UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________________________________________________________________________________________________________________________________________________________________________

FORM 10-Q



(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended ~~June~~September 30, 2019



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number: 001-38214



HAMILTON BEACH BRANDS HOLDING COMPANY
	(Exact name of registrant as specified in its charter)

DELAWARE		31-1236686
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4421 WATERFRONT DR. GLEN ALLEN, VA		23060
(Address of principal executive offices)		(Zip code)

	(804) 273-9777
	(Registrant's telephone number, including area code)

	N/A
	(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, Par Value $0.01 Per Share	HBB	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	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 o NO þ

Number of shares of Class A Common Stock outstanding at ~~July 26,~~November 1, 2019: ~~9,298,337~~9,147,309

Number of shares of Class B Common Stock outstanding at ~~July 26,~~November 1, 2019: ~~4,380,649~~4,369,489

HAMILTON BEACH BRANDS HOLDING COMPANY

TABLE OF CONTENTS



			Page Number
Part I.	FINANCIAL INFORMATION

	Item 1	Financial Statements

		~~Unaudited~~ Condensed Consolidated Balance Sheets ~~at June 30, 2019, December 31, 2018, and June 30, 2018~~	2

		~~Unaudited~~ Condensed Consolidated Statements of Operations ~~for the Three and Six Months Ended June 30, 2019 and 2018~~	3

		~~Unaudited~~ Condensed Consolidated Statements of Comprehensive ~~Loss for the Three and Six Months Ended June 30, 2019 and 2018~~Income (Loss)	4

		~~Unaudited~~ Condensed Consolidated Statements of Cash Flows ~~for the Six Months Ended June 30, 2019 and 2018~~	5

		~~Unaudited~~ Condensed Consolidated Statements of Changes in Equity ~~for the Three and Six Months Ended June 30, 2019 and 2018~~	6

		Notes to Unaudited Condensed Consolidated Financial Statements	78

	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	1316

	Item 3	Quantitative and Qualitative Disclosures About Market Risk	2325

	Item 4	Controls and Procedures	2426

Part II.	OTHER INFORMATION

	Item 1	Legal Proceedings	2527

	Item 1A	Risk Factors	2527

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2528

	Item 3	Defaults Upon Senior Securities	2528

	Item 4	Mine Safety Disclosures	2528

	Item 5	Other Information	2528

	Item 6	Exhibits	2629

	Signatures		2730

Part I

FINANCIAL INFORMATION

Item 1. Financial Statements

HAMILTON BEACH BRANDS HOLDING COMPANY

~~UNAUDITED~~ CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	JUNE 30 2019			DECEMBER 31 2018			JUNE 30 2018			SEPTEMBER 30 2019			DECEMBER 31 2018			SEPTEMBER 30 2018
	(In thousands, except share data)									(In thousands)
ASSETS
Current Assets
Assets
Current assets
Cash and cash equivalents	$	1,131		$	6,352		$	1,962		$	1,866		$	6,352		$	2,139
Trade receivables, net	89,579			102,592			77,623			106,135			102,592			113,683
Inventories	140,817			144,691			165,237
Inventory										181,847			144,691			183,831
Prepaid expenses and other current assets	24,078			24,514			20,996			22,445			24,514			20,766
Total Current assets	255,605			278,149			265,818
Total current assets										312,293			278,149			320,419
Property, plant and equipment, net	23,204			22,630			21,839			22,653			22,630			23,309
Goodwill	6,253			6,253			6,253			6,253			6,253			6,253
Other intangibles, net	3,828			4,519			5,209
Other intangible assets, net										3,483			4,519			4,864
Deferred income taxes	6,169			8,163			10,894			6,161			8,163			10,450
Deferred costs	8,683			8,012			9,973			8,925			8,012			10,306
Other non-current assets	1,997			2,701			3,282			1,561			2,701			3,322
Total Assets	$	305,739		$	330,427		$	323,268
LIABILITIES AND EQUITY
Total assets										$	361,329		$	330,427		$	378,923
Liabilities and stockholders' equity
Current liabilities
Accounts payable	$	91,737		$	132,968		$	103,461		$	147,206		$	132,968		$	143,955
Accounts payable to NACCO Industries, Inc.	220			2,419			2,769			220			2,419			2,480
Revolving credit agreements	58,955			11,624			75,476			59,702			11,624			69,883
Accrued payroll	12,091			17,023			12,531
Accrued compensation										15,568			17,023			16,575
Accrued product returns	8,224			10,941			9,648			8,266			10,941			9,601
Accrued cooperative advertising	7,962			10,314			4,532			9,940			10,314			8,950
Other current liabilities	19,968			21,612			14,567			20,711			21,612			18,189
Total Current liabilities	199,157			206,901			222,984
Total current liabilities										261,613			206,901			269,633
Revolving credit agreements	32,000			35,000			30,000			30,000			35,000			30,000
Other long-term liabilities	15,485			23,088			24,274			14,961			23,088			24,840
Total Liabilities	246,642			264,989			277,258
Total liabilities										306,574			264,989			324,473
Stockholders' equity
Preferred stock, par value $0.01 per share, 5 million shares authorized, no shares issued as of June 30, 2019, December 31, 2018, and June 30, 2018	—			—			—
Class A Common stock, par value $0.01 per share, 70 million shares authorized; 9,469,372, 9,291,122 and 9,218,372 shares issued as of June 30, 2019, December 31, 2018, and June 30, 2018, respectively	95			93			92
Class B Common stock, par value $0.01 per share, convertible into Class A on a one-for-one basis, 30 million shares authorized; 4,382,843, 4,421,644, and 4,476,796 shares issued as of June 30, 2019, December 31, 2018, and June 30, 2018, respectively	44			44			45
Class A Common stock										95			93			92
Class B Common stock										44			44			45
Capital in excess of par value	53,342			51,714			50,721			54,143			51,714			51,366
Treasury stock, at cost; 129,687 shares as of June 30, 2019, no shares as of December 31, 2018 and June 30, 2018	(2,334		)	—			—
Treasury stock										(5,960		)	—			—
Retained earnings	25,773			30,897			10,152			24,955			30,897			17,031
Accumulated other comprehensive loss	(17,823		)	(17,310		)	(15,000		)	(18,522		)	(17,310		)	(14,084		)
Total Stockholders' equity	59,097			65,438			46,010
Total Liabilities and Stockholders' equity	$	305,739		$	330,427		$	323,268
Total stockholders' equity										54,755			65,438			54,450
Total liabilities and stockholders' equity										$	361,329		$	330,427		$	378,923

See ~~Notes~~notes to ~~Unaudited Condensed Consolidated Financial Statements.~~unaudited condensed consolidated financial statements.

HAMILTON BEACH BRANDS HOLDING COMPANY

~~UNAUDITED~~ CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2019 2018 2019 2018
(In thousands, except per share data) (In thousands, except per share data)
Revenue $ 148,427
$ 157,941
$ 293,804
$ 304,574
Cost of sales 112,770
117,088
223,424
225,928
Gross profit 35,657
40,853
70,380
78,646
Selling, general and administrative expenses 35,617
40,123
72,124
78,117
Amortization of intangible assets 346

346
691
691
Operating (loss) profit (306 ) 384
(2,435 ) (162 )
Interest expense, net 904
889
1,650
1,421
Other (income) expense, net (126 )
687
(458 ) 173
Loss before income taxes (1,084 ) (1,192 ) (3,627 ) (1,756 )
Income tax benefit (140 ) (318 ) (922 ) (464 )
Net loss $ (944 ) $ (874 ) $ (2,705 ) $ (1,292 )

Basic and diluted loss per share $ (0.07 )
$ (0.06 ) $ (0.20 ) $ (0.09 )

Basic and diluted weighted average shares outstanding 13,813

13,695
13,800
13,689



	THREE MONTHS ENDED SEPTEMBER 30					NINE MONTHS ENDED SEPTEMBER 30
	2019		2018			2019			2018
	(In thousands, except per share data)					(In thousands, except per share data)
Revenue	$	169,778	$	196,901		$	463,582		$	501,475
Cost of sales	129,194		146,550			352,618			372,478
Gross profit	40,584		50,351			110,964			128,997
Selling, general and administrative expenses	36,182		39,211			108,306			117,328
Amortization of intangible assets	345		345			1,036			1,036
Operating profit	4,057		10,795			1,622			10,633
Interest expense, net	864		1,001			2,514			2,422
Other expense (income), net	688		(426		)	230			(253		)
Income (loss) before income taxes	2,505		10,220			(1,122		)	8,464
Income tax expense	2,108		2,176			1,186			1,712
Net income (loss)	$	397	$	8,044		$	(2,308	)	$	6,752

Basic and diluted income (loss) per share	$	0.03	$	0.59		$	(0.17	)	$	0.49

Basic weighted average shares outstanding	13,579		13,704			13,726			13,694

Diluted weighted average shares outstanding	13,595		13,713			13,726			13,697

See ~~Notes~~notes to ~~Unaudited Condensed Consolidated Financial Statements.~~unaudited condensed consolidated financial statements.

HAMILTON BEACH BRANDS HOLDING COMPANY

~~UNAUDITED~~ CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

(Unaudited)

THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2019 2018 2019 2018
(In thousands) (In thousands)
Net loss $ (944 ) $ (874 ) $ (2,705 ) $ (1,292 )
Other comprehensive (loss) income:
Foreign currency translation adjustment 226
(892 ) 556
25
Gain (loss) on long-term intra-entity foreign currency transactions, net of tax of $13 and $30 in the three and six months ended June 30, 2019, respectively, and $94 in the three and six months ended June 30, 2018. 121
(1,013 ) 136
(1,013 )
Current period cash flow hedging activity, net of tax of $321 and $528 in the three and six months ended June 30, 2019, respectively, and $160 and $250 in the three and six months ended June 30, 2018, respectively. (877 ) 464
(1,443 ) 753
Reclassification of hedging activities into earnings, net of tax of $58 and $57 in the three and six months ended June 30, 2019, respectively, and $13 and $77 in the three and six months ended June 30, 2018, respectively. 144
41
146
207
Reclassification of pension adjustments into earnings, net of tax of $40 and $79 in the three and six months ended June 30, 2019, respectively, and $46 and $88 in the three and six months ended June 30, 2018, respectively. 102
142
92
300
Total other comprehensive (loss) income (284 ) (1,258 ) (513 ) 272
Comprehensive loss $ (1,228 ) $ (2,132 ) $ (3,218 ) $ (1,020 )



	THREE MONTHS ENDED SEPTEMBER 30						NINE MONTHS ENDED SEPTEMBER 30
	2019			2018			2019			2018
	(In thousands)						(In thousands)
Net income (loss)	$	397		$	8,044		$	(2,308	)	$	6,752
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(312		)	1,257			244			1,282
Loss on long-term intra-entity foreign currency transactions	(509		)	(53		)	(373		)	(1,066		)
Cash flow hedging activity	(127		)	(301		)	(1,570		)	452
Reclassification of hedging activities into earnings	122			(102		)	268			105
Reclassification of pension adjustments into earnings	127			115			219			415
Total other comprehensive income (loss), net of tax	(699		)	916			(1,212		)	1,188
Comprehensive income (loss)	$	(302	)	$	8,960		$	(3,520	)	$	7,940

See ~~Notes~~notes to ~~Unaudited Condensed Consolidated Financial Statements.~~unaudited condensed consolidated financial statements.

HAMILTON BEACH BRANDS HOLDING COMPANY

~~UNAUDITED~~ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	SIX MONTHS ENDED JUNE 30						NINE MONTHS ENDED SEPTEMBER 30
	2019			2018			2019			2018
	(In thousands)						(In thousands)
Operating Activities
Net loss	$	(2,705	)	$	(1,292	)
Adjustments to reconcile net loss to net cash used for operating activities:
Operating activities
Net income (loss)							$	(2,308	)	$	6,752
Adjustments to reconcile net income (loss) to net cash used for operating activities:
Depreciation and amortization	2,153			2,462			3,279			3,775
Deferred income taxes	1,800			1,795			2,969			1,900
Share-based compensation expense	1,629			2,625			2,430			3,270
Impairment of property, plant and equipment							975			244
Other	117			(4,464		)	142			(3,064		)
Net changes in operating assets and liabilities:
Affiliates payable	(2,199		)	(6,420		)
Affiliate payable							(2,199		)	(6,709		)
Trade receivables	13,956			31,071			(4,897		)	(4,992		)
Inventories	4,375			(30,493		)
Inventory							(37,641		)	(49,087		)
Other assets	(133		)	(6,755		)	(231		)	(6,524		)
Accounts payable	(41,259		)	(39,551		)	14,927			943
Other liabilities	(19,841		)	(5,152		)	(12,577		)	6,912
Net cash used for operating activities	(42,107		)	(56,174		)	(35,131		)	(46,580		)
Investing Activities
Investing activities
Expenditures for property, plant and equipment	(2,091		)	(4,555		)	(3,305		)	(7,240		)
Other	36			6			37			7
Net cash used for investing activities	(2,055		)	(4,549		)	(3,268		)	(7,233		)
Financing Activities
Financing activities
Net additions to revolving credit agreements	44,302			54,130			43,074			48,538
Cash dividends on Class A Common and Class B Common	(2,419		)	(2,327		)
Cash dividends paid							(3,634		)	(3,492		)
Purchase of treasury stock	(2,334		)	—			(5,960		)	—
Net cash provided by financing activities	39,549			51,803			33,480			45,046
Effect of exchange rate changes on cash	(608		)	(24		)	433			—
Cash and Cash equivalents
Cash and cash equivalents
Decrease for the period	(5,221		)	(8,944		)	(4,486		)	(8,767		)
Balance at the beginning of the period	6,352			10,906			6,352			10,906
Balance at the end of the period	$	1,131		$	1,962		$	1,866		$	2,139

See ~~Notes~~notes to ~~Unaudited Condensed Consolidated Financial Statements.~~unaudited condensed consolidated financial statements.

HAMILTON BEACH BRANDS HOLDING COMPANY

~~UNAUDITED~~ CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

Accumulated Other Comprehensive (Loss) Income
Class A Common Stock Class B Common Stock Capital in Excess of Par Value Treasury Stock Retained Earnings Foreign Currency Deferred Gain (Loss) on Cash Flow Hedging Pension Plan Adjustment Total Stockholders' Equity
(In thousands)
Balance, January 1, 2019 $ 93
$ 44
$ 51,714
$ —
$ 30,897
$ (9,099 ) $ 1,023
$ (9,234 ) $ 65,438
Net loss —
—
—
—
(1,761 ) —
—
—
(1,761 )
Issuance of common stock, net of conversions⁽¹⁾⁽²⁾
2
—
(1 ) —
—
—
—
—
1
Share-based compensation expense —
—
807
—
—
—
—
—
807
Cash dividends on Class A Common and Class B Common: $0.085 per share —
—
—
—
(1,177 ) —
—
—
(1,177 )
Current period other comprehensive loss —
—
—
—
—
345
(566 ) —
(221 )
Reclassification adjustment to net loss —
—
—
—
—
—
2
(10 ) (8 )
Balance, March 31, 2019 $ 95
$ 44
$ 52,520
$ —
$ 27,959
$ (8,754 ) $ 459
$ (9,244 ) $ 63,079
Net loss —
—
—
—
(944 ) —
—
—
(944 )
Purchase of treasury stock —
—
—
(2,334 ) —
—
—
—
(2,334 )
Share-based compensation expense —
—
822
—
—
—
—
—
822
Cash dividends on Class A Common and Class B Common: $0.09 per share —
—
—
—
(1,242 ) —
—
—
(1,242 )
Current period other comprehensive loss —
—
—
—
—
347
(877 ) —
(530 )
Reclassification adjustment to net loss —
—
—
—
—
—
144
102
246
Balance, June 30, 2019 $ 95
$ 44
$ 53,342
$ (2,334 ) $ 25,773
$ (8,407 ) $ (274 ) $ (9,142 ) $ 59,097

Balance, January 1, 2018 $ 88
$ 48
$ 47,773
$ —
$ 12,603
$ (7,934 ) $ 508
$ (6,678 ) $ 46,408
Net loss —
—
—
—
(418 ) —
—
—
(418 )
Issuance of common stock, net of conversions⁽¹⁾⁽²⁾
4
(3 ) 323
—
—
—
—
—
324
Share-based compensation expense —
—
955
—
—
—
—
—
955
Cash dividends on Class A Common and Class B Common: $0.085 per share —
—
—
—
(1,162 ) —
—
—
(1,162 )
Reclassification due to adoption of ASU 2018-02 —
—
—
—
1,168
—
118
(1,286 ) —
Current period other comprehensive income —
—
—
—
—
917
289
—
1,206
Reclassification adjustment to net loss —
—
—
—
—
—
166
158
324
Balance, March 31, 2018 $ 92
$ 45
$ 49,051
$ —
$ 12,191
$ (7,017 ) $ 1,081
$ (7,806 ) $ 47,637
Net loss —
—
—
—
(874 ) —
—
—
(874 )
Issuance of common stock, net of conversions⁽¹⁾⁽²⁾
—
—
198
—
—
—
—
—
198
Share-based compensation expense —
—
1,472
—
—
—
—
—
1,472
Cash dividends on Class A Common and Class B Common: $0.085 per share —
—
—
—
(1,165 ) —
—
(1,165 )
Current period other comprehensive loss —
—
—
—
—
(1,905 ) 464
—
(1,441 )
Reclassification adjustment to net loss —
—
—
—
—
—
41
142
183
Balance, June 30, 2018 $ 92
$ 45
$ 50,721
$ —
$ 10,152
$ (8,922 ) $ 1,586
$ (7,664 ) $ 46,010

(1) Class B Common converted to Class A Common were 2 and 39 shares during the three and six months ending June 30, 2019, respectively, and 45 and 331 shares during the three and six months ending June 30, 2018, respectively.

(2) The Company issued Class A Common shares of 10 and 139 during the three and six months ending June 30, 2019, respectively, and 9 and 22 during the three and six months ending June 30, 2018, respectively.



	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)
Balance, January 1, 2019	$	93	$	44	$	51,714		$	—		$	30,897			$	(17,310	)	$	65,438
Net loss	—		—		—			—			(1,761		)		—			(1,761		)
Issuance of common stock, net of conversions	2		—		(1		)	—			—				—			1
Share-based compensation expense	—		—		807			—			—				—			807
Cash dividends, $0.085 per share	—		—		—			—			(1,177		)		—			(1,177		)
Other comprehensive loss	—		—		—			—			—				(221		)	(221		)
Reclassification adjustment to net loss	—		—		—			—			—				(8		)	(8		)
Balance, March 31, 2019	$	95	$	44	$	52,520		$	—		$	27,959			$	(17,539	)	$	63,079
Net loss	—		—		—			—			(944		)		—			(944		)
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	—		—		—			—			—				(530		)	(530		)
Reclassification adjustment to net loss	—		—		—			—			—				246			246
Balance, June 30, 2019	$	95	$	44	$	53,342		$	(2,334	)	$	25,773			$	(17,823	)	$	59,097
Net income	—		—		—			—			397				—			397
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	—		—		—			—			—				(948		)	(948		)
Reclassification adjustment to net income	—		—		—			—			—				249			249
Balance, September 30, 2019	$	95	$	44	$	54,143		$	(5,960	)	$	24,955			$	(18,522	)	$	54,755

See ~~Notes~~notes to ~~Unaudited Condensed Consolidated Financial Statements.~~unaudited condensed consolidated financial statements.

HAMILTON BEACH BRANDS HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)



	Class A common stock		Class B common stock			Capital in excess of par value		Retained earnings			Accumulated other comprehensive income (loss)				Total stockholders' equity
	(In thousands)
Balance, January 1, 2018	$	88	$	48		$	47,773	$	12,603			$	(14,104	)	$	46,408
Net loss	—		—			—		(418		)		—			(418		)
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 income	—		—			—		—				1,206			1,206
Reclassification adjustment to net loss	—		—			—		—				324			324
Balance, March 31, 2018	$	92	$	45		$	49,051	$	12,191			$	(13,742	)	$	47,637
Net loss	—		—			—		(874		)		—			(874		)
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	—		—			—		—				(1,441		)	(1,441		)
Reclassification adjustment to net loss	—		—			—		—				183			183
Balance, June 30, 2018	$	92	$	45		$	50,721	$	10,152			$	(15,000	)	$	46,010
Net income	—		—			—		8,044				—			8,044
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 income	—		—			—		—				903			903
Reclassification adjustment to net income	—		—			—		—				13			13
Balance, September 30, 2018	$	92	$	45		$	51,366	$	17,031			$	(14,084	)	$	54,450

See notes to unaudited condensed consolidated financial statements.

HAMILTON BEACH BRANDS HOLDING COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2019

(Tabular amounts in thousands, except as noted and per share amounts)

NOTE 1—~~Nature of Operations and~~ Basis of Presentation

~~Nature of Operations~~

The ~~accompanying Unaudited Condensed Consolidated Financial Statements include the accounts~~unaudited interim condensed consolidated financial statements of Hamilton Beach Brands Holding Company and its ~~wholly-owned~~ subsidiaries ("Hamilton Beach Holding” or the “Company”). have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

The Company ~~manages~~operates through its subsidiaries, ~~primarily by reportable segment, which are~~ Hamilton Beach Brands, Inc. ~~(“HBB”~~("HBB") and The Kitchen Collection, LLC ("KC"). The Company includes the required intercompany eliminations between its reportable segments. Costs incurred as a stand-alone public entity are allocated to the HBB segment. The only material assets held by Hamilton Beach Brands Holding Company are its investments in consolidated subsidiaries. Substantially all of its cash flows are provided by dividends paid or distributions made by 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. KC is a national specialty retailer of kitchenware primarily in outlet malls throughout the United States ("U.S.").

Prior period interest income amounts have been reclassified from other (income) expense, net to interest expense, net and prior period non-trade customer receivable amounts have been reclassified from trade receivables, net to prepaid expenses and other current assets to conform to the current period presentation.

~~Basis of Presentation~~

These financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company's consolidated balance sheets as of June 30, 2019 and 2018, the statements of operations, comprehensive loss, and changes in equity for the three and six months ended June 30, 2019 and 2018, and the statements of cash flows for the six months ended June 30, 2019 and 2018 have been included. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date, but does not include all of the information or notes required by U.S. GAAP for complete financial statements.

Operating results for the three and ~~six~~nine months ended ~~June~~September 30, 2019 are not necessarily indicative of the results that may be expected for the remainder of the year due to the highly seasonal nature of our primary markets. A majority of revenue and operating profit occurs in the second half of the calendar year when sales of our products to retailers and consumers increase significantly for the fall holiday-selling season.

~~These quarterly financial statements reflect~~Prior period interest income amounts have been reclassified from other expense (income), net to interest expense, net and prior period non-trade customer receivable amounts have been reclassified from trade receivables, net to prepaid expenses and other current assets to conform to the ~~significant accounting policies that are described in Note 2 of the Company's Annual Report on Form 10-K for the year ended December 31, 2018.~~ current period presentation.

The following new accounting policy is reflected in these quarterly financial statements as a result of the share repurchases made during the ~~second quarter~~first nine months of 2019:

Treasury Stock

The Company records the aggregate purchase price of treasury stock at cost and includes treasury stock as a reduction to stockholders' equity.

NOTE 2—Recently Issued Accounting Standards

Accounting Standards Adopted

In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715)," which amends the requirements in U.S. 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 $0.2 million and ~~$0.4~~$0.6 million of net periodic pension income for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, being reclassified from selling, general and administrative expenses to other expense (income) ~~expense,~~, 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, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is planning to adopt ASU 2016-02 for its year ending December 31, 2020 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 ~~2016-03,~~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, 2020, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is planning to adopt ASU 2016-03 for its year ending December 31, 2021 and is currently evaluating to what extent ASU ~~2016-03~~2016-13 will affect the Company's financial position, results of operations, cash flows and related disclosures.

NOTE 3—Transfer of Financial Assets

The Company has entered into an arrangement with a financial institution to sell certain U.S. trade receivables on a non-recourse basis. The Company utilizes this arrangement as an integral part of financing working capital. Under the terms of the agreement, the Company receives cash proceeds and retains no rights or interest and has no obligations with respect to the sold receivables. These transactions 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, the Company derecognized $36.9 million and $104.8 million of trade receivables during the three and nine months ending September 30, 2019, respectively, $37.0 million and $107.2 million of trade receivables during the three and nine months ending September 30, 2018, respectively, and $165.4 million during the year ending December 31, 2018. The loss incurred on sold receivables in the consolidated results of operations for the three and nine months ended September 30, 2019 and 2018 was not material. The Company does not carry any servicing assets or liabilities. Cash proceeds from this arrangement are reflected as operating activities in the Condensed Consolidated Statements of Cash Flows.

NOTE 4—Inventory

Inventory is summarized as follows:



	SEPTEMBER 30 2019		DECEMBER 31 2018		SEPTEMBER 30 2018
HBB	$	161,043	$	122,697	$	155,744
KC	20,804		21,994		28,087
Total inventory	$	181,847	$	144,691	$	183,831

NOTE 5—Fair Value Disclosure

The following table presents the Company's assets and liabilities accounted for at fair value on a recurring basis:



Description	Balance Sheet Location	SEPTEMBER 30 2019		DECEMBER 31 2018		SEPTEMBER 30 2018
Assets:
Interest rate swap agreements
Current	Prepaid expenses and other current assets	$	—	$	349	$	440
Long-term	Other non-current assets	—		710		1,268
Foreign currency exchange contracts
Current	Prepaid expenses and other current assets	—		231		29
		$	—	$	1,290	$	1,737
Liabilities:
Interest rate swap agreements
Current	Other current liabilities	$	4	$	—	$	—
Long-term	Other long-term liabilities	244		—		—
Foreign currency exchange contracts
Current	Other current liabilities	78		87		310
		$	326	$	87	$	310

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.

During the periods ended September 30, 2019, December 31, 2018 and September 30, 2018, there were no transfers into or out of Levels 1, 2 or 3.

Nonrecurring Fair Value Measurements: The Company evaluates long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Certain factors, such as the estimated property, plant and equipment salvage value, used for this nonrecurring fair value measurement are considered a Level 3 input. At September 30, 2019, the Company determined the carrying value of KC’s long-lived assets compared to the estimated undiscounted future cash flows were not recoverable as the Company lowered KC’s outlook for the prospect of a future return to profitability due to the continued decrease in comparable store sales. Based on the estimated selling price of KC’s property, plant and equipment in an orderly transaction between market participants, the Company recorded a $1.0 million impairment charge in selling, general and administrative expenses during the third quarter of 2019.

NOTE 6— Stockholders' Equity

Capital Stock: The following table sets forth the Company's authorized capital stock information:



	SEPTEMBER 30 2019	DECEMBER 31 2018	SEPTEMBER 30 2018
	(In thousands)
Preferred stock, par value $0.01 per share
Preferred stock authorized	5,000	5,000	5,000
Preferred stock outstanding	—	—	—

Class A Common stock, par value $0.01 per share
Class A Common stock authorized	70,000	70,000	70,000
Class A Common issued⁽¹⁾⁽²⁾	9,488	9,291	9,238

Class B Common stock, par value $0.01 per share, convertible into Class A on a one-for-one basis
Class B Common stock authorized	30,000	30,000	30,000
Class B Common issued⁽¹⁾	4,377	4,422	4,465

⁽¹⁾ Class B Common converted to Class A Common were 6 and 44 shares during the three and nine months ending September 30, 2019, respectively, and 11 and 343 shares during the three and nine months ending September 30, 2018, respectively.

⁽²⁾ The Company issued Class A Common shares of 13 and 153 during the three and nine months ending September 30, 2019, respectively, and 9 and 30 during the three and nine months ending September 30, 2018, respectively.

Stock Repurchase Program: In May 2018, the Company established a stock repurchase program allowing for the purchase of up to $25.0 million of the Company's Class A Common Stock outstanding through December 31, 2019. During the nine months ended September 30, 2019, the Company repurchased 364,893 shares at prevailing market prices for an aggregate purchase price of $6.0 million. There were no share repurchases during the twelve months ended December 31, 2018.

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, 2019	$	(9,099	)	$	1,023		$	(9,234	)	$	(17,310	)
Other comprehensive income (loss)	362			(774		)	—			(412		)
Reclassification adjustment to net loss	—			3			(49		)	(46		)
Tax effects	(17		)	207			39			229
Balance, March 31, 2019	$	(8,754	)	$	459		$	(9,244	)	$	(17,539	)
Other comprehensive income (loss)	360			(1,198		)	—			(838		)
Reclassification adjustment to net loss	—			202			142			344
Tax effects	(13		)	263			(40		)	210
Balance, June 30, 2019	$	(8,407	)	$	(274	)	$	(9,142	)	$	(17,823	)
Other comprehensive loss	(852		)	(166		)	—			(1,018		)
Reclassification adjustment to net income	—			171			166			337
Tax effects	31			(10		)	(39		)	(18		)
Balance, September 30, 2019	$	(9,228	)	$	(279	)	$	(9,015	)	$	(18,522	)

Balance, January 1, 2018	$	(7,934	)	$	508		$	(6,678	)	$	(14,104	)
Reclassification due to adoption of ASU 2018-02	—			118			(1,286		)	(1,168		)
Other comprehensive income	917			379			—			1,296
Reclassification adjustment to net loss	—			230			202			432
Tax effects	—			(154		)	(44		)	(198		)
Balance, March 31, 2018	$	(7,017	)	$	1,081		$	(7,806	)	$	(13,742	)
Other comprehensive income (loss)	(1,999		)	624			—			(1,375		)
Reclassification adjustment to net loss	—			54			188			242
Tax effects	94			(173		)	(46		)	(125		)
Balance, June 30, 2018	$	(8,922	)	$	1,586		$	(7,664	)	$	(15,000	)
Other comprehensive income	1,138			(425		)	—			713
Reclassification adjustment to net income	—			(143		)	152			9
Tax effects	66			165			(37		)	194
Balance, September 30, 2018	$	(7,718	)	$	1,183		$	(7,549	)	$	(14,084	)

NOTE 7—Revenue

Revenue is recognized when control of the promised goods or services is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. A description of the performance obligations for each segment is as follows:

~~Hamilton Beach Brands~~HBB

Product revenue - Product revenue ~~consist~~consists of sales of small electric household and specialty housewares appliances to traditional brick and mortar and e-commerce 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 generally 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 the Company's facility, or delivered to customers, depending on the shipping terms. The amount of consideration received and revenue recognized varies with changes in incentives, returns and consideration paid to customers for advertising arrangements.

License revenues - From time to time, the Company enters into exclusive and non-exclusive licensing agreements which grant the right to use certain of the Company’s intellectual property (IP) in connection with designing, manufacturing, distributing, advertising, promoting and selling the licensees’ products during the term of the agreement. The IP that is licensed generally consists of trademarks, tradenames, patents, trade dress, and/or logos (the “Licensed IP”). In exchange for granting the right to use the Licensed IP, the Company receives a royalty payment, which is a function of (1) the total net sales of products that use the Licensed IP and (2) the royalty percentage that is stated in the licensing agreement. The Company recognizes revenue at the later of when the subsequent sales occur or satisfying the performance obligation (over time).

~~Kitchen Collection~~KC

Product revenue - KC sells a variety of kitchenware products from a number of highly recognizable name brands to individual consumers. Products are sold through brick and mortar retail stores whereby customers come into KC stores, explore the assortment of merchandise available for sale, select various products that they desire to purchase, bring those products to the sales register and pay the cashier the agreed-upon price using either cash, check or credit card. Once the sale is complete, a receipt is generated and provided to the customer as proof of purchase. Therefore, the sales process is both originated and completed simultaneously at the point of sale. Revenue from product sales is recognized at the point in time when control transfers to the customer, which occurs when the products are scanned at the sales register. The amount of consideration received and revenue recognized varies with changes in returns.

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

The following table presents the Company's revenue on a disaggregated basis for the three and ~~six~~nine months ending:


	THREE MONTHS ENDED JUNE 30												THREE MONTHS ENDED SEPTEMBER 30
	2019						2018						2019						2018
	HBB		KC		Consolidated ⁽¹⁾		HBB		KC		Consolidated ⁽¹⁾		HBB		KC		Consolidated ⁽¹⁾		HBB		KC		Consolidated ⁽¹⁾
Type of good or service:
Products	$	129,606	$	18,283	$	147.182	$	135,014	$	22,762	$	157,086	$	149,876	$	20,288	$	168,753	$	171,346	$	25,884	$	195.783
Licensing	1,245		—		1,245		855		—		855		1,025		—		1,025		1,118		—		1,118
Total revenue	$	130,851	$	18,283	$	148,427	$	135,869	$	22,762	$	157,941	$	150,901	$	20,288	$	169,778	$	172,464	$	25,884	$	196,901

	SIX MONTHS ENDED JUNE 30												NINE MONTHS ENDED SEPTEMBER 30
	2019						2018						2019						2018
	HBB		KC		Consolidated ⁽¹⁾		HBB		KC		Consolidated ⁽¹⁾		HBB		KC		Consolidated ⁽¹⁾		HBB		KC		Consolidated ⁽¹⁾
Type of good or service:
Products	$	255,253	$	37,536	$	291,478	$	259,595	$	44,862	$	302,886	$	405,129	$	57,824	$	460,231	$	430,941	$	70,746	$	498.669
Licensing	2,326		—		2,326		1,688		—		1,688		3,351		—		3,351		2,806		—		2,806
Total revenue	$	257,579	$	37,536	$	293,804	$	261,283	$	44,862	$	304,574	$	408,480	$	57,824	$	463,582	$	433,747	$	70,746	$	501,475

⁽¹⁾ Includes the required intercompany eliminations between HBB and KC.

~~NOTE 4—Inventories~~

~~Inventories are summarized as follows:~~

JUNE 30
2019 DECEMBER 31
2018 JUNE 30
2018
Sourced inventories - HBB $ 121,472
$ 122,697
$ 138,721
Retail inventories - KC 19,345
21,994
26,516
Total inventories $ 140,817
$ 144,691
$ 165,237

NOTE ~~5—Fair Value Disclosure~~

~~The following table presents the Company's assets and liabilities accounted for at fair value on a recurring basis:~~

Description Balance Sheet Location
JUNE 30
2019

DECEMBER 31
2018

JUNE 30
2018
Assets:

Interest rate swap agreements

Current Prepaid expenses and other current assets $ 69
$ 349
$ 383
Long-term Other non-current assets —
710
1,210
Foreign currency exchange contracts

Current Prepaid expenses and other current assets —
231
474
$ 69
$ 1,290
$ 2,067
Liabilities:
Interest rate swap agreements
Long-term Other long-term liabilities $ 51
$ —
$ —
Foreign currency exchange contracts

Current Other current liabilities 357
87
—
$ 408
$ 87
$ —

~~During the periods ended June 30, 2019, December 31, 2018 and June 30, 2018, there were no transfers into or out of Levels 1, 2 or 3.~~

~~NOTE 6—~~8—Contingencies

Various legal and regulatory proceedings and claims have been or may be asserted against Hamilton Beach Holding ~~and certain subsidiaries~~ relating to the conduct of ~~their~~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.

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 induring the second quarter of 2019 for the contingent loss. 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 ~~believes~~maintains that its products do not infringe on the plaintiff’s patents and ~~is evaluating~~will vigorously defend against the plantiff's post-trial ~~motions and appeal of any adverse judgment.~~

motions.

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 ~~June~~September 30, 2019, December 31, 2018, and ~~June~~September 30, 2018, HBB had accrued undiscounted obligations of ~~$4.6~~$4.5 million, $8.2 million, and ~~$8.5~~$8.6 million respectively, for environmental investigation and remediation activities. The reduction in the amount accrued at ~~June~~September 30, 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 ~~due to~~based upon additional testing and assessment performed with respect to that ~~site.~~site in the second quarter of 2019. In addition, HBB estimates that it is reasonably possible that it may incur additional expenses in the range of zero to $3.9 million related to the environmental investigation and remediation at these sites.

NOTE 7—9—Business Segments

~~As described in Note 1, the Company's~~The Company manages its subsidiaries primarily by reportable ~~segments include~~segment, which are HBB and KC. The ~~accounting policies of~~Company includes the required intercompany eliminations between its reportable segments ~~are the same as the Company described in Note 2 of the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The line “Eliminations” in the~~and intercompany revenue ~~section eliminates revenue from HBB sales to KC. Intercompany revenue is~~ based on current market prices of similar third-party transactions. Costs incurred as a stand-alone public entity are allocated to the HBB segment. The only material assets held by Hamilton Beach Brands Holding Company are its investments in consolidated subsidiaries. Substantially all of its cash flows are provided by dividends paid or distributions made by its subsidiaries.


	THREE MONTHS ENDED JUNE 30						SIX MONTHS ENDED JUNE 30						THREE MONTHS ENDED SEPTEMBER 30						NINE MONTHS ENDED SEPTEMBER 30
	2019			2018			2019			2018			2019			2018			2019			2018
Revenue
HBB	$	130,851		$	135,869		$	257,579		$	261,283		$	150,901		$	172,464		$	408,480		$	433,747
KC	18,283			22,762			37,536			44,862			20,288			25,884			57,824			70,746
Eliminations	(707		)	(690		)	(1,311		)	(1,571		)	(1,411		)	(1,447		)	(2,722		)	(3,018		)
Total	$	148,427		$	157,941		$	293,804		$	304,574		$	169,778		$	196,901		$	463,582		$	501,475

Operating profit (loss)
HBB	$	2,974		$	4,190		$	4,614		$	7,974		$	7,291		$	13,238		$	11,905		$	21,212
KC	(3,220		)	(3,834		)	(6,920		)	(8,138		)	(3,143		)	(2,407		)	(10,063		)	(10,545		)
Eliminations	(60		)	28			(129		)	2			(91		)	(36		)	(220		)	(34		)
Total	$	(306	)	$	384		$	(2,435	)	$	(162	)	$	4,057		$	10,795		$	1,622		$	10,633

Depreciation and amortization
HBB													$	972		$	1,055		$	2,813		$	2,991
KC													154			258			466			784
Total													$	1,126		$	1,313		$	3,279		$	3,775

Capital expenditures
HBB													$	1,184		$	2,610		$	3,156		$	6,964
KC													30			75			149			276
Total													$	1,214		$	2,685		$	3,305		$	7,240

NOTE 10—Income Taxes

The Company recognized income tax expense of $2.1 million and $1.2 million on income before taxes of $2.5 million in the three months ended September 30, 2019 and a loss before taxes of $1.1 million for the nine months ended September 30, 2019. Income tax expense includes $1.9 million of deferred tax expense related to a change in judgment regarding the valuation allowance recorded against deferred tax assets of KC.

NOTE 11—Subsequent Events

During the three months ended September 30, 2019, KC continued to experience decreased comparable store sales as a result of declining foot traffic. Further deterioration in foot traffic has lowered the Company's outlook for the prospect of a future return to profitability. As a result, on October 10, 2019, the board of directors of the Company approved the wind down of the retail operations of KC and the closure of all of its 160 stores by the end of 2019. During the fourth quarter, KC expects to incur expenses in the range of $4.0 million to $6.0 million primarily for severance obligations and professional fees. The Company expects KC's total cash expenditures relating to the wind down, excluding cash expenditures in the ordinary course as KC continues to operate, to be in the range of $6.0 million to $8.0 million. These charges and expenses do not include lease termination obligations as the amount is subject to negotiation and is not known at this time. The Company’s estimate of the charges and expenses are preliminary and subject to change until finalized. The Company expects that the historical and future financial results of KC will be classified as discontinued operations in the period during which the assets are abandoned, which is currently anticipated to occur during the quarter ending December 31, 2019.

~~NOTE 8—Transfer of Financial Assets~~

T~~he Company has~~On October 23, 2019, KC and its lender entered into a Forbearance Agreement (the “Forbearance Agreement”) with respect to KC's secured revolving line of credit ("KC Facility"). The wind down of KC's operations constitutes 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~~event of ~~financing working capital.~~default under the KC Facility. Under the terms of the ~~agreement,~~Forbearance Agreement, the ~~Company receives cash proceeds~~lender has agreed to forebear from exercising its rights and ~~retains no rights~~remedies as a result of the events of default pending accelerated payment in full of the obligations under the KC facility on or ~~interest~~before December 15, 2019. The Forbearance Agreement reduces the amount of the aggregate commitments to $15.0 million and ~~has no~~converts all LIBO rate loans to base rate loans and triggers default interest. In addition, KC will pay a forbearance fee of $12,500 each week until all obligations ~~with respect to~~under the ~~sold receivables. These transactions~~KC Facility are ~~accounted for as sold receivables which result~~paid in ~~a reduction in trade receivables because the agreement transfers effective control over and risk related to the receivables to the buyer.~~ ~~Under this arrangement, the Company derecognized~~ ~~$33.4 million~~ ~~and $67.9 million of trade receivables during the three and six months ending~~ ~~June 30, 2019, respectively, $38.8 million~~ ~~and $70.2 million of trade receivables during the three and six months ending June 30, 2018, respectively, and~~ ~~$165.4 million during the year~~ ~~ending December 31, 2018.~~ ~~The loss incurred on sold receivables in the consolidated results of operations for the three and six months ended~~ ~~June 30, 2019~~ ~~and 2018 was not material.~~full. The Company ~~does~~has not ~~carry~~guaranteed any ~~servicing assets or liabilities. Cash proceeds from this arrangement are reflected as operating activities in~~of the ~~Unaudited Condensed Consolidated Statements~~obligations of ~~Cash Flows.~~KC under the KC Facility.

Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in thousands, except as noted and per share data)

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

Hamilton Beach Brands Holding Company operates through its ~~wholly-owned~~ subsidiaries, Hamilton Beach Brands, Inc. ("HBB") and The Kitchen Collection, LLC ("KC") (collectively “Hamilton Beach Holding” or the “Company”)~~, in the consumer, commercial~~. HBB is a leading designer, marketer and distributor of branded, small electric household and specialty ~~small~~housewares appliances, as well as commercial products for restaurants, bars and hotels. KC is a national specialty retailer of kitchenware primarily in outlet malls throughout the United States ("U.S."). On October 15, 2019, the Company announced the wind down of the retail ~~markets.~~operations of KC and the closure of all of its 160 stores by the end of 2019.

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” in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 as there have been no material changes from those disclosed in our Annual Report.

CONSOLIDATED FINANCIAL SUMMARY

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

The consolidated financial summary of the Company includes the required intercompany eliminations between its reportable segments. Costs incurred as a stand-alone public entity are allocated to the HBB segment. Detailed comparisons of revenue and operating profit (loss) are presented in the discussions of the reportable segments, which follow the Hamilton Beach Holding results discussion.

~~Second~~Third Quarter of 2019 Compared with ~~Second~~Third Quarter of 2018

The consolidated results of operations for Hamilton Beach Holding were as follows for the three months ended ~~June~~September 30:


	THREE MONTHS ENDED JUNE 30															THREE MONTHS ENDED SEPTEMBER 30
	2019			% of Revenue		2018			% of Revenue		$ Change			% Change		2019		% of Revenue		2018			% of Revenue		$ Change			% Change

Revenue	$	148,427		100.0	%	$	157,941		100.0	%	$	(9,514	)	(6.0	)%	$	169,778	100.0	%	$	196,901		100.0	%	$	(27,123	)	(13.8	)%
Cost of sales	112,770			76.0	%	117,088			74.1	%	(4,318		)	(3.7	)%	129,194		76.1	%	146,550			74.4	%	(17,356		)	(11.8	)%
Gross profit	35,657			24.0	%	40,853			25.9	%	(5,196		)	(12.7	)%	40,584		23.9	%	50,351			25.6	%	(9,767		)	(19.4	)%
Selling, general and administrative expenses	35,617			24.0	%	40,123			25.4	%	(4,506		)	(11.2	)%	36,182		21.3	%	39,211			19.9	%	(3,029		)	(7.7	)%
Amortization of intangible assets	346			0.2	%	346			0.2	%	—			—	%	345		0.2	%	345			0.2	%	—			—	%
Operating (loss) income	(306		)	(0.2	)%	384			0.2	%	(690		)	(179.7	)%
Operating profit																4,057		2.4	%	10,795			5.5	%	(6,738		)	(62.4	)%
Interest expense, net	904			0.6	%	889			0.6	%	15			1.7	%	864		0.5	%	1,001			0.5	%	(137		)	(13.7	)%
Other (income) expense, net	(126		)	(0.1	)%	687			0.4	%	(813		)	(118.3	)%
Loss before income taxes	(1,084		)	(0.7	)%	(1,192		)	(0.8	)%	108			(9.1	)%
Income tax benefit	(140		)	(0.1	)%	(318		)	(0.2	)%	178			(56.0	)%
Net loss	$	(944	)	(0.6	)%	$	(874	)	(0.6	)%	$	(70	)	8.0	%
Other expense (income), net																688		0.4	%	(426		)	(0.2	)%	1,114			(261.5	)%
Income before income taxes																2,505		1.5	%	10,220			5.2	%	(7,715		)	(75.5	)%
Income tax expense																2,108		1.2	%	2,176			1.1	%	(68		)	(3.1	)%
Net income																$	397	0.2	%	$	8,044		4.1	%	$	(7,647	)	(95.1	)%

~~Effective income tax rate 12.9 % 26.7 %~~




Effective income tax rate	84.2	%	21.3	%

Revenue - Revenue decreased ~~$9.5~~$27.1 million, or ~~6.0%~~13.8%. ~~KC's~~HBB's revenue decreased ~~19.7%~~12.5% primarily due to lower sales volume. KC revenue decreased 21.6% primarily due to the closure of underperforming stores and a decline in comparable store sales. ~~HBB revenue decreased 3.7% primarily due to lower sales volume.~~

Gross profit - Gross profit decreased ~~$5.2~~$9.8 million, or ~~12.7%~~19.4%. As a percentage of revenue, gross profit declined from ~~25.9%~~25.6% to ~~24.0%~~23.9% primarily due to a decline in HBB's gross profit ~~margin in both the HBB and KC segments.~~margin.

Selling, general and administrative expenses - Selling, general and administrative expenses decreased ~~$4.5~~$3.0 million, or ~~11.2%~~7.7%. ~~The decrease is primarily due to~~ KC's ~~lower~~ selling, general and administrative expenses declined $1.8 million primarily due to ~~a reduction in net corporate expenses and~~ the benefits realized from closing unprofitable stores. ~~HBB~~HBB's selling, general and administrative expenses ~~also decreased~~declined $1.2 million primarily due to ~~a $3.7 million decline in the environmental reserve at one site~~lower legal and ~~lower employee-related costs, partially offset by a one-time charge of $3.2 million for a contingent loss related to patent litigation.~~professional services fees.

Interest expense, net - Interest expense, net ~~remained consistent with the prior year. A decrease in~~decreased $0.1 million primarily due to decreased average borrowings outstanding under HBB's and KC's revolving credit ~~facilities was offset by higher average interest rates.~~facilities.

Other expense (income) ~~expense,~~, net - Other ~~income~~expense for the ~~second~~third quarter of 2019 includes currency ~~gains~~losses of ~~$0.1~~$0.8 million compared with other ~~expense~~income in 2018 related to currency ~~losses~~gains of ~~$0.7~~$0.2 million.

Income tax expense - During the third quarter of 2019, the Company recognized income tax expense of $2.1 million on income before income taxes of $2.5 million. Income tax expense includes $1.9 million of deferred tax expense related to a change in judgment regarding the valuation allowance recorded against the deferred tax assets of KC.

First ~~Six~~Nine Months of 2019 Compared with First ~~Six~~Nine Months of 2018

The consolidated results of operations for Hamilton Beach Holding were as follows for the ~~six~~nine months ended ~~June~~September 30:


	SIX MONTHS ENDED JUNE 30															NINE MONTHS ENDED SEPTEMBER 30
	2019			% of Revenue		2018			% of Revenue		$ Change			% Change		2019			% of Revenue		2018			% of Revenue		$ Change			% Change

Revenue	$	293,804		100.0	%	$	304,574		100.0	%	$	(10,770	)	(3.5	)%	$	463,582		100.0	%	$	501,475		100.0	%	$	(37,893	)	(7.6	)%
Cost of sales	223,424			76.0	%	225,928			74.2	%	(2,504		)	(1.1	)%	352,618			76.1	%	372,478			74.3	%	(19,860		)	(5.3	)%
Gross profit	70,380			24.0	%	78,646			25.8	%	(8,266		)	(10.5	)%	110,964			23.9	%	128,997			25.7	%	(18,033		)	(14.0	)%
Selling, general and administrative expenses	72,124			24.5	%	78,117			25.6	%	(5,993		)	(7.7	)%	108,306			23.4	%	117,328			23.4	%	(9,022		)	(7.7	)%
Amortization of intangible assets	691			0.2	%	691			0.2	%	—			—	%	1,036			0.2	%	1,036			0.2	%	—			—	%
Operating loss	(2,435		)	(0.8	)%	(162		)	(0.1	)%	(2,273		)	1,403.1	%
Operating profit																1,622			0.3	%	10,633			2.1	%	(9,011		)	(84.7	)%
Interest expense, net	1,650			0.6	%	1,421			0.5	%	229			16.1	%	2,514			0.5	%	2,422			0.5	%	92			3.8	%
Other (income) expense, net	(458		)	(0.2	)%	173			0.1	%	(631		)	(364.7	)%
Loss before income taxes	(3,627		)	(1.2	)%	(1,756		)	(0.6	)%	(1,871		)	106.5	%
Income tax benefit	(922		)	(0.3	)%	(464		)	(0.2	)%	(458		)	98.7	%
Net loss	$	(2,705	)	(0.9	)%	$	(1,292	)	(0.4	)%	$	(1,413	)	109.4	%
Other expense (income), net																230			—	%	(253		)	(0.1	)%	483			(190.9	)%
Income (loss) before income taxes																(1,122		)	(0.2	)%	8,464			1.7	%	(9,586		)	(113.3	)%
Income tax expense																1,186			0.3	%	1,712			0.3	%	(526		)	(30.7	)%
Net income (loss)																$	(2,308	)	(0.5	)%	$	6,752		1.3	%	$	(9,060	)	(134.2	)%

~~Effective income tax rate 25.4 % 26.4 %~~




Effective income tax rate	(105.7	)%	20.2	%

Revenue - Revenue decreased ~~$10.8~~$37.9 million, or ~~3.5%~~7.6%. HBB's revenue declined 5.8% primarily due to lower sales volume and unfavorable foreign currency movements. KC's revenue decreased ~~16.3%~~18.3% primarily due to the closure of underperforming stores and a decline in comparable store sales. ~~HBB's revenue declined 1.4% primarily due to lower sales volume and unfavorable foreign currency movements.~~

Gross profit - Gross profit decreased ~~$8.3~~$18.0 million, or ~~10.5%~~14.0%. As a percentage of revenue, gross profit declined from ~~25.8%~~25.7% to ~~24.0%~~23.9% due to a decline in gross profit margin in both the HBB and KC segments.

Selling, general and administrative expenses - Selling, general and administrative expenses decreased ~~$6.0~~$9.0 million, or 7.7%. ~~The decrease is primarily due to~~ KC's ~~lower~~ selling, general and administrative expenses declined $7.0 million primarily due to ~~a reduction in net corporate expenses and~~ the benefits realized from closing unprofitable stores. ~~HBB~~HBB's selling, general and administrative expenses ~~also~~ decreased 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 and an increase in legal and professional service fees.$2.0 million.

Interest expense, net - Interest expense, net increased ~~$0.2~~$0.1 million primarily due to HBB and KC higher average interest rates and ~~increased~~higher average borrowings outstanding under KC's revolving credit facility, partially offset by decreased average borrowings outstanding under HBB's revolving credit facility.

Other expense (income) ~~expense,~~, net - Other ~~income~~expense for the ~~first six~~nine months ofended 2019 includes currency ~~gains~~losses of $0.4 million compared with other ~~expense~~income in 2018 ~~related to~~that includes currency losses of ~~$0.3~~$0.1 million. The increase is primarily due to unfavorable foreign currency movements as the Brazilian real and Mexican peso weakened against the U.S. dollar.

Income tax ~~benefit~~expense - ~~The~~During the nine months ended September 30, 2019, the Company recognized an income tax ~~benefit~~expense of ~~$0.9~~$1.2 million on a loss before income taxes of ~~$3.7~~$1.1 million. Income tax expense includes $1.9 million ~~an effective~~of deferred tax ~~rate~~expense related to a change in judgment regarding the valuation allowance recorded against the deferred tax assets of 25.4% for the six months ended June 30, 2019. The effective tax rate decreased from 26.4% in the first six months of 2018 primarily due to increased tax credits reflected in the forecasted 2019 effective tax rate.KC.

SEGMENT RESULTS

Hamilton Beach Brands, Inc.

~~Second~~Third Quarter of 2019 Compared with ~~Second~~Third Quarter of 2018

The results of operations for HBB were as follows for the three months ended ~~June~~September 30:


	THREE MONTHS ENDED JUNE 30								THREE MONTHS ENDED SEPTEMBER 30
	2019		% of Revenue		2018		% of Revenue		2019		% of Revenue		2018		% of Revenue
Revenue	$	130,851	100.0	%	$	135,869	100.0	%	$	150,901	100.0	%	$	172,464	100.0	%
Cost of sales	103,149		78.8	%	105,421		77.6	%	119,673		79.3	%	134,082		77.7	%
Gross profit	27,702		21.2	%	30,448		22.4	%	31,228		20.7	%	38,382		22.3	%
Operating expenses	24,728		18.9	%	26,258		19.3	%
Selling, general and administrative expenses									23,592		15.6	%	24,799		14.4	%
Amortization of intangible assets									345		0.2	%	345		0.2	%
Operating profit	$	2,974	2.3	%	$	4,190	3.1	%	$	7,291	4.8	%	$	13,238	7.7	%

The following table identifies the components of the change in revenue for the ~~second~~third quarter of 2019 compared with the ~~second~~third quarter of 2018:


	Revenue			Revenue
2018	$	135,869		$	172,464
(Decrease) increase from:
Decrease from:
Unit volume and product mix	(5,920		)	(20,749		)
Foreign currency	(527		)	(466		)
Average sales price	1,429			(348		)
2019	$	130,851		$	150,901

Revenue decreased ~~$5.0~~$21.6 million, or ~~3.7%~~12.5%. The decrease ~~in revenue~~ is primarily due to lower sales volume in the U.S. and international consumer ~~and global commercial markets, partially offset by increased~~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 very low margin business, ongoing foot traffic challenges at some retailers and other pressure points facing individual retail companies. HBB's international consumer ~~market. Unfavorable foreign currency movements also contributed~~markets reported lower sales volume due in large part to ~~the decline~~a one-time special purchase in ~~revenue as the Canadian dollar, Brazilian real~~2018 by a customer in Latin America and ~~Chinese yuan weakened against the U.S. dollar.~~

~~The following table identifies the components of the change~~to a lesser degree to reduced demand in ~~operating profit for the second quarter of 2019 compared with the second quarter of 2018:~~

Operating Profit
2018 $ 4,190
(Decrease) increase from:
Gross profit (2,746 )
Selling, general and administrative expenses 1,530
2019 $ 2,974
several markets.

HBB's operating profit decreased ~~$1.2~~$6.0 million primarily due to a ~~$2.8~~$7.2 million decrease in gross profit partially offset by a ~~$1.5~~$1.2 million decrease in selling, general and administrative expenses. The decline in gross profit is primarily due to lower sales volume. As a percentage of revenue, HBB gross profit margin declined from ~~22.4%~~22.3% to ~~21.2%~~20.7% primarily due to ~~increased~~higher inbound freight, transportation and warehousing expenses, and ~~unfavorable foreign currency movements.~~the adverse impact of tariffs.

~~The decrease in selling,~~Selling, general and administrative expenses declined $1.2 million. The decrease was mainly attributable to a ~~$3.7~~$0.9 million ~~decline~~decrease in ~~the environmental reserve at one site~~legal and ~~$0.6~~professional services fees primarily due to lower patent litigation expenses and a $0.4 million decrease in ~~lower~~ employee-related costs ~~that included a decrease in accrued~~primarily due to reduced incentive compensation driven by a lower market price of the Company's stock during the second quarter of 2019. The decrease was partially offset by a one-time charge of $3.2 million for a contingent loss related to patent litigation. The decline in the environmental reserve is the result of a change in the expected type and extent of investigation and remediation activities associated with one site, due to additional testing and assessment performed with respect to that site.expense.

First ~~Six~~Nine Months of 2019 Compared with First ~~Six~~Nine Months of 2018

The results of operations for HBB were as follows for the ~~six~~nine months ended ~~June~~September 30:


	SIX MONTHS ENDED JUNE 30								NINE MONTHS ENDED SEPTEMBER 30
	2019		% of Revenue		2018		% of Revenue		2019		% of Revenue		2018		% of Revenue
Revenue	$	257,579	100.0	%	$	261,283	100.0	%	$	408,480	100.0	%	$	433,747	100.0	%
Cost of sales	203,618		79.1	%	203,131		77.7	%	323,291		79.1	%	337,213		77.7	%
Gross profit	53,961		20.9	%	58,152		22.3	%	85,189		20.9	%	96,534		22.3	%
Operating expenses	49,347		19.2	%	50,178		19.2	%
Selling, general and administrative expenses									72,248		17.7	%	74,286		17.1	%
Amortization of intangible assets									1,036		0.3	%	1,036		0.2	%
Operating profit	$	4,614	1.8	%	$	7,974	3.1	%	$	11,905	2.9	%	$	21,212	4.9	%

The following table identifies the components of the change in revenue for the ~~first six~~nine months of ended September 30, 2019 compared with ~~the first six months of~~ 2018:


	Revenue			Revenue
2018	$	261,283		$	433,747
(Decrease) increase from:
Unit volume and product mix	(5,723		)	(26,472		)
Foreign currency	(1,380		)	(1,846		)
Average sales price	3,399			3,051
2019	$	257,579		$	408,480

Revenue decreased ~~$3.7~~$25.3 million, or ~~1.4%~~5.8%. The decrease ~~in revenue~~ is primarily due to lower sales volume in the ~~global commercial~~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 decline in revenue during the first nine months of 2019 was a loss of placements in the dollar store channel resulting from HBB's decision to not maintain very 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. Unfavorable foreign currency movements also contributed to the decline in revenue as the Canadian dollar, Mexican peso, Chinese yuan, and Brazilian real ~~and Mexican peso~~ weakened against the U.S. dollar.

~~The following table identifies the components of the change in operating profit for the first six months of 2019 compared with the first six months of 2018:~~

Operating Profit
2018 $ 7,974
(Decrease) increase from:
Gross profit (4,190 )
Selling, general and administrative expenses 830
2019 $ 4,614

HBB's operating profit decreased ~~$3.4~~$9.3 million primarily due to a ~~$4.2~~$11.3 million decrease in gross profit primarily due to lower sales volume, offset by a ~~$0.8~~$2.0 million decrease in selling, general and administrative expenses. ~~The decline in gross profit is primarily due to lower sales volumes.~~ As a percentage of revenue, gross profit margin declined from 22.3% to 20.9%, primarily due to ~~increased~~higher inbound freight expenses, ~~and~~ unfavorable foreign currency ~~movements.~~movements and the adverse impact of tariffs.

~~The decrease in selling,~~Selling, general and administrative expenses declined $2.0 million. The decrease was mainly attributable to a reduction of $3.7 million ~~decline~~ in the environmental reserve at one site ~~and~~recorded in the second quarter of 2019, the absence of $0.5 million of NACCO transition services fees, and a $0.2 million decrease in ~~lower~~ employee-related costs ~~that included a decrease in accrued~~primarily due to reduced incentive compensation ~~driven by a lower market price of the Company's stock during the first six months of 2019.~~expense. The decrease was 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 and $0.7 million increase~~litigation. The second quarter decline in ~~legal and professional service fees primarily~~the environmental reserve was due to ~~patent litigation expenses.~~a change in the expected type and extent of investigation and remediation activities associated with one of the sites, due to additional testing and assessment performed with respect to that site.

The Kitchen Collection, LLC

At ~~June~~September 30, 2019, KC operated ~~162~~160 stores compared with ~~199~~197 stores at ~~June~~September 30, 2018 and 189 stores at December 31, 2018.

~~Second~~Third Quarter of 2019 Compared with ~~Second~~Third Quarter of 2018

The results of operations for KC were as follows for the three months ended ~~June~~September 30:


	THREE MONTHS ENDED JUNE 30										THREE MONTHS ENDED SEPTEMBER 30
	2019			% of Revenue		2018			% of Revenue		2019			% of Revenue		2018			% of Revenue
Revenue	$	18,283		100.0	%	$	22,762		100.0	%	$	20,288		100.0	%	$	25,884		100.0	%
Cost of sales	10,268			56.2	%	12,385			54.4	%	10,841			53.4	%	13,880			53.6	%
Gross profit	8,015			43.8	%	10,377			45.6	%	9,447			46.6	%	12,004			46.4	%
Operating expenses	11,235			61.5	%	14,211			62.4	%
Selling, general and administrative expenses											12,590			62.1	%	14,411			55.7	%
Operating loss	$	(3,220	)	(17.6	)%	$	(3,834	)	(16.8	)%	$	(3,143	)	(15.5	)%	$	(2,407	)	(9.3	)%

The following table identifies the components of the change in revenue for the ~~second~~third quarter of 2019 compared with the ~~second~~third quarter of 2018:


	Revenue			Revenue
2018	$	22,762		$	25,884
(Decrease) increase from:
Decrease from:
Closed stores	(2,410		)	(2,746		)
Comparable stores	(1,684		)	(2,182		)
Other	(480		)	(668		)
New stores	95
2019	$	18,283		$	20,288

Revenue for the ~~second~~third quarter of 2019 decreased ~~$4.5~~$5.6 million, or ~~19.7%~~21.6%, primarily due to the closure of 37 underperforming stores and a decline in comparable store sales. The decrease in comparable store sales was due to a decline in customer traffic.

The following table identifies the components of the change in operating loss for the third quarter of 2019 compared with the third quarter of 2018:



	Operating Loss
2018	$	(2,407	)
(Increase) decrease from:
Impairment of property, plant and equipment	(731		)
Comparable stores	(311		)
Closed stores	236
Corporate expenses	70
2019	$	(3,143	)

KC's operating loss increased $0.7 million in the third quarter of 2019 primarily due to an impairment charge related to property, plant and equipment and increased operating losses at comparable stores partially offset by the benefits realized from closing unprofitable stores.

First Nine Months of 2019 Compared with First Nine Months of 2018

The results of operations for KC were as follows for the nine months ended September 30:



	NINE MONTHS ENDED SEPTEMBER 30
	2019			% of Revenue		2018			% of Revenue
Revenue	$	57,824		100.0	%	$	70,746		100.0	%
Cost of sales	31,829			55.0	%	38,250			54.1	%
Gross profit	25,995			45.0	%	32,496			45.9	%
Selling, general and administrative expenses	36,058			62.4	%	43,041			60.8	%
Operating loss	$	(10,063	)	(17.4	)%	$	(10,545	)	(14.9	)%

The following table identifies the components of the change in revenue for the nine months ended September 30, 2019 compared with 2018:



	Revenue
2018	$	70,746
(Decrease) increase from:
Closed stores	(6,704		)
Comparable stores	(4,947		)
Other	(1,509		)
New stores	238
2019	$	57,824

Revenue for the nine months ended September 30, 2019 decreased $12.9 million, or 18.3%, primarily due to the closure of 37 underperforming stores and a decline in comparable store sales. The decrease in comparable store sales was due to a decline in customer traffic.

Gross profit margin as a percentage of revenue declined from ~~45.6%~~45.9% to ~~43.8% primarily due to increased inbound freight.~~

~~The following table identifies the components of the change in operating loss for the~~ ~~second~~ ~~quarter of~~ ~~2019~~ ~~compared with the~~ ~~second~~ ~~quarter of~~ ~~2018~~:

Operating Loss
2018 $ (3,834 )
Decrease (increase) from:
Selling, general and administrative expenses and other 715
Closed stores 212
New stores 30
Comparable stores (343 )
2019 $ (3,220 )

KC's operating loss decreased $0.6 million in the second quarter of 2019 compared with the second quarter of 2018 primarily due to a reduction in corporate expenses and the benefits realized from closing unprofitable stores, which was partially offset by increased operating losses at comparable stores.

~~First Six Months of 2019 Compared with First Six Months of 2018~~

~~The results of operations for KC were as follows for the first six months ended~~ ~~June 30~~:

SIX MONTHS ENDED
JUNE 30
2019 % of Revenue 2018 % of Revenue
Revenue $ 37,536
100.0 % $ 44,862
100.0 %
Cost of sales 20,988
55.9 % 24,370
54.3 %
Gross profit 16,548
44.1 % 20,492
45.7 %
Operating expenses 23,468
62.5 % 28,630
63.8 %
Operating loss $ (6,920 ) (18.4 )% $ (8,138 ) (18.1 )%

~~The following table identifies the components of the change in revenue for the first six months of~~ ~~2019~~ ~~compared with the first six months of~~ ~~2018~~:

Revenue
2018 $ 44,862
(Decrease) increase from:
Closed stores (3,959 )
Comparable stores (2,764 )
Other (843 )
New stores 240
2019 $ 37,536

Revenue for the first six months of 2019 decreased $7.3 million, or 16.3%, primarily due to the closure of 37 underperforming stores and a decline in comparable store sales. The decrease in comparable store sales was due to a decline in customer traffic.

~~Gross profit margin as a percentage of revenue declined from 45.7% to 44.1%~~45.0% primarily due to increased inbound freight and liquidation sales at ~~twenty-seven~~29 stores which closed during the first ~~six~~nine months of 2019.

The following table identifies the components of the change in operating loss for the ~~first six~~nine months ofended September 30, 2019 compared with ~~the first six months of~~ 2018:


	Operating Loss			Operating Loss
2018	$	(8,138	)	$	(10,545	)
Decrease (increase) from:
Selling, general and administrative expenses and other	1,066
Corporate expenses				1,138
Closed stores	471			707
New stores	45			41
Impairment of property, plant and equipment				(731		)
Comparable stores	(364		)	(673		)
2019	$	(6,920	)	$	(10,063	)

KC's operating loss decreased ~~$1.2~~$0.5 million in the first ~~six~~nine months of 2019 compared with the first ~~six~~nine months of 2018 primarily due to a reduction in corporate expenses and the benefits realized from closing unprofitable stores ~~which was~~ partially offset by an impairment charge related to property, plant and equipment and increased operating losses at comparable stores.

LIQUIDITY AND CAPITAL RESOURCES

~~Cash Flows~~Liquidity

Hamilton Beach Brands Holding Company operates through its wholly-owned subsidiaries, HBB and KC, thus the only material assets held by it are the investments in consolidated subsidiaries. Substantially all of itsThe Company's cash flows are provided by dividends paid or distributions made by ~~its subsidiaries.~~HBB and KC. As a result, certain statutory limitations, or regulatory or financing agreements could affect the levels of distributions allowed to be made ~~by its subsidiaries.~~ to the Company. The principal sources of cash to fund liquidity needs are: (i) cash generated from HBB and KC operations and (ii) borrowings available under HBB and KC's revolving credit facilities, as defined below. The Company’s primary uses of funds consist of working capital requirements, capital expenditures, and payments of principal and interest on debt. At September 30, 2019, the Company had cash and cash equivalents of $1.9 million, compared to $6.4 million and $2.1 million at December 31, 2018 and September 30 2018, respectively.

The following ~~is a discussion of the changes in the Company's~~table presents selected cash ~~flows for the six months ended June 30, 2019 compared with June 30, 2018.~~

flow information:

SIX MONTHS ENDED
JUNE

2019 2018 Change
Operating Activities

Net loss $ (2,705 ) $ (1,292 ) $ (1,413 )
Depreciation and amortization 2,153
2,462
(309 )
Deferred income taxes 1,800
1,795
5
Share-based compensation expense 1,629
2,625
(996 )
Other 117
(4,464 ) 4,581
Net changes in operating assets and liabilities
Trade receivables 13,956
31,071
(17,115 )
Inventories 4,375
(30,493 ) 34,868
Accounts payable (41,259 ) (39,551 ) (1,708 )
Other operating assets and liabilities (22,173 ) (18,327 ) (3,846 )
Net cash used for operating activities (42,107 ) (56,174 ) 14,067
Investing Activities
Expenditures for property, plant and equipment (2,091 ) (4,555 ) 2,464
Other 36
6
30
Net cash used for investing activities (2,055 ) (4,549 ) 2,494
Financing Activities

Net additions to revolving credit agreements 44,302
54,130
(9,828 )
Cash dividends on Class A Common and Class B Common (2,419 ) (2,327 ) (92 )
Purchase of treasury stock (2,334 ) —
(2,334 )
Net cash provided by financing activities 39,549
51,803
(12,254 )
Effect of exchange rate changes on cash (608 ) (24 ) (584 )
Decrease in cash $ (5,221 ) $ (8,944 ) $ 3,723



	NINE MONTHS ENDED SEPTEMBER
	2019			2018
Net cash used for operating activities	$	(35,131	)	$	(46,580	)
Net cash used for investing activities	$	(3,268	)	$	(7,233	)
Net cash provided by financing activities	$	33,480		$	45,046

Operating activities - Net cash used for operating activities decreased ~~$14.1~~$11.4 million in the first ~~six~~nine months of 2019 compared to the prior year primarily due to ~~efficient management~~a decrease in cash used for HBB inventory, lower inventory at KC due to store closures and favorable timing of ~~net working capital in both the~~settling HBB ~~and KC segments, which included a $24.4 million decline in inventory as of June 30, 2019 compared with the prior year.~~accounts payable. The decrease in net cash used for operating activities was partially offset by decreased ~~HBB~~ accrued ~~payroll,~~compensation and accrued product ~~returns and cooperative advertising.~~returns.

HBB had a use of cash related to net working capital of $18.3 million in 2019 compared to $31.7 million in 2018. The improvement was driven by improved management of inventory, partially offset by changes in trade receivables due to timing of collections.

~~KC had a use of cash related to net working capital of $4.7 million in 2019 compared to $8.8 million in 2018 primarily due to lower inventory as a result of store closures.~~

Investing activities - Net cash used for investing activities decreased $4.0 million in the first ~~six~~nine months of 2019 primarily due to lower capital expenditures related to HBB internal-use software development ~~costs.~~costs and tooling for new products.

Financing activities - Net cash provided by financing activities decreased ~~$12.3~~$11.6 million primarily due to a $5.2 million decline in HBB's ~~decreased~~ net ~~borrowings~~borrowing activity on the revolving credit facility ~~of $10.1 million~~ and cash used for treasury stock purchases of ~~$2.3~~$6.0 million during the first ~~six~~nine months of 2019.

~~Financing Activities~~Capital Resources

~~HBB:~~ HBB ~~has~~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 ~~$278.1~~$335.7 million as of ~~June~~September 30, 2019. At ~~June~~September 30, 2019, the borrowing base under the HBB Facility was ~~$113.3~~$114.4 million and borrowings outstanding were ~~$81.5~~$80.2 million. At ~~June~~September 30, 2019, the excess availability under the HBB Facility was ~~$31.8~~$34.2 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~~September 30, 2019, for base rate loans and LIBOR loans denominated in U.S. dollars were 0.0% and ~~1.5%~~1.75%, respectively. The applicable margins, effective ~~June~~September 30, 2019, for base rate loans and bankers' acceptance loans denominated in Canadian dollars were 0.0% and ~~1.5%~~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 ~~at June~~for the three and nine months ended September 30, 2019 was ~~3.7%~~4.5% and 4.4%, respectively, 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 at ~~June~~September 30, 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 ~~June~~September 30, 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 ~~June~~September 30, 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. See Note 3 of the unaudited condensed 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 and until the expiration of the HBB Facility. HBB has not guaranteed any of the obligations of KC under KC's Facility.

~~KC:~~On October 23, 2019, KC ~~has~~and its lender entered into a ~~$20.0 million~~Forbearance Agreement (the “Forbearance Agreement”) with respect to KC's secured revolving line of credit ~~that expires in October 2022 (the “KC Facility”~~("KC Facility"). The wind down of KC's operations constitutes an event of default under the KC Facility. Under the terms of the Forbearance Agreement, the lender has 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. The Forbearance Agreement reduces the amount of the aggregate commitments to $15.0 million and converts all LIBO rate loans to base rate loans and triggers default interest. In addition, KC will pay a forbearance fee of $12,500 each week until all obligations under the KC Facility are ~~secured by substantially all assets~~paid in full. The Company has not guaranteed any of ~~KC. The approximate book value~~the obligations of ~~KC's assets held as collateral~~KC under the KC Facility was $27.4 million as of June 30, 2019. At June 30, 2019, the borrowing base under the KC Facility, net of required minimum availability, was $10.3 million and borrowings outstanding under the KC Facility were $9.5 million. At June 30, 2019, the excess availability under the KC Facility was $0.8 million.

The maximum availability under the KC Facility is derived from a borrowing base formula using KC's eligible inventory and eligible trade receivables, as defined in the KC Facility. Borrowings bear interest at a floating rate plus a margin based on the excess availability under the agreement, as defined in the KC Facility, which can be either a base rate plus a margin of 0.75% or LIBOR plus a margin of 1.75% as of June 30, 2019. The KC Facility also requires a fee of 0.25% per annum on the unused commitment.

The KC Facility allows for the payment of dividends to Hamilton Beach Holding, subject to certain restrictions based on availability and meeting a fixed charge coverage ratio as described in the KC Facility. Dividends are limited to (i) $6.0 million in any twelve-month period, so long as KC has excess availability, as defined in the KC Facility, of at least $5.0 million after giving effect to such payment and maintaining a minimum fixed charge coverage ratio of 1.1 to 1.0, as defined in the KC Facility; (ii) $2.0 million in any twelve-month period, so long as KC has excess availability, as defined in the KC Facility, of at least $5.0 million after giving effect to such payment; and (iii) in such amounts as determined by KC, so long as KC has excess availability under the KC Facility of $10.0 million after giving effect to such payment. At June 30, 2019, KC was in compliance with all financial covenants in the KC Facility.

KC believes funds available from cash on hand, the KC 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 KC Facility.

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, 2018 as there have been no material changes from those disclosed in our Annual ~~Report.~~Report, except for the Forbearance Agreement as discussed above.

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, 2018 as there have been no material changes from those disclosed in our Annual Report.

~~Capital Expenditures~~

The Company's capital expenditures were $2.1 million and $4.6 million for the six months ended June 30, 2019 and 2018. Planned capital expenditures for the remainder of 2019 are $2.8 million which are primarily for the continued investment in the Company's information technology infrastructure and HBB's tooling for new products. These expenditures are expected to be funded from internally generated funds and bank borrowings.

~~Capital Structure~~

The Company's working capital is significantly affected by the seasonality of the segments. The following is a discussion of the changes in the Company's capital structure as of June 30, 2019 compared with both June 30, 2018 and December 31, 2018.

~~June 30, 2019 Compared with June 30, 2018~~

June 30,
2019

June 30,
2018
Change
Cash and cash equivalents $ 1,131
$ 1,962
$ (831 )
Other net tangible assets 138,840
138,062
778
Goodwill and intangible assets, net 10,081
11,462
(1,381 )
Net assets 150,052
151,486
(1,434 )
Total debt (90,955 ) (105,476 ) 14,521
Total equity $ 59,097
$ 46,010
$ 13,087
Debt to total capitalization 60.6 % 69.6 % (9.0 )%

~~Other net tangible assets~~ ~~- Other net tangible assets increased by $0.8 million from June 30, 2018.~~

HBB's other net tangible assets increased $5.3 million primarily due to increased trade receivables and decreased accounts payable due to timing of collections and payments, respectively, partially offset by a decrease in inventory of $17.3 million due to improved inventory management.

KC's other net tangible assets decreased $4.3 million primarily due to decreased inventory, partially offset by decreased accounts payable. The decrease in inventory is primarily due to the store closures since the second quarter of 2018 and the decrease in accounts payable was mainly attributable to the timing of inventory purchases.

~~Total debt~~ - Total debt decreased by $14.5 million primarily due to the decline in net cash used for operating activities resulting from efficient management of net working capital in both the HBB and KC segments, partially offset by the 2019 share repurchases.

~~June 30, 2019 Compared with December 31, 2018~~

June 30,
2019
December 31, 2018 Change
Cash and cash equivalents $ 1,131
$ 6,352
$ (5,221 )
Other net tangible assets 138,840
94,938
43,902
Goodwill and intangible assets, net 10,081
10,772
(691 )
Net assets 150,052
112,062
37,990
Total debt (90,955 ) (46,624 ) (44,331 )
Total equity $ 59,097
$ 65,438
$ (6,341 )
Debt to total capitalization 60.6 % 41.6 % 19.0 %

~~Other net tangible assets~~ ~~- Other net tangible assets increased by $43.9 million in the first six months of 2019.~~

HBB's other net tangible assets increased $38.0 million primarily due to decreases in accounts payable and other liabilities attributable to the timing of payments. This was partially offset by a reduction in trade receivables consistent with the seasonality of sales.

KC's other net tangible assets increased $5.7 million primarily due to a decrease in accounts payable, partially offset by decreased inventory. The change in accounts payable was due to the timing of inventory purchases and the decrease in inventory is primarily due to store closures in the first six months of 2019.

~~Total debt~~ ~~- Total debt increased by $44.3 million to fund HBB and KC working capital due to seasonality.~~

OUTLOOK

HBB: ~~HBB's business is seasonal and a majority of its revenue and operating profit is earned in the second half~~Based on early fourth-quarter results, HBB expects to recover much of the ~~year when sales~~third-quarter revenue shortfall. The extent of small electric appliances to retailers and consumers increase significantly for the fall holiday-selling season. For the past five years, on average, 60% of revenue and 86% of operating profit have been earned in the second half of the year. HBB is pleased with the level of placements and promotional support that have been secured thus far for the second half of 2019 and expects operating profit to increase compared to the second half of 2018. HBB continues to finalize customer commitments for the holiday-selling season and may revise its second half outlook as plans are confirmed in the third quarter. Consumer confidence in the economy and household finances and trends in spending levels and items purchasedrecovery will ultimately ~~determine~~depend on retailer and consumer response to increased product costs and higher prices at retail caused by the ~~success of the 2019 holiday-selling season.~~tariffs. For the full year 2019, ~~HBB~~the company expects revenue to grow moderately as a result of the continued successful implementation of its Strategic Initiatives, including new consumer and commercial product introductions, Only-the-Best placements, and continued expansion in the e-commerce channel and international markets. Revenue for each of the Strategic Initiativesbe approximately even with 2018. Operating profit is expected to be ~~above~~in the range of even to a modest decrease compared with 2018. ~~Operating profit for 2019 is expected to increase moderately compared to 2018. HBB expects cash~~Cash flow before financing activities is expected to increase significantly in 2019 compared to 2018, ~~with a goal to exceed $20 million~~ as the company ~~works~~continues to ~~return~~work toward a goal of returning to pre-2018 ~~levels.~~levels and exceeding $20 million. Due to the impact of certain revenue shifting from the third quarter to the fourth quarter, the timing of accounts receivable collections could move into the first quarter of 2020. Capital expenditures are expected to be ~~approximately $4.5~~$4.3 million in ~~2019.~~

~~KC:~~ ~~KC's business is seasonal~~2019, primarily for investment in information technology infrastructure and ~~a majority of its revenue and operating profit is earned in the second half of the year when sales of kitchenware~~tooling for new products. Looking ahead to ~~consumers increase significantly for the fall holiday-selling season. For 2019, KC~~2020, HBB expects ~~its revenue to decrease~~improvement compared to ~~2018 as a result of store closures and lower comparable store sales. KC expects its~~2019 in revenue, operating loss and use of cash before financing activities in 2019 to improve compared to 2018. Capital expenditures in 2019 are expected to be approximately $0.3 million. KC is working aggressively to significantly improve performance in 2019 and 2020.

~~Hamilton Beach Brands Holding Company:~~ ~~Based on the outlooks for the HBB and KC segments, the Company expects 2019 net income to increase~~profit and cash flow before financing ~~activities~~activities; however, due to ~~increase significantly over 2018.~~the unknown impact of tariffs on List 4b products, and the response of retailers and consumers to tariffs, the extent of improvement cannot be fully anticipated at this time.

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 with respect to each subsidiary's operations include, without limitation:

HBB: (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, ~~(9)~~(10) customer acceptance of, changes in costs of, or delays in the development of new products, ~~(10)~~(11) increased competition, including consolidation within the industry, ~~(11)~~(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, ~~(12)~~(13) changes mandated by federal, state and other regulation, including tax, health, safety or environmental legislation, and ~~(13)~~(14) other risk factors, ~~listed~~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.~~10-K for the year ended December 31, 2018.

KC:(1) ~~decreased levels~~the expected amount and timing of ~~consumer visits~~charges and cash expenditures and expected completion of the contemplated actions related to ~~brick~~the wind down of the business, (2) the charges or cash expenditures may be in excess of the estimated amounts or may occur in different fiscal periods than expected, (3) the Company’s inability to complete actions to exit the KC business within the time periods anticipated, and ~~mortar stores, (2) increased competition,~~(4) other risk factors, including through online channels, (3) 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 number of customers visiting Kitchen Collection^® ~~stores, (4) the ability to renegotiate existing leases and effectively and efficiently close under-performing stores, (5) changes~~those described in the ~~sales prices, product mix or levels of consumer purchases of kitchenware and small electric appliances, (6) changes in costs of inventory, including transportation costs, (7) delays in delivery or~~Company’s Form 10-K for the unavailability of inventory, (8) customer acceptance of new products, (9) changes in the import tariffs and monetary policies and other changes in the regulatory climate in the countries in which KC buys, operates and/or sells products, and (10) other factors listed in the Company's filings with the Securities and Exchange Commission, including, but not limited to, the Annual Report on Form 10-K.year ended December 31, 2018.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

INTEREST RATE RISK

~~The Company's subsidiaries,~~ HBB ~~and KC, have entered~~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 ~~the subsidiaries~~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 receivables. The fair value of the Company's interest rate swap agreements was a net ~~receivable~~payable of $0.1 million at ~~June~~September 30, 2019. A hypothetical 10% decrease in interest rates would result in a net payable with a fair value of ~~$0.1~~$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 ~~$1.8~~$2.5 million for the ~~six~~nine months ended ~~June~~September 30, 2019.

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 revenues, 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 spot 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 payable of ~~$0.4~~$0.1 million at ~~June~~September 30, 2019. Assuming a hypothetical 10% weakening of the U.S. dollar at ~~June~~September 30, 2019, the fair value of foreign currency-sensitive financial instruments, which represents forward foreign currency exchange contracts, would be decreased by ~~$1.9~~$0.4 million compared with its fair value at ~~June~~September 30, 2019.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures: An evaluation was carried out under the supervision and with the participation of the Company's management, including the principal executive officer and the principal financial officer, of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, these officers have concluded that the Company's disclosure controls and procedures are effective.

Changes in internal control over financial reporting: During the three months ended ~~June~~September 30, 2019, there have been no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1 Legal Proceedings

The information required by this Item 1 is set forth in Note 68 "Contingencies" included in our Financial Statements contained in Part I of this Form 10-Q and is hereby incorporated herein by reference to such information.

Item 1A Risk Factors

~~There has been no~~No material changes to the risk factors for ~~the Company since~~Hamilton Beach Holding, HBB, or KC from the Company's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2018, except for the following, which should be read in conjunction with the risk factors in such Annual Report on Form 10-K.

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 made significant changes in U.S. trade policy, 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 from China, many product lines are subject to the effective and proposed tariffs. Tariffs implemented by lists 1, 2, 3 and 4a affect approximately 25% of total HBB purchases on an annualized basis. List 4b will increase the impact to approximately 70% of total HBB purchases annualized. We are continually evaluating the potential impact of the effective and proposed 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. or other countries, as well as the potential for additional trade actions, the impact on our operations and results remains uncertain.

There are risks associated with the winddown of KC.

During the nine months ended September 30, 2019, KC continued to experience decreased comparable store sales as a result of declining foot traffic. Further deterioration in foot traffic lowered the Company’s outlook for the prospect of a future return to profitability. As a result, on October 10, 2019, the board of directors of the Company approved the wind down of the retail operations of KC and the closure of all of its 160 stores by the end of 2019.

During the fourth quarter, KC expects to incur expenses in the range of $4.0 million to $6.0 million primarily for severance obligations and professional fees. The Company expects KC’s total cash expenditures relating to the wind down, excluding cash expenditures in the ordinary course as KC continues to operate, to be in the range of $6.0 million to $8.0 million. These charges and expenses do not include lease termination obligations as the amount is subject to negotiation and is not known at this time. The Company’s estimate of the charges and expenses are preliminary and subject to change until finalized. We expect to incur additional costs until the wind down is complete, which may include, inventory liquidation, non-cash asset impairments and contract assignment and termination costs, primarily with respect to store operating leases. The amount of actual restructuring and transition charges and impairment charges may materially exceed our estimates, when determined, due to 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 or modify.

In addition, the announced wind down involves numerous risks, including but not limited to:

the inability of KC to retain qualified personnel necessary for the wind down during the wind down period or an erosion of KC employee morale;

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 2 Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities ⁽¹⁾
(a) (b) (c) (d)
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of the Publicly Announced Program Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program
Month #1
(April 1 to 30, 2019)
—
$ —
—
$ 25,000,000
Month #2
(May 1 to 31, 2019) 46,405
$ 18.39
46,405
$ 24,146,770
Month #3
(June 1 to 30, 2019) 83,282
$ 17.78
83,282
$ 22,665,653
129,687
$ 18.00
129,687
$ 22,665,653



	Issuer Purchases of Equity Securities ⁽¹⁾
	(a)	(b)		(c)	(d)
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of the Publicly Announced Program	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program
Month #1 (July 1 to 31, 2019)	111,370	$	16.44	111,370	$	20,834,364
Month #2 (August 1 to 31, 2019)	123,836	$	14.49	123,836	$	19,040,015
Month #3 (September 1 to 30, 2019)	—	$	—	—	$	19,040,015
	235,206	$	15.41	235,206	$	19,040,015

⁽¹⁾In May 2018, the Company established a stock repurchase program allowing for the purchase of up to $25.0 million of the Company's Class A Common Stock outstanding through December 31, 2019.

Item 3 Defaults Upon Senior Securities

None.

Item 4 Mine Safety Disclosures

None.

Item 5 Other Information

None.

Item 6 Exhibits



Exhibit
Number*		Description of Exhibits

10.1		Forbearance Agreement, dated as of October 23, 2019, by and between Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent, Swing Line Lender, and Lender and The Kitchen Collection, LLC is incorporated by reference to Exhibit 10.1 of Hamilton Beach Brands Holding Company's Current Report on Form 8-k, filed on October 25, 2019.
31(i)(1)		Certification of Gregory H. Trepp pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act
31(i)(2)		Certification of Michelle O. Mosier pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act
32		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Gregory H. Trepp and Michelle O. Mosier
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

* Numbered in accordance with Item 601 of Regulation S-K.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Hamilton Beach Brands Holding Company (Registrant)
Date:	~~July 31,~~November 6, 2019	/s/ Michelle O. Mosier
		Michelle O. Mosier
		Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)/(Principal Accounting Officer)

2730



	SIX MONTHS ENDED JUNE
	2019			2018			Change
Operating Activities
Net loss	$	(2,705	)	$	(1,292	)	$	(1,413	)
Depreciation and amortization	2,153			2,462			(309		)
Deferred income taxes	1,800			1,795			5
Share-based compensation expense	1,629			2,625			(996		)
Other	117			(4,464		)	4,581
Net changes in operating assets and liabilities
Trade receivables	13,956			31,071			(17,115		)
Inventories	4,375			(30,493		)	34,868
Accounts payable	(41,259		)	(39,551		)	(1,708		)
Other operating assets and liabilities	(22,173		)	(18,327		)	(3,846		)
Net cash used for operating activities	(42,107		)	(56,174		)	14,067
Investing Activities
Expenditures for property, plant and equipment	(2,091		)	(4,555		)	2,464
Other	36			6			30
Net cash used for investing activities	(2,055		)	(4,549		)	2,494
Financing Activities
Net additions to revolving credit agreements	44,302			54,130			(9,828		)
Cash dividends on Class A Common and Class B Common	(2,419		)	(2,327		)	(92		)
Purchase of treasury stock	(2,334		)	—			(2,334		)
Net cash provided by financing activities	39,549			51,803			(12,254		)
Effect of exchange rate changes on cash	(608		)	(24		)	(584		)
Decrease in cash	$	(5,221	)	$	(8,944	)	$	3,723



	June 30, 2019			June 30, 2018			Change
Cash and cash equivalents	$	1,131		$	1,962		$	(831	)
Other net tangible assets	138,840			138,062			778
Goodwill and intangible assets, net	10,081			11,462			(1,381		)
Net assets	150,052			151,486			(1,434		)
Total debt	(90,955		)	(105,476		)	14,521
Total equity	$	59,097		$	46,010		$	13,087
Debt to total capitalization	60.6		%	69.6		%	(9.0		)%



	June 30, 2019			December 31, 2018			Change
Cash and cash equivalents	$	1,131		$	6,352		$	(5,221	)
Other net tangible assets	138,840			94,938			43,902
Goodwill and intangible assets, net	10,081			10,772			(691		)
Net assets	150,052			112,062			37,990
Total debt	(90,955		)	(46,624		)	(44,331		)
Total equity	$	59,097		$	65,438		$	(6,341	)
Debt to total capitalization	60.6		%	41.6		%	19.0		%