HAMILTON BEACH BRANDS HOLDING COMPANY (Tabular Amounts in Thousands, Except Per Share and Percentage Data)
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 inthe 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 ofDecember 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 ofDecember 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. 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. 15
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Expected returns for theU.S. pension plan are based on a calculated market-related value forU.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 ofDecember 31, 2019 were to increase by one percent, the reserve and selling, general, and administrative expenses would increase by less than$0.1 million . 16
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
RESULTS OF OPERATIONS
The results of operations forHamilton Beach Holding were as follows for the years endedDecember 31 : 2019 Compared with 2018 Year Ended December 31 2019 % of Revenue 2018
% of Revenue $ Change % Change
Revenue$ 612,843 100.0 %$ 629,710 100.0 %$ (16,867 ) (2.7 )% Cost of sales 483,298 78.9 % 492,195 78.2 % (8,897 ) (1.8 )% Gross profit 129,545 21.1 % 137,515 21.8 % (7,970 ) (5.8 )% Selling, general and administrative expenses 91,302 14.9 % 97,964 15.6 % (6,662 ) (6.8 )% Amortization of intangible assets 1,377 0.2 % 1,381 0.2 % (4 ) (0.3 )% Operating profit 36,866 6.0 % 38,170 6.1 % (1,304 ) (3.4 )% Interest expense, net 2,975 0.5 % 2,916 0.5 % 59 2.0 % Other expense (income), net (502 ) (0.1 )% 293 - % (795 ) (271.3 )% Income from continuing operations before income taxes 34,393 5.6 % 34,961 5.6 % (568 ) (1.6 )% Income tax expense 9,315 1.5 % 7,816 1.2 % 1,499 19.2 % Net income from continuing operations 25,078 4.1 % 27,145 4.3 % (2,067 ) (7.6 )% Loss from discontinued operations, net of tax (28,600 ) n/m (5,361 ) n/m (23,239 ) n/m Net income$ (3,522 ) $ 21,784 $ (25,306 )
Effective income tax rate on continuing operations 27.1 % 22.4 %
The following table identifies the components of the change in revenue for 2019
compared with 2018:
Revenue
2018 $ 629,710
(Decrease) increase from:
Unit volume and product mix (18,699 )
Foreign currency (1,688 )
Average sales price 3,520
2019 $ 612,843
Revenue - Revenue decreased $16.9 million , or 2.7%. 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.
Gross profit - The decline in gross profit of $8.0 million , or 5.8%, is
primarily due to lower sales volume. As a percentage of revenue, gross profit
margin declined from 21.8% to 21.1% primarily due to increased inbound freight
expenses, the adverse impact of tariffs and unfavorable foreign currency
movements.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
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. 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 theU.S. dollar. Income tax expense - The Company recognized income tax expense of$9.3 million on income from continuing operations before income taxes of$34.4 million , an effective tax rate of 27.1% compared to income tax expense of$7.8 million , an effective tax rate of 22.4%. 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. 2018 Compared with 2017 The results of operations forHamilton Beach Holding were as follows for the years endedDecember 31 : Year Ended December 31 2018 % of Revenue 2017 % of Revenue $ Change % Change Revenue$ 629,710 100.0 %$ 612,229 100.0 %$ 17,481 2.9 % Cost of sales 492,195 78.2 % 477,220 77.9 % 14,975 3.1 % Gross profit 137,515 21.8 % 135,009 22.1 % 2,506 1.9 % Selling, general and administrative expenses 97,964 15.6 % 93,700 15.3 % 4,264 4.6 % Amortization of intangible assets 1,381 0.2 % 1,381 0.2 % - - % Operating profit 38,170 6.1 % 39,928 6.5 % (1,758 ) (4.4 )% Interest expense, net 2,916 0.5 % 1,572 0.3 % 1,344 85.5 % Other expense (income), net 293 - % (692 ) (0.1 )% 985 (142.3 )% Income from continuing operations before income taxes 34,961 5.6 % 39,048 6.4 % (4,087 ) (10.5 )% Income tax expense 7,816 1.2 % 18,918 3.1 % (11,102 ) (58.7 )% Net income from continuing operations 27,145 4.3 % 20,130 3.3 % 7,015 34.8 % Loss from discontinued operations, net of tax (5,361 ) n/m (2,225 ) n/m (3,136 ) n/m Net income$ 21,784 $ 17,905 $ 3,879
Effective income tax rate on continuing operations 22.4 % 48.4 %
The following table identifies the components of the change in revenue for 2018
compared with 2017:
Revenue
2017 $ 612,229
Increase (decrease) from:
Unit volume and product mix 12,838
Average sales price 6,485
Foreign currency (1,842 )
2018 $ 629,710
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Revenue - Revenue increased$17.5 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 theU.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 theU.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 theU.S consumer and global commercial markets. As a percentage of revenue, gross profit declined from 22.1% to 21.8% 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 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.
Interest expense, net - Interest expense, net increased
Other expense, net - Other expense, net increased$1.0 million primarily due to foreign currency gains as the Mexican peso strengthened against theU.S. dollar during the period. Income tax expense - The Company recognized income tax expense of$7.8 million on income from continuing operations before income taxes of$35.0 million (an effective tax rate of 22.4%). The effective income tax rate on continuing operations decreased from 48.4% in 2017 primarily due to a$4.7 million provisional tax charge resulting from the reduction in theU.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
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, capital expenditures, and payments of principal and interest on debt. AtDecember 31, 2019 , the Company had cash and cash equivalents for continuing operations of$2.1 million , compared to$4.4 million atDecember 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 forHamilton Beach Brands Holding Company . As ofDecember 31, 2019 , KC reported current liabilities in excess of current assets of$24.3 million . NeitherHamilton Beach Brands Holding Company nor HBB has guaranteed any obligations of KC. 19
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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)
The following table presents selected cash flow information from continuing
operations:
Year Ended December 31
2019 2018 2017
(In thousands)
Net cash provided by operating activities from
continuing operations $ 202 $
17,323
$ (4,122 ) $
(7,759 )
$ 1,062 $
(9,255 )
Operating activities - Net cash provided by operating activities decreased
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.
Operating activities - Net cash provided by operating activities decreased by$11.0 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 inJune 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 ofDecember 31, 2019 . AtDecember 31, 2019 , the borrowing base under the HBB Facility was$114.4 million and borrowings outstanding were$58.3 million . AtDecember 31, 2019 , the excess availability under the HBB Facility was$56.1 million . 20
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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)
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, effectiveDecember 31, 2019 , for base rate loans and LIBOR loans denominated inU.S. dollars were 0.0% and 1.75%, respectively. The applicable margins, effectiveDecember 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 endedDecember 31, 2019 was 3.82%, 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$35.0 million atDecember 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 ofDecember 31, 2019 , with fixed rates of 1.7%. The HBB Facility includes restrictive covenants, which, among other things, limit the payment of dividends toHamilton Beach Holding , subject to achieving availability thresholds. Under Amendment No. 6 to the HBB Facility, dividends toHamilton 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 toHamilton 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. AtDecember 31, 2019 , HBB was in compliance with all financial covenants in the HBB Facility.
In
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, onOctober 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 beforeDecember 15, 2019 . All obligations under the KC Facility were paid in full in accordance with the Forbearance Agreement and the KC Facility was terminated onDecember 3, 2019 . 21
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS HAMILTON BEACH BRANDS HOLDING COMPANY
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of
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.
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.
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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)
Accounting Standards Adopted
InMarch 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 onJanuary 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 endDecember 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. InFebruary 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 afterDecember 15, 2020 , and interim periods within fiscal years beginning afterDecember 15, 2021 . Early adoption is permitted. The Company is planning to adopt ASU 2016-02 for its year endingDecember 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. InJune 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 afterDecember 15, 2021 , and interim periods within fiscal years beginning afterDecember 15, 2021 . Early adoption is permitted. The Company is planning to adopt ASU 2016-03 for its year endingDecember 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. FORWARD-LOOKING STATEMENTS The statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere throughout this Annual Report on Form 10-K that are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the 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 23
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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)
on our business, and (16) other risk factors, including those described in the Company's filings with theSecurities and Exchange Commission , including, but not limited to, the Annual Report on Form 10-K for the year endedDecember 31, 2019 .
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