 
23,059

 
18,109

Loss from discontinued operations, net of tax
(28,600
)
 
(5,361
)
 
(2,225
)
Net income (loss)
$
(13,507
)
 
$
17,698

 
$
15,884

 

 

 

Basic and diluted earnings (loss) per share:


 


 


Continuing operations
$
1.10


$
1.68


$
1.32

Discontinued operations
(2.09
)

(0.39
)

(0.16
)
Basic and diluted earnings (loss) per share
$
(0.99
)

$
1.29


$
1.16

 








Basic weighted average shares outstanding
13,690

 
13,699

 
13,673

Diluted weighted average shares outstanding
13,726

 
13,731

 
13,685

See notes to consolidated financial statements.


F-6

HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
As Restated
 
Year Ended December 31
 
2019
 
2018
 
2017
 
(In thousands)
Net income (loss)
$
(13,507
)
 
$
17,698

 
$
15,884

Other comprehensive income (loss), net of tax:

 

 

Foreign currency translation adjustment
510

 
(73
)
 
648

Loss on long-term intra-entity foreign currency transactions
(79
)
 
(1,006
)
 
—

Cash flow hedging activity
(1,569
)
 
100

 
(749
)
Reclassification of hedging activities into earnings
349

 
153

 
641

Pension plan adjustment
1,410

 
(1,920
)
 
1,510

Reclassification of pension adjustments into earnings
348

 
556

 
306

Total other comprehensive income (loss), net of tax
$
969

 
$
(2,190
)
 
$
2,356

Comprehensive income (loss)
$
(12,538
)
 
$
15,508

 
$
18,240

See notes to consolidated financial statements.


F-7

HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
 
As Restated
 
December 31
 
2019
 
2018
 
(In thousands)
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
2,142

 
$
4,420

Trade receivables, net
108,381

 
98,361

Inventory
109,806

 
122,808

Prepaid expenses and other current assets
11,345

 
15,396

Current assets of discontinued operations
5,383

 
27,879

Total current assets
237,057

 
268,864

Property, plant and equipment, net
22,324

 
20,842

Goodwill
6,253

 
6,253

Other intangible assets, net
3,141

 
4,519

Deferred income taxes
6,248

 
5,794

Deferred costs
10,941

 
7,868

Other non-current assets
2,085

 
2,672

Non-current assets of discontinued operations
614

 
4,606

Total assets
$
288,663

 
$
321,418

Liabilities and stockholders' equity

 

Current liabilities

 

Accounts payable
$
111,348

 
$
119,271

Accounts payable to NACCO Industries, Inc.
496

 
2,416

Revolving credit agreements
23,497

 
11,624

Accrued compensation
15,027

 
15,878

Accrued product returns
8,697

 
10,698

Other current liabilities
12,534

 
22,922

Current liabilities of discontinued operations
29,723

 
22,820

Total current liabilities
201,322

 
205,629

Revolving credit agreements
35,000

 
35,000

Other long-term liabilities
16,075

 
22,011

Non-current liabilities of discontinued operations
—

 
1,960

Total liabilities
252,397

 
264,600

Stockholders’ equity

 

Preferred stock, par value $0.01 per share
—

 
—

Class A Common stock, par value $0.01 per share; 9,805 and 9,291 shares issued as of December 31, 2019 and 2018, respectively
98

 
93

Class B Common stock, par value $0.01 per share, convertible into Class A on a one-for-one basis; 4,076 and 4,422 shares issued as of December 31, 2019 and 2018, respectively
41

 
44

Capital in excess of par value
54,509

 
51,714

Treasury stock
(5,960
)
 
—

Retained earnings
3,710

 
22,068

Accumulated other comprehensive loss
(16,132
)
 
(17,101
)
Total stockholders’ equity
36,266

 
56,818

Total liabilities and stockholders' equity
$
288,663

 
$
321,418

 
 
 
 
 
 
 
 


F-8

See notes to consolidated financial statements.


F-9

HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
As Restated
 
Year Ended December 31
 
2019
 
2018
 
2017
 
(In thousands)
Operating activities
 
 
 
 
 
Net income from continuing operations
$
15,093

 
$
23,059

 
$
18,109

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:

 

 

Depreciation and amortization
4,002

 
4,277

 
4,072

Deferred income taxes
1,487

 
5,474

 
3,475

Stock compensation expense
2,797

 
3,618

 
323

Other
616

 
837

 
(1,167
)
Net changes in operating assets and liabilities:

 

 

Affiliate payable
(1,920
)
 
(5,300
)
 
866

Trade receivables
(22,769
)
 
18,529

 
(8,128
)
Inventory
13,674

 
(12,255
)
 
(16,566
)
Other assets
1,127

 
(4,586
)
 
(1,295
)
Accounts payable
(7,043
)
 
(7,719
)
 
25,009

Other liabilities
(6,842
)
 
(7,979
)
 
3,605

Net cash provided by operating activities from continuing operations
222

 
17,955

 
28,303

Investing activities

 

 

Expenditures for property, plant and equipment
(4,122
)
 
(7,759
)
 
(6,198
)
Other
—

 
—

 
21

Net cash used for investing activities from continuing operations
(4,122
)
 
(7,759
)
 
(6,177
)
Financing activities

 

 

Net additions (reductions) to revolving credit agreements
11,873

 
(4,597
)
 
12,630

Purchase of treasury stock
(5,960
)
 
—

 
—

Cash dividends paid
(4,851
)
 
(4,658
)
 
(1,162
)
Cash dividends to NACCO Industries, Inc.
—

 
—

 
(38,000
)
Net cash provided by (used for) financing activities from continuing operations
1,062

 
(9,255
)
 
(26,532
)
Cash flows from discontinued operations


 


 


Net cash provided by (used for) operating activities from discontinued operations
3,953

 
(5,499
)
 
5,137

Net cash provided by (used for) investing activities from discontinued operations
585

 
(305
)
 
(1,176
)
Net cash used for financing activities from discontinued operations
(103
)
 
—

 
(70
)
Cash provided by (used for) discontinued operations
4,435

 
(5,804
)
 
3,891

Effect of exchange rate changes on cash
(785
)
 
309

 
81

Cash and Cash Equivalents

 

 

(Decrease) increase for the year from continuing operations
(3,623
)
 
1,250

 
(4,325
)
Increase (decrease) for the year from discontinued operations
4,435

 
(5,804
)
 
3,891

Balance at the beginning of the year
6,352

 
10,906

 
11,340

Balance at the end of the year
$
7,164

 
$
6,352

 
$
10,906

See notes to consolidated financial statements.

F-10

HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
 
Class A Common Stock
Class B Common Stock
Capital in Excess of Par Value (1)
Treasury Stock
Retained Earnings (1)
Accumulated Other Comprehensive Income (Loss)(1)
Total Stockholders' Equity (1)
 
(In thousands, except per share data)
Balance, January 1, 2017 (As previously reported)
$
—

$
—

$
75,031

$
—

$
6,738

$
(16,501
)
$
65,268

Cumulative restatement adjustments
$
—

$
—

$
—

$
—

$
(2,722
)
$
402

$
(2,320
)
Balance as Restated, January 1, 2017
$
—

$
—

$
75,031

$
—

$
4,016

$
(16,099
)
$
62,948

Net income
—

—

—

—

15,884

—

15,884

Issuance of common stock, net of conversions
88

48

(136
)
—

—

—

—

Cash dividends to NACCO Industries, Inc.
—

—

(27,122
)
—

(10,878
)
—

(38,000
)
Cash dividends, $0.085 per share
—

—

—

—

(1,162
)
—

(1,162
)
Other comprehensive income
—

—

—

—

—

1,409

1,409

Reclassification adjustment to net income
—

—

—

—

—

947

947

Balance as Restated, December 31, 2017
$
88

$
48

$
47,773

$
—

$
7,860

$
(13,743
)
$
42,026

Net income
—

—

—

—

17,698

—

17,698

Issuance of common stock, net of conversions
5

(4
)
323

—

—

—

324

Stock compensation expense
—

—

3,618

—

—

—

3,618

Cash dividends, $0.34 per share
—

—

—

—

(4,658
)
—

(4,658
)
Reclassification due to adoption of ASU 2018-02
—

—

—

—

1,168

(1,168
)
—

Other comprehensive loss
—

—

—

—

—

(2,899
)
(2,899
)
Reclassification adjustment to net income
—

—

—

—

—

709

709

Balance as Restated, December 31, 2018
$
93

$
44

$
51,714

$
—

$
22,068

$
(17,101
)
$
56,818

Net loss
—

—

—

—

(13,507
)
—

(13,507
)
Issuance of common stock, net of conversions
5

(3
)
(2
)
—

—

—

—

Purchase of treasury stock
—

—

—

(5,960
)
—

—

(5,960
)
Stock compensation expense
—

—

2,797

—

—

—

2,797

Cash dividends, $0.355 per share
—

—

—

—

(4,851
)
—

(4,851
)
Other comprehensive income
—

—

—

—

—

272

272

Reclassification adjustment to net income (loss)
—

—

—

—

—

697

697

Balance as Restated, December 31, 2019
$
98

$
41

$
54,509

$
(5,960
)
$
3,710

$
(16,132
)
$
36,266

See notes to consolidated financial statements.
(1) As Restated

F-11

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

Hamilton Beach Brands Holding Company is an operating holding company and operates through its two wholly-owned subsidiaries Hamilton Beach Brands, Inc. (“HBB”) and The Kitchen Collection, LLC (“KC”) (collectively “Hamilton Beach Holding” or the “Company”). On October 10, 2019, the Company’s board of directors (the “Board”) approved the wind down of KC and its retail operations. By December 31, 2019, all KC stores were closed and the reportable segment qualifies to be reported as discontinued operations. On January 21, 2020, the Board approved the dissolution of the KC legal entity and a Certificate of Dissolution of Ohio Limited Liability Company was filed with the Ohio Secretary of State. See Note 3 for further information on discontinued operations.

The only material assets held by Hamilton Beach Brands Holding Company are its investments in its consolidated subsidiaries. Substantially all of its cash flows are provided by dividends paid or distributions made by its subsidiaries. Hamilton Beach Brands Holding Company has not guaranteed any obligations of its subsidiaries.

HBB is a leading designer, marketer, and distributor of branded, small electric household and specialty housewares appliances, as well as commercial products for restaurants, bars, and hotels. HBB operates in the consumer, commercial and specialty small appliance markets.

On September 29, 2017, NACCO Industries, Inc. ("NACCO"), Hamilton Beach Holding's former parent company, spun-off the Company to NACCO stockholders. In the spin-off, NACCO stockholders, in addition to retaining their shares of NACCO common stock, received one share of Hamilton Beach Brands Holding Company Class A common stock ("Class A Common") and one share of Hamilton Beach Brands Holding Company Class B common stock ("Class B Common") for each share of NACCO Class A or Class B common stock. In accordance with applicable authoritative accounting guidance, the Company accounted for the spin-off from NACCO based on the historical carrying value of assets and liabilities. As a result of the distribution of one share of Class A Common and one share of Class B Common for each share of NACCO Class A or NACCO Class B common stock, the earnings per share amounts for the Company for periods prior to the spin-off have been calculated based upon the number of shares distributed in the spin-off. NACCO did not receive any proceeds from the spin-off.

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.

Prior period non-trade customer receivable amounts of $9.5 million have been reclassified from trade receivables, net to prepaid expenses and other current assets to conform to the current period presentation.

Segment Information

As of December 31, 2019, HBB is the Company’s single reportable operating segment. This is supported by the operational structure of HBB which is designed and managed to share resources across the entire suite of products offered by the business. Such resources include research and development, product design, marketing, operations, and administrative functions. The Company's chief operating decision maker does not regularly review financial information for individual product categories, sales channels, or geographic regions that would allow decisions to be made about allocation of resources or performance. Since the Company operates in one reportable segment, all required financial segment information can be found in the consolidated financial statements.


F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






Discontinued Operations

A component of an entity that is disposed of by sale or abandonment is reported as discontinued operations if the transaction represents a strategic shift that will have a major effect on an entity's operations and financial results. The results of discontinued operations are aggregated and presented separately in the Consolidated Statement of Operations. Assets and liabilities of the discontinued operations are aggregated and reported separately as assets and liabilities of discontinued operations in the Consolidated Balance Sheet, including the comparative prior year period. KC’s cash flows are reflected as cash flows from discontinued operations within the Company’s Consolidated Statements of Cash Flows for each period presented.

Amounts presented in discontinued operations have been derived from our consolidated financial statements and accounting records using the historical basis of assets, liabilities, and historical results of KC. The discontinued operations exclude general corporate allocations.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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.

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.
HBB maintains significant trade receivables balances with several large retail customers. At December 31, 2019 and 2018, receivables from HBB’s five largest customers represented 69% and 57%, respectively, of HBB's net trade receivables. HBB’s significant credit concentration is uncollateralized; however, historically, minimal credit losses have been incurred.

Transfer of Financial Assets

HBB has entered into an arrangement with a financial institution to sell certain U.S. trade receivables on a non-recourse basis. HBB utilizes this arrangement as an integral part of financing working capital.  Under the terms of the agreement, HBB receives cash proceeds and retains no rights or interest and has no obligations with respect to the sold receivables.  These transactions are accounted for as sold receivables which 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, HBB derecognized $162.7 million, $165.4 million, and $164.0 million of trade receivables during 2019, 2018 and 2017, respectively.  The losses incurred on sold receivables in the consolidated results of operations for the years ended December 31, 2019, 2018, and 2017 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.


F-13

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 all 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 not more-likely-than-not that the goodwill was 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

HBB and environmental consultants are investigating or remediating historical environmental contamination at some current and former sites operated by HBB or by businesses it 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 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-14

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 changes in returns. In addition, the Company offers 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 its 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. As of December 31, 2019, we have determined that customer price concessions recorded as a reduction of revenue, certain of which were previously recorded in other current liabilities, meet all of the criteria specified in ASC 210-20, "Balance Sheet Offsetting". Accordingly, amounts related to such arrangements have been classified as a reduction of trade receivables, net as of December 31, 2019 (prior periods have not been adjusted as all the criteria in ASC 210-20 had not previously been met).

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 $12.1 million, $11.0 million, and $10.4 million in 2019, 2018, and 2017, 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.


F-15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






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. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and generally recognized in cost of sales.

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 LIBOR (London Interbank Offered Rate). 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 ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and included in interest expense, net. 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, the Company grants stock of Class A Common, subject to transfer restrictions, as a means of retaining and rewarding selected employees for long-term performance. Stock 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 (i) three years after the participant's retirement date, or (ii) the participant's death or permanent disability. The Company issued 118,688 and 5,512 shares of stock of Class A Common in the years ended December 31, 2019 and 2018, respectively. No stock was issued in the year ended December 31, 2017 under the Executive Plan. Stock compensation expense related to the Executive Plan was $1.6 million and $2.7 million for the years ended December 31, 2019 and 2018, respectively, and was based on the fair value of Class A Common on the grant date.

F-16

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. Management 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. 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 March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715)," which amends the requirements in GAAP related to the income statement presentation of the components of net periodic benefit cost for an entity's sponsored defined benefit pension and other post-retirement plans. The Company adopted this guidance on January 1, 2019. The change in presentation of the components of net periodic pension cost was applied retrospectively which resulted in $0.7 million and $0.9 million of net periodic pension income for the years end December 31, 2018, and 2017, respectively, being reclassified from selling, general and administrative expenses to other expense (income), net.

Accounting Standards Not Yet Adopted

The Company is an emerging growth company and has elected not to opt out of the extended transition period for complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public or nonpublic entities, the Company can adopt the new or revised standard at the time nonpublic entities adopt the new or revised standard.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)," which requires an entity to recognize assets and liabilities for the rights and obligations created by leased assets. For nonpublic entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is planning to adopt ASU 2016-02 for its year ending December 31, 2021 and is currently evaluating to what extent ASU 2016-02 will affect the Company's financial position, results of operations, cash flows and related disclosures.


F-17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326)," which requires an entity to recognize credit losses as an allowance rather than as a write-down. For nonpublic entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is planning to adopt ASU 2016-03 for its year ending December 31, 2022 and is currently evaluating to what extent ASU 2016-13 will affect the Company's financial position, results of operations, cash flows and related disclosures.

NOTE 2 - Restatement of Previously Issued Consolidated Financial Statements

Restatement
During the quarter ended March 31, 2020, the Company discovered certain accounting irregularities at its Mexican subsidiaries. The Company’s Audit Review Committee commenced an internal investigation, with the assistance of outside counsel and other third party experts. As a result of this investigation, the Company, along with the Audit Review Committee and its third party experts, concluded that certain former employees of one of the Company’s Mexican subsidiaries engaged in unauthorized transactions with the Company’s Mexican subsidiaries that resulted in expenditures being deferred on the balance sheet beyond the period for which the costs pertained. As a result, the Company recorded a non-cash write-off for certain amounts included in the Company’s historical consolidated financial statements in trade receivables and prepaid expenses and other current assets, among other corrections, related to these transactions, and restated its consolidated financial statements as of and for the years ended December 31, 2019, 2018, and 2017 and each of the quarters during the years ended December 31, 2019 and 2018. During the course of the investigation, certain expenses at the Company's Mexican subsidiaries were found to be incorrectly classified within the consolidated statement of operations and have also been corrected in the restatement. These misstatements are described in restatement reference (a) through (d) below. The restated interim financial information for the relevant unaudited interim financial information for the quarterly periods of 2019 and 2018, is included in Note 16, Quarterly Results of Operations (Unaudited).
The restatement also includes corrections for other errors identified as immaterial, individually and in the aggregate, to our consolidated financial statements.


Description of Misstatements

(a) Write-off of Assets: Certain former employees of one of the Company's Mexican subsidiaries engaged in unauthorized transactions with the Company’s Mexican subsidiaries and vendors in which the employees had an interest. In doing so, expenditures were deferred on the balance sheet beyond the period for which the costs pertained. The amounts were recorded as trade receivables, prepaid expenses and other current assets, and reductions in accrued liabilities. The amounts have been written off to selling, general and administrative expenses. Where these write-offs caused the balance in prepaid expenses and other current assets to become a liability, the balance has been reclassified from prepaid expenses and other assets to other current liabilities.

(b) Reversal of Revenue: Certain former employees of one of our Mexican subsidiaries engaged in sales activities to customers in which the employees had an interest. The Company concluded that these unauthorized transactions did not meet the criteria for revenue recognition at the time of sale and the revenue has been reversed.

(c) Correction of misclassification of Selling and Marketing Expenses: Certain former employees of one of our Mexican subsidiaries engaged a third-party, in which the employees had an interest, to perform selling and marketing activities on behalf of the Mexican subsidiaries. Amounts paid for the selling and marketing activities had previously been treated as variable consideration and reflected as a reduction to revenue; however, the amounts should be reflected as selling, general and administrative expenses.

(d) Correction for the timing of recognition of customer price concessions: Customer price concessions at our Mexican subsidiaries were not accrued timely in order to obscure the increased expenses due to unauthorized transactions as described above.


F-18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






    
(e) Tax adjustments for corrections: The tax impacts of the corrections have been recorded.

(f) Correction of other immaterial errors

Description of Restatement Tables

The following tables present the impact of the restatement on our previously reported consolidated statements of operations, statements of comprehensive income (loss), balance sheets, statements of equity, and statements of cash flows for the years ended December 31, 2019 and December 31, 2018 and the impact of the restatement on our previously reported consolidated statements of operations, statements of comprehensive income (loss), statements of equity, and statements of cash flows for the year ended December 31, 2017. The values as previously reported were derived from our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed on February 26, 2020.


F-19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED STATEMENTS OF OPERATIONS
 
Year Ended December 31, 2019
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
 
(In thousands, except per share data)
Revenue
$
612,843

 
$
(1,057
)
 
a,b,c,d,f
 
$
611,786

Cost of sales
483,298

 
(64
)
 
f
 
483,234

Gross profit
129,545

 
(993
)
 

 
128,552

Selling, general and administrative expenses
91,302

 
9,079

 
a,c,f
 
100,381

Amortization of intangible assets
1,377

 
—

 

 
1,377

Operating profit
36,866

 
(10,072
)
 

 
26,794

Interest expense, net
2,975

 
—

 

 
2,975

Other expense (income), net
(502
)
 
144

 
f
 
(358
)
Income from continuing operations before income taxes
34,393

 
(10,216
)
 

 
24,177

Income tax expense
9,315

 
(231
)
 
e
 
9,084

Net income from continuing operations
25,078

 
(9,985
)
 

 
15,093

Loss from discontinued operations, net of tax
(28,600
)
 
—

 

 
(28,600
)
Net income (loss)
$
(3,522
)
 
$
(9,985
)
 

 
$
(13,507
)
 

 

 

 

Basic and diluted earnings (loss) per share:


 


 

 


Continuing operations
$
1.83

 
$
(0.73
)
 

 
$
1.10

Discontinued operations
(2.09
)
 
—

 

 
(2.09
)
Basic and diluted earnings (loss) per share
$
(0.26
)
 
$
(0.73
)
 

 
$
(0.99
)
 


 


 

 


Basic weighted average shares outstanding
13,690

 


 

 
13,690

Diluted weighted average shares outstanding
13,726

 


 

 
13,726

(a) Write-off of Assets: The correction of these misstatements resulted in a decrease to revenue of $0.4 million and an increase to selling, general and administrative ("SG&A") expense of $6.9 million
(b) Reversal of Revenue: The correction of these misstatements resulted in a decrease to revenue of $1.1 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $1.6 million
(d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in a decrease to revenue of $1.3 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in a decrease to income tax expense of $0.2 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to revenue of $0.1 million, a decrease to cost of sales of $0.1 million, an increase to SG&A expense of $0.6 million, and an increase in other expense of $0.1 million



F-20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED STATEMENTS OF OPERATIONS
 
Year Ended December 31, 2018
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
Revenue
$
629,710

 
$
372

 
c,f
 
$
630,082

Cost of sales
492,195

 
(1,165
)
 
f
 
491,030

Gross profit
137,515

 
1,537

 
 
 
139,052

Selling, general and administrative expenses
97,964

 
6,157

 
a,c,f
 
104,121

Amortization of intangible assets
1,381

 
—

 
 
 
1,381

Operating profit
38,170

 
(4,620
)
 
 
 
33,550

Interest expense, net
2,916

 
—

 
 
 
2,916

Other expense (income), net
293

 
(144
)
 
f
 
149

Income from continuing operations before income taxes
34,961

 
(4,476
)
 
 
 
30,485

Income tax expense
7,816

 
(390
)
 
e
 
7,426

Net income from continuing operations
27,145

 
(4,086
)
 
 
 
23,059

Loss from discontinued operations, net of tax
(5,361
)
 
—

 
 
 
(5,361
)
Net income (loss)
$
21,784

 
$
(4,086
)
 
 
 
$
17,698

 

 


 
 
 

Basic and diluted earnings (loss) per share:


 



 
 
 


Continuing operations
$
1.98

 
$
(0.30
)
 
 
 
$
1.68

Discontinued operations
(0.39
)
 
—

 
 
 
(0.39
)
Basic and diluted earnings (loss) per share
$
1.59

 
$
(0.30
)
 
 
 
$
1.29

 


 



 
 
 


Basic weighted average shares outstanding
13,699

 


 
 
 
13,699

Diluted weighted average shares outstanding
13,731

 


 
 
 
13,731


(a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $4.9 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $1.5 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in a decrease to income tax expense of $0.4 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in a decrease to revenue of $1.1 million, a decrease to cost of sales of $1.2 million, a decrease to SG&A expense of $0.2 million, and a decrease in other expense of $0.1 million



F-21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED STATEMENTS OF OPERATIONS
 
Year Ended December 31, 2017
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
Revenue
$
612,229

 
$
(173
)
 
c,d,f
 
$
612,056

Cost of sales
477,220

 
(1,281
)
 
f
 
475,939

Gross profit
135,009

 
1,108

 
 
 
136,117

Selling, general and administrative expenses
93,700

 
3,080

 
a,c,f
 
96,780

Amortization of intangible assets
1,381

 
—

 
 
 
1,381

Operating profit
39,928

 
(1,972
)
 
 
 
37,956

Interest expense, net
1,572

 
—

 
 
 
1,572

Other expense (income), net
(692
)
 
—

 
 
 
(692
)
Income from continuing operations before income taxes
39,048

 
(1,972
)
 
 
 
37,076

Income tax expense
18,918

 
49

 
e
 
18,967

Net income from continuing operations
20,130

 
(2,021
)
 
 
 
18,109

Loss from discontinued operations, net of tax
(2,225
)
 
—

 
 
 
(2,225
)
Net income (loss)
$
17,905

 
$
(2,021
)
 
 
 
$
15,884

 

 


 
 
 

Basic and diluted earnings (loss) per share:


 



 
 
 


Continuing operations
$
1.47

 
$
(0.15
)
 
 
 
$
1.32

Discontinued operations
(0.16
)
 
—

 
 
 
(0.16
)
Basic and diluted earnings (loss) per share
$
1.31

 
$
(0.15
)
 
 
 
$
1.16

 


 



 
 
 


Basic weighted average shares outstanding
13,673

 


 
 
 
13,673

Diluted weighted average shares outstanding
13,685

 


 
 
 
13,685

(a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $1.3 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $1.6 million
(d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in a decrease to revenue of $0.3 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to income tax expense of $0.1 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in a decrease to revenue of $1.5 million, a decrease to cost of sales of $1.3 million, and an increase to SG&A expense of $0.2 million


F-22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Year Ended December 31, 2019
 
As Previously Reported
 
Restatement Impacts
 
As Restated
 
(In thousands)
Net income (loss)
$
(3,522
)
 
$
(9,985
)
 
$
(13,507
)
Other comprehensive income (loss), net of tax:


 
—

 


Foreign currency translation adjustment
1,101

 
(591
)
 
510

(Loss) gain on long-term intra-entity foreign currency transactions
(79
)
 
—

 
(79
)
Cash flow hedging activity
(1,713
)
 
144

 
(1,569
)
Reclassification of hedging activities into earnings
349

 
—

 
349

Pension plan adjustment
1,410

 
—

 
1,410

Reclassification of pension adjustments into earnings
254

 
94

 
348

Total other comprehensive income (loss), net of tax
1,322

 
(353
)
 
969

Comprehensive income (loss)
$
(2,200
)
 
$
(10,338
)
 
$
(12,538
)
See description of the net income (loss) impacts in the consolidated statement of operations for the year ended December 31, 2019 section above.
The decrease to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories.
The increases to cash flow hedging and the reclassification of pension adjustments are from the correction of other immaterial errors.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Year Ended December 31, 2018
 
As Previously Reported
 
Restatement Impacts
 
As Restated
Net income (loss)
$
21,784

 
$
(4,086
)
 
$
17,698

Other comprehensive income (loss), net of tax:


 
—

 


Foreign currency translation adjustment
(159
)
 
86

 
(73
)
(Loss) gain on long-term intra-entity foreign currency transactions
(1,006
)
 
—

 
(1,006
)
Cash flow hedging activity
244

 
(144
)
 
100

Reclassification of hedging activities into earnings
153

 
—

 
153

Pension plan adjustment
(1,920
)
 
—

 
(1,920
)
Reclassification of pension adjustments into earnings
650

 
(94
)
 
556

Total other comprehensive loss, net of tax
(2,038
)
 
(152
)
 
(2,190
)
Comprehensive income (loss)
$
19,746

 
$
(4,238
)
 
$
15,508


See description of the net income (loss) impacts in the consolidated statement of operations for the year ended December 31, 2018 section above.
The increase to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets category.
The decreases to cash flow hedging and the reclassification of pension adjustments are from the correction of other immaterial errors.

F-23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)









F-24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Year Ended December 31, 2017
 
As Previously Reported
 
Restatement Impacts
 
As Restated
Net income (loss)
$
17,905

 
$
(2,021
)
 
$
15,884

Other comprehensive income (loss), net of tax:


 
—

 


Foreign currency translation adjustment
689

 
(41
)
 
648

(Loss) gain on long-term intra-entity foreign currency transactions
—

 
—

 
—

Cash flow hedging activity
(749
)
 
—

 
(749
)
Reclassification of hedging activities into earnings
641

 
—

 
641

Pension plan adjustment
1,510

 
—

 
1,510

Reclassification of pension adjustments into earnings
306

 
—

 
306

Total other comprehensive income (loss), net of tax
2,397

 
(41
)
 
2,356

Comprehensive income (loss)
$
20,302

 
$
(2,062
)
 
$
18,240

See description of the net income (loss) impacts in the consolidated statement of operations for the year ended December 31, 2017 section above.
The decrease to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets category.


F-25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED BALANCE SHEETS

December 31, 2019
 
As Previously Reported

Restatement Impacts

Restatement Reference

As Restated
 
(In thousands)
Assets
 

 




Current assets
 

 




Cash and cash equivalents
$
2,142


$
—




$
2,142

Trade receivables, net
113,781


(5,400
)

a,b,d

108,381

Inventory
109,621


185


f

109,806

Prepaid expenses and other current assets
23,102


(11,757
)

a,b,f

11,345

Current assets of discontinued operations
5,383


—




5,383

Total current assets
254,029


(16,972
)



237,057

Property, plant and equipment, net
22,324


—




22,324

Goodwill
6,253


—




6,253

Other intangible assets, net
3,141


—




3,141

Deferred income taxes
3,853


2,395


e

6,248

Deferred costs
10,941


—




10,941

Other non-current assets
2,085


—




2,085

Non-current assets of discontinued operations
614


—




614

Total assets
$
303,240


$
(14,577
)



$
288,663

Liabilities and stockholders' equity







Current liabilities







Accounts payable
$
111,117


$
231


f

$
111,348

Accounts payable to NACCO Industries, Inc.
496


—




496

Revolving credit agreements
23,497


—




23,497

Accrued compensation
14,277


750


f

15,027

Accrued product returns
8,697


—




8,697

Other current liabilities
12,873


(339
)

a,e

12,534

Current liabilities of discontinued operations
29,723


—




29,723

Total current liabilities
200,680


642




201,322

Revolving credit agreements
35,000


—




35,000

Other long-term liabilities
12,501


3,574


e

16,075

Total liabilities
248,181


4,216




252,397

Stockholders’ equity







Preferred stock, par value $0.01 per share
—


—




—

Class A Common stock, par value $0.01 per share; 9,805 shares issued as of December 31, 2019
98


—




98

Class B Common stock, par value $0.01 per share, convertible into Class A on a one-for-one basis; 4,076 shares issued as of December 31, 2019
41


—




41

Capital in excess of par value
54,344


165


f

54,509

Treasury stock
(5,960
)

—




(5,960
)
Retained earnings
22,524


(18,814
)

a,b,d,e,f

3,710

Accumulated other comprehensive loss
(15,988
)

(144
)

a,b,d,e

(16,132
)
Total stockholders’ equity
55,059


(18,793
)



36,266

Total liabilities and stockholders' equity
$
303,240


$
(14,577
)



$
288,663


F-26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)







(a) Write-off of Assets: The correction of these misstatements resulted in a decrease to trade receivables of $2.5 million, a reduction to prepaid expenses and other current assets of $12.4 million, and an increase to other current liabilities of $0.9 million
(b) Reversal of Revenue: The correction of these misstatements resulted in a decrease to trade receivables of $1.3 million and an increase to prepaid expenses and other current assets of $0.2 million
(d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in a decrease to trade receivables of $1.6 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to deferred income taxes of $2.4 million, a decrease to other current liabilities of $1.2 million, and an increase to other long-term liabilities of $3.6 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to prepaid expenses and other current assets of $0.5 million, an increase to inventory of $0.2 million, an increase to accounts payable of $0.2 million, an increase to accrued compensation of $0.7 million, and an increase to capital in excess of par of $0.2 million



F-27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED BALANCE SHEETS
`
December 31, 2018
 
As Previously Reported
 
Restatement Impacts
 
Restatement Reference
 
As Restated
Assets
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
4,420

 
$
—

 
 
 
$
4,420

Trade receivables, net
100,821

 
(2,460
)
 
a,f
 
98,361

Inventory
122,697

 
111

 
f
 
122,808

Prepaid expenses and other current assets
22,332

 
(6,936
)
 
a
 
15,396

Current assets of discontinued operations
27,879

 
—

 
 
 
27,879

Total current assets
278,149

 
(9,285
)
 

 
268,864

Property, plant and equipment, net
20,842

 
—

 
 
 
20,842

Goodwill
6,253

 
—

 
 
 
6,253

Other intangible assets, net
4,519

 
—

 
 
 
4,519

Deferred income taxes
5,518

 
276

 
e
 
5,794

Deferred costs
7,868

 
—

 
 
 
7,868

Other non-current assets
2,672

 
—

 
 
 
2,672

Non-current assets of discontinued operations
4,606

 
—

 
 
 
4,606

Total assets
$
330,427

 
$
(9,009
)
 
 
 
$
321,418

Liabilities and stockholders' equity

 

 
 
 

Current liabilities

 

 
 
 

Accounts payable
$
119,264

 
$
7

 
f
 
$
119,271

Accounts payable to NACCO Industries, Inc.
2,416

 
—

 
 
 
2,416

Revolving credit agreements
11,624

 
—

 
 
 
11,624

Accrued compensation
15,525

 
353

 
f
 
15,878

Accrued product returns
10,698

 
—

 
 
 
10,698

Other current liabilities
24,554

 
(1,632
)
 
a,d,e,f
 
22,922

Current liabilities of discontinued operations
22,820

 
—

 
 
 
22,820

Total current liabilities
206,901

 
(1,272
)
 
 
 
205,629

Revolving credit agreements
35,000

 
—

 
 
 
35,000

Other long-term liabilities
21,128

 
883

 
e
 
22,011

Non-current liabilities of discontinued operations
1,960

 
—

 
 
 
1,960

Total liabilities
264,989

 
(389
)
 
 
 
264,600

Stockholders’ equity

 

 
 
 

Preferred stock, par value $0.01 per share
—

 
—

 
 
 
—

Class A Common stock, par value $0.01 per share; 9,291 shares issued as of December 31, 2018
93

 
—

 
 
 
93

Class B Common stock, par value $0.01 per share, convertible into Class A on a one-for-one basis; 4,422 shares issued as of December 31, 2018
44

 
—

 
 
 
44

Capital in excess of par value
51,714

 
—

 
 
 
51,714

Treasury stock
—

 
—

 
 
 
—

Retained earnings
30,897

 
(8,829
)
 
a,d,e,f
 
22,068

Accumulated other comprehensive loss
(17,310
)
 
209

 
a,d,e,f
 
(17,101
)
Total stockholders’ equity
65,438

 
(8,620
)
 
 
 
56,818

Total liabilities and stockholders' equity
$
330,427

 
$
(9,009
)
 
 
 
$
321,418


F-28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)







(a) Write-off of Assets: The correction of these misstatements resulted in a decrease to trade receivables of $0.6 million, a reduction to prepaid expenses and other current assets of $6.9 million, and an increase to other current liabilities of $0.6 million
(d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in an increase to other current liabilities of $0.2 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to deferred income taxes of $0.3 million, a decrease to other current liabilities of $0.4 million, and an increase to other long-term liabilities of $0.9 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in a decrease to trade receivables of $1.9 million, an increase to inventory of $0.1 million, an increase to accrued compensation of $0.4 million, and a decrease to other current liabilities of $2.0 million



F-29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31, 2019
 
As Previously Reported

Restatement Impacts

As Restated
 
(In thousands)
Operating activities
 

 


Net income from continuing operations
$
25,078


$
(9,985
)

$
15,093

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:





Depreciation and amortization
4,002


—


4,002

Deferred income taxes
3,248


(1,761
)

1,487

Stock compensation expense
2,632


165


2,797

Other
471


145


616

Net changes in operating assets and liabilities:





Affiliate payable
(1,920
)

—


(1,920
)
Trade receivables
(25,586
)

2,817


(22,769
)
Inventory
13,756


(82
)

13,674

Other assets
(3,121
)

4,248


1,127

Accounts payable
(7,257
)

214


(7,043
)
Other liabilities
(11,101
)

4,259


(6,842
)
Net cash provided by operating activities from continuing operations
202


20


222

Investing activities





Expenditures for property, plant and equipment
(4,122
)

—


(4,122
)
Other
—


—


—

Net cash used for investing activities from continuing operations
(4,122
)

—


(4,122
)
Financing activities





Net additions (reductions) to revolving credit agreements
11,873


—


11,873

Purchase of treasury stock
(5,960
)

—


(5,960
)
Cash dividends paid
(4,851
)

—


(4,851
)
Cash dividends to NACCO Industries, Inc.
—


—


—

Net cash provided by (used for) financing activities from continuing operations
1,062


—


1,062

Cash flows from discontinued operations








Net cash provided by (used for) operating activities from discontinued operations
3,953


—


3,953

Net cash provided by (used for) investing activities from discontinued operations
585


—


585

Net cash used for financing activities from discontinued operations
(103
)

—


(103
)
Cash provided by (used for) discontinued operations
4,435


—


4,435

Effect of exchange rate changes on cash
(765
)

(20
)

(785
)
Cash and Cash Equivalents





(Decrease) increase for the year from continuing operations
(3,623
)

—


(3,623
)
Increase (decrease) for the year from discontinued operations
4,435


—


4,435

Balance at the beginning of the year
6,352


—


6,352

Balance at the end of the year
$
7,164


$
—


$
7,164

See description of the net income impacts in the consolidated statement of operations for the year ended December 31, 2019 section above.

F-30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






The only impact of the corrections for misstatements on net cash provided by operating activities from continuing operations was due to the effect of exchange rate changes on cash.

F-31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Year Ended December 31, 2018
 
As Previously Reported
 
Restatement Impacts
 
As Restated
Operating activities
 
 
 
 
 
Net income from continuing operations
$
27,145

 
$
(4,086
)
 
$
23,059

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:

 

 

Depreciation and amortization
4,277

 
—

 
4,277

Deferred income taxes
5,185

 
289

 
5,474

Stock compensation expense
3,618

 
—

 
3,618

Other
868

 
(31
)
 
837

Net changes in operating assets and liabilities:

 

 

Affiliate payable
(5,300
)
 
—

 
(5,300
)
Trade receivables
16,298

 
2,231

 
18,529

Inventory
(12,308
)
 
53

 
(12,255
)
Other assets
(10,509
)
 
5,923

 
(4,586
)
Accounts payable
(7,756
)
 
37

 
(7,719
)
Other liabilities
(4,195
)
 
(3,784
)
 
(7,979
)
Net cash provided by operating activities from continuing operations
17,323

 
632

 
17,955

Investing activities

 

 

Expenditures for property, plant and equipment
(7,759
)
 
—

 
(7,759
)
Other
—

 
—

 
—

Net cash used for investing activities from continuing operations
(7,759
)
 
—

 
(7,759
)
Financing activities

 

 

Net additions (reductions) to revolving credit agreements
(4,597
)
 
—

 
(4,597
)
Purchase of treasury stock
—

 
—

 
—

Cash dividends paid
(4,658
)
 
—

 
(4,658
)
Cash dividends to NACCO Industries, Inc.
—

 
—

 
—

Net cash provided by (used for) financing activities from continuing operations
(9,255
)
 
—

 
(9,255
)
Cash flows from discontinued operations


 
—

 


Net cash provided by (used for) operating activities from discontinued operations
(5,499
)
 
—

 
(5,499
)
Net cash provided by (used for) investing activities from discontinued operations
(305
)
 
—

 
(305
)
Net cash used for financing activities from discontinued operations
—

 
—

 
—

Cash provided by (used for) discontinued operations
(5,804
)
 
—

 
(5,804
)
Effect of exchange rate changes on cash
941

 
(632
)
 
309

Cash and Cash Equivalents

 

 

(Decrease) increase for the year from continuing operations
1,250

 
—

 
1,250

Increase (decrease) for the year from discontinued operations
(5,804
)
 
—

 
(5,804
)
Balance at the beginning of the year
10,906

 
—

 
10,906

Balance at the end of the year
$
6,352

 
$
—

 
$
6,352

See description of the net income impacts in the consolidated statement of operations for the year ended December 31, 2018 section above.

F-32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






The only impact of the corrections for misstatements on net cash provided by operating activities from continuing operations was due to the effect of exchange rate changes on cash.


F-33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Year Ended December 31, 2017
 
As Previously Reported
 
Restatement Impacts
 
As Restated
Operating activities
 
 
 
 
 
Net income from continuing operations
$
20,130

 
$
(2,021
)
 
$
18,109

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:

 

 

Depreciation and amortization
4,072

 
—

 
4,072

Deferred income taxes
4,107

 
(632
)
 
3,475

Stock compensation expense
323

 
—

 
323

Other
(1,167
)
 
—

 
(1,167
)
Net changes in operating assets and liabilities:

 

 

Affiliate payable
866

 
—

 
866

Trade receivables
(8,442
)
 
314

 
(8,128
)
Inventory
(16,485
)
 
(81
)
 
(16,566
)
Other assets
(1,960
)
 
665

 
(1,295
)
Accounts payable
25,009

 
—

 
25,009

Other liabilities
1,850

 
1,755

 
3,605

Net cash provided by operating activities from continuing operations
28,303

 
—

 
28,303

Investing activities

 

 

Expenditures for property, plant and equipment
(6,198
)
 
—

 
(6,198
)
Other
21

 
—

 
21

Net cash used for investing activities from continuing operations
(6,177
)
 
—

 
(6,177
)
Financing activities

 

 

Net additions (reductions) to revolving credit agreements
12,630

 
—

 
12,630

Purchase of treasury stock
—

 
—

 
—

Cash dividends paid
(1,162
)
 
—

 
(1,162
)
Cash dividends to NACCO Industries, Inc.
(38,000
)
 
—

 
(38,000
)
Net cash provided by (used for) financing activities from continuing operations
(26,532
)
 
—

 
(26,532
)
Cash flows from discontinued operations


 


 


Net cash provided by (used for) operating activities from discontinued operations
5,137

 
—

 
5,137

Net cash provided by (used for) investing activities from discontinued operations
(1,176
)
 
—

 
(1,176
)
Net cash used for financing activities from discontinued operations
(70
)
 
—

 
(70
)
Cash provided by (used for) discontinued operations
3,891

 
—

 
3,891

Effect of exchange rate changes on cash
81

 
—

 
81

Cash and Cash Equivalents

 

 

(Decrease) increase for the year from continuing operations
(4,325
)
 
—

 
(4,325
)
Increase (decrease) for the year from discontinued operations
3,891

 
—

 
3,891

Balance at the beginning of the year
11,340

 
—

 
11,340

Balance at the end of the year
$
10,906

 
$
—

 
$
10,906

See description of the net income impacts in the consolidated statement of operations for the year ended December 31, 2017 section above.

F-34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






The only impact of the corrections for misstatements on net cash provided by operating activities from continuing operations was due to the effect of exchange rate changes on cash.

F-35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
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)
As Previously Reported
 
 
 
 
 
 
 
Balance, January 1, 2019
$
93

$
44

$
51,714

$
—

$
30,897

$
(17,310
)
$
65,438

Net loss
—

—

—

—

(3,522
)
—

(3,522
)
Issuance of common stock, net of conversions
5

(3
)
(2
)
—

—

—

—

Purchase of treasury stock
—

—

—

(5,960
)
—

—

(5,960
)
Share-based compensation expense
—

—

2,632

—

—

—

2,632

Cash dividends, $0.355 per share
—

—

—

—

(4,851
)
—

(4,851
)
Other comprehensive loss
—

—

—

—

—

719

719

Reclassification adjustment to net loss
—

—

—

—

—

603

603

Balance, December 31, 2019
$
98

$
41

$
54,344

$
(5,960
)
$
22,524

$
(15,988
)
$
55,059

Restatement Impacts














Balance, January 1, 2019
$
—

$
—

$
—

$
—

$
(8,829
)
$
209

$
(8,620
)
Net loss
—

—

—

—

(9,985
)
—

(9,985
)
Issuance of common stock, net of conversions
—

—

—

—

—

—

—

Purchase of treasury stock
—

—

—

—

—

—

—

Share-based compensation expense
—

—

165

—

—

—

165

Cash dividends, $0.355 per share
—

—

—

—

—

—

—

Other comprehensive loss
—

—

—

—

—

(447
)
(447
)
Reclassification adjustment to net loss
—

—

—

—

—

94

94

Balance, December 31, 2019
$
—

$
—

$
165

$
—

$
(18,814
)
$
(144
)
$
(18,793
)
As Restated














Balance, January 1, 2019
$
93

$
44

$
51,714

$
—

$
22,068

$
(17,101
)
$
56,818

Net loss
—

—

—

—

(13,507
)
—

(13,507
)
Issuance of common stock, net of conversions
5

(3
)
(2
)
—

—

—

—

Purchase of treasury stock
—

—

—

(5,960
)
—

—

(5,960
)
Share-based compensation expense
—

—

2,797

—

—

—

2,797

Cash dividends, $0.355 per share
—

—

—

—

(4,851
)
—

(4,851
)
Other comprehensive loss
—

—

—

—

—

272

272

Reclassification adjustment to net loss
—

—

—

—

—

697

697

Balance, December 31, 2019
$
98

$
41

$
54,509

$
(5,960
)
$
3,710

$
(16,132
)
$
36,266

See description of the net income and other comprehensive income (loss) impacts in the consolidated statement of operations and consolidated statement of comprehensive income (loss) for the year ended December 31, 2019 sections above.
The increase to share-based compensation expense and reclassification adjustment to net loss is the result of the correction of other immaterial errors.


F-36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
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
As Previously Reported
 
 
 
 
 
 
 
Balance, January 1, 2018
$
88

$
48

$
47,773

$
—

$
12,603

$
(14,104
)
$
46,408

Net loss
—

—

—

—

21,784

—

21,784

Issuance of common stock, net of conversions
5

(4
)
323

—

—

—

324

Purchase of treasury stock
—

—

—

—

—

—

—

Share-based compensation expense
—

—

3,618

—

—

—

3,618

Cash dividends, $0.34 per share
—

—

—

—

(4,658
)
—

(4,658
)
Reclassification due to adoption of ASU 2018-02
—

—

—

—

1,168

(1,168
)
—

Other comprehensive loss
—

—

—

—

—

(2,841
)
(2,841
)
Reclassification adjustment to net loss
—

—

—

—

—

803

803

Balance, December 31, 2018
$
93

$
44

$
51,714

$
—

$
30,897

$
(17,310
)
$
65,438

Restatement Impacts














Balance, January 1, 2018
$
—

$
—

$
—

$
—

$
(4,743
)
$
361

$
(4,382
)
Net loss
—

—

—

—

(4,086
)
—

(4,086
)
Issuance of common stock, net of conversions
—

—

—

—

—

—

—

Purchase of treasury stock
—

—

—

—

—

—

—

Share-based compensation expense
—

—

—

—

—

—

—

Cash dividends, $0.34 per share
—

—

—

—

—

—

—

Reclassification due to adoption of ASU 2018-02
—

—

—

—

—

—

—

Other comprehensive loss
—

—

—

—

—

(58
)
(58
)
Reclassification adjustment to net loss
—

—

—

—

—

(94
)
(94
)
Balance, December 31, 2018
$
—

$
—

$
—

$
—

$
(8,829
)
$
209

$
(8,620
)
As Restated














Balance, January 1, 2018
$
88

$
48

$
47,773

$
—

$
7,860

$
(13,743
)
$
42,026

Net loss
—

—

—

—

17,698

—

17,698

Issuance of common stock, net of conversions
5

(4
)
323

—

—

—

324

Purchase of treasury stock
—

—

—

—

—

—

—

Share-based compensation expense
—

—

3,618

—

—

—

3,618

Cash dividends, $0.34 per share
—

—

—

—

(4,658
)
—

(4,658
)
Reclassification due to adoption of ASU 2018-02
—

—

—

—

1,168

(1,168
)
—

Other comprehensive loss
—

—

—

—

—

(2,899
)
(2,899
)
Reclassification adjustment to net income
—

—

—

—

—

709

709

Balance, December 31, 2018
$
93

$
44

$
51,714

$
—

$
22,068

$
(17,101
)
$
56,818

See description of the net income and other comprehensive income (loss) impacts in the consolidated statement of operations and consolidated statement of comprehensive income (loss) for the year ended December 31, 2018 sections above.
The decrease to the reclassification adjustment to net loss is the result of the correction of other immaterial errors.

F-37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)








F-38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
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
As Previously Reported
 
 
 
 
 
 
 
Balance, January 1, 2017
$
—

$
—

$
75,031

$
—

$
6,738

$
(16,501
)
$
65,268

Net loss
—

—

—

—

17,905

—

17,905

Issuance of common stock, net of conversions
88

48

(136
)
—

—

—

—

Purchase of treasury stock
—

—

—

—

—

—

—

Share-based compensation expense
—

—

—

—

—

—

—

Cash dividends to NACCO Industries, Inc.
—

—

(27,122
)
—

(10,878
)
—

(38,000
)
Cash dividends, $0.085 per share
—

—

—

—

(1,162
)
—

(1,162
)
Other comprehensive loss
—

—

—

—

—

1,450

1,450

Reclassification adjustment to net loss
—

—

—

—

—

947

947

Balance, December 31, 2017
$
88

$
48

$
47,773

$
—

$
12,603

$
(14,104
)
$
46,408

Restatement Impacts














Balance, January 1, 2017
$
—

$
—

$
—

$
—

$
(2,722
)
$
402

$
(2,320
)
Net loss
—

—

—

—

(2,021
)
—

(2,021
)
Issuance of common stock, net of conversions
—

—

—

—

—

—

—

Purchase of treasury stock
—

—

—

—

—

—

—

Share-based compensation expense
—

—

—

—

—

—

—

Cash dividends to NACCO Industries, Inc.
—

—

—

—

—

—

—

Cash dividends, $0.085 per share
—

—

—

—

—

—

—

Other comprehensive loss
—

—

—

—

—

(41
)
(41
)
Reclassification adjustment to net loss
—

—

—

—

—

—

—

Balance, December 31, 2017
$
—

$
—

$
—

$
—

$
(4,743
)
$
361

$
(4,382
)
As Restated














Balance, January 1, 2017
$
—

$
—

$
75,031

$
—

$
4,016

$
(16,099
)
$
62,948

Net loss
—

—

—

—

15,884

—

15,884

Issuance of common stock, net of conversions
88

48

(136
)
—

—

—

—

Purchase of treasury stock
—

—

—

—

—

—

—

Share-based compensation expense
—

—

—

—

—

—

—

Cash dividends to NACCO Industries, Inc.
—

—

(27,122
)
—

(10,878
)
—

(38,000
)
Cash dividends, $0.085 per share
—

—

—

—

(1,162
)
—

(1,162
)
Other comprehensive loss
—

—

—

—

—

1,409

1,409

Reclassification adjustment to net income
—

—

—

—

—

947

947

Balance, December 31, 2017
$
88

$
48

$
47,773

$
—

$
7,860

$
(13,743
)
$
42,026

See description of the net income and other comprehensive income (loss) impacts in the consolidated statement of operations and consolidated statement of comprehensive income (loss) for the year ended December 31, 2017 sections above.


F-39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






NOTE 3 - Discontinued Operations

On October 10, 2019, the Board approved the wind down of KC's retail operation due to further deterioration in foot traffic which lowered the Company's outlook for the prospect of a future return to profitability. By December 31, 2019 all retail stores were closed and operations ceased. Accordingly, KC meets the requirements to be reported as discontinued operations.

The Company expects the wind down to continue through the first half of 2020 to facilitate the settlement of remaining liabilities.

KC’s operating results are reflected as discontinued operations in the Consolidated Statements of Operation for all periods presented. The major line items constituting the loss from discontinued operations, net of tax are as follows:
 
Year Ended December 31
 
2019
 
2018
 
2017
 
(In thousands)
Revenue
$
100,860

 
$
113,469

 
$
128,520

Cost of sales
62,927

 
61,972

 
69,708

Gross profit
37,933

 
51,497

 
58,812

Selling, general and administrative expenses (1)
54,047

 
58,035

 
61,033

Lease termination expense (2)
15,186

 
—

 
435

Operating loss
(31,300
)
 
(6,538
)
 
(2,656
)
Interest expense
583

 
361

 
258

Other expense, net
26

 
33

 
57

Loss from discontinued operations before income taxes
(31,909
)
 
(6,932
)
 
(2,971
)
Income tax benefit
(3,309
)
 
(1,571
)
 
(746
)
Loss from discontinued operations, net of tax
$
(28,600
)
 
$
(5,361
)
 
$
(2,225
)

(1)
Selling, general and administrative expenses includes $1.8 million of severance termination benefits of which $0.4 remains unpaid as of December 31, 2019 and included within accrued compensation (current liabilities of discontinued operations).

(2)
KC recognized lease termination expense of $15.2 million for the estimated costs to terminate lease agreements in 2019 as a result of the decision to wind down the business. The lease termination obligation is measured at fair value using significant observable inputs, which is Level 2 as defined in the fair value hierarchy. The fair value of the lease termination obligation is based on the remaining lease rentals, including common area maintenance costs, real estate taxes, and penalties, adjusted for the effects of deferred rent, and reduced by estimated sublease rentals that could be reasonably obtained.







F-40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






KC’s assets and liabilities are reflected as assets and liabilities of discontinued operations in the Company’s Consolidated Balance Sheets for all periods presented. The major classes of assets and liabilities included as part of discontinued operations are as follows:
 
December 31
 
2019
 
2018
 
(In thousands)
Assets
 
 
 
Cash and cash equivalents
$
5,022

 
$
1,932

Credit card receivables
51

 
1,771

Inventory
—

 
21,994

Prepaid expenses and other current assets
310

 
2,182

Current assets of discontinued operations
$
5,383

 
$
27,879

 
 
 
 
Property, plant and equipment, net
$
—

 
$
1,788

Deferred income taxes
614

 
2,645

Other non-current assets
—

 
173

Non-current assets of discontinued operations
$
614

 
$
4,606

 
 
 
 
Liabilities
 
 
 
Accounts payable
$
4,594

 
$
13,704

Accrued compensation
1,058

 
1,498

Accrued product returns
—

 
243

Lease termination liability
17,248

 
—

Other current liabilities
6,823

 
7,375

Current liabilities of discontinued operations
$
29,723

 
$
22,820

 
 
 
 
Other long-term liabilities
—

 
$
1,960

Non-current liabilities of discontinued operations
$
—

 
$
1,960


KC has operating leases for retail stores, a distribution warehouse and corporate office that contractually expire at various dates through 2026. Future minimum operating lease payments at December 31, 2019 are:
 
Operating
Leases
2020
$
10,942

2021
5,863

2022
4,027

2023
2,458

2024
1,534

Subsequent to 2024
1,669

Total minimum lease payments (1)
$
26,493


(1)
Minimum lease payments have not been reduced by minimum sublease rentals of $6.2 million due in the future under contractual sublease agreements.

Rental expense from discontinued operations net of sublease rental income and excluding termination costs for all operating leases, is reported in selling, general and administrative expenses of discontinued operations and was $14.3 million, $18.0 million and $19.7 million in 2019, 2018 and 2017, respectively.


F-41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






KC maintained a separate revolving line of credit facility (the "KC Facility") that was secured by substantially all of the assets of KC. The Company's decision to wind down KC and its retail operations constituted an event of default under the KC Facility. As a result, on October 23, 2019, KC and its lender entered into a Forbearance Agreement (the “Forbearance Agreement”). Under the terms of the Forbearance Agreement, the lender agreed to forebear from exercising its rights and remedies as a result of the events of default pending accelerated payment in full of the obligations under the KC facility on or before December 15, 2019. All obligations under the KC Facility were paid in full in accordance with the Forbearance Agreement and the KC Facility was terminated on December 3, 2019.

Neither Hamilton Beach Brands Holding Company nor HBB has guaranteed any obligations of KC.

NOTE 4 - Property, Plant and Equipment, Net

Property, plant and equipment, net includes the following:
 
December 31
 
2019
 
2018
Land
$
226

 
$
226

Furniture and fixtures
13,071

 
12,583

Building and improvements
10,116

 
10,084

Machinery and equipment
32,761

 
30,728

Construction in progress, including internal-use capitalized software
11,685

 
10,626

Property, plant and equipment, at cost
67,859

 
64,247

Less allowances for depreciation and amortization
45,535

 
43,405

 
$
22,324

 
$
20,842


NOTE 5 - Intangible Assets
Intangible assets other than goodwill, which are subject to amortization, consist of the following:
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
Balance
Balance at December 31, 2019
 
 
 
 
 
Customer relationships
$
5,760

 
$
(4,840
)
 
$
920

Trademarks
3,100

 
(1,008
)
 
2,092

Other intangibles
1,240

 
(1,111
)
 
129

 
$
10,100

 
$
(6,959
)
 
$
3,141

 
 
 
 
 
 
Balance at December 31, 2018
 
 
 
 
 
Customer relationships
$
5,760

 
$
(3,880
)
 
$
1,880

Trademarks
3,100

 
(808
)
 
2,292

Other intangibles
1,240

 
(893
)
 
347

 
$
10,100

 
$
(5,581
)
 
$
4,519

Amortization expense for intangible assets included in continuing operations was $1.4 million in 2019, 2018 and 2017.
Expected annual amortization expense of intangible assets for the next five years is $1.2 million in 2020 and $0.2 million in the remaining years. The weighted average amortization period for intangible assets is approximately 8.9 years.

F-42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






NOTE 6 - 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
 
2019
 
2018
Total outstanding borrowings for continuing operations:
 
 
 
Revolving credit agreements
$
58,305

 
$
45,733

Book overdrafts
192

 
891

Total outstanding borrowings
$
58,497

 
$
46,624

 
 
 
 
Current portion of borrowings outstanding
$
23,497

 
$
11,624

Long-term portion of borrowings outstanding
35,000

 
35,000

 
$
58,497

 
$
46,624

 
 

 
 
Total available borrowings, net of limitations, under revolving credit agreements
$
114,366

 
$
114,669

 
 

 
 
Unused revolving credit agreements
$
56,061

 
$
68,936

 
 
 
 
Weighted average stated interest rate on total borrowings
4.16
%
 
4.12
%
Weighted average effective interest rate on total borrowings (including interest rate swap agreements)
3.82
%
 
3.45
%
Including swap settlements, interest paid on total debt was $3.1 million, $3.1 million, and $1.6 million during 2019, 2018, and 2017, respectively. Interest capitalized was $0.4 million in 2019, $0.3 million in 2018 and $0.2 million 2017.
HBB maintains a $115.0 million senior secured floating-rate revolving credit facility (the “HBB Facility”) that expires in June 2021. The current portion of borrowings outstanding represents expected voluntary repayments to be made in the next twelve months. The obligations under the HBB Facility are secured by substantially all of HBB's assets. The approximate book value of HBB's assets held as collateral under the HBB Facility was $297.2 million as of December 31, 2019.

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, LIBOR or bankers' acceptance rate, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective December 31, 2019, for base rate loans and LIBOR loans denominated in U.S. dollars were 0.0% and 1.75%, respectively. The applicable margins, effective December 31, 2019, for base rate loans and bankers' acceptance loans denominated in Canadian dollars were 0.0% and 1.75%, 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. HBB has interest rate swaps with notional values totaling $35.0 million at December 31, 2019 at an average fixed interest rate of 1.5%. HBB also has delayed-start interest rate swaps with notional values totaling $10.0 million as of December 31, 2019, with fixed rates of 1.7%.


F-43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






The HBB Facility includes restrictive covenants, which, among other things, limit the payment of dividends to Hamilton Beach Holding, subject to achieving availability thresholds. Under Amendment No. 6 to the HBB Facility, dividends to Hamilton Beach Holding are not to exceed $5.0 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 $15.0 million. Dividends to Hamilton Beach Holding are discretionary to the extent that for the 30 days prior to the dividend payment date, and after giving effect to the dividend payment, HBB maintains excess availability of not less than $25.0 million. The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility. At December 31, 2019, HBB was in compliance with all financial covenants in the HBB Facility.

NOTE 7 - 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 LIBOR 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, and also incorporates the effect of its subsidiary 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 values of revolving credit agreements, including book overdrafts, which approximate book value, were determined using current rates offered for similar obligations taking into account subsidiary 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, 2019 and 2018.

NOTE 8 - Derivative Financial Instruments
Foreign Currency Derivatives
HBB held forward foreign currency exchange contracts with total notional amounts of $13.2 million and $13.0 million at December 31, 2019, and 2018, respectively, denominated primarily in Canadian dollars and Mexican pesos. The fair value of these contracts approximated a payable of $0.3 million at December 31, 2019 and a net receivable of $0.1 million at December 31, 2018.
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 LIBOR borrowings. All swaps have been designated as cash flow hedges.
The following table summarizes the notional amounts, related rates and remaining terms of active and delayed interest rate swap agreements for HBB at December 31 in millions:
 
Notional Amount
 
Average Fixed Rate
 
Remaining Term at
 
2019
 
2018
 
2019
 
2018
 
December 31, 2019
Interest rate swaps
$
20.0

 
$
20.0

 
1.4
%
 
1.4
%
 
Extending to January 2020
Interest rate swaps
$
15.0

 
$
15.0

 
1.6
%
 
1.6
%
 
Extending to January 2024
Delayed start interest rate swaps
$
10.0

 
$
10.0

 
1.7
%
 
1.7
%
 
Extending to January 2024

F-44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






The fair value of HBB's interest rate swap agreements was a payable of $0.1 million at December 31, 2019 and a receivable of $1.1 million at December 31, 2018. 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, 2019 are expected to continue to be effective as hedges.
The following table summarizes the fair value of derivative instruments at December 31 as recorded in the Consolidated Balance Sheets:
 
Asset Derivatives
 
Liability Derivatives
 
Balance sheet location
 
2019
 
2018
 
Balance sheet location
 
2019
 
2018
Interest rate swap agreements
 
 
 
 
 
 
 
 
 
 
 
Current
Prepaid expenses and other current assets
 
$
—

 
$
349

 
Other current liabilities
 
$
21

 
$
—

Long-term
Other non-current assets
 
—

 
710

 
Other long-term liabilities
 
61

 
—

Foreign currency exchange contracts
 
 
 
 
 
 
 
 
 
 
 
Current
Prepaid expenses and other current assets
 
—

 
231

 
Other current liabilities
 
308

 
87

Total derivatives
 
 
$
—

 
$
1,290

 
 
 
$
390

 
$
87


NOTE 9 - Leasing Arrangements

HBB leases certain office and warehouse facilities as well as machinery and equipment under noncancellable operating leases that expire at various dates through 2034. Many leases include renewal and/or fair value purchase options.

Future minimum operating lease payments at December 31, 2019 are:
 
Operating
Leases
2020
$
6,114

2021
4,089

2022
1,816

2023
1,574

2024
1,590

Subsequent to 2024
16,527

Total minimum lease payments
$
31,710


Rental expense from continuing operations net of sublease rental income for all operating leases, is reported in selling, general and administrative expenses and was $5.6 million in 2019 and 2018 and $5.3 million in 2017.

NOTE 10 - 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 is established by the Board upon issuance of such preferred stock.

Hamilton Beach Brands Holding Company 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-45

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
 
2019
 
2018

(In thousands)
Preferred stock, par value $0.01 per share
 
 
 
Preferred stock authorized
5,000

 
5,000

 
 
 
 
Class A Common stock(1)(2)
 
 
 
Class A Common stock authorized
70,000

 
70,000

Treasury Stock
365

 
—

 
 
 
 
Class B Common stock(1)
 
 
 
Class B Common stock authorized
30,000

 
30,000

(1)    Class B Common converted to Class A Common were 345 shares during 2019 and 387 shares 2018.
(2)     The Company issued Class A Common shares of 169 during 2019 and 32 during 2018.

Stock Repurchase Program

In May 2018, the Company approved a stock repurchase program for the purchase of up to $25.0 million of the Company's Class A Common Stock outstanding through December 31, 2019. As of December 31, 2019, the Company repurchased 364,893 shares for an aggregate purchase price of $6.0 million. There were no share repurchases during the years ended December 31, 2018 and 2017, respectively.

On November 5, 2019, the Company's Board adopted a new stock repurchase program for the purchase of up to $25.0 million of the Company's Class A Common outstanding starting January 1, 2020 and ending December 31, 2021.


F-46

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:
 
Foreign Currency
Deferred Gain (Loss) on Cash Flow Hedging
Pension Plan Adjustment
Total
Balance, January 1, 2017 (As Restated)
$
(8,221
)
$
616

$
(8,494
)
$
(16,099
)
Other comprehensive income (loss)
648

(456
)
2,446

2,638

Reclassification adjustment to net income
—

916

511

1,427

Tax effects
—

(568
)
(1,141
)
(1,709
)
Balance, December 31, 2017 (As Restated)
$
(7,573
)
$
508

$
(6,678
)
$
(13,743
)
Reclassification due to adoption of ASU 2018-02
—

118

(1,286
)
(1,168
)
Other comprehensive income (loss)
(1,162
)
174

(2,583
)
(3,571
)
Reclassification adjustment to net income
—

213

729

942

Tax effects
83

(134
)
490

439

Balance, December 31, 2018 (As Restated)
$
(8,652
)
$
879

$
(9,328
)
$
(17,101
)
Other comprehensive income (loss)
481

(2,199
)
1,882

164

Reclassification adjustment to net loss
—

490

727

1,217

Tax effects
(50
)
489

(851
)
(412
)
Balance, December 31, 2019 (As Restated)
$
(8,221
)
$
(341
)
$
(7,570
)
$
(16,132
)

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:
 
As Restated
 
2019
 
2018
 
2017
Basic weighted average shares outstanding
13,690

 
13,699

 
13,673

Dilutive effect of share-based compensation awards
36

 
32

 
12

Diluted weighted average shares outstanding
13,726

 
13,731

 
13,685

 
 
 
 
 
 
Basic and diluted earnings (loss) per share:
 
 
 
 


Continuing operations
$
1.10


$
1.68


$
1.32

Discontinued operations
(2.09
)

(0.39
)

(0.16
)
Basic and diluted earnings (loss) per share
$
(0.99
)

$
1.29


$
1.16


NOTE 11 - Revenue

A description of the performance obligations for HBB is as follows:

•
Product revenue - Product revenue consist 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 as well as sales of commercial products for restaurants, bars and hotels. Transactions with these customers generally originate upon the receipt of a purchase order from the 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 or less, and payment terms are generally standard and based on customer creditworthiness. Revenue from product sales is recognized at the point in time when control transfers to the customer, which is either when product is shipped from

F-47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






the Company's facility, or delivered to customers, depending on the shipping terms. The amount of consideration received and revenue recognized varies primarily with changes in returns and price concessions.

•
License revenues - From time to time, HBB enters into exclusive and non-exclusive licensing agreements which grant the right to use certain of HBB’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, tradenames, trade dress, and/or logos (the “Licensed IP”). In exchange for granting the right to use the Licensed IP, HBB 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. HBB recognizes revenue at the later of when the subsequent sales occur or satisfying the performance obligation (over time).

HBB’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.  HBB may repair or replace, at its option, those products returned under warranty.  Accordingly, the Company determined that no separate performance obligation exists.

HBB products are not sold with a general right of return. However, based on historical experience, a portion of products sold are estimated to be returned due to reasons such as product failure and excess inventory stocked by the customer, which, subject to certain terms and conditions, HBB will agree to accept. 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.

The following table presents the HBB's revenue on a disaggregated basis for the year ending:
 
As Restated
 
Year Ended
 
December 31
 
2019
 
2018
Type of good or service:
 
 
 
  Products
$
607,307

 
$
626,423

  Licensing
4,479

 
3,659

     Total revenues
$
611,786

 
$
630,082

 
 
 
 

Wal-Mart Inc. and its global subsidiaries accounted for approximately 33%, 33% and 32% of the HBB’s revenue in 2019, 2018, and 2017, respectively. Amazon.com, Inc. and its subsidiaries accounted for approximately 14%, 10%, and 12% of the HBB's revenue in 2019, 2018, and 2017 respectively. HBB’s five largest customers accounted for approximately 58%, 53%, and 54% of the HBB’s revenue for the years ended December 31, 2019, 2018, and 2017, respectively.

NOTE 12 - Contingencies

Various legal and regulatory proceedings and claims have been or may be asserted against the Company relating to the conduct of its businesses, including product liability, patent infringement, asbestos related claims, environmental and other claims. These proceedings and claims are incidental to the ordinary course of business of the Company. Management believes that it has meritorious defenses and will vigorously defend the Company in these actions. Any costs that management estimates will be paid as a result of these claims are accrued when the liability is considered probable and the amount 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.


F-48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






These matters 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, results of operations and cash flows of the period in which the ruling occurs, or in future periods.

HBB is a defendant in a legal proceeding in which the plaintiff alleges that certain HBB products infringe the plaintiff’s patents. On May 3, 2019, the jury returned its verdict finding that the Company had infringed certain patents of the plaintiff and, as a result, awarded the plaintiff damages in the amount of $3.2 million. Accordingly, the Company recorded $3.2 million expense in selling, general and administrative expenses during the second quarter of 2019 for the contingent loss included within other current liabilities on the Consolidated Balance Sheet as of December 31, 2019. On September 23, 2019 the Company filed post-trial motions challenging the jury verdict of infringement and the award of damages and the plaintiffs filed motions seeking interest, post-trial accounting, injunctive relief, and attorneys’ fees.  A hearing date on the post-trial motions has not been set.  The Company maintains that its products do not infringe on the plaintiff’s patents and will vigorously defend against the plaintiff's post-trial motions.

KC is a defendant in a legal proceeding in which the plaintiff alleges that KC is in breach of forty-nine store leases for failing to continue to operate the stores during the entire term of the leases and for the use of certain store sale signs. In November 2019, KC agreed to the entry of an order preventing the use of certain store sale signs in the specified stores. All KC stores ceased operations as of December 31, 2019. An estimate of the fair value of the future minimum lease liability obligation related to the subject store leases has been included in the results of discontinued operations.

Environmental matters

HBB is investigating or remediating historical environmental contamination at some current and former sites operated by HBB or by businesses it acquired. Based on the current stage of the investigation or remediation at each known site, HBB 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.

HBB'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 HBB's estimate of the time required to remediate the sites changes. HBB's revised estimates may differ materially from original estimates.

At December 31, 2019 and December 31, 2018, HBB had accrued undiscounted obligations of $4.4 million and $8.2 million respectively, for environmental investigation and remediation activities. The reduction in the amount accrued at December 31, 2019 compared to December 31, 2018 is the result of a reduction to the accrual recorded in the second quarter of 2019 due to a change in the expected type and extent of investigation and remediation activities associated with one of the sites based upon additional testing and assessment performed with respect to that site in the second quarter of 2019. HBB estimates that it is reasonably possible that it may incur additional expenses in the range of zero to $4.0 million related to the environmental investigation and remediation at these sites. Additionally, the Company recorded a $1.5 million receivable as of December 31, 2019 related to a probable recovery for environmental investigation and remediation costs associated with one of the sites from a responsible party in exchange for release from all future obligations by that party.


F-49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






NOTE 13 - Income Taxes

The components of income before income taxes and the income tax provision for the years ended December 31 are as follows:
 
As Restated
 
2019
 
2018
 
2017
Income (loss) before income taxes
 
 
 
 
 
Domestic
$
24,835

 
$
30,835

 
$
34,136

Foreign
(658
)
 
(350
)
 
2,940

 
$
24,177

 
$
30,485

 
$
37,076

Income tax provision (benefit)
 
 
 
 
 
Current income tax provision (benefit):
 
 
 
 
 
Federal
$
2,966

 
$
(323
)
 
$
12,647

State
1,106

 
356

 
1,396

Foreign
3,525

 
1,919

 
1,449

Total current
7,597

 
1,952

 
15,492

Deferred income tax provision (benefit):
 
 
 
 
 
Federal
856

 
5,592

 
3,417

State
1,676

 
447

 
(96
)
Foreign
(1,045
)
 
(565
)
 
154

Total deferred
1,487

 
5,474

 
3,475

 
$
9,084

 
$
7,426

 
$
18,967


The Company made federal income tax payments of $1.9 million, $8.3 million, and $9.9 million during 2019, 2018, and 2017, respectively, to the IRS and to NACCO as a member of the consolidated income tax return for periods prior to spin off. The Company made foreign and state income tax payments of $3.6 million, $2.6 million, and $1.9 million during 2019, 2018, and 2017, respectively. During the same periods, income tax refunds totaled $0.1 million in 2019 and $0.1 million in 2018. There were no tax refunds in 2017.

A reconciliation of the federal statutory and effective income tax rate for the years ended December 31 is as follows:
 
As Restated
 
2019
 
2018
 
2017
 
$
 
%
 
$
 
%
 
$
 
%
Income before income taxes
$
24,177

 


 
$
30,485

 


 
$
37,076

 


Statutory taxes at 21.0% (35.0% in 2017)
$
5,077

 
21.0
 %
 
$
6,402

 
21.0
 %
 
$
12,976

 
35.0
 %
State and local income taxes
1,031

 
4.3
 %
 
729

 
2.4
 %
 
824

 
2.2
 %
Valuation allowances
2,190

 
9.1
 %
 
42

 
0.1
 %
 
344

 
0.9
 %
Other non-deductible expenses
253

 
1.0
 %
 
429

 
1.4
 %
 
—

 
—
 %
Credits
(1,195
)
 
(4.9
)%
 
(348
)
 
(1.1
)%
 
(458
)
 
(1.2
)%
Provisional effect of the Tax Cuts and Jobs Act (the "Tax Act")
—

 
—
 %
 
—

 
—
 %
 
4,654

 
12.6
 %
Non-deductible spin-related costs
—

 
—
 %
 
—

 
—
 %
 
540

 
1.5
 %
Unrecognized tax benefits
2,719

 
11.2
 %
 
1,427

 
4.7
 %
 
(12
)
 
—
 %
Other, net
(991
)
 
(4.1
)%
 
(1,255
)
 
(4.1
)%
 
99

 
0.3
 %
Income tax provision
$
9,084

 
37.6
 %
 
$
7,426

 
24.4
 %
 
$
18,967

 
51.2
 %

The valuation allowances in 2019 includes $2.0 million of deferred tax expense related to a change in judgment regarding the valuation allowances recorded against certain deferred tax assets of KC.


F-50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






A detailed summary of the total deferred tax assets and liabilities in the Company's Consolidated Balance Sheets resulting from differences in the book and tax basis of assets and liabilities follows:
 
As Restated
 
December 31
 
2019
 
2018
Deferred tax assets
 
 
 
Tax carryforwards
$
2,867

 
$
1,456

Inventory
316

 
—

Accrued expenses and reserves
5,896

 
5,505

Other employee benefits
1,500

 
2,349

Other
1,412

 
996

Total deferred tax assets
11,991

 
10,306

Less: Valuation allowances
(1,069
)
 
(1,162
)
 
10,922

 
9,144

Deferred tax liabilities
 
 
 
Inventory
—

 
37

Accrued pension benefits
2,623

 
1,854

Depreciation and amortization
2,051

 
1,459

Total deferred tax liabilities
4,674

 
3,350

Net deferred tax asset
$
6,248

 
$
5,794


As of December 31, 2019 and 2018, respectively HBB maintained valuation allowances with respect to certain deferred tax assets relating primarily to operating losses in certain non-U.S. jurisdictions that HBB believes are not likely to be realized.

The following table summarizes the tax carryforwards and associated carryforward periods and related valuation allowances where the Company has determined that realization is uncertain:
 
As Restated
 
December 31, 2019
 
Net deferred tax
asset
 
Valuation
allowance
 
Carryforwards
expire during:
Non-U.S. net operating loss
$
2,867

 
$
987

 
2020 - Indefinite
Total
$
2,867

 
$
987

 
 


 
As Restated
 
December 31, 2018
 
Net deferred tax
asset
 
Valuation
allowance
 
Carryforwards
expire during:
Non-U.S. net operating loss
$
1,456

 
$
917

 
2020 - Indefinite
Total
$
1,456

 
$
917

 
 

F-51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






The Company has valuation allowances for certain foreign deferred tax assets. Based upon the review of historical earnings and the relevant expiration of carryforwards, the Company believes the valuation allowances are appropriate and does not expect to release valuation allowances within the next twelve months that would have a significant effect on the Company’s financial position or results of operations.
As of December 31, 2019, the cumulative unremitted earnings of the Company's foreign subsidiaries are approximately $13.2 million. The Company has recorded the tax impact for the unremitted earnings as allowed under the Tax Act, a portion of which is classified in other long-term liabilities as the Company has elected to make payments over eight years. The Company continues to conclude all material entities’ foreign earnings will be indefinitely reinvested in its foreign operations and will remain offshore in order to meet the capital and business needs outside of the U.S. As a result, the Company does not provide a deferred tax liability with respect to the cumulative unremitted earnings. It is not practicable to determine the deferred tax liability associated with these undistributed earnings due to the availability of foreign tax credits and the complexity of the rules governing the utilization of such credits under the Tax Act. The Company made an accounting policy election to account for the global intangible low-tax income as a current period expense when incurred. The Company recognizes any tax impacts of global intangible low-taxed income (GILTI) as period costs similar to other special deductions, and not as deferred taxes for basis differences.
The following is a reconciliation of the Company's total gross unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and the benefits recognized in the financial statements for the years ended December 31, 2019, 2018, and 2017. Approximately $3.0 million, $1.4 million, and $0.6 million of these gross amounts as of December 31, 2019, 2018, and 2017, respectively, relate to permanent items that, if recognized, would impact the effective income tax rate. This amount differs from the gross unrecognized tax benefits presented in the table below due to the decrease in U.S. federal income taxes which would occur upon the recognition of the state tax benefits included herein.
 
As Restated
 
2019
 
2018
 
2017
Balance at January 1
$
1,576

 
$
881

 
$
671

Additions based on tax positions related to prior years
97

 
91

 
—

Additions based on tax positions related to the current year
2,593

 
1,110

 
210

Reductions due to settlements with taxing authorities
—

 
(506
)
 
—

Balance at December 31
$
4,266

 
$
1,576

 
$
881


The Company records interest and penalties on uncertain tax positions as a component of the income tax provision. The Company recorded immaterial amounts of interest and penalties as of December 31, 2019 and 2018, respectively. The Company expects the amount of unrecognized tax benefits will change within the next 12 months; however, the change in unrecognized tax benefits, which is reasonably possible within the next 12 months, is not expected to have a significant effect on the Company's financial position, results of operations or cash flows.

In general, the Company operates in taxing jurisdictions that provide a statute of limitations period ranging from three to five years for the taxing authorities to review the applicable tax filings. The examination of NACCO's 2013-2016 U.S. federal tax returns is ongoing. In addition, the Company does not have any material taxing jurisdictions in which the statute of limitations has been extended beyond the applicable time frame allowed by law.

NOTE 14 - Retirement Benefit Plans
Defined Benefit Plans
The Company maintains two defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods.

F-52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






The assumptions used in accounting for the defined benefit plans were as follows for the years ended December 31:
 
2019
 
2018
 
2017
U.S. Plan
 
 
 
 
 
Discount rate for pension benefit obligation
2.88
%
 
4.00
%
 
3.30
%
Discount rate for net periodic benefit income
4.00
%
 
3.30
%
 
3.60
%
Expected long-term rate of return on assets for net periodic pension income
7.50
%
 
7.50
%
 
7.50
%
Non-U.S. Plan
 
 
 
 
 
Discount rate for pension benefit obligation
2.96
%
 
3.50
%
 
3.25
%
Discount rate for net periodic benefit (income) loss
3.50
%
 
3.50
%
 
3.75
%
Expected long-term rate of return on assets for net periodic pension (income) loss
5.50
%
 
5.50
%
 
5.50
%
Set forth below is a detail of the net periodic pension income for the defined benefit plans for the years ended December 31:
 
2019
 
2018
 
2017
U.S. Plan
 
 
 
 
 
Interest cost
$
727

 
$
681

 
$
811

Expected return on plan assets
(1,987
)
 
(2,047
)
 
(2,074
)
Amortization of actuarial loss
561

 
623

 
501

Net periodic pension income
$
(699
)
 
$
(743
)
 
$
(762
)
 
 
 
 
 
 
Non-U.S. Plan
 
 
 
 
 
Interest cost
$
144

 
$
142

 
$
153

Expected return on plan assets
(263
)
 
(286
)
 
(264
)
Amortization of actuarial loss
72

 
200

 
10

Net periodic pension (income) loss
$
(47
)
 
$
56

 
$
(101
)
Set forth below is the detail of other changes in plan assets and benefit obligations recognized in other comprehensive loss (income) for the years ended December 31:
 
2019
 
2018
 
2017
U.S. Plan
 
 
 
 
 
Current year actuarial loss (gain)
$
(1,727
)
 
$
2,347

 
$
(2,506
)
Amortization of actuarial loss
(561
)
 
(623
)
 
(501
)
Total recognized in other comprehensive loss (income)
$
(2,288
)
 
$
1,724

 
$
(3,007
)
Non-U.S. Plan
 
 
 
 
 
Current year actuarial loss
$
(155
)
 
$
236

 
$
60

Amortization of actuarial loss
(72
)
 
(200
)
 
(10
)
Total recognized in other comprehensive loss
$
(227
)
 
$
36

 
$
50


F-53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






The following table sets forth the changes in the benefit obligation and the plan assets during the year and the funded status of the defined benefit plans at December 31:
 
2019
 
2018
 
U.S.
Plan
 
Non-U.S.
Plan
 
U.S. Plan
 
Non-U.S.
Plan
Change in benefit obligation
 
 
 
 
 
 
 
Projected benefit obligation at beginning of year
$
19,131

 
$
4,084

 
$
21,716

 
$
4,604

Interest cost
727

 
144

 
681

 
142

Actuarial (gain) loss
1,266

 
311

 
(1,278
)
 
(148
)
Benefits paid
(1,750
)
 
(182
)
 
(1,988
)
 
(151
)
Foreign currency exchange rate changes
—

 
213

 
—

 
(363
)
Projected benefit obligation at end of year
$
19,374

 
$
4,570

 
$
19,131

 
$
4,084

Accumulated benefit obligation at end of year
$
19,374

 
$
4,570

 
$
19,131

 
$
4,084

Change in plan assets
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
25,671

 
$
4,744

 
$
29,237

 
$
5,456

Actual return on plan assets
4,979

 
726

 
(1,578
)
 
(111
)
Benefits paid
(1,750
)
 
(182
)
 
(1,988
)
 
(151
)
Foreign currency exchange rate changes
—

 
62

 
—

 
(450
)
Fair value of plan assets at end of year
$
28,900

 
$
5,350

 
$
25,671

 
$
4,744

Funded status at end of year
$
9,526

 
$
780

 
$
6,540

 
$
660

Amounts recognized in the balance sheets consist of:
 
 
 
 
 
 
 
Non-current assets
$
9,526

 
$
780

 
$
6,540

 
$
660

Components of accumulated other comprehensive loss consist of:
 
 
 
 
 
 
 
Actuarial loss
$
(9,140
)
 
$
(1,058
)
 
$
(11,427
)
 
$
(1,225
)
Deferred taxes and other
2,280

 
348

 
2,933

 
485

 
$
(6,860
)
 
$
(710
)
 
$
(8,494
)
 
$
(740
)
The actuarial loss included in accumulated other comprehensive loss expected to be recognized in net periodic pension income in 2020 is $0.7 million.
The Company recognizes as a component of benefit cost (income), as of the measurement date, any unrecognized actuarial net gains or losses that exceed 10% of the larger of the projected benefit obligations or the plan assets, defined as the "corridor." Amounts outside the corridor are amortized over the average expected remaining lifetime of inactive participants for the pension plans. The gain (loss) amounts recognized in AOCI are not expected to be fully recognized until the plan is terminated or as settlements occur, which would trigger accelerated recognition.
The Company's policy is to make contributions to fund its pension plans within the range allowed by applicable regulations. The Company does not expect to contribute to its U.S. and non-U.S. pension plans in 2020.
Pension benefit payments are made from assets of the pension plans.

F-54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






Future pension benefit payments expected to be paid from assets of the pension plans are:
 
U.S. Plan
 
Non-U.S. Plan
2020
$
2,200

 
$
184

2021
1,870

 
215

2022
1,880

 
246

2023
1,698

 
243

2024
1,591

 
249

2025 - 2029
6,148

 
1,322

 
$
15,387

 
$
2,459

The expected long-term rate of return on defined benefit plan assets reflects management's 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, the Company considers 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 for each of the asset classes used to determine the Company's estimated rate of return assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of the asset classes.
Expected returns for U.S. pension plans are based on a calculated market-related value for U.S. pension plan assets. Under this methodology, asset gains and losses resulting from actual returns that differ from the Company's expected returns are recognized in the market-related value of assets ratably over three years. Expected returns for non-U.S. pension plans are based on fair market value for non-U.S. pension plan assets.
The pension plans maintain investment policies that, among other things, establish a portfolio asset allocation methodology with percentage allocation bands for individual asset classes. The investment policies provide that investments are reallocated between asset classes as balances exceed or fall below the appropriate allocation bands.
The following is the actual allocation percentage and target allocation percentage for the U.S. pension plan assets at December 31:
 
2019
Actual
Allocation
 
2018
Actual
Allocation
 
Target Allocation
Range
U.S. equity securities
45.9
%
 
43.8
%
 
36.0% - 54.0%
Non-U.S. equity securities
20.4
%
 
19.3
%
 
16.0% - 24.0%
Fixed income securities
33.2
%
 
36.4
%
 
30.0% - 40.0%
Money market
0.5
%
 
0.5
%
 
0.0% - 10.0%
The following is the actual allocation percentage and target allocation percentage for the Non-U.S. pension plan assets at December 31:
 
2019
Actual
Allocation
 
2018
Actual
Allocation
 
Target Allocation
Range
Canadian equity securities
30.2
%
 
29.5
%
 
25.0% - 35.0%
Non-Canadian equity securities
32.3
%
 
29.9
%
 
25.0% - 35.0%
Fixed income securities
37.5
%
 
40.6
%
 
30.0% - 50.0%
Cash and cash equivalents
—
%
 
—
%
 
0.0% - 5.0%

F-55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






The fair value of each major category of the Company's U.S. pension plan assets are valued using quoted market prices in active markets for identical assets, or Level 1 in the fair value hierarchy. The fair value of each major category of the Company's Non-U.S. pension plan assets are valued using observable inputs, either directly or indirectly, other than quoted market prices in active markets for identical assets. Following are the values as of December 31:
 
U.S. Plan
 
Non-U.S. Plan
 
2019
 
2018
 
2019
 
2018
U.S. equity securities
$
13,255

 
$
11,251

 
$
929

 
$
735

Non-U.S. equity securities
5,904

 
4,930

 
2,412

 
2,081

Fixed income securities
9,596

 
9,350

 
2,009

 
1,928

Money market
145

 
140

 
—

 
—

Total
$
28,900

 
$
25,671

 
$
5,350

 
$
4,744


Defined Contribution Plans

HBB maintains a defined contribution (401(k)) plan for substantially all U.S. employees and similar plans for employees outside of the U.S. The Company provides employer matching (or safe harbor) contributions based on plan provisions. The defined contribution retirement plans also provide for an additional minimum employer contribution. Certain plans also permit additional contributions whereby the applicable company’s contribution to participants is determined annually based on a formula that includes the effect of actual operating results compared with targeted operating results and the age and/or compensation of the participants. Total costs, including Company contributions, for these plans were $5.0 million in 2019 and $5.3 million in 2018 and 2017.

NOTE 15 - Data by Geographic Region
Revenue and property, plant and equipment related to continuing operations outside the U.S., based on customer and asset location, are as follows:
 
U.S.
 
Other
 
Consolidated
2019
 
 
 
 
 
Revenue from unaffiliated customers (As Restated)
$
463,608

 
$
148,178

 
$
611,786

Property, plant and equipment, net
$
16,828

 
$
5,496

 
$
22,324

2018

 

 

Revenue from unaffiliated customers (As Restated)
$
488,520

 
$
141,562

 
$
630,082

Property, plant and equipment, net
$
15,344

 
$
5,498

 
$
20,842

2017


 


 


Revenue from unaffiliated customers (As Restated)
$
478,770

 
$
133,286

 
$
612,056

Property, plant and equipment, net
$
10,974

 
$
5,005

 
$
15,979

No single country outside of the U.S. comprised 10% or more of HBB's revenue from unaffiliated customers.


F-56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






NOTE 16 - Quarterly Results of Operations (Unaudited)

In the fourth quarter of 2019, KC met the requirements to be reported as a discontinued operation. The following consolidated financial tables reflect KC as a discontinued operation for all periods presented and are labeled "Recast". See Note 3, Discontinued Operations for more information.

A summary of the unaudited results of operations for the year ended December 31 is as follows:
 
2019
 
As Restated and Recast
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Revenue
$
126,642


$
131,065


$
149,508


$
204,570

Gross profit
$
26,702


$
28,507


$
30,946


$
42,397

Operating profit
$
111


$
3,185


$
4,439


$
19,060

 











Income (loss) from continuing operations, net of tax
$
(662
)

$
1,898


$
553


$
13,304

Loss from discontinued operations, net of tax
(2,723
)

(2,516
)

(2,753
)

(20,608
)
Net income (loss)
$
(3,385
)

$
(618
)

$
(2,200
)

$
(7,304
)
 











Basic and diluted earnings (loss) per share:











Continuing operations
$
(0.05
)

$
0.14


$
0.04


$
0.98

Discontinued operations
(0.20
)

(0.18
)

(0.20
)

(1.52
)
Basic and diluted earnings (loss) per share
$
(0.25
)

$
(0.04
)

$
(0.16
)

$
(0.54
)

 
2018
 
As Restated and Recast
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Revenue
$
125,032


$
135,583


$
171,301


$
198,166

Gross profit
$
27,928


$
30,727


$
38,404


$
41,993

Operating profit
$
1,794


$
3,944


$
11,763


$
16,050

 











Income from continuing operations, net of tax
$
894


$
1,645


$
9,030


$
11,490

(Loss) income from discontinued operations, net of tax
(3,077
)

(2,766
)

(1,889
)

2,371

Net income (loss)
$
(2,183
)

$
(1,121
)

$
7,141


$
13,861

 











Basic and diluted earnings (loss) per share:











Continuing operations
$
0.07


$
0.12


$
0.66


$
0.84

Discontinued operations
(0.22
)

(0.20
)

(0.14
)

0.17

Basic and diluted earnings (loss) per share
$
(0.15
)

$
(0.08
)

$
0.52


$
1.01


Quarterly Discussion and Analysis

Revenue

Revenue for the first quarter of 2019 increased $1.6 million, or 1.3% compared to the first quarter of 2018 due to sales of new and higher priced products in the U.S. consumer market partially offset by lower sales volume in the international consumer market and unfavorable foreign currency movements.

F-57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)







Revenue for the second quarter of 2019 decreased $4.5 million, or 3.3% compared to the second quarter of 2018 primarily due to lower sales volume in the U.S. consumer and global commercial markets, partially offset by increased sales in the international consumer market.

Revenue for the third quarter of 2019 decreased $21.8 million, or 12.7% compared to the third quarter of 2018 primarily due to lower sales volume in the U.S. and international consumer markets. The lower sales volume in the U.S. was primarily due to a significant change in retailer order patterns and lower direct import sales driven by the adverse impact of tariffs. Also contributing to the third-quarter revenue shortfall was a loss of placements in the dollar store channel resulting from HBB's decision to not maintain this low margin business, ongoing foot traffic challenges at some retailers and other pressure points facing individual retail companies. HBB's international consumer markets reported lower sales volume due in large part to a one-time special purchase in 2018 by a customer in Latin America and to a lesser degree to reduced demand in several markets.

Gross profit

Gross profit for the first quarter of 2019 decreased $1.2 million, or 4.4% compared to the first quarter of 2018. As a percentage of revenue, gross profit declined from 22.3% to 21.1%. Gross profit margin declined primarily due to higher product costs arising from increased inbound freight expenses and unfavorable foreign currency movements.

Gross profit for the second quarter of 2019 decreased $2.2 million, or 7.2% compared to the second quarter of 2018 primarily due to lower sales volume. As a percentage of revenue, gross profit declined from 22.7% to 21.8% due to increased inbound freight expenses and unfavorable foreign currency movements.

Gross profit for the third quarter of 2019 decreased $7.5 million, or 19.4% compared to the third quarter of 2018 primarily due to lower sales volume. As a percentage of revenue, gross profit declined from 22.4% to 20.7% primarily due to to higher inbound freight, transportation and warehousing expenses, and the adverse impact of tariffs.

Selling, general and administrative expenses

Selling, general and administrative expenses for the first quarter of 2019 increased $0.4 million, or 1.8% compared to first quarter of 2018 due to increased legal and professional service fees.

Selling, general and administrative expenses for the second quarter decreased $1.5 million, or 5.5% compared to second quarter of 2018 primarily due to a $3.7 million decline in the environmental reserve at one site and lower employee-related costs, partially offset by a one-time charge of $3.2 million for a contingent loss related to patent litigation.

Selling, general and administrative expenses for the third quarter of 2019 decreased $0.1 million, or 0.5% compared to the third quarter of 2018, including a decline of $1.2 million primarily due to lower legal and professional services fees and a decrease in employee-related costs due to reduced incentive compensation expense.

Certain former employees of one of the Company's Mexico subsidiaries engaged in unauthorized transactions with the Company’s Mexican subsidiaries and in doing so expenditures were deferred on the balance sheet of the Mexican subsidiaries beyond the period for which the costs pertained. Included in selling, general and administrative expenses are non-cash charges to write-off unrealizable assets created as a result of these unauthorized transactions as follows:
•
Expenses of $1.8 million and $2.0 million for the three months ended March 31, 2019 and 2018, respectively;
•
Expenses of $0.6 million and $1.0 million for the three months ended June 30, 2019 and 2018, respectively; and
•
Expenses of $2.7 million and $1.5 million for the three months ended September 30, 2019 and 2018, respectively.

Interest expense, net
During the first quarter of 2019, interest expense, net increased $0.2 million from the first quarter of 2018 primarily due to an increase in average borrowings outstanding under HBB's revolving credit facility and higher average interest rates.


F-58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






In the second quarter of 2019, interest expense, net remained consistent with the prior year. A decrease in average borrowings outstanding under HBB's revolving credit facility was offset by higher average interest rates.

In the third quarter of 2019 interest expense, net decreased $0.1 million from the third quarter of 2018 primarily due to decreased average borrowings outstanding under HBB's revolving credit facility.

Other expense, net
In the first quarter of 2019, other income, net decreased $0.3 million compared with other income in 2018 primarily due to unfavorable foreign currency movements as the Mexican peso weakened against the U.S. dollar during the period.

Other income for the second quarter of 2019 includes currency gains of $0.1 million compared with other expense in 2018 related to currency losses of $0.7 million.

Other expense for the third quarter of 2019 includes currency losses of $0.8 million compared with other income in 2018 related to currency gains of $0.2 million.

Income tax expense

The Company recognized $0.3 income tax expense in the first quarter of 2019 on a loss before income taxes of $0.4 million. The expense in 2019 is primarily attributable to non-cash charges to write-off unrealizable assets for which the corresponding tax benefit has been substantially offset by an increase in unrecognized tax benefits. The first quarter of 2018 included an insignificant one-time tax benefit recorded in the first three months of 2019 related to the non-U.S. pension plan. The Company recognized an income tax expense of $0.6 million in the second quarter of 2019 on income from continuing operations before income taxes of $2.5 million, an effective tax rate of 43.1% for the six months ended June 30, 2019. The effective tax rate increased from 40.5% in the first six months of 2018 primarily due to increased tax credits reflected in the forecasted 2019 effective tax rate. During the third quarter of 2019, the Company recognized income tax expense of $2.4 million on income from continuing operations before income taxes of $3.0 million.

Restatement of Previously Issued Unaudited Condensed Consolidated Financial Statements

In lieu of filing amended quarterly reports on Form 10-Q, the following tables represent our restated unaudited condensed consolidated financial statements for each of the quarters during the years ended December 31, 2019 and 2018. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, for additional information.

Following the restated consolidated financial statement tables, we have presented a reconciliation from our prior periods, as previously reported, to the restated values. The values as previously reported were derived from our Quarterly Reports on Form 10-Q for the interim periods of 2019 and from the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed on February 26, 2020. In the fourth quarter of 2019, KC met the requirements to be reported as a discontinued operation. The following consolidated financial tables reflect KC as a discontinued operation for all periods presented and are labeled "Recast".



F-59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
As Restated and Recast
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
Three Months Ended
 
Three Months Ended
 
Nine Months Ended
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
(In thousands, except per share data)
Revenue
$
204,570


$
149,508


$
407,216


$
131,065


$
257,707


$
126,642

Cost of sales
162,173


118,562


321,060


102,558


202,498


99,940

Gross profit
42,397


30,946


86,155


28,507


55,209


26,702

Selling, general and administrative expenses
22,996


26,165


77,385


24,976


51,222


26,246

Amortization of intangible assets
341


345


1,036


346


691


345

Operating profit (loss)
19,060


4,439


7,734


3,185


3,296


111

Interest expense, net
767


756


2,208


789


1,452


663

Other expense (income), net
(710
)

681


352


(132
)

(329
)

(197
)
Income (loss) from continuing operations before income taxes
19,003


3,002


5,174


2,528


2,173


(355
)
Income tax expense (benefit)
5,699


2,449


3,385


630


937


307

Net income (loss) from continuing operations
13,304


553


1,789


1,898


1,236


(662
)
Loss from discontinued operations, net of tax
(20,608
)

(2,753
)

(7,992
)

(2,516
)

(5,239
)

(2,723
)
Net loss
$
(7,304
)

$
(2,200
)

$
(6,203
)

$
(618
)

$
(4,003
)

$
(3,385
)
 











Basic and diluted earnings (loss) per share:















Continuing operations
$
0.98


$
0.04


$
0.13


$
0.14


$
0.09


$
(0.05
)
Discontinued operations
(1.52
)

(0.20
)

(0.58
)

(0.18
)

(0.38
)

(0.20
)
Basic and diluted earnings (loss) per share
$
(0.54
)

$
(0.16
)

$
(0.45
)

$
(0.04
)

$
(0.29
)

$
(0.25
)
 

















Basic weighted average shares outstanding
13,518


13,579


13,726


13,813


13,800


13,786

Diluted weighted average shares outstanding
13,625


13,595


13,731


13,826


13,813


13,786


F-60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
As Restated and Recast
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
Three Months Ended
 
Three Months Ended
 
Nine Months Ended
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
(In thousands, except per share data)
Revenue
$
198,166


$
171,301


$
431,916


$
135,583


$
260,615


$
125,032

Cost of sales
156,173


132,897


334,857


104,856


201,960


97,104

Gross profit
41,993


38,404


97,059


30,727


58,655


27,928

Selling, general and administrative expenses
25,599


26,296


78,522


26,437


52,225


25,789

Amortization of intangible assets
345


345


1,036


346


691


345

Operating profit
16,050


11,763


17,501


3,944


5,738


1,794

Interest expense, net
711


886


2,205


809


1,319


510

Other expense (income), net
429


(433
)

(280
)

679


153


(526
)
Income from continuing operations before income taxes
14,910


11,310


15,576


2,456


4,266


1,810

Income tax expense
3,420


2,280


4,007


811


1,727


916

Net income from continuing operations
11,490


9,030


11,569


1,645


2,539


894

Income (loss) from discontinued operations, net of tax
2,371


(1,889
)

(7,732
)

(2,766
)

(5,843
)

(3,077
)
Net income (loss)
$
13,861


$
7,141


$
3,837


$
(1,121
)

$
(3,304
)

$
(2,183
)
 











Basic and diluted earnings (loss) per share:















Continuing operations
$
0.84


$
0.66


$
0.84


$
0.12


$
0.19


$
0.07

Discontinued operations
0.17


(0.14
)

(0.56
)

(0.20
)

(0.43
)

(0.22
)
Basic and diluted earnings (loss) per share
$
1.01


$
0.52


$
0.28


$
(0.08
)

$
(0.24
)

$
(0.15
)
 

















Basic weighted average shares outstanding
13,714


13,704


13,694


13,695


13,689


13,683

Diluted weighted average shares outstanding
13,844


13,713


13,697


13,704


13,693


13,692




F-61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
As Restated
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
Three Months Ended
 
Three Months Ended
 
Nine Months Ended
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
(In thousands)
Net income (loss)
$
(7,304
)

$
(2,200
)

$
(6,203
)

$
(618
)

$
(4,003
)

$
(3,385
)
Other comprehensive income (loss), net of tax:

















Foreign currency translation adjustment
201


(18
)

309


113


327


214

(Loss) gain on long-term intra-entity foreign currency transactions
294


(509
)

(373
)

121


136


15

Cash flow hedging activity
(143
)

(127
)

(1,426
)

(877
)

(1,299
)

(422
)
Reclassification of hedging activities into earnings
81


122


268


144


146


2

Pension plan adjustment
1,410


—


—


—


—


—

Reclassification of pension adjustments into earnings
35


127


313


102


186


84

Total other comprehensive income (loss), net of tax
1,878


(405
)

(909
)

(397
)

(504
)

(107
)
Comprehensive income (loss)
$
(5,426
)

$
(2,605
)

$
(7,112
)

$
(1,015
)

$
(4,507
)

$
(3,492
)

 
As Restated
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
Three Months Ended
 
Three Months Ended
 
Nine Months Ended
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
(In thousands)
Net income (loss)
$
13,861


$
7,141


$
3,837


$
(1,121
)

$
(3,304
)

$
(2,183
)
Other comprehensive income (loss), net of tax:

















Foreign currency translation adjustment
(1,135
)

902


1,063


(412
)

161


573

(Loss) gain on long-term intra-entity foreign currency transactions
60


(53
)

(1,066
)

(1,013
)

(1,013
)

—

Cash flow hedging activity
(352
)

(301
)

452


464


753


289

Reclassification of hedging activities into earnings
48


(102
)

105


41


207


166

Pension plan adjustment
(1,920
)

—


—


—


—


—

Reclassification of pension adjustments into earnings
141


115


415


142


300


158

Total other comprehensive income (loss), net of tax
(3,158
)

561


969


(778
)

408


1,186

Comprehensive income (loss)
$
10,703


$
7,702


$
4,805


$
(1,899
)

$
(2,896
)

$
(997
)


F-62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED BALANCE SHEETS
`
As Restated and Recast
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
(In thousands)
Assets
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
$
1,559


$
1,029


$
1,636

Trade receivables, net
103,091


86,268


79,102

Inventory
161,043


121,472


120,707

Prepaid expenses and other current assets
14,086


16,412


17,379

Current assets of discontinued operations
22,830


21,255


24,692

Total current assets
302,609


246,436


243,516

Property, plant and equipment, net
22,193


21,649


20,984

Goodwill
6,253


6,253


6,253

Other intangible assets, net
3,483


3,828


4,174

Deferred income taxes
5,640


3,754


3,166

Deferred costs
8,804


8,564


8,316

Other non-current assets
1,553


1,984


2,403

Non-current assets of discontinued operations
1,744


4,420


4,446

Total assets
$
352,279


$
296,888


$
293,258

Liabilities and stockholders' equity





Current liabilities





Accounts payable
$
140,011


$
86,199


$
73,720

Accounts payable to NACCO Industries, Inc.
220


220


2,425

Revolving credit agreements
50,152


51,505


54,812

Accrued compensation
14,650


11,725


8,398

Accrued product returns
8,266


8,224


9,314

Other current liabilities
25,880


21,382


17,705

Current liabilities of discontinued operations
24,713


20,048


21,473

Total current liabilities
263,892


199,303


187,847

Revolving credit agreements
30,000


30,000


30,000

Other long-term liabilities
14,258


14,699


18,619

Non-current liabilities of discontinued operations
1,585


3,697


3,834

Total liabilities
309,735


247,699


240,300

Stockholders’ equity





Class A Common stock
95


95


95

Class B Common stock
44


44


44

Capital in excess of par value
54,143


53,342


52,520

Treasury stock
(5,960
)

(2,334
)

—

Retained earnings
12,231


15,646


17,506

Accumulated other comprehensive loss
(18,009
)

(17,604
)

(17,207
)
Total stockholders’ equity
42,544


49,189


52,958

Total liabilities and stockholders' equity
$
352,279


$
296,888


$
293,258

 
 
 
 
 
 



F-63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)








CONDENSED CONSOLIDATED BALANCE SHEETS
`
As Restated and Recast
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
(In thousands)
Assets
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
$
1,567


$
1,393


$
1,784

Trade receivables, net
112,309


76,132


79,358

Inventory
155,744


138,721


132,749

Prepaid expenses and other current assets
12,595


14,569


14,615

Current assets of discontinued operations
32,185


30,704


29,086

Total current assets
314,400


261,519


257,592

Property, plant and equipment, net
20,988


19,088


17,643

Goodwill
6,253


6,253


6,253

Other intangible assets, net
4,864


5,209


5,555

Deferred income taxes
7,704


8,877


10,419

Deferred costs
10,153


9,825


10,187

Other non-current assets
3,282


3,178


3,068

Non-current assets of discontinued operations
5,313


5,688


5,661

Total assets
$
372,957


$
319,637


$
316,378

Liabilities and stockholders' equity





Current liabilities





Accounts payable
$
131,620


$
92,488


$
96,924

Accounts payable to NACCO Industries, Inc.
2,480


2,769


7,814

Revolving credit agreements
60,083


66,326


63,308

Accrued compensation
15,421


11,984


9,238

Accrued product returns
9,601


9,648


10,815

Other current liabilities
22,488


15,769


21,227

Current liabilities of discontinued operations
29,693


26,830


21,509

Total current liabilities
271,386


225,814


230,835

Revolving credit agreements
30,000


30,000


20,000

Other long-term liabilities
22,343


21,654


21,831

Non-current liabilities of discontinued operations
2,293


2,416


2,565

Total liabilities
326,022


279,884


275,231

Stockholders’ equity





Class A Common stock
92


92


92

Class B Common stock
45


45


45

Capital in excess of par value
51,366


50,721


49,051

Treasury stock
—


—


—

Retained earnings
9,373


3,397


5,683

Accumulated other comprehensive loss
(13,941
)

(14,502
)

(13,724
)
Total stockholders’ equity
46,935


39,753


41,147

Total liabilities and stockholders' equity
$
372,957


$
319,637


$
316,378



F-64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)







The restatement corrections impact certain components within operating cash flows of the Consolidated Statements of Cash Flows. Total operating cash flows was unchanged, except for the impact of exchange rate changes resulting from the adjustments. Total investing activities, financing activities, and cash and cash equivalents are unchanged as a result of the restatements.







F-65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Year Ended December 31, 2019
 
Class A common stock
Class B common stock
Capital in excess of par value (1)
Treasury stock
Retained earnings (1)
Accumulated other comprehensive income (loss) (1)
Total stockholders' equity (1)
 
(In thousands, except per share data)
Balance as Restated, January 1, 2019
$
93

$
44

$
51,714

$
—

$
22,068

$
(17,101
)
$
56,818

Net loss
—

—

—

—

(3,385
)
—

(3,385
)
Issuance of common stock, net of conversions
2

—

(1
)
—

—

—

1

Purchase of treasury stock
—

—

—

—

—

—

—

Share-based compensation expense
—

—

807

—

—

—

807

Cash dividends, $0.085 per share
—

—

—

—

(1,177
)
—

(1,177
)
Other comprehensive loss
—

—

—

—

—

(192
)
(192
)
Reclassification adjustment to net loss
—

—

—

—

—

86

86

Balance as Restated, March 31, 2019
$
95

$
44

$
52,520

$
—

$
17,506

$
(17,207
)
$
52,958

Net loss
—

—

—

—

(618
)
—

(618
)
Issuance of common stock, net of conversions
—

—

—

—

—

—

—

Purchase of treasury stock
—

—

—

(2,334
)
—

—

(2,334
)
Share-based compensation expense
—

—

822

—

—

—

822

Cash dividends, $0.09 per share
—

—

—

—

(1,242
)
—

(1,242
)
Other comprehensive loss
—

—

—

—

—

(643
)
(643
)
Reclassification adjustment to net loss
—

—

—

—

—

246

246

Balance as Restated, June 30, 2019
$
95

$
44

$
53,342

$
(2,334
)
$
15,646

$
(17,604
)
$
49,189

Net loss
—

—

—

—

(2,200
)
—

(2,200
)
Issuance of common stock, net of conversions
—

—

—

—

—

—

—

Purchase of treasury stock
—

—

—

(3,626
)
—

—

(3,626
)
Share-based compensation expense
—

—

801

—

—

—

801

Cash dividends, $0.09 per share
—

—

—

—

(1,215
)
—

(1,215
)
Other comprehensive loss
—

—

—

—

—

(654
)
(654
)
Reclassification adjustment to net loss
—

—

—

—

—

249

249

Balance as Restated, September 30, 2019
$
95

$
44

$
54,143

$
(5,960
)
$
12,231

$
(18,009
)
$
42,544

Net loss
—

—

—

—

(7,304
)
—

(7,304
)
Issuance of common stock, net of conversions
3

(3
)
(1
)
—

—

—

(1
)
Purchase of treasury stock
—

—

—

—

—

—

—

Share-based compensation expense
—

—

367

—

—

—

367

Cash dividends, $0.09 per share
—

—

—

—

(1,217
)
—

(1,217
)
Other comprehensive loss
—

—

—

—

—

1,761

1,761

Reclassification adjustment to net loss
—

—

—

—

—

116

116

Balance as Restated, December 31, 2019
$
98

$
41

$
54,509

$
(5,960
)
$
3,710

$
(16,132
)
$
36,266

















(1) As Restated. The restatement impacts on net income are described in the reconciliation of the consolidated statement of operations. The restatement impacts on other comprehensive loss are described in the reconciliation of the consolidated statement of

F-66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






comprehensive income (loss) for the corresponding periods of the year ended December 31, 2019. The quarter ended March 31, 2019 included a change to the reclassification adjustment to net loss of $0.1 million.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
For the Year Ended December 31, 2018
 
Class A common stock
Class B common stock
Capital in excess of par value
Retained earnings (1)
Accumulated other comprehensive income (loss) (1)
Total stockholders' equity (1)
 
(In thousands, except per share data)
Balance as Restated, January 1, 2018
$
88

$
48

$
47,773

$
7,860

$
(13,743
)
$
42,026

Net loss
—

—

—

(2,183
)
—

(2,183
)
Issuance of common stock, net of conversions
4

(3
)
323

—

—

324

Share-based compensation expense
—

—

955

—

—

955

Cash dividends, $0.085 per share
—

—

—

(1,162
)
—

(1,162
)
Reclassification due to adoption of ASU 2018-02
—

—

—

1,168

(1,168
)
—

Other comprehensive loss
—

—

—

—

863

863

Reclassification adjustment to net loss
—

—

—

—

324

324

Balance as Restated, March 31, 2018
$
92

$
45

$
49,051

$
5,683

$
(13,724
)
$
41,147

Net loss
—

—

—

(1,121
)
—

(1,121
)
Issuance of common stock, net of conversions
—

—

198

—

—

198

Share-based compensation expense
—

—

1,472

—

—

1,472

Cash dividends, $0.085 per share
—

—

—

(1,165
)
—

(1,165
)
Other comprehensive loss
—

—

—

—

(961
)
(961
)
Reclassification adjustment to net loss
—

—

—

—

183

183

Balance as Restated, June 30, 2018
$
92

$
45

$
50,721

$
3,397

$
(14,502
)
$
39,753

Net loss
—

—

—

7,141

—

7,141

Issuance of common stock, net of conversions
—

—

246

—

—

246

Share-based compensation expense
—

—

399



—

399

Cash dividends, $0.085 per share
—

—

—

(1,165
)
—

(1,165
)
Other comprehensive loss
—

—

—

—

548

548

Reclassification adjustment to net loss
—

—

—

—

13

13

Balance as Restated, September 30, 2018
$
92

$
45

$
51,366

$
9,373

$
(13,941
)
$
46,935

Net loss
—

—

—

13,861

—

13,861

Issuance of common stock, net of conversions
1

(1
)
(444
)
—

—

(444
)
Share-based compensation expense
—

—

792

—

—

792

Cash dividends, $0.085 per share
—

—

—

(1,166
)
—

(1,166
)
Other comprehensive loss
—

—

—

—

(3,349
)
(3,349
)
Reclassification adjustment to net loss
—

—

—

—

189

189

Balance as Restated, December 31, 2018
$
93

$
44

$
51,714

$
22,068

$
(17,101
)
$
56,818

 
 
 
 
 
 
 


F-67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






(1) As Restated. The restatement impacts on net income are described in the reconciliation of the consolidated statement of operations. The restatement impacts on other comprehensive loss are described in the reconciliation of the consolidated statement of comprehensive income (loss) for the corresponding periods of the year ended December 31, 2018.

F-68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Three Months Ended December 31, 2019
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
 
(In thousands)
Revenue
$
207,085


$
(2,515
)

a,b,c,d

$
204,570

Cost of sales
162,173


—




162,173

Gross profit
44,912


(2,515
)



42,397

Selling, general and administrative expenses
19,054


3,942


a,c,f

22,996

Amortization of intangible assets
341


—




341

Operating profit (loss)
25,517


(6,457
)



19,060

Interest expense, net
767


—




767

Other expense (income), net
(710
)

—




(710
)
Income (loss) from continuing operations before income taxes
25,460


(6,457
)



19,003

Income tax expense (benefit)
6,066


(367
)

e

5,699

Net income (loss) from continuing operations
19,394


(6,090
)



13,304

Loss from discontinued operations, net of tax
(20,608
)

—




(20,608
)
Net income (loss)
$
(1,214
)

$
(6,090
)



$
(7,304
)
 







Basic and diluted earnings (loss) per share:










Continuing operations
$
1.43


$
(0.45
)



$
0.98

Discontinued operations
(1.52
)

—




(1.52
)
Basic and diluted earnings (loss) per share
$
(0.09
)

$
(0.45
)



$
(0.54
)
 










Basic weighted average shares outstanding
13,518


—




13,518

Diluted weighted average shares outstanding
13,625


—




13,625


(a) Write-off of Assets: The correction of these misstatements resulted in a decrease to revenue of $0.4 million, and an increase to selling, general and administrative ("SG&A") expense of $3.7 million
(b) Reversal of Revenue: The correction of these misstatements resulted in a decrease to revenue of $0.6 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in a decrease to revenue and a decrease to SG&A expense of $0.2 million
(d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in a decrease to revenue of $1.3 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in a decrease to income tax expense of $0.4 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to SG&A expense of $0.5 million


F-69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Three Months Ended September 30, 2019
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Revenue
$
169,778


$
18


b,c

$
169,796

$
(20,288
)
$
149,508

Cost of sales
129,194


—


 

129,194

(10,632
)
118,562

Gross profit
40,584


18


 

40,602

(9,656
)
30,946

Selling, general and administrative expenses
36,182


2,573


a,c,f

38,755

(12,590
)
26,165

Amortization of intangible assets
345


—


 

345

—

345

Operating profit (loss)
4,057


(2,552
)

 

1,505

2,934

4,439

Interest expense, net
864


—


 

864

(108
)
756

Other expense (income), net
688


—


 

688

(7
)
681

Income (loss) from continuing operations before income taxes
2,505


(2,552
)

 

(47
)
3,049

3,002

Income tax expense (benefit)
2,108


45


e

2,153

296

2,449

Net income (loss) from continuing operations
397


(2,597
)

 

(2,200
)
2,753

553

Loss from discontinued operations, net of tax
—


—


 

—

(2,753
)
(2,753
)
Net income (loss)
$
397


$
(2,597
)

 

$
(2,200
)
$
—

$
(2,200
)
 




 




Basic and diluted earnings (loss) per share:






 







Continuing operations
$
0.03


$
(0.19
)

 

$
(0.16
)
$
0.20

$
0.04

Discontinued operations
—


—


 

—

(0.20
)
(0.20
)
Basic and diluted earnings (loss) per share
$
0.03


$
(0.19
)

 

$
(0.16
)
$
—

$
(0.16
)
 






 







Basic weighted average shares outstanding
13,579


—


 

13,579

—

13,579

Diluted weighted average shares outstanding
13,595


—


 

13,595

—

13,595


(a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $2.2 million
(b) Reversal of Revenue: The correction of these misstatements resulted in a decrease to revenue of $0.5 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $0.5 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to income tax expense
(f) Correction of other immaterial errors: The correction of these misstatements resulted in a decrease to SG&A expense of $0.1 million


F-70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






 
For the Nine Months Ended September 30, 2019
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Revenue
$
463,582


$
1,458


b,c,f

$
465,040

$
(57,824
)
$
407,216

Cost of sales
352,618


(65
)

f

352,553

(31,493
)
321,060

Gross profit
110,964


1,522


 

112,486

(26,331
)
86,155

Selling, general and administrative expenses
108,306


5,137


a,c,f

113,443

(36,058
)
77,385

Amortization of intangible assets
1,036


—


 

1,036

—

1,036

Operating profit (loss)
1,622


(3,615
)

 

(1,993
)
9,727

7,734

Interest expense, net
2,514


—


 

2,514

(306
)
2,208

Other expense (income), net
230


144


f

374

(22
)
352

Income (loss) from continuing operations before income taxes
(1,122
)

(3,759
)

 

(4,881
)
10,055

5,174

Income tax expense (benefit)
1,186


136


e

1,322

2,063

3,385

Net income (loss) from continuing operations
(2,308
)

(3,895
)

 

(6,203
)
7,992

1,789

Loss from discontinued operations, net of tax
—


—


 

—

(7,992
)
(7,992
)
Net income (loss)
$
(2,308
)

$
(3,895
)

 

$
(6,203
)
$
—

$
(6,203
)
 




 




Basic and diluted earnings (loss) per share:






 







Continuing operations
$
(0.17
)

$
(0.28
)

 

$
(0.45
)
$
0.58

$
0.13

Discontinued operations
—


—


 

—

(0.58
)
(0.58
)
Basic and diluted earnings (loss) per share
$
(0.17
)

$
(0.28
)

 

$
(0.45
)
$
—

$
(0.45
)
 






 







Basic weighted average shares outstanding
13,726


—


 

13,726

—

13,726

Diluted weighted average shares outstanding
13,726


—


 

13,726

5

13,731


(a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $3.3 million
(b) Reversal of Revenue: The correction of these misstatements resulted in a decrease to revenue of $0.5 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $1.8 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to income tax expense of $0.1 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to revenue of $0.2 million, a decrease to cost of sales of $0.1 million, and an increase to other expense of $0.1 million.


F-71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Three Months Ended June 30, 2019
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Revenue
$
148,427


$
921


c

$
149,348

$
(18,283
)
$
131,065

Cost of sales
112,770


—


 

112,770

(10,212
)
102,558

Gross profit
35,657


921


 

36,578

(8,071
)
28,507

Selling, general and administrative expenses
35,617


594


a,c

36,211

(11,235
)
24,976

Amortization of intangible assets
346


—


 

346

—

346

Operating profit (loss)
(306
)

327


 

21

3,164

3,185

Interest expense, net
904


—


 

904

(115
)
789

Other expense (income), net
(126
)

—


 

(126
)
(6
)
(132
)
Income (loss) from continuing operations before income taxes
(1,084
)

327


 

(757
)
3,285

2,528

Income tax expense
(140
)

1




(139
)
769

630

Net income (loss) from continuing operations
(944
)

326


 

(618
)
2,516

1,898

Loss from discontinued operations, net of tax
—


—


 

—

(2,516
)
(2,516
)
Net income (loss)
$
(944
)

$
326


 

$
(618
)
$
—

$
(618
)
 




 




Basic and diluted earnings (loss) per share:






 







Continuing operations
$
(0.07
)

$
0.03


 

$
(0.04
)
$
0.18

$
0.14

Discontinued operations
—


—


 

—

(0.18
)
(0.18
)
Basic and diluted earnings (loss) per share
$
(0.07
)

$
0.02


 

$
(0.05
)
$
—

$
(0.04
)
 






 







Basic weighted average shares outstanding
13,813


—


 

13,813

—

13,813

Diluted weighted average shares outstanding
13,813


—


 

13,813

13

13,826


(a) Write-off of Assets: The correction of these misstatements resulted in a decrease to selling, general and administrative ("SG&A") expense of $0.3 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $0.9 million



F-72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






 
For the Six Months Ended June 30, 2019
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Revenue
$
293,804


$
1,439


c,f

$
295,243

$
(37,536
)
$
257,707

Cost of sales
223,424


(65
)

f

223,359

(20,861
)
202,498

Gross profit
70,380


1,504


 

71,884

(16,675
)
55,209

Selling, general and administrative expenses
72,124


2,566


a,c,f

74,690

(23,468
)
51,222

Amortization of intangible assets
691


—


 

691

—

691

Operating profit (loss)
(2,435
)

(1,062
)

 

(3,497
)
6,793

3,296

Interest expense, net
1,650


—


 

1,650

(198
)
1,452

Other expense (income), net
(458
)

144


f

(314
)
(15
)
(329
)
Income (loss) from continuing operations before income taxes
(3,627
)

(1,206
)

 

(4,833
)
7,006

2,173

Income tax expense (benefit)
(922
)

92


e

(830
)
1,767

937

Net income (loss) from continuing operations
(2,705
)

(1,298
)

 

(4,003
)
5,239

1,236

Loss from discontinued operations, net of tax
—


—


 

—

(5,239
)
(5,239
)
Net loss
$
(2,705
)

$
(1,298
)

 

$
(4,003
)
$
—

$
(4,003
)
 




 




Basic and diluted earnings (loss) per share:






 







Continuing operations
$
(0.20
)

$
(0.09
)

 

$
(0.29
)
$
0.38

$
0.09

Discontinued operations
—


—


 

—

(0.38
)
(0.38
)
Basic and diluted earnings (loss) per share
$
(0.20
)

$
(0.09
)

 

$
(0.29
)
$
—

$
(0.29
)
 






 







Basic weighted average shares outstanding
13,800


—


 

13,800

—

13,800

Diluted weighted average shares outstanding
13,800


—


 

13,800

13

13,813


(a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $1.1 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $1.3 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to income tax expense of $0.1 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to revenue of $0.1 million, a decrease to cost of sales of $0.1 million, an increase to SG&A of $0.2 million, and an increase to other expense of $0.1 million


F-73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Three Months Ended March 31, 2019

As Previously Reported

Restatement Impacts

Restatement References

As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Revenue
$
145,377


$
518


c,f

$
145,895

$
(19,253
)
$
126,642

Cost of sales
110,654


(65
)

f

110,589

(10,649
)
99,940

Gross profit
34,723


583




35,306

(8,604
)
26,702

Selling, general and administrative expenses
36,507


1,972


a,c,f

38,479

(12,233
)
26,246

Amortization of intangible assets
345


—




345

—

345

Operating profit (loss)
(2,129
)

(1,389
)



(3,518
)
3,629

111

Interest expense, net
746


—




746

(83
)
663

Other expense (income), net
(332
)

144


f

(188
)
(9
)
(197
)
Income (loss) from continuing operations before income taxes
(2,543
)

(1,533
)



(4,076
)
3,721

(355
)
Income tax expense (benefit)
(782
)

91


e

(691
)
998

307

Net income (loss) from continuing operations
(1,761
)

(1,624
)



(3,385
)
2,723

(662
)
Loss from discontinued operations, net of tax
—


—




—

(2,723
)
(2,723
)
Net loss
$
(1,761
)

$
(1,624
)



$
(3,385
)
$
—

$
(3,385
)










Basic and diluted earnings (loss) per share:














Continuing operations
$
(0.13
)

$
(0.12
)



$
(0.25
)
$
0.20

$
(0.05
)
Discontinued operations
—


—




—

(0.20
)
(0.20
)
Basic and diluted earnings (loss) per share
$
(0.13
)

$
(0.12
)



$
(0.25
)
$
—

$
(0.25
)















Basic weighted average shares outstanding
13,786


—




13,786

—

13,786

Diluted weighted average shares outstanding
13,786


—




13,786

—

13,786


(a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $1.4 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $0.4 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to income tax expense of $0.1 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to revenue of $0.1 million, a decrease to cost of sales of $0.1 million, an increase to SG&A expense of $0.2 million, and an increase in other expense of $0.1 million


F-74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Three Months Ended December 31, 2018
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
 
(In thousands, except per share data)
Revenue
$
198,981


$
(815
)

c,f

$
198,166

Cost of sales
157,419


(1,246
)

f

156,173

Gross profit
41,562


431




41,993

Selling, general and administrative expenses
23,677


1,922


a,c,f

25,599

Amortization of intangible assets
345


—




345

Operating profit
17,540


(1,490
)



16,050

Interest expense, net
711


—




711

Other expense (income), net
573


(144
)

f

429

Income from continuing operations before income taxes
16,256


(1,346
)



14,910

Income tax expense
3,595


(175
)

e

3,420

Net income from continuing operations
12,661


(1,171
)



11,490

Loss from discontinued operations, net of tax
2,371


—




2,371

Net income (loss)
$
15,032


$
(1,171
)



$
13,861

 







Basic and diluted earnings (loss) per share:










Continuing operations
$
0.93


$
(0.09
)



$
0.84

Discontinued operations
0.17


—




0.17

Basic and diluted earnings (loss) per share
$
1.10


$
(0.09
)



$
1.01

 










Basic weighted average shares outstanding
13,714


—




13,714

Diluted weighted average shares outstanding
13,844


—




13,844


(a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $1.4 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $0.6 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in a decrease to income tax expense of $0.2 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in a decrease to revenue of $1.4 million, a decrease to cost of sales of $1.2 million, and a decrease in other income of $0.1 million


F-75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Three Months Ended September 30, 2018
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Revenue
$
196,901


$
284


c

$
197,185

$
(25,884
)
$
171,301

Cost of sales
146,550


—




146,550

(13,653
)
132,897

Gross profit
50,351


284




50,635

(12,231
)
38,404

Selling, general and administrative expenses
39,211


1,496


a,c

40,707

(14,411
)
26,296

Amortization of intangible assets
345


—




345

—

345

Operating profit
10,795


(1,212
)



9,583

2,180

11,763

Interest expense, net
1,001


—




1,001

(115
)
886

Other expense (income), net
(426
)

—




(426
)
(7
)
(433
)
Income from continuing operations before income taxes
10,220


(1,212
)



9,008

2,302

11,310

Income tax expense
2,176


(309
)

e

1,867

413

2,280

Net income from continuing operations
8,044


(903
)



7,141

1,889

9,030

Loss from discontinued operations, net of tax
—


—




—

(1,889
)
(1,889
)
Net income (loss)
$
8,044


$
(903
)



$
7,141

$
—

$
7,141

 









Basic and diluted earnings (loss) per share:














Continuing operations
$
0.59


$
(0.07
)



$
0.52

$
0.14

$
0.66

Discontinued operations
—


—




—

(0.14
)
(0.14
)
Basic and diluted earnings (loss) per share
$
0.59


$
(0.07
)



$
0.52

$
—

$
0.52

 














Basic weighted average shares outstanding
13,704


—




13,704

—

13,704

Diluted weighted average shares outstanding
13,713


—




13,713

—

13,713


(a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $1.2 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $0.3 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in a decrease to income tax expense of $0.3 million



F-76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






 
For the Nine Months Ended September 30, 2018
 
 
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Revenue
$
501,475


$
1,187


c.f

$
502,662

$
(70,746
)
$
431,916

Cost of sales
372,478


81


f

372,559

(37,702
)
334,857

Gross profit
128,997


1,106




130,103

(33,044
)
97,059

Selling, general and administrative expenses
117,328


4,235


a,c,f

121,563

(43,041
)
78,522

Amortization of intangible assets
1,036


—




1,036

—

1,036

Operating profit
10,633


(3,129
)



7,504

9,997

17,501

Interest expense, net
2,422


—




2,422

(217
)
2,205

Other expense (income), net
(253
)

—




(253
)
(27
)
(280
)
Income from continuing operations before income taxes
8,464


(3,129
)



5,335

10,241

15,576

Income tax expense
1,712


(214
)

e

1,498

2,509

4,007

Net income from continuing operations
6,752


(2,915
)



3,837

7,732

11,569

Loss from discontinued operations, net of tax
—


—




—

(7,732
)
(7,732
)
Net income (loss)
$
6,752


$
(2,915
)



$
3,837

$
—

$
3,837

 









Basic and diluted earnings (loss) per share:














Continuing operations
$
0.49


$
(0.21
)



$
0.28

$
0.56

$
0.84

Discontinued operations
—


—




—

(0.56
)
(0.56
)
Basic and diluted earnings (loss) per share
$
0.49


$
(0.21
)



$
0.28

$
—

$
0.28

 














Basic weighted average shares outstanding
13,694


—




13,694

—

13,694

Diluted weighted average shares outstanding
13,697


—




13,697

—

13,697


(a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $3.5 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $0.9 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in a decrease to income tax expense of $0.2 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to revenue of $0.3 million, an increase to cost of sales of $0.1 million, and a decrease to SG&A of $0.2 million

F-77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Three Months Ended June 30, 2018
 
 
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Revenue
$
157,941


$
404


c

$
158,345

$
(22,762
)
$
135,583

Cost of sales
117,088


—




117,088

(12,232
)
104,856

Gross profit
40,853


404




41,257

(10,530
)
30,727

Selling, general and administrative expenses
40,123


525


a,c,f

40,648

(14,211
)
26,437

Amortization of intangible assets
346


—




346

—

346

Operating profit
384


(121
)



263

3,681

3,944

Interest expense, net
889


—




889

(80
)
809

Other expense (income), net
687


—




687

(8
)
679

Income from continuing operations before income taxes
(1,192
)

(121
)



(1,313
)
3,769

2,456

Income tax expense
(318
)

126


e

(192
)
1,003

811

Net income from continuing operations
(874
)

(247
)



(1,121
)
2,766

1,645

Loss from discontinued operations, net of tax
—


—




—

(2,766
)
(2,766
)
Net income (loss)
$
(874
)

$
(247
)



$
(1,121
)
$
—

$
(1,121
)
 









Basic and diluted earnings (loss) per share:














Continuing operations
$
(0.06
)

$
(0.02
)



$
(0.08
)
$
0.20

$
0.12

Discontinued operations
—


—




—

(0.20
)
(0.20
)
Basic and diluted earnings (loss) per share
$
(0.06
)

$
(0.02
)



$
(0.08
)
$
—

$
(0.08
)
 














Basic weighted average shares outstanding
13,695


—




13,695

—

13,695

Diluted weighted average shares outstanding
13,695


—




13,695

9

13,704


(a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $0.5 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $0.4 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to income tax expense of $0.1 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in a decrease to SG&A of $0.4 million


F-78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






 
For the Six Months Ended June 30, 2018
 
 
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Revenue
$
304,574


$
903


c,f

$
305,477

$
(44,862
)
$
260,615

Cost of sales
225,928


81


f

226,009

(24,049
)
201,960

Gross profit
78,646


822




79,468

(20,813
)
58,655

Selling, general and administrative expenses
78,117


2,738


a,c,f

80,855

(28,630
)
52,225

Amortization of intangible assets
691


—




691

—

691

Operating profit
(162
)

(1,917
)



(2,079
)
7,817

5,738

Interest expense, net
1,421


—




1,421

(102
)
1,319

Other expense (income), net
173


—




173

(20
)
153

Income from continuing operations before income taxes
(1,756
)

(1,917
)



(3,673
)
7,939

4,266

Income tax expense
(464
)

95


e

(369
)
2,096

1,727

Net income from continuing operations
(1,292
)

(2,012
)



(3,304
)
5,843

2,539

Loss from discontinued operations, net of tax
—


—




—

(5,843
)
(5,843
)
Net income (loss)
$
(1,292
)

$
(2,012
)



$
(3,304
)
$
—

$
(3,304
)
 










Basic and diluted earnings (loss) per share:















Continuing operations
$
(0.09
)

$
(0.15
)



$
(0.24
)
$
0.43

$
0.19

Discontinued operations
—


—




—

(0.43
)
(0.43
)
Basic and diluted earnings (loss) per share
$
(0.09
)

$
(0.15
)



$
(0.24
)
$
—

$
(0.24
)
 















Basic weighted average shares outstanding
13,689


—




13,689

—

13,689

Diluted weighted average shares outstanding
13,689


—




13,689

4

13,693


(a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $2.3 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $0.6 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to income tax expense of $0.1 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to revenue of $0.3 million, an increase to cost of sales of $0.1 million, and a decrease to SG&A of $0.2 million



F-79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Three Months Ended March 31, 2018
 
As Previously Reported
 
Restatement Impacts
 
Restatement References
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Revenue
$
146,633


$
499


c,f

$
147,132

$
(22,100
)
$
125,032

Cost of sales
108,840


81


f

108,921

(11,817
)
97,104

Gross profit
37,793


418




38,211

(10,283
)
27,928

Selling, general and administrative expenses
37,994


2,214


a,c,f

40,208

(14,419
)
25,789

Amortization of intangible assets
345


—




345

—

345

Operating profit
(546
)

(1,796
)



(2,342
)
4,136

1,794

Interest expense, net
532


—




532

(22
)
510

Other expense (income), net
(514
)

—




(514
)
(12
)
(526
)
Income from continuing operations before income taxes
(564
)

(1,796
)



(2,360
)
4,170

1,810

Income tax expense
(146
)

(31
)



(177
)
1,093

916

Net income from continuing operations
(418
)

(1,765
)



(2,183
)
3,077

894

Loss from discontinued operations, net of tax
—


—




—

(3,077
)
(3,077
)
Net income (loss)
$
(418
)

$
(1,765
)



$
(2,183
)
$
—

$
(2,183
)
 









Basic and diluted earnings (loss) per share:














Continuing operations
$
(0.03
)

$
(0.12
)



$
(0.15
)
$
0.22

$
0.07

Discontinued operations
—


—




—

(0.22
)
(0.22
)
Basic and diluted earnings (loss) per share
$
(0.03
)

$
(0.12
)



$
(0.15
)
$
—

$
(0.15
)
 














Basic weighted average shares outstanding
13,683


—




13,683

—

13,683

Diluted weighted average shares outstanding
13,683


—




13,683

9

13,692


(a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $1.7 million
(c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $0.2 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to revenue of $0.3 million, and increase to cost of sales of $0.1 million, an increase to SG&A of $0.3 million


F-80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
For the Three Months Ended December 31, 2019
 
As Previously Reported
 
Restatement Impacts
 
As Restated
 
(In thousands)
Net income (loss)
$
(1,214
)

$
(6,090
)

$
(7,304
)
Other comprehensive income (loss), net of tax:








Foreign currency translation adjustment
857


(656
)

201

(Loss) gain on long-term intra-entity foreign currency transactions
294


—


294

Cash flow hedging activity
(143
)

—


(143
)
Reclassification of hedging activities into earnings
81


—


81

Pension plan adjustment
1,410


—


1,410

Reclassification of pension adjustments into earnings
35


—


35

Total other comprehensive loss, net of tax
2,534


(656
)

1,878

Comprehensive income (loss)
$
1,320


$
(6,746
)

$
(5,426
)

See description of the net income (loss) impacts in the consolidated statement of operations for the three months ended December 31, 2019 section above.
The decrease to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories.


F-81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)







CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
For the Three Months Ended September 30, 2019
 
As Previously Reported
 
Restatement Impacts
 
As Restated
 
(In thousands)
Net income (loss)
$
397


$
(2,597
)

$
(2,200
)
Other comprehensive income (loss), net of tax:








Foreign currency translation adjustment
(312
)

294


(18
)
(Loss) gain on long-term intra-entity foreign currency transactions
(509
)

—


(509
)
Cash flow hedging activity
(127
)

—


(127
)
Reclassification of hedging activities into earnings
122


—


122

Pension plan adjustment
—


—


—

Reclassification of pension adjustments into earnings
127


—


127

Total other comprehensive loss, net of tax
(699
)

294


(405
)
Comprehensive income (loss)
$
(302
)

$
(2,303
)

$
(2,605
)

See description of the net income (loss) impacts in the consolidated statement of operations for the three months ended September 30, 2019 section above.
The increase to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories.

 
For the Nine Months Ended September 30, 2019
 
As Previously Reported
 
Restatement Impacts
 
As Restated
 
(In thousands)
Net income (loss)
$
(2,308
)

$
(3,895
)

$
(6,203
)
Other comprehensive income (loss), net of tax:








Foreign currency translation adjustment
244


65


309

(Loss) gain on long-term intra-entity foreign currency transactions
(373
)

—


(373
)
Cash flow hedging activity
(1,570
)

144


(1,426
)
Reclassification of hedging activities into earnings
268


—


268

Pension plan adjustment
—


—


—

Reclassification of pension adjustments into earnings
219


94


313

Total other comprehensive loss, net of tax
(1,212
)

303


(909
)
Comprehensive income (loss)
$
(3,520
)

$
(3,592
)

$
(7,112
)

See description of the net income (loss) impacts in the consolidated statement of operations for the nine months ended September 30, 2019 section above.
The increase to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories.
The increases to cash flow hedging and the reclassification of pension adjustments are from the correction of other immaterial errors.


F-82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
For the Three Months Ended June 30, 2019
 
As Previously Reported
 
Restatement Impacts
 
As Restated
 
(In thousands)
Net income (loss)
$
(944
)

$
326


$
(618
)
Other comprehensive income (loss), net of tax:








Foreign currency translation adjustment
226


(113
)

113

(Loss) gain on long-term intra-entity foreign currency transactions
121


—


121

Cash flow hedging activity
(877
)

—


(877
)
Reclassification of hedging activities into earnings
144


—


144

Pension plan adjustment
—


—


—

Reclassification of pension adjustments into earnings
102


—


102

Total other comprehensive loss, net of tax
(284
)

(113
)

(397
)
Comprehensive income (loss)
$
(1,228
)

$
213


$
(1,015
)

See description of the net income (loss) impacts in the consolidated statement of operations for the three months ended June 30, 2019 section above.
The decrease to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories.
The increases to the reclassification of pension adjustments are from the correction of other immaterial errors.

 
For the Six Months Ended June 30, 2019
 
As Previously Reported
 
Restatement Impacts
 
As Restated
 
(In thousands)
Net income (loss)
$
(2,705
)

$
(1,298
)

$
(4,003
)
Other comprehensive income (loss), net of tax:








Foreign currency translation adjustment
556


(229
)

327

(Loss) gain on long-term intra-entity foreign currency transactions
136


—


136

Cash flow hedging activity
(1,443
)

144


(1,299
)
Reclassification of hedging activities into earnings
146


—


146

Pension plan adjustment
—


—


—

Reclassification of pension adjustments into earnings
92


94


186

Total other comprehensive loss, net of tax
(513
)

9


(504
)
Comprehensive income (loss)
$
(3,218
)

$
(1,289
)

$
(4,507
)

See description of the net income (loss) impacts in the consolidated statement of operations for the six months ended June 30, 2019 section above.
The decrease to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets and timing of recognition of customer pricing concessions categories.
The increase to cash flow hedging and the reclassification of pension adjustments is from the correction of other immaterial errors.


F-83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
For the Three Months Ended March 31, 2019

As Previously Reported

Restatement Impacts

As Restated
 
(In thousands)
Net income (loss)
$
(1,761
)

$
(1,624
)

$
(3,385
)
Other comprehensive income (loss), net of tax:








Foreign currency translation adjustment
330


(116
)

214

(Loss) gain on long-term intra-entity foreign currency transactions
15


—


15

Cash flow hedging activity
(566
)

144


(422
)
Reclassification of hedging activities into earnings
2


—


2

Pension plan adjustment
—


—


—

Reclassification of pension adjustments into earnings
(10
)

94


84

Total other comprehensive loss, net of tax
(229
)

122


(107
)
Comprehensive income (loss)
$
(1,990
)

$
(1,502
)

$
(3,492
)

See description of the net income (loss) impacts in the consolidated statement of operations for the three months ended March 31, 2019 section above.
The decrease to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories.
The increase to cash flow hedging is from the correction of other immaterial errors.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
For the Three Months Ended December 31, 2018
 
As Previously Reported
 
Restatement Impacts
 
As Restated
 
(In thousands)
Net income (loss)
$
15,032


$
(1,171
)

$
13,861

Other comprehensive income (loss), net of tax:








Foreign currency translation adjustment
(1,441
)

306


(1,135
)
(Loss) gain on long-term intra-entity foreign currency transactions
60


—


60

Cash flow hedging activity
(208
)

(144
)

(352
)
Reclassification of hedging activities into earnings
48


—


48

Pension plan adjustment
(1,920
)

—


(1,920
)
Reclassification of pension adjustments into earnings
235


(94
)

141

Total other comprehensive loss, net of tax
(3,226
)

68


(3,158
)
Comprehensive income (loss)
$
11,806


$
(1,103
)

$
10,703


See description of the net income (loss) impacts in the consolidated statement of operations for the three months ended December 31, 2018 section above.
The increase to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories.
The decrease to cash flow hedging and the reclassification of pension adjustments are from the correction of other immaterial errors.


F-84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
For the Three Months Ended September 30, 2018
 
As Previously Reported
 
Restatement Impacts
 
As Restated
 
(In thousands)
Net income (loss)
$
8,044


$
(903
)

$
7,141

Other comprehensive income (loss), net of tax:








Foreign currency translation adjustment
1,257


(355
)

902

(Loss) gain on long-term intra-entity foreign currency transactions
(53
)

—


(53
)
Cash flow hedging activity
(301
)

—


(301
)
Reclassification of hedging activities into earnings
(102
)

—


(102
)
Pension plan adjustment
—


—


—

Reclassification of pension adjustments into earnings
115


—


115

Total other comprehensive loss, net of tax
916


(355
)

561

Comprehensive income (loss)
$
8,960


$
(1,258
)

$
7,702


See description of the net income (loss) impacts in the consolidated statement of operations for the three months ended September 30, 2018 section above.
The decrease to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories.

 
For the Nine Months Ended September 30, 2018
 
As Previously Reported
 
Restatement Impacts
 
As Restated
 
(In thousands)
Net income (loss)
$
6,752


$
(2,915
)

$
3,837

Other comprehensive income (loss), net of tax:








Foreign currency translation adjustment
1,282


(219
)

1,063

(Loss) gain on long-term intra-entity foreign currency transactions
(1,066
)

—


(1,066
)
Cash flow hedging activity
452


—


452

Reclassification of hedging activities into earnings
105


—


105

Pension plan adjustment
—


—


—

Reclassification of pension adjustments into earnings
415


—


415

Total other comprehensive loss, net of tax
1,188


(219
)

969

Comprehensive income (loss)
$
7,940


$
(3,135
)

$
4,805


See description of the net income (loss) impacts in the consolidated statement of operations for the nine months ended September 30, 2018 section above.
The decrease to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories.


F-85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
For the Three Months Ended June 30, 2018
 
As Previously Reported
 
Restatement Impacts
 
As Restated
 
(In thousands)
Net income (loss)
$
(874
)

$
(247
)

$
(1,121
)
Other comprehensive income (loss), net of tax:








Foreign currency translation adjustment
(892
)

480


(412
)
(Loss) gain on long-term intra-entity foreign currency transactions
(1,013
)

—


(1,013
)
Cash flow hedging activity
464


—


464

Reclassification of hedging activities into earnings
41


—


41

Pension plan adjustment
—


—


—

Reclassification of pension adjustments into earnings
142


—


142

Total other comprehensive loss, net of tax
(1,258
)

480


(778
)
Comprehensive income (loss)
$
(2,132
)

$
233


$
(1,899
)

See description of the net income (loss) impacts in the consolidated statement of operations for the three months ended June 30, 2018 section above.
The increase to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories.

 
For the Six Months Ended June 30, 2018
 
As Previously Reported
 
Restatement Impacts
 
As Restated
 
(In thousands)
Net income (loss)
$
(1,292
)

$
(2,012
)

$
(3,304
)
Other comprehensive income (loss), net of tax:








Foreign currency translation adjustment
25


136


161

(Loss) gain on long-term intra-entity foreign currency transactions
(1,013
)

—


(1,013
)
Cash flow hedging activity
753


—


753

Reclassification of hedging activities into earnings
207


—


207

Pension plan adjustment
—


—


—

Reclassification of pension adjustments into earnings
300


—


300

Total other comprehensive loss, net of tax
272


136


408

Comprehensive income (loss)
$
(1,020
)

$
(1,876
)

$
(2,896
)

See description of the net income (loss) impacts in the consolidated statement of operations for the six months ended June 30, 2018 section above.
The increase to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories.


F-86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
For the Three Months Ended March 31, 2018
 
As Previously Reported
 
Restatement Impacts
 
As Restated
 
(In thousands)
Net income (loss)
$
(418
)

$
(1,765
)

$
(2,183
)
Other comprehensive income (loss), net of tax:








Foreign currency translation adjustment
917


(344
)

573

(Loss) gain on long-term intra-entity foreign currency transactions
—


—


—

Cash flow hedging activity
289


—


289

Reclassification of hedging activities into earnings
166


—


166

Pension plan adjustment
—


—


—

Reclassification of pension adjustments into earnings
158


—


158

Total other comprehensive loss, net of tax
1,530


(344
)

1,186

Comprehensive income (loss)
$
1,112


$
(2,109
)

$
(997
)

See description of the net income (loss) impacts in the consolidated statement of operations for the three months ended March 31, 2018 section above.
The decrease to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories.


F-87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED BALANCE SHEETS
`
September 30, 2019
 
As Previously Reported
 
Restatement Impacts
 
Restatement Reference
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,866


$
—




$
1,866

$
(307
)
$
1,559

Trade receivables, net
106,135


(2,179
)

a,b

103,956

(865
)
103,091

Inventory
181,847


—




181,847

(20,804
)
161,043

Prepaid expenses and other current assets
22,445


(7,505
)

a,b

14,940

(854
)
14,086

Current assets of discontinued operations
—


—




—

22,830

22,830

Total current assets
312,293


(9,684
)



302,609

—

302,609

Property, plant and equipment, net
22,653


—




22,653

(460
)
22,193

Goodwill
6,253


—




6,253

—

6,253

Other intangible assets, net
3,483


—




3,483

—

3,483

Deferred income taxes
6,161


634


e

6,795

(1,155
)
5,640

Deferred costs
8,925


—




8,925

(121
)
8,804

Other non-current assets
1,561


—




1,561

(8
)
1,553

Non-current assets of discontinued operations
—


—




—

1,744

1,744

Total assets
$
361,329


$
(9,050
)



$
352,279

$
—

$
352,279

Liabilities and stockholders' equity









Current liabilities









Accounts payable
$
147,206


$
16




$
147,222

$
(7,211
)
$
140,011

Accounts payable to NACCO Industries, Inc.
220


—




220

—

220

Revolving credit agreements
59,702


—




59,702

(9,550
)
50,152

Accrued compensation
15,568


389


f

15,957

(1,307
)
14,650

Accrued product returns
8,266


—




8,266

—

8,266

Other current liabilities
30,651


1,874


a,d,e

32,525

(6,645
)
25,880

Current liabilities of discontinued operations
—


—




—

24,713

24,713

Total current liabilities
261,613


2,279




263,892

—

263,892

Revolving credit agreements
30,000


—




30,000

—

30,000

Other long-term liabilities
14,961


882


e

15,843

(1,585
)
14,258

Non-current liabilities of discontinued operations
—


—




—

1,585

1,585

Total liabilities
306,574


3,161




309,735

—

309,735

Stockholders’ equity









Class A Common stock
95


—




95

—

95

Class B Common stock
44


—




44

—

44

Capital in excess of par value
54,143


—




54,143

—

54,143

Treasury stock
(5,960
)

—




(5,960
)
—

(5,960
)
Retained earnings
24,955


(12,724
)

a,b,c,d,e,f

12,231

—

12,231

Accumulated other comprehensive loss
(18,522
)

513


a,b,d

(18,009
)
—

(18,009
)
Total stockholders’ equity
54,755


(12,211
)



42,544

—

42,544

Total liabilities and stockholders' equity
$
361,329


$
(9,050
)



$
352,279

$
—

$
352,279



F-88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






(a) Write-off of Assets: The correction of these misstatements resulted in a decrease to trade receivables of $1.6 million, a reduction to prepaid expenses and other current assets of $7.6 million, and an increase to other current liabilities of $2.1 million
(b) Reversal of Revenue: The correction of these misstatements resulted in a decrease to trade receivables of $0.6 million and an increase to prepaid expenses and other current assets of $0.1 million
(d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in an increase to other current liabilities of $0.2 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to deferred income taxes of $0.6 million, a decrease to other current liabilities of $0.4 million, and an increase to other long-term liabilities of $0.9 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to accrued compensation of $0.4 million



F-89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED BALANCE SHEETS
`
June 30, 2019
 
 
 
As Previously Reported
 
Restatement Impacts
 
Restatement Reference
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,131


$
—




$
1,131

$
(102
)
$
1,029

Trade receivables, net
89,579


(2,446
)

a,f

87,133

(865
)
86,268

Inventory
140,817


—




140,817

(19,345
)
121,472

Prepaid expenses and other current assets
24,078


(6,723
)

a

17,355

(943
)
16,412

Current assets of discontinued operations
—


—




—

21,255

21,255

Total current assets
255,605


(9,169
)



246,436

—

246,436

Property, plant and equipment, net
23,204


—




23,204

(1,555
)
21,649

Goodwill
6,253


—




6,253

—

6,253

Other intangible assets, net
3,828


—




3,828

—

3,828

Deferred income taxes
6,169


318


e

6,487

(2,733
)
3,754

Deferred costs
8,683


—




8,683

(119
)
8,564

Other non-current assets
1,997


—




1,997

(13
)
1,984

Non-current assets of discontinued operations
—


—




—

4,420

4,420

Total assets
$
305,739


$
(8,851
)



$
296,888

$
—

$
296,888

Liabilities and stockholders' equity









Current liabilities









Accounts payable
$
91,737


$
—




$
91,737

$
(5,538
)
$
86,199

Accounts payable to NACCO Industries, Inc.
220


—




220

—

220

Revolving credit agreements
58,955


—




58,955

(7,450
)
51,505

Accrued compensation
12,091


387


f

12,478

(753
)
11,725

Accrued product returns
8,224


—




8,224

—

8,224

Other current liabilities
27,930


(241
)

a,d,e,f

27,689

(6,307
)
21,382

Current liabilities of discontinued operations
—


—




—

20,048

20,048

Total current liabilities
199,157


146




199,303

—

199,303

Revolving credit agreements
32,000


—




32,000

(2,000
)
30,000

Other long-term liabilities
15,485


911


e

16,396

(1,697
)
14,699

Non-current liabilities of discontinued operations
—


—




—

3,697

3,697

Total liabilities
246,642


1,057




247,699

—

247,699

Stockholders’ equity









Class A Common stock
95


—




95

—

95

Class B Common stock
44


—




44

—

44

Capital in excess of par value
53,342


—




53,342

—

53,342

Treasury stock
(2,334
)

—




(2,334
)
—

(2,334
)
Retained earnings
25,773


(10,127
)

a,d,e,f

15,646

—

15,646

Accumulated other comprehensive loss
(17,823
)

219


a,d

(17,604
)
—

(17,604
)
Total stockholders’ equity
59,097


(9,908
)



49,189

—

49,189

Total liabilities and stockholders' equity
$
305,739


$
(8,851
)



$
296,888

$
—

$
296,888



F-90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






(a) Write-off of Assets: The correction of these misstatements resulted in a decrease to trade receivables of $1.3 million, a reduction to prepaid expenses and other current assets of $6.7 million, and an increase in other current liabilities of $1.4 million
(d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in an increase to other current liabilities of $0.2 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to deferred income taxes of $0.3 million, a decrease to other current liabilities of $0.4 million, and an increase to other long-term liabilities of $0.9 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in a decrease to trade receivables of $1.1 million, an increase to accrued compensation of $0.4 million, and a decrease to other current liabilities of $1.4 million


F-91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED BALANCE SHEETS
`
March 31, 2019


 
As Previously Reported

Restatement Impacts

Restatement Reference

As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Assets
 

 






Current assets
 

 






Cash and cash equivalents
$
1,721


$
—




$
1,721

$
(85
)
$
1,636

Trade receivables, net
92,534


(2,768
)

a,f

89,766

(10,664
)
79,102

Inventory
142,261


—




142,261

(21,554
)
120,707

Prepaid expenses and other current assets
16,373


(6,605
)

a

9,768

7,611

17,379

Current assets of discontinued operations
—


—




—

24,692

24,692

Total current assets
252,889


(9,373
)



243,516

—

243,516

Property, plant and equipment, net
22,566


—




22,566

(1,582
)
20,984

Goodwill
6,253


—




6,253

—

6,253

Other intangible assets, net
4,174


—




4,174

—

4,174

Deferred income taxes
5,493


385


e

5,878

(2,712
)
3,166

Deferred costs
8,447


—




8,447

(131
)
8,316

Other non-current assets
2,424


—




2,424

(21
)
2,403

Non-current assets of discontinued operations
—


—




—

4,446

4,446

Total assets
$
302,246


$
(8,988
)



$
293,258

$
—

$
293,258

Liabilities and stockholders' equity









Current liabilities









Accounts payable
$
80,649


$
—




$
80,649

$
(6,929
)
$
73,720

Accounts payable to NACCO Industries, Inc.
2,425


—




2,425

—

2,425

Revolving credit agreements
62,212


—




62,212

(7,400
)
54,812

Accrued compensation
8,903


370


f

9,273

(875
)
8,398

Accrued product returns
9,314


—




9,314

—

9,314

Other current liabilities
24,109


(135
)

a,d,e,f

23,974

(6,269
)
17,705

Current liabilities of discontinued operations
—


—




—

21,473

21,473

Total current liabilities
187,612


235




187,847

—

187,847

Revolving credit agreements
32,000


—




32,000

(2,000
)
30,000

Other long-term liabilities
19,555


898


e

20,453

(1,834
)
18,619

Non-current liabilities of discontinued operations
—


—




—

3,834

3,834

Total liabilities
239,167


1,133




240,300

—

240,300

Stockholders’ equity









Class A Common stock
95


—




95

—

95

Class B Common stock
44


—




44

—

44

Capital in excess of par value
52,520


—




52,520

—

52,520

Retained earnings
27,959


(10,453
)

a,d,e,f

17,506

—

17,506

Accumulated other comprehensive loss
(17,539
)

332


a,d

(17,207
)
—

(17,207
)
Total stockholders’ equity
63,079


(10,121
)



52,958

—

52,958

Total liabilities and stockholders' equity
$
302,246


$
(8,988
)



$
293,258

$
—

$
293,258


(a) Write-off of Assets: The correction of these misstatements resulted in a decrease to trade receivables of $1.6 million, a reduction to prepaid expenses and other current assets of $6.6 million, and an increase to other current liabilities of $1.4 million

F-92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






(d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in an increase to other current liabilities of $0.2 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in a decrease to other current assets of $0.1 million, an increase to deferred income taxes of $0.4 million, a decrease to other current liabilities of $0.3 million, and an increase to other long-term liabilities of $0.9 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in a decrease to trade receivables of $1.1 million, an increase to accrued compensation of $0.4 million and a decrease to other current liabilities of $1.4 million



F-93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED BALANCE SHEETS
`
September 30, 2018
 
As Previously Reported
 
Restatement Impacts
 
Restatement Reference
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,139


$
—




$
2,139

$
(572
)
$
1,567

Trade receivables, net
113,683


(351
)

a

113,332

(1,023
)
112,309

Inventory
183,831


—




183,831

(28,087
)
155,744

Prepaid expenses and other current assets
20,766


(5,668
)

a

15,098

(2,503
)
12,595

Current assets of discontinued operations
—


—




—

32,185

32,185

Total current assets
320,419


(6,019
)



314,400

—

314,400

Property, plant and equipment, net
23,309


—




23,309

(2,321
)
20,988

Goodwill
6,253


—




6,253

—

6,253

Other intangible assets, net
4,864


—




4,864

—

4,864

Deferred income taxes
10,450


53


e

10,503

(2,799
)
7,704

Deferred costs
10,306


—




10,306

(153
)
10,153

Other non-current assets
3,322


—




3,322

(40
)
3,282

Non-current assets of discontinued operations
—


—




—

5,313

5,313

Total assets
$
378,923


$
(5,966
)



$
372,957

$
—

$
372,957

Liabilities and stockholders' equity









Current liabilities









Accounts payable
$
143,955


$
—




$
143,955

$
(12,335
)
$
131,620

Accounts payable to NACCO Industries, Inc.
2,480


—




2,480

—

2,480

Revolving credit agreements
69,883


—




69,883

(9,800
)
60,083

Accrued compensation
16,575


356


f

16,931

(1,510
)
15,421

Accrued product returns
9,601


—




9,601

—

9,601

Other current liabilities
27,139


1,397


a,d,e

28,536

(6,048
)
22,488

Current liabilities of discontinued operations
—


—




—

29,693

29,693

Total current liabilities
269,633


1,753




271,386

—

271,386

Revolving credit agreements
30,000


—




30,000

—

30,000

Other long-term liabilities
24,840


(204
)

e

24,636

(2,293
)
22,343

Non-current liabilities of discontinued operations
—


—




—

2,293

2,293

Total liabilities
324,473


1,549




326,022

—

326,022

Stockholders’ equity









Class A Common stock
92


—




92

—

92

Class B Common stock
45


—




45

—

45

Capital in excess of par value
51,366


—




51,366

—

51,366

Treasury stock
—


—




—

—

—

Retained earnings
17,031


(7,658
)

a,d,e,f

9,373

—

9,373

Accumulated other comprehensive loss
(14,084
)

143


a,b,d

(13,941
)
—

(13,941
)
Total stockholders’ equity
54,450


(7,515
)



46,935

—

46,935

Total liabilities and stockholders' equity
$
378,923


$
(5,966
)



$
372,957

$
—

$
372,957



F-94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






(a) Write-off of Assets: The correction of these misstatements resulted in a decrease to trade receivables of $0.4 million, a reduction to prepaid expenses and other current assets of $5.7 million, and an increase to other current liabilities of $1.0 million
(d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in an increase to other current liabilities of $0.3 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to deferred income taxes of $0.1 million, a decrease to other long-term liabilities of $0.2 million and an increase to other current liabilities of $0.1 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to accrued compensation of $0.4 million

F-95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED BALANCE SHEETS
`
June 30, 2018
 
As Previously Reported
 
Restatement Impacts
 
Restatement Reference
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,962


$
—




$
1,962

$
(569
)
$
1,393

Trade receivables, net
77,623


(411
)

a

77,212

(1,080
)
76,132

Inventory
165,237


—




165,237

(26,516
)
138,721

Prepaid expenses and other current assets
20,996


(3,888
)

a

17,108

(2,539
)
14,569

Current assets of discontinued operations
—


—




—

30,704

30,704

Total current assets
265,818


(4,299
)



261,519

—

261,519

Property, plant and equipment, net
21,839


—




21,839

(2,751
)
19,088

Goodwill
6,253


—




6,253

—

6,253

Other intangible assets, net
5,209


—




5,209

—

5,209

Deferred income taxes
10,894


668


e

11,562

(2,685
)
8,877

Deferred costs
9,973


—




9,973

(148
)
9,825

Other non-current assets
3,282


—




3,282

(104
)
3,178

Non-current assets of discontinued operations
—


—




—

5,688

5,688

Total assets
$
323,268


$
(3,631
)



$
319,637

$
—

$
319,637

Liabilities and stockholders' equity









Current liabilities









Accounts payable
$
103,461


$
—




$
103,461

$
(10,973
)
$
92,488

Accounts payable to NACCO Industries, Inc.
2,769


—




2,769

—

2,769

Revolving credit agreements
75,476


—




75,476

(9,150
)
66,326

Accrued compensation
12,531


325


f

12,856

(872
)
11,984

Accrued product returns
9,648


—




9,648

—

9,648

Other current liabilities
19,099


2,505


a,d,e,f

21,604

(5,835
)
15,769

Current liabilities of discontinued operations
—


—




—

26,830

26,830

Total current liabilities
222,984


2,830




225,814

—

225,814

Revolving credit agreements
30,000


—




30,000

—

30,000

Other long-term liabilities
24,274


(204
)

e

24,070

(2,416
)
21,654

Non-current liabilities of discontinued operations
—


—




—

2,416

2,416

Total liabilities
277,258


2,626




279,884

—

279,884

Stockholders’ equity









Class A Common stock
92


—




92

—

92

Class B Common stock
45


—




45

—

45

Capital in excess of par value
50,721


—




50,721

—

50,721

Treasury stock
—


—




—

—

—

Retained earnings
10,152


(6,755
)

a,d,e,f

3,397

—

3,397

Accumulated other comprehensive loss
(15,000
)

498


a,e,f

(14,502
)
—

(14,502
)
Total stockholders’ equity
46,010


(6,257
)



39,753

—

39,753

Total liabilities and stockholders' equity
$
323,268


$
(3,631
)



$
319,637

$
—

$
319,637




F-96

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)







(a) Write-off of Assets: The correction of these misstatements resulted in a decrease to trade receivables of $0.4 million, a reduction to prepaids and other assets of $3.9 million, and an increase to other current liabilities of $1.3 million
(d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in an increase to other current liabilities of $0.2 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to deferred income taxes of $0.7 million, an increase to other current liabilities of $0.2 million, and a decrease to other long-term liabilities of $0.2 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to accrued compensation of $0.3 million, and an increase to other current liabilities of $0.8 million






F-97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)






CONDENSED CONSOLIDATED BALANCE SHEETS
`
March 31, 2018
 
As Previously Reported
 
Restatement Impacts
 
Restatement Reference
 
As Restated
Recasting Impacts
As Restated and Recast
 
(In thousands)
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,389


$
—




$
2,389

$
(605
)
$
1,784

Trade receivables, net
88,579


(191
)

a

88,388

(9,030
)
79,358

Inventory
157,622


—




157,622

(24,873
)
132,749

Prepaid expenses and other current assets
11,848


(2,655
)

a

9,193

5,422

14,615

Current assets of discontinued operations
—


—




—

29,086

29,086

Total current assets
260,438


(2,846
)



257,592

—

257,592

Property, plant and equipment, net
20,597


—




20,597

(2,954
)
17,643

Goodwill
6,253


—




6,253

—

6,253

Other intangible assets, net
5,555


—




5,555

—

5,555

Deferred income taxes
12,200


610


e

12,810

(2,391
)
10,419

Deferred costs
10,347


—




10,347

(160
)
10,187

Other non-current assets
3,224


—




3,224

(156
)
3,068

Non-current assets of discontinued operations
—


—




—

5,661

5,661

Total assets
$
318,614


$
(2,236
)



$
316,378

$
—

$
316,378

Liabilities and stockholders' equity









Current liabilities









Accounts payable
$
108,185


$
—




$
108,185

$
(11,261
)
$
96,924

Accounts payable to NACCO Industries, Inc.
9,285


—




9,285

(1,471
)
7,814

Revolving credit agreements
65,508


—




65,508

(2,200
)
63,308

Accrued compensation
9,833


338


f

10,171

(933
)
9,238

Accrued product returns
10,815


—




10,815

—

10,815

Other current liabilities
22,751


4,120


a,d,e,f

26,871

(5,644
)
21,227

Current liabilities of discontinued operations
—


—




—

21,509

21,509

Total current liabilities
226,377


4,458




230,835

—

230,835

Revolving credit agreements
20,000


—




20,000

—

20,000

Other long-term liabilities
24,600


(204
)

e

24,396

(2,565
)
21,831

Non-current liabilities of discontinued operations
—


—




—

2,565

2,565

Total liabilities
270,977


4,254




275,231

—

275,231

Stockholders’ equity









Class A Common stock
92


—




92

—

92

Class B Common stock
45


—




45

—

45

Capital in excess of par value
49,051


—




49,051

—

49,051

Treasury stock
—


—




—

—

—

Retained earnings
12,191


(6,508
)

a,d,e,f

5,683

—

5,683

Accumulated other comprehensive loss
(13,742
)

18


a,e,f

(13,724
)
—

(13,724
)
Total stockholders’ equity
47,637


(6,490
)



41,147

—

41,147

Total liabilities and stockholders' equity
$
318,614


$
(2,236
)



$
316,378

$
—

$
316,378




F-98

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)







(a) Write-off of Assets: The correction of these misstatements resulted in a decrease to trade receivables of $0.2 million, a reduction to prepaids and other assets of $2.6 million, and an increase to other current liabilities of $2.6 million
(d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in an increase to other current liabilities of $0.3 million
(e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to deferred income taxes of $0.6 million, and a decrease to other long-term liabilities of $0.2 million
(f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to accrued compensation of $0.3 million, and an increase to other current liabilities of $1.2 million


F-99

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
HAMILTON BEACH BRANDS HOLDING COMPANY
YEAR ENDED DECEMBER 31, 2019, 2018, AND 2017
 
 
 
 
Additions
 
 
 
 
 
 
Description
 
Balance at Beginning of Period
 
Charged to
Costs and
Expenses
 
Charged to
Other Accounts
— Describe
 
Deductions
— Describe
 
Balance at
End of
Period (C)
(In thousands)
2019
 
 
 
 
 
 
 
 
 
 
 
 
Reserves deducted from asset accounts:
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
713

 
$
309

 
$
—

 
$
(1
)
 
(A) 
 
$
1,023

Deferred tax valuation allowances (as Restated)
 
$
1,162

 
$
6,502

 
$
—

 
$
39

 
(D)
 
$
7,625

2018
 
 
 
 
 
 
 
 
 
 
 
 
Reserves deducted from asset accounts:
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
1,177

 
$
11

 
$
—

 
$
475

 
(A) 
 
$
713

Deferred tax valuation allowances (as Restated)
 
$
1,968

 
$
—

 
$
—

 
$
806

 
(D)
 
$
1,162

2017
 
 
 
 
 
 
 
 
 
 
 
 
Reserves deducted from asset accounts:
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
862

 
$
405

 
$
—

 
$
90

 
(A) 
 
$
1,177

Allowance for discounts, adjustments and returns
 
$
14,650

 
$
21,358

 
$
—

 
$
21,844

 
(B) 
 
$
14,164

Deferred tax valuation allowances (as Restated)
 
$
1,686

 
$
295

 
$
—

 
$
13

 
 
 
$
1,968


(A)
Write-offs, net of recoveries and foreign exchange rate adjustments.
(B)
Payments and customer deductions for product returns, discounts and allowances.
(C)
Balances which are not required to be presented and those which are immaterial have been omitted.
(D)
Foreign exchange rate adjustments and utilization of foreign entity losses.




F-100