HBB 10-K & 10-Q changes, risk factors and insider trading

Our business is subject to various risks and uncertainties. Any of the risks and uncertainties described below could materially adversely affect our business, financial condition and results of operations and should be considered in evaluating us. Although the risks are organized by headings and each risk is described separately, many of the risks are interrelated. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, performance or financial condition in the future. You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.

We rely on several key customers.customers in our consumer business. During fiscal 2024,2025, Walmart and Amazon.com accounted for approximately 29% and 24%19% of our revenue, respectively. Although we have long-established relationships with many customers, including Walmart and Amazon,Amazon.com, we do not have any long-term supply contracts with these customers, and purchases are generally made using individual purchase orders. A loss of or significant reduction in sales to any key customer could result in significant decreases in our revenue and profitability and an inability to sustain or grow our business.

If we were to lose, or experience a significant decline in business from any major customer, or if any major customers were to go bankrupt, we might be unable to find alternatealternative distribution outlets.

Additionally, as cybersecurity incidents are increasing in frequency, we are vulnerable to a decline in revenue in the event of cybersecurity incidents at any of our key customers. If our key customers’ websites or systems are disrupted for a considerable amount of time, whether due to a cybersecurity incident or other disruption, we could experience lost sales to consumers and the key customers’ inability to submit new purchase orders, which could result in reduced revenue and profitability.

The concentration of our brandedbrand name small electric household and specialty housewares appliance sales among a few retailers and the trend toward private label brands could materially reduce revenue and profitability.

During fiscal 2024,2025, our five largest customers accounted for a total of approximately 65%62% of our revenue. With the continuing trend towards the concentration of the industry and our brandedbrand name small electric household and specialty housewares appliance sales among fewer retailers, we are increasingly dependent upon fewer customers whose bargaining strength is growing as a result of this concentration. We sell a substantial quantity of products to mass merchandisers, ecommerce retailers, national department stores, variety store chains, warehouse clubs, specialty home retailers and other retail outlets. As a result, these retailers generally have a large selection of small electric household and specialty housewares appliance suppliers from which to choose. In addition, certain of our larger customers use their own private label brands on household appliances that compete directly with some of our products. As the retailers in the small electric household appliance industry become more concentrated, competition for sales to these retailers may increase and cause pricing pressures, which could materially reduce our revenue and profitability.

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

We also compete with established companies, a number of which have substantially greater facilities, personnel, financial and other resources. In addition, we compete with our retail customers, who use their own private label brands, and importers and foreign manufacturers of unbrandednon-brand name products. Some competitors may be willing to reduce prices and accept lower profit margins to compete. As a result of this competition, we could lose market share and revenue.

Traditional brick-and-mortar retail channels have experienced low growth or declines in recent years, while the ecommerce channel has experienced significant growth. Consumer shopping preferences have shifted, and may continue to shift in the future, to distribution channels other than traditional brick-and-mortar retail channels. Success in the ecommerce channel requires providing products at the right price, products that earn strong ratings and reviews and meaningful engagement with online consumers. We have invested significant resources in our selling and marketing capabilities, while maintaining our presence in traditional brick-and-mortar retail channels. However, if we are not successful in utilizing ecommerce channels that consumers may prefer, we may experience a loss in market share and decreased revenue and profitability.

Our distribution network is limited to one distribution center per region, which could result in significant delays or loss of sales if there are disruptions at any of our distribution centers. There are several possibilities that could cause a disruption to our distribution network, including but not limited to, acts of God, severe weather, impactsnatural from climate change,disasters, labor shortages, equipment failures and lack of access to equipment, supplier and upstream supply chain disruptions, or cybersecurity incidents. We have business continuity plans in place, however if we are unable to restore operations in a timely manner, it could result in a material loss of revenue and additional costs to bring the facility back to full operating capacity. Alternative facilities with sufficient capacity may not be available, may cost substantially more than existing facilities, or may take significant time to become operational, which could further impact our business and financial performance.

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

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

Our ability to successfully expand into the health and wellness market is dependent upon several factors, including our ability to attractexpand through new customersclient launches, broaden public offerings for additional medications, and retainimplement existingdigital customers,improvements providethat customersimprove withthe high-qualitypatient support, and enter into strategic partnerships with pharmaceutical and specialty pharmacy companies.experience. In addition, for certain products in our Hamilton Beach Health® business, we may be subject to detailed laws and regulations regarding, among other matters, research and development, clinical investigations, product approvals and manufacturing, marketing and promotion, sampling, distribution, record-keeping, storage and disposal practices, and we may face additional compliance costs and unexpected challenges in complying with these laws and regulations. If we are unable to successfully navigate market dynamics, regulatory requirements and the competitive landscape in the health and wellness market, we may incur additional costs, which could have an adverse effect on our business, operating results and financial condition.

Employment and retention of qualified personnel, particularly senior management and skilled professionals with experience in our business, operations, engineering, technology and industry, is important to the successful conduct of our business. Our success depends upon our ability to recruit, hire, train and retain current and additional skilled and experienced personnel in a challenging labor market that may require increased wage costs.personnel. Our inability to hire and retain personnel with the requisite skills, or to effectively transfer knowledge when key employees depart, could impair our ability to develop new products, protect our proprietary information, manage and operate our consolidated business effectively and could significantly reduce our consolidated profitability. Labor market conditions may impact our ability to attract and retain qualified talent for key roles, which could impede our ability to execute certain strategic initiatives.

Our information technology systems, and the systems of our third-party business partners, may be vulnerable to damage, interruption or shutdown due to any number of causes outside of our control such as catastrophic events, natural disasters, fires, power outages, systems failures, telecommunications failures, employee error or malfeasance, fraud, security breaches, computer viruses or other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing or other social engineering attempts, hacking and other cybersecurity incidents. Cybersecurity threat bad actors also may attempt to exploit vulnerabilities in software that is commonly used by companies in cloud-based services and bundled software.software, as well as vulnerabilities that may exist in rapidly emerging technologies, such as artificial intelligence. Additionally, the increase in hybrid working where employees, including third-party employees, access technology infrastructure remotely may create additional information technology and data security risks. If our systems are damaged, or fail to function properly, we may have to make monetary investments to repair or replace the systems and could endure delays in operations. Any material disruption or slowdown of our systems, or the systems of our third-party business partners, including failure to successfully upgrade systems, could cause information, including data related to customer orders, to be lost, corrupted, altered or delayed. Such a loss or delay could reduce demand and cause our sales and/or profitability to decline.

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

From time to timetime, we are subject to claims involving product liability, employment practices, consumer protection, class actions, securities laws, antitrust, environmental matters, infringement of intellectual property and patent rights of third parties and other matters. Any such claims, with or without merit, could be time-consuming and expensive, and may require the Company to incur substantial costs and divert the resources of management. We evaluate claims to assess potential losses and establish appropriate reserves based on available information and legal judgment. Due to the uncertainties of litigation, unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of an adverse impact on the Company’s reputation, financial position, results of operations and cash flows of the period in which the ruling occurs, or in future periods.

Some jurisdictions require that products be listed by UL, a not-for-profit organization that sets safety standards for products, or other similar recognized laboratories. We endeavor to design our products to meet the certification requirements of, and to be certified in, each of the jurisdictions in which they are sold. SomeIn addition, an increasing number of states and other jurisdictions have begunadopted toor requireproposed labeling of productslaws that containrestrict or ban the use of per- and polyfluoroalkyl substances (PFAS), whichimpose leadslimits on lead and other regulated substances, or require labeling or disclosure of the presence of these and certain other chemical or contaminants in consumer products, leading to additional costs and efforts. Failure to comply with such certification or labeling requirements could result in additional re-design expenses, fines, or product liability claims.

Our expansion into a new industry through the acquisition of HealthBeacon involves the collection, use, and storage of personal data, including sensitive health-related information, in connection with the development and operation of our digitally connected devices. Any failure to adequately safeguard personal data, or a significant breach in our data security systems, could expose us to legal liability, damage our reputation, and result in regulatory penalties.

Compliance with multiple, and potentially conflicting, domestic and international laws and regulations, including anti-corruption laws, may be difficult, burdensome or expensive.

We are subject to many statutes, ordinances, rules and regulations in the U.S., Canada, Mexico, Europe and other countries in which we conduct business that, if violated by us or our affiliates, partners or vendors, could have a material adverse effect on our business. These laws and regulations apply to many aspects of our business, including the manufacture, safety, sourcing, labeling, storing, transportation, marketing, advertising, distribution, pricing and sale of our products. Additional regulations govern environmental matters, relations with distributors and retailers, employment, privacy, trade practices and regulation of per-PFAS, and polyfluoroalkyl substances (PFAS)lead and other contaminants. Our international business is also subject to U.S. laws, regulations and policies, including anti-corruption and export requirements. Any significant change in these laws or regulations, or their interpretation, could result in increased compliance costs or challenge our ability to produce and sell products competitively. Increasing governmental and societal attention to environmental and social matters has resulted in new laws and regulatory requirements, including expanded disclosure obligations that continue to increase the complexity of our reporting requirements.

Changes in U.S. and foreign trade policies, tariffs and other government trade actions couldmay have a material adverse effect onincrease our subsidiaries,costs, disrupt our supply chain or otherwise adversely affect our business, financial position,condition andor results of operation.operations.

We monitor our estimates of variable consideration, which includes returns and price concessions, and periodically make adjustments toadjust the carrying amounts as appropriate. During 2024,2025, there were no material adjustments to the aforesaid estimatesestimates, and our past results of operations have not been materially affected by a change in these estimates. Although there can be no assurances, we are not aware of any circumstances that would be reasonably likely to materially change these estimates in the future.

Gross profit - Gross profit margin increaseddecreased to 26.0%25.7% in the current year compared to 23.0%26.0% in the prior year primarily due to lowerthe flow through of a one-time incremental tariff cost of $5.3 million, which negatively impacted full year margin by 90 basis points. Most of these costs were from a temporary spike in tariff rates on imports from China to 125%. This was partially offset by favorable customer and product andmix transportationdue coststo the growth in our higher margin Commercial and aHealth favorable product mix.businesses.

Interest expenseexpense, net - Interest expense, net decreasedwas $2.4$0.7 million due to decreased average borrowings outstanding underin the HBBcurrent Facility, and lower interest ratesyear compared to 2023.$0.6 million in the prior year.

Other expense (income), net - Other expense (income),expense, net increaseddecreased $1.2$1.4 million. In 2024,the current year, other expense (income),expense, net includes currency gains of $1.1 million compared to currency losses of $0.9 million in the currentprior year compared to currency gains of $0.3 million in 2023.year.

Income tax expense - The effective tax rate on income was 7.8%25.8% and 20.4% forin the yearscurrent endedyear Decembercompared 31,to 20247.8% andin 2023,the respectively.prior year. The effective tax rate was lower forin the prior year ended December 31, 2024primarily due to a tax benefit for foreign operations and a tax benefit related to a tax accounting method change in the U.S.U.S., neither of which arerecurred notin expectedthe tocurrent recur. These were partially offset by non-deductible executive compensation and a valuation allowance on HealthBeacon losses.year.

Our cash flows are provided by dividends paid or distributions made by HBB. The only material assets held by us are the investmentinvestments in our consolidated subsidiary. As a result, certain statutory limitations or regulatory or financing agreements could affect the levels of distributions allowed to be made by our subsidiary. We have not guaranteed any of the obligations of HBB.

Our principal sources of cash to fund liquidity needs are: (1) cash generated from operations and (2) borrowings available under the HBB Facility. Our primary use of funds consists of working capital requirements, operating expenses, payment of dividends, repurchase of shares, capital expenditures,expenditures and payments of principal and interest on debt and acquisitions.debt. As of December 31, 2024,2025, we had cash and cash equivalents of $45.6$47.3 million, compared to $15.4$45.6 million as of December 31, 2023.2024. We believe our liquidity and access to capital markets will be adequate to fund our cash requirements for the next twelve months and for the foreseeable future.

Financing activities - Net cash used for financing activities wasdecreased $20.9$5.5 million in 2024the comparedcurrent toyear cash used for financing activities of $70.1 million in 2023. The change isprimarily due to a decrease in HBB’s net borrowing activity on the HBB Facility. This decrease was partially offset by increaseddecreased purchases of treasury stock.

On December 13, 2024, HBB entered into the Second Amended and Restated Credit Agreement (the “Agreement”). The Agreement restated HBB’s prior credit agreement (the “Prior HBB Facility”) in its entirety and extended the termCompany ofhas HBB'sis a $125 million senior secured floating-rate revolving credit facility (thethat “HBBexpires Facility”)with torepayment due on December 13, 2029,2029. decreasedThe theHBB creditFacility facilityalso from $150 million to $125 million, addedhas an optional $25.0 million term loan, and removed the Canadian subsidiary from the credit facility. As a result of the Agreement, repayment of the HBB Facility is due on December 13, 2029, therefore all borrowings are classified as long term debt as of December 31, 2024.loan. The obligations under the HBB Facility are secured by substantially all of HBB’s U.S. assets. The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility.

We maintain an arrangement with a financial institution to sell certain U.S. trade receivables of a single customer on a non-recourse basis.

The statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this Annual Report on Form 10-K that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Such risks and uncertainties include, without limitation: (1) uncertain or unfavorable global economic conditions and impacts from globaltariffs, militaryinflation, conflictsrising interest rates, recessions or economic slowdowns; (2) changes in costs, including transportation costs and tariffs, of sourced products; (3) the Company’s ability to source and ship products to meet anticipated demand; (34) changes in or unavailability of quality or cost effective suppliers; (5) the Company’s ability to successfully manage constraints throughout the global transportation supply chain; (46) delays in delivery of sourced products; (7) changes in the sales prices, product mix or levels of consumer purchases of small electric and specialty housewares appliances; (58) changes in consumer retail and credit markets, including the increasing volume of transactions made through third-party internet sellers; (69) bankruptcy of or loss of major retail customers or suppliers; (7) changes in costs, including transportation costs, of sourced products; (8) delays in delivery of sourced products; (9) changes in or unavailability of quality or cost effective suppliers; (10) exchange rate fluctuations, changes in the import tariffs and monetary policies and other changes in the regulatory climate in the countries in which the Company operates or buys and/or sells products; (11) the impact of tariffs on customer purchasing patterns; (12) customer acceptance of, price increases or delays in the development of new products; (13) product liability, regulatory actions or other litigation, warranty claims or returns of products; (13) customer acceptance of, changes in costs of or delays in the development of new products; (14) increased competition, including consolidation within the industry; (15) changes in customers’ inventory management strategies; (16) shifts in consumer shopping patterns, gasoline prices, weather conditions, the level of consumer confidence and disposable income as a result of economic conditions, unemployment rates or other events or conditions that may adversely affect the level of customer purchases of the Company’s products; (17) changes mandated by federal, state and other regulation, including tax, health, safety or environmental legislation; (18) the Company’s ability to identify, acquire or develop, and successfully integrate, new businesses or new product lines; and (19) other risk factors, including those described in the Company’s filings with the Securities and Exchange Commission, including, but not limited to, this Annual Report on Form 10-K. Furthermore, the future impact of unfavorable economic conditions, including inflation, changing interest rates, availability of capital markets and consumer spending rates remains uncertain. In uncertain economic environments, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, results of operations, cash flows and financial position.

FirstSecond Quarter of 2026 Compared with FirstSecond Quarter of 2025

Revenue - Revenue decreasedincreased $11.4$14.9 million, or 8.6%,11.6%, compared to the prior year due to lowerhigher volumes in the Company’s U.S. Consumer business.business reflecting recovery from the second quarter of 2025 when retailers paused buying to assess inventory levels and price increases flowing from IEEPA tariffs implemented in April 2025.

Gross profit - Gross profit margin increased to 29.7%54.3% compared to 24.6%27.5% in the prior year due to favorable pricing and customer mix, partially offset by higher product costs.year. The marginsignificant improvement in gross profit margin included a one-time benefit of 190 basis pointsbenefits related to the IEEPA Tariff Ruling. These benefits consist of IEEPA Tariff Refunds of $36.5 million, as well as continued sell-through of inventory thatno waslonger pricedsubject in anticipation ofto IEEPA tariffstariffs. thatThese werebenefits eliminated following the Supreme Court’s ruling. This benefit isare non-recurring and will not persist beyond the sell-through of the affected inventory. Excluding these benefits, gross profit margin would have been 26.1%.

Selling, general and administrative expenses (SG&A) - Selling, general and administrative expenses increased by $0.8$5.1 million compared to the prior year. The increase was primarily due to higher incentive related personnel costs, as the prior year reflected lower expected performance. The current period also includes $1.4 million accelerated depreciation of the Company’s legacy enterprise resource planning (ERP) system, partially offset by the benefit of restructuring actions taken by management during the second quarter of the prior year.system.

OtherInterest (income) expense, net - OtherInterest expense,income, net was $0.1$1.3 million for the three months ended MarchJune 31,30, 2026, compared to otherinterest income,expense, net of $0.1 million forin the threeprior monthsperiod endeddue Marchto 31,interest 2025.income on IEEPA Tariff Refunds.

Income tax expense (benefit) - The effective tax rate was 28.5%24.5% and 28.8%25.9% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The Company’s effective tax rate remainswas consistentlower for the periodsthree compared.months ended June 30, 2026 due to changes in the jurisdictional mix of earnings and a reduction in foreign losses subject to a valuation allowance.

Operating activities - Net cash provided by operating activities was $3.3$61.5 million, compared to cash providedused of $6.6$23.8 million in the prior year, representing aan declineincrease of $3.3$85.3 million. The declineincrease was primarily driven by higherthe netaforementioned IEEPA refunds and lower working capital,capital includingmainly adue plannedto increasereduced ininventory accountslevels receivable followingas the Company’sprior decisionyear included accelerated purchases ahead of tariff uncertainty and lower sell through. The 2025 period also included higher incentive compensation and tax payments related to transition away from our arrangement with a financial institution to sell certain U.S. trade receivables of a single customer on a non-recourse basis which shifted the timingprior of cash receipts. This was partially offset by lower incentive payout compared to 2025.year.

Financing activities - Net cash used for financing activities decreased $2.1$4.1 million compared to the prior year due to lower share repurchases during the first threesix months of 2026.

HBB does not expect to make voluntary repayments within the next twelve months under the HBB Facility as the rate of return to invest excess cash exceeds the average interest rate of the HBB Facility. A material decrease in interest rates could cause HBB to re-evaluate. The obligations under the HBB Facility are secured by all of HBB’s U.S. assets. As of MarchJune 31,30, 2026, the borrowing base under the HBB Facility was $103.9$104.3 million and borrowings outstanding were $50.0 million. As of MarchJune 31,30, 2026, Excess Availability (as defined in the HBB Facility) was $53.9$54.3 million. The Company may repay outstanding debt from time to time depending on market conditions, cash flow generation, and other factors.

The maximum availability under the HBB Facility is governed by a borrowing base derived from advance rates against eligible trade receivables and inventory of HBB. As of MarchJune 31,30, 2026, interest on outstanding loans under the HBB Facility accrues at a per annum rate equal to, at HBB’s option, either Term Secured Overnight Financing Rate (SOFR) (as defined in the HBB Facility) plus 1.65% or the Base Rate (as defined in the HBB Facility) plus 0.00%. As of MarchJune 31,30, 2026, the HBB Facility requires a fee of 0.20% per annum on the unused commitment thereunder. The weighted average interest rate applicable to the HBB Facility for the threesix months ended MarchJune 31,30, 2026 was 3.24%3.26% (after giving effect to the interest rate swap agreements described below).

To reduce the exposure to changes in the market rate of interest, we have entered into interest rate swap agreements for a portion of the HBB Facility. Terms of the interest rate swap agreements require us to receive a variable interest rate and pay a fixed interest rate. We have interest rate swaps with notional values totaling $50.0 million as of MarchJune 31,30, 2026 at an average fixed interest rate of 1.59%.

The HBB Facility contains customary representations and warranties, events of default and covenants, including, among other things, covenants applicable to HBB and its subsidiaries limiting indebtedness, liens, investments, dispositions and restricted payments. Additionally, if Excess Availability is less than $15.0 million at any time, the HBB Facility will require that HBB maintain a minimum Fixed Charge Coverage Ratio (as defined in the HBB Facility) of 1.00 to 1.00 until Excess Availability is greater than or equal to $15.0 million for 30 consecutive days. As of MarchJune 31,30, 2026, we were in compliance with all applicable financial covenants in the HBB Facility.