Home Fixed interest HAMILTON BEACH BRANDS HOLDING CO Management’s Discussion and Analysis of Financial Condition and Results of Operations (in thousands of dollars, except where otherwise noted and per share data) (Form 10-Q)

HAMILTON BEACH BRANDS HOLDING CO Management’s Discussion and Analysis of Financial Condition and Results of Operations (in thousands of dollars, except where otherwise noted and per share data) (Form 10-Q)

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Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based upon
management's current expectations and are subject to various uncertainties and
changes in circumstances. Important factors that could cause actual results to
differ materially from those described in these forward-looking statements are
set forth below under the heading "Forward-Looking Statements."

HBB is the only reportable segment of the Company and intercompany balances and transactions have been eliminated.

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Contents

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a summary of the Company's critical accounting policies, refer to "Part II -
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Critical Accounting Policies and Estimates" in the Company's
Annual Report on Form 10-K for the year ended December 31, 2021 as there have
been no material changes from those disclosed in the Annual Report.

RESULTS OF OPERATIONS

The Company’s business is seasonal, and the majority of revenue and operating profit typically occurs in the second half of the year, when sales of small electrical appliances and kitchenware historically increase significantly for the season. fall holiday sales.

Second quarter of 2022 versus second quarter of 2021

                                                                                             THREE MONTHS ENDED
                                                                                                  JUNE 30
                                                                                                                                       Increase / (Decrease)
                                            2022              % of Revenue              2021              % of Revenue            $ Change              % Change
Revenue                                 $ 147,527                    100.0  %       $ 154,655                    100.0  %       $   (7,128)                  (4.6) %
Cost of sales                             115,549                     78.3  %         126,272                     81.6  %          (10,723)                  (8.5) %
Gross profit                               31,978                     21.7  %          28,383                     18.4  %            3,595                   12.7  %
Selling, general and administrative
expenses                                   26,503                     18.0  %          27,447                     17.7  %             (944)                  (3.4) %
Amortization of intangible assets              50                        -  %              50                        -  %                -                      -  %
Operating profit (loss)                     5,425                      3.7  %             886                      0.6  %            4,539                  512.3  %
Interest expense, net                         867                      0.6  %             698                      0.5  %              169                   24.2  %
Other expense (income), net                  (252)                    (0.2) %            (224)                    (0.1) %              (28)                  12.5  %
Income (loss) before income taxes           4,810                      3.3  %             412                      0.3  %            4,398                1,067.5  %
Income tax expense (benefit)                 (279)                    (0.2) %             326                      0.2  %             (605)                (185.6) %
Net income (loss)                       $   5,089                      3.4  %       $      86                      0.1  %       $    5,003                5,817.4  %


Effective income tax rate       (5.8) %            79.1  %


The following table identifies the components of the change in revenue:

                                Revenue
2021                          $ 154,655
Increase (decrease) from:
Unit volume and product mix     (18,756)
Average sales price              12,164
Foreign currency                   (536)
2022                          $ 147,527



Revenue - Revenue decreased $7.1 million, or 4.6%, due primarily to lower sales
volume in the US, Latin American and Mexican Consumer markets compared to prior
year. Additionally, there was a decrease in revenue compared to the prior year
due to the Company's decision to move to a licensing model from a
company-managed model for its consumer business in Brazil and China, as reported
in early 2021. Partially offsetting these decreases were revenue increases in
the Canadian and Global Commercial markets. The Company continues to implement
price increases which have partially offset the overall volume decline.

Gross profit - As a percentage of revenue, gross profit margin increased from
18.4% in the prior year to 21.7% in the current year primarily due to the impact
of a full quarter of price increases which offset the higher product and
transportation costs. Additionally, there was a reduction in carrier storage
charges as compared to the second quarter of 2021.
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Selling, general and administrative expenses - Selling, general and
administrative expenses decreased $0.9 million due primarily to incremental
expenses incurred during the relocation to the Company's new distribution center
in the second quarter of 2021 that did not recur. Additionally, outside services
decreased, and overall employee-related costs were lower, driven by a decrease
in incentive compensation as a result of a decrease in the Company's stock
price.

Interest expense - Interest expense, net increased $0.2 million due to rising
interest rates, as well as increased average borrowings outstanding under HBB's
revolving credit facility.

Income tax expense (benefit) - The effective tax rate on income was (5.8)% and
79.1% for the three months ended June 30, 2022 and 2021, respectively. The
effective tax rate was higher for the three months ended June 30, 2021 due to
the inclusion of interest and penalties on unrecognized tax benefits as a
discrete expense item. The interest and penalties on unrecognized tax benefits
were reversed during the second quarter of 2022 due to a change in the Company's
position on an unresolved Mexico tax matter, favorably impacting the effective
tax rate for the three months ended June 30, 2022.

Comparison of the first six months of 2022 with the first six months of 2021

                                                                                              SIX MONTHS ENDED
                                                                                                  JUNE 30
                                            2022              % of Revenue              2021              % of Revenue            $ Change             % Change
Revenue                                 $ 293,878                    100.0  %       $ 303,904                    100.0  %       $ (10,026)                   (3.3) %
Cost of sales                             233,670                     79.5  %         243,828                     80.2  %         (10,158)                   (4.2) %
Gross profit                               60,208                     20.5  %          60,076                     19.8  %             132                     0.2  %
Selling, general and administrative
expenses                                   41,936                     14.3  %          53,826                     17.7  %         (11,890)                  (22.1) %
Amortization of intangible assets             100                        -  %             100                        -  %               -                       -  %
Operating profit                           18,172                      6.2  %           6,150                      2.0  %          12,022                   195.5  %
Interest expense, net                       1,600                      0.5  %           1,418                      0.5  %             182                    12.8  %
Other expense (income), net                 1,214                      0.4  %             (53)                       -  %           1,267                (2,390.6) %
Income (loss) before income taxes          15,358                      5.2  %           4,785                      1.6  %          10,573                   221.0  %
Income tax expense (benefit)                3,096                      1.1  %           1,823                      0.6  %           1,273                    69.8  %
Net income (loss)                       $  12,262                      4.2  %       $   2,962                      1.0  %       $   9,300                   314.0  %


Effective income tax rate       20.2  %            38.1  %


The following table identifies the components of the change in revenue:

                                                      Revenue
                      2021                          $ 303,904
                      Increase (decrease) from:
                      Unit volume and product mix     (31,023)
                      Average sales price              21,559
                      Foreign currency                   (562)
                      2022                          $ 293,878



Revenue - Revenue decreased by $10.0 million or 3.3% over the prior year due
primarily to lower sales volume in the US and Canadian Consumer markets compared
to prior year. Additionally, revenue decreased compared to the prior year due to
the Company's decision to move to a licensing model from a company-managed model
for its consumer business in Brazil and China. Revenue in the Global Commercial
market grew more than 50% as compared to prior year due to the continued rebound
of customer demand from pandemic-driven softness. Additionally, the Company has
successfully implemented price increases which have partially offset the volume
decline.

Gross profit - Gross profit margin increased to 20.5% from 19.8% due to price
increases that fully offset the higher product and transportation costs during
the second quarter. Additionally, for the six months ended June 30, 2022, there
was a reduction in carrier storage charges as compared to the same period in
2021.

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Selling, general and administrative expenses - Selling, general and
administrative expenses decreased $11.9 million due primarily to the $10.0
million insurance recovery recognized during the first quarter. Compared to
prior year, outside services decreased, and overall employee-related costs were
lower, driven by a decrease in incentive compensation as a result of a decrease
in the Company's stock price. Additionally, incremental expenses incurred during
the relocation to the Company's new distribution center in the second quarter of
2021 did not recur.

Interest expense – Net interest expense increased $0.2 million due to the increase in average outstanding borrowings under HBB’s revolving credit facility.

Other expense (income), net - Other expense (income), net includes currency
losses of $1.8 million in the current year compared to currency losses of $0.4
million in the prior year. The currency losses arise from the remeasurement of
liabilities related to inventory purchases by foreign subsidiaries denominated
in US dollars. This increase is driven by the liquidation of the Brazilian
subsidiary, which resulted in $2.1 million of accumulated other comprehensive
losses being released into other expense (income), net during the first quarter
of 2022.

Income tax expense (benefit) - The effective tax rate was 20.2% compared to
38.1% in the prior year. The effective tax rate was higher for the six months
ended June 30, 2021 due to the inclusion of interest and penalties on
unrecognized tax benefits as a discrete expense item. The interest and penalties
on unrecognized tax benefits were reversed during the second quarter of 2022 due
to a change in the Company's position on an unresolved Mexico tax matter,
favorably impacting the effective tax rate for the six months ended June 30,
2022, partially offset by a valuation allowance on certain foreign deferred tax
assets related to the Brazil liquidation.

CASH AND CAPITAL RESOURCES

Liquidity

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, operating expenses, capital expenditures, cash dividends,
and payments of principal and interest on debt.

HBB maintains a $150.0 million senior secured floating-rate revolving credit
facility (the "HBB Facility") that expires on June 30, 2025. 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.

The following table presents certain cash flow information:

                                                                SIX MONTHS ENDED
                                                                     JUNE 30
                                                               2022           2021

Net cash provided by (used for) operating activities ($25,456) $8,425

Net cash provided by (used for) investing activities ($661) ($7,616)

Net cash provided by (used for) financing activities $25,727 $(2,166)



Operating activities - Net cash used for operating activities was $25.5 million
compared to cash provided by operating activities of $8.4 million in the prior
year primarily due to net working capital which was a use of cash of $36.1
million in 2022 compared to providing cash of $14.6 million in 2021. In 2022,
trade receivables provided net cash of $19.8 million compared to $45.2 million
in the prior year due to the timing of collections and decreased sales in 2022
compared to 2021. Net cash used for inventory and accounts payable combined was
$55.9 million in 2022 compared to $30.6 million in 2021. Inventory has increased
compared to the quarter-ended June 30, 2021 and the year-ended December 31, 2021
driven by longer lead times as a result of supply chain and transportation
disruptions.
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Investing Activities – Net cash used in investing activities decreased in 2022 compared to 2021 due to non-recurring capital expenditures for the Company’s new leased distribution center in 2021.

Financing activities - Net cash provided by financing activities was $25.7
million in 2022 compared to a use of cash of $2.2 million in 2021.  The change
is due to an increase in HBB's net borrowing activity on the revolving credit
facility to fund net working capital.

Capital resources

The Company expects to continue to borrow against the HBB Facility and make
voluntary repayments within the next twelve months. The obligations under the
HBB Facility are secured by substantially all of HBB's assets. At June 30, 2022,
the borrowing base under the HBB Facility was $149.1 million and borrowings
outstanding were $127.0 million. At June 30, 2022, the excess availability under
the HBB Facility was $22.1 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 June 30, 2022, for base rate loans and LIBOR loans
denominated in US dollars were 0.0% and 1.75%, respectively. The applicable
margins, effective June 30, 2022, 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 six months ended June 30,
2022 was 2.59% including the floating rate margin and the effect of the interest
rate swap agreements described below.

To reduce the exposure to changes in the market rate of interest, 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 $50.0 million at June 30, 2022 at an average fixed
interest rate of 0.95%. HBB also entered into delayed-start interest rate swaps.
These swaps have notional values totaling $50.0 million as of June 30, 2022,
with an average fixed interest rate of 1.67%.

The HBB Facility includes restrictive covenants, which, among other things,
limit the payment of dividends to Hamilton Beach Holding, subject to achieving
availability thresholds. Dividends to Hamilton Beach Holding are not to exceed
$7.0 million during any calendar year to the extent that for the thirty days
prior to the dividend payment date, and after giving effect to the dividend
payment, HBB maintains excess availability of at least $18.0 million. 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 at least $30.0 million. The HBB
Facility also requires HBB to achieve a minimum fixed charge coverage ratio in
certain circumstances, as defined in the HBB Facility. At June 30, 2022, HBB was
in compliance with all financial covenants in the HBB Facility.

In December 2015, the Company entered into an agreement with a financial institution to sell certain US trade receivables without recourse. The Company uses this arrangement as part of the working capital financing. See Note 2 to the unaudited consolidated financial statements.

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.

Contractual obligations, contingent liabilities and commitments

For a summary of the Company's contractual obligations, contingent liabilities
and commitments, refer to "Part II - Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Contractual
Obligations, Contingent Liabilities and Commitments" in the Company's Annual
Report on Form 10-K for the year ended December 31, 2021 as there have been no
material changes from those disclosed in the Annual Report.

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Off Balance Sheet Arrangements

For a summary of the Company's off balance sheet arrangements, refer to "Part II
- Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Off Balance Sheet Arrangements" in the Company's Annual
Report on Form 10-K for the year ended December 31, 2021 as there have been no
material changes from those disclosed in the Annual Report.

FORWARD-LOOKING STATEMENTS

The statements contained in this Form 10-Q that are not historical facts are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the 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
include, without limitation: (1) the Company's ability to source and ship
products to meet anticipated demand, (2) the Company's ability to successfully
manage ongoing constraints throughout the global transportation supply chain,
(3) the unpredictable nature of the COVID-19 pandemic and its potential impact
on the Company's business; (4) the direct and indirect impacts of the
increasingly volatile global economic conditions as a result of the conflict in
Ukraine; (5) changes in the sales prices, product mix or levels of consumer
purchases of small electric and specialty housewares appliances, (6) changes in
consumer retail and credit markets, including the increasing volume of
transactions made through third-party internet sellers, (7) bankruptcy of or
loss of major retail customers or suppliers, (8) changes in costs, including
transportation costs, of sourced products, (9) delays in delivery of sourced
products, (10) changes in or unavailability of quality or cost effective
suppliers, (11) exchange rate fluctuations, changes in the import tariffs and
monetary policies and other changes in the regulatory climate in the countries
in which the Company operates or buys and/or sells products, (12) the impact of
tariffs on customer purchasing patterns, (13) product liability, regulatory
actions or other litigation, warranty claims or returns of products, (14)
customer acceptance of, changes in costs of, or delays in the development of new
products, (15) increased competition, including consolidation within the
industry, (16) shifts in consumer shopping patterns, gasoline prices, weather
conditions, the level of consumer confidence and disposable income as a result
of economic conditions, unemployment rates or other events or conditions that
may adversely affect the level of customer purchases of HBB products, (17)
changes mandated by federal, state and other regulation, including tax, health,
safety or environmental legislation, 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 for
the year ended December 31, 2021. Furthermore, the situation surrounding
COVID-19, including the mutation of variants, continues to remain fluid globally
and the Company continues to manage ongoing challenges associated with the
pandemic as they relate to demand, supply and operations. The potential for a
material impact on the Company's results of operations, financial condition,
liquidity, and stock price remains a risk. The Company cannot reasonably
estimate with any degree of certainty any future impact of COVID-19. The extent
of any impact will depend on the scope of any new virus mutations and outbreaks,
the nature of government public health guidelines and the public's adherence to
those guidelines, the success of business and economic recovery as the pandemic
recedes, the easing of pandemic-driven supply chain disruptions, unemployment
levels, and the extent to which new lockdowns may be needed or are required in
particular countries including China.

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