Item 1. Financial Statements
Item 1. Financial Statements
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Financial Position
As of January 2, 2022, and September 30, 2021
(unaudited)
(in millions)
January 2, 2022 September 30, 2021
Assets
Cash and cash equivalents $ 204.9 $ 187.9
Trade receivables, net 298.6 248.4
Other receivables 64.2 63.7
Inventories 648.4 562.8
Prepaid expenses and other current assets 62.6 40.8
Current assets of business held for sale 1,842.6 1,810.0
Total current assets 3,121.3 2,913.6
Property, plant and equipment, net 260.4 260.2
Operating lease assets 56.3 56.5
Deferred charges and other 74.9 38.8
Goodwill 866.8 867.2
Intangible assets, net 1,189.2 1,204.1
Total assets $ 5,568.9 $ 5,340.4
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 12.1 $ 12.0
Accounts payable 347.5 388.6
Accrued wages and salaries 34.3 67.4
Accrued interest 35.0 29.9
Other current liabilities 208.0 211.9
Current liabilities of business held for sale 431.3 454.3
Total current liabilities 1,068.2 1,164.1
Long-term debt, net of current portion 2,946.9 2,494.3
Long-term operating lease liabilities 42.6 44.5
Deferred income taxes 70.7 59.5
Other long-term liabilities 92.6 99.0
Total liabilities 4,221.0 3,861.4
Commitments and contingencies (Note 19)
Shareholders' equity
Common stock 0.5 0.5
Additional paid-in capital 2,025.5 2,063.8
Accumulated earnings 350.4 359.9
Accumulated other comprehensive loss, net of tax ( 231.3 ) ( 235.3 )
Treasury stock ( 804.8 ) ( 717.0 )
Total shareholders' equity 1,340.3 1,471.9
Non-controlling interest 7.6 7.1
Total equity 1,347.9 1,479.0
Total liabilities and equity $ 5,568.9 $ 5,340.4
See accompanying notes to the condensed consolidated financial statements
2
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Income
For the three month periods ended January 2, 2022 and January 3, 2021
(unaudited)
Three Month Periods Ended
(in millions, except per share)
January 2, 2022 January 3, 2021
Net Sales $ 757.2 $ 736.2
Cost of goods sold 537.6 483.3
Restructuring and related charges 0.3 0.1
Gross profit 219.3 252.8
Selling 136.0 114.8
General and administrative 67.5 77.8
Research and development 7.6 6.5
Restructuring and related charges 17.1 8.9
Transaction related charges 14.9 19.0
Total operating expenses 243.1 227.0
Operating (loss) income ( 23.8 ) 25.8
Interest expense 21.8 23.1
Other non-operating expense (income), net 0.6 ( 8.9 )
(Loss) income from continuing operations before income taxes ( 46.2 ) 11.6
Income tax benefit ( 16.0 ) ( 4.1 )
Net (loss) income from continuing operations ( 30.2 ) 15.7
Income from discontinued operations, net of tax 38.8 57.2
Net income 8.6 72.9
Net income from continuing operations attributable to non-controlling interest — 1.0
Net income (loss) from discontinued operations attributable to non-controlling interest 0.4 ( 0.2 )
Net income attributable to controlling interest $ 8.2 $ 72.1
Amounts attributable to controlling interest
Net (loss) income from continuing operations attributable to controlling interest $ ( 30.2 ) $ 14.7
Net income from discontinued operations attributable to controlling interest 38.4 57.4
Net income attributable to controlling interest $ 8.2 $ 72.1
Earnings Per Share
Basic earnings per share from continuing operations $ ( 0.73 ) $ 0.34
Basic earnings per share from discontinued operations 0.93 1.34
Basic earnings per share $ 0.20 $ 1.68
Diluted earnings per share from continuing operations $ ( 0.73 ) $ 0.34
Diluted earnings per share from discontinued operations 0.93 1.34
Diluted earnings per share $ 0.20 $ 1.68
Dividend per share $ 0.42 $ 0.42
Weighted Average Shares Outstanding
Basic 41.3 42.9
Diluted 41.3 43.0
See accompanying notes to the condensed consolidated financial statements
3
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC
Condensed Consolidated Statements of Comprehensive Income
For the three month periods ended January 2, 2022 and January 3, 2021
(unaudited)
Three Month Periods Ended
(in millions)
January 2, 2022 January 3, 2021
Net income $ 8.6 $ 72.9
Other comprehensive income
Foreign currency translation gain 6.8 19.4
Deferred tax effect ( 4.5 ) 5.3
Net unrealized gain on foreign currency translation 2.3 24.7
Unrealized gain (loss) on derivative instruments
Unrealized gain (loss) on hedging activity before reclassification 1.2 ( 12.4 )
Net reclassification for (gain) loss to income from continuing operations ( 2.1 ) 2.6
Net reclassification for (gain) loss to income from discontinued operations ( 0.5 ) 0.1
Unrealized loss on hedging instruments after reclassification ( 1.4 ) ( 9.7 )
Deferred tax effect 4.5 2.5
Net unrealized gain (loss) on hedging derivative instruments 3.1 ( 7.2 )
Defined benefit pension loss
Defined benefit pension gain (loss) before reclassification 0.6 ( 2.2 )
Net reclassification for loss to income from continuing operations 1.0 1.1
Defined benefit pension gain (loss) after reclassification 1.6 ( 1.1 )
Deferred tax effect ( 2.9 ) 0.2
Net defined benefit pension loss ( 1.3 ) ( 0.9 )
Net change to derive comprehensive income for the period 4.1 16.6
Comprehensive income 12.7 89.5
Comprehensive income from continuing operations attributable to non-controlling interest — 0.1
Comprehensive income from discontinuing operations attributable to non-controlling interest 0.1 0.3
Comprehensive income attributable to controlling interest $ 12.6 $ 89.1
See accompanying notes to the condensed consolidated financial statements
4
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC
Condensed Consolidated Statements of Shareholder’s Equity
For the three month periods ended January 2, 2022 and January 3, 2021
(unaudited)
Three Month Period Ended January 2, 2022 Common Stock Additional
Paid-in
Capital Accumulated
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
Shareholders'
Equity Non-
controlling
Interest Total
Equity
(in millions) Shares Amount
Balances at September 30, 2021 41.8 $ 0.5 $ 2,063.8 $ 359.9 $ ( 235.3 ) $ ( 717.0 ) $ 1,471.9 $ 7.1 $ 1,479.0
Net loss from continuing operations — — — ( 30.2 ) — — ( 30.2 ) — ( 30.2 )
Income from discontinued operations, net of tax — — — 38.4 — — 38.4 0.4 38.8
Other comprehensive income, net of tax — — — — 4.0 — 4.0 0.1 4.1
Treasury stock repurchases ( 1.1 ) — — — — ( 110.0 ) ( 110.0 ) — ( 110.0 )
Restricted stock issued and related tax withholdings 0.3 — ( 46.6 ) — — 22.2 ( 24.4 ) — ( 24.4 )
Share based compensation — — 8.3 — — — 8.3 — 8.3
Dividends declared — — — ( 17.7 ) — — ( 17.7 ) — ( 17.7 )
Balances at January 2, 2022 41.0 $ 0.5 $ 2,025.5 $ 350.4 $ ( 231.3 ) $ ( 804.8 ) $ 1,340.3 $ 7.6 $ 1,347.9
Three Month Period Ended January 3, 2021 Common Stock Additional
Paid-in
Capital Accumulated
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
Shareholders'
Equity Non-
controlling
Interest Total
Equity
(in millions) Shares Amount
Balances at September 30, 2020 43.1 $ 0.5 $ 2,054.3 $ 243.9 $ ( 284.7 ) $ ( 606.5 ) $ 1,407.5 $ 8.3 $ 1,415.8
Net income from continuing operations — — — 14.7 — — 14.7 1.0 15.7
Income (loss) from discontinued operations, net of tax — — — 57.4 — — 57.4 ( 0.2 ) 57.2
Other comprehensive income, net of tax — — — — 16.2 — 16.2 0.4 16.6
Treasury stock repurchases ( 0.6 ) — — — — ( 42.3 ) ( 42.3 ) — ( 42.3 )
Restricted stock issued and related tax withholdings 0.2 — ( 18.6 ) — — 11.7 ( 6.9 ) — ( 6.9 )
Share based compensation — — 7.5 — — — 7.5 — 7.5
Dividends declared — — — ( 18.4 ) — — ( 18.4 ) — ( 18.4 )
Dividends paid by subsidiary to NCI — — — — — — — ( 1.0 ) ( 1.0 )
Balances at January 3, 2021 42.7 $ 0.5 $ 2,043.2 $ 297.6 $ ( 268.5 ) $ ( 637.1 ) $ 1,435.7 $ 8.5 $ 1,444.2
See accompanying notes to the condensed consolidated financial statements
5
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
For the three month periods ended January 2, 2022 and January 3, 2021
(unaudited)
Three Month Periods Ended
(in millions) January 2, 2022 January 3, 2021
Cash flows from operating activities
Net income $ 8.6 $ 72.9
Income from discontinued operations, net of tax 38.8 57.2
Net (loss) income from continuing operations ( 30.2 ) 15.7
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization 25.4 27.1
Share based compensation 5.6 6.4
Gain on equity investment — ( 6.0 )
Amortization of debt issuance costs and debt discount 1.4 1.4
Inventory acquisition step-up — 0.8
Deferred tax benefit ( 27.3 ) ( 13.2 )
Net changes in operating assets and liabilities ( 230.7 ) ( 142.9 )
Net cash used by operating activities from continuing operations ( 255.8 ) ( 110.7 )
Net cash (used) provided by operating activities from discontinued operations ( 15.3 ) 0.6
Net cash used by operating activities ( 271.1 ) ( 110.1 )
Cash flows from investing activities
Purchases of property, plant and equipment ( 14.1 ) ( 7.6 )
Proceeds from disposal of property, plant and equipment 0.1 0.1
Business acquisitions, net of cash acquired — ( 129.8 )
Proceeds from sale of equity investment — 60.5
Net cash used by investing activities from continuing operations ( 14.0 ) ( 76.8 )
Net cash used by investing activities from discontinued operations ( 5.0 ) ( 4.2 )
Net cash used by investing activities ( 19.0 ) ( 81.0 )
Cash flows from financing activities
Payment of debt ( 3.2 ) ( 53.6 )
Proceeds from issuance of debt 465.0 0.1
Treasury stock purchases ( 110.0 ) ( 42.3 )
Dividends paid to shareholders ( 17.3 ) ( 17.8 )
Share based award tax withholding payments, net of proceeds upon vesting ( 24.5 ) ( 7.1 )
Other financing activity — 0.3
Net cash provided (used) by financing activities from continuing operations 310.0 ( 120.4 )
Net cash used by financing activities from discontinued operations ( 0.4 ) ( 1.4 )
Net cash provided (used) by financing activities 309.6 ( 121.8 )
Effect of exchange rate changes on cash and cash equivalents ( 2.5 ) 5.8
Net change in cash, cash equivalents and restricted cash in continuing operations 17.0 ( 307.1 )
Cash, cash equivalents, and restricted cash, beginning of period 190.0 533.7
Cash, cash equivalents, and restricted cash, end of period $ 207.0 $ 226.6
Supplemental disclosure of cash flow information
Cash paid for interest associated with continued operations $ 14.7 $ 16.9
Cash paid for interest associated with discontinued operations $ 12.1 $ 11.4
Cash paid for taxes associated with continued operations $ 6.6 $ 6.2
Cash paid for taxes associated with discontinued operations $ 6.4 $ 2.0
Non cash investing activities
Acquisition of property, plant and equipment through finance leases $ 0.2 $ 0.1
Non cash financing activities
Issuance of shares through stock compensation plan $ 33.4 $ 16.6
See accompanying notes to the condensed consolidated financial statements
6
Table of Contents
SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Financial Position
As of January 2, 2022 and September 30, 2021
(unaudited)
(in millions) January 2, 2022 September 30, 2021
Assets
Cash and cash equivalents $ 203.3 $ 186.2
Trade receivables, net 298.6 248.4
Other receivables 150.4 146.4
Inventories 648.4 562.8
Prepaid expenses and other current assets 62.6 40.8
Current assets of business held for sale 1,842.6 1,810.0
Total current assets 3,205.9 2,994.6
Property, plant and equipment, net 260.4 260.2
Operating lease assets 56.3 56.5
Deferred charges and other 49.6 35.1
Goodwill 866.8 867.2
Intangible assets, net 1,189.2 1,204.1
Total assets $ 5,628.2 $ 5,417.7
Liabilities and Shareholder's Equity
Current portion of long-term debt $ 12.1 $ 12.0
Accounts payable 347.7 388.8
Accrued wages and salaries 34.3 67.4
Accrued interest 35.0 29.9
Other current liabilities 203.3 214.4
Current liabilities of business held for sale 431.3 454.3
Total current liabilities 1,063.7 1,166.8
Long-term debt, net of current portion 2,946.9 2,494.3
Long-term operating lease liabilities 42.6 44.5
Deferred income taxes 264.0 272.4
Other long-term liabilities 100.1 106.3
Total liabilities 4,417.3 4,084.3
Commitments and contingencies (Note 19)
Shareholder's equity
Other capital 2,158.7 2,174.8
Accumulated deficit ( 725.8 ) ( 614.9 )
Accumulated other comprehensive loss, net of tax ( 231.2 ) ( 235.2 )
Total shareholder's equity 1,201.7 1,324.7
Non-controlling interest 9.2 8.7
Total equity 1,210.9 1,333.4
Total liabilities and equity $ 5,628.2 $ 5,417.7
See accompanying notes to the condensed consolidated financial statements
7
Table of Contents
SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Income
For the three month periods ended January 2, 2022 and January 3, 2021
(unaudited)
Three Month Periods Ended
(in millions) January 2, 2022 January 3, 2021
Net Sales $ 757.2 $ 736.2
Cost of goods sold 537.6 483.3
Restructuring and related charges 0.3 0.1
Gross profit 219.3 252.8
Selling 136.0 114.8
General and administrative 67.2 77.2
Research and development 7.6 6.5
Restructuring and related charges 17.1 8.9
Transaction related charges 14.9 19.0
Total operating expenses 242.8 226.4
Operating (loss) income ( 23.5 ) 26.4
Interest expense 21.8 23.2
Other non-operating expense (income), net 0.6 ( 8.9 )
(Loss) income from continuing operations before income taxes ( 45.9 ) 12.1
Income tax benefit ( 15.8 ) ( 4.0 )
Net (loss) income from continuing operations ( 30.1 ) 16.1
Income from discontinued operations, net of tax 38.8 57.2
Net income 8.7 73.3
Net income from continuing operations attributable to non-controlling interest — 1.0
Net income (loss) from discontinued operations attributable to non-controlling interest 0.4 ( 0.2 )
Net income attributable to controlling interest $ 8.3 $ 72.5
Amounts attributable to controlling interest
Net (loss) income from continuing operations attributable to controlling interest $ ( 30.1 ) $ 15.1
Net income from discontinued operations attributable to controlling interest 38.4 57.4
Net income attributable to controlling interest $ 8.3 $ 72.5
See accompanying notes to the condensed consolidated financial statements
8
Table of Contents
SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Comprehensive Income
For the three month periods ended January 2, 2022 and January 3, 2021
(unaudited)
Three Month Periods Ended
(in millions)
January 2, 2022 January 3, 2021
Net income $ 8.7 $ 73.3
Other comprehensive income
Foreign currency translation gain 6.8 19.4
Deferred tax effect ( 4.5 ) 5.3
Net unrealized gain on foreign currency translation 2.3 24.7
Unrealized gain (loss) on derivative instruments
Unrealized gain (loss) on hedging activity before reclassification 1.2 ( 12.4 )
Net reclassification for (gain) loss to income from continuing operations ( 2.1 ) 2.6
Net reclassification for (gain) loss to income from discontinued operations ( 0.5 ) 0.1
Unrealized loss on hedging instruments after reclassification ( 1.4 ) ( 9.7 )
Deferred tax effect 4.5 2.5
Net unrealized gain (loss) on hedging derivative instruments 3.1 ( 7.2 )
Defined benefit pension loss
Defined benefit pension gain (loss) before reclassification 0.6 ( 2.2 )
Net reclassification for loss to income from continuing operations 1.0 1.1
Defined benefit pension gain (loss) after reclassification 1.6 ( 1.1 )
Deferred tax effect ( 2.9 ) 0.2
Net defined benefit pension loss ( 1.3 ) ( 0.9 )
Net change to derive comprehensive income for the period 4.1 16.6
Comprehensive income 12.8 89.9
Comprehensive income from continuing operations attributable to non-controlling interest — 0.1
Comprehensive income from discontinuing operations attributable to non-controlling interest 0.1 0.3
Comprehensive income attributable to controlling interest $ 12.7 $ 89.5
See accompanying notes to the condensed consolidated financial statements
9
Table of Contents
SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Shareholder’s Equity
For the three month periods ended January 2, 2022 and January 3, 2021
(unaudited)
Three Month Period Ended January 2, 2022 (in millions) Other
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Loss Total
Shareholder's
Equity Non-
controlling
Interest Total Equity
Balances at September 30, 2021 $ 2,174.8 $ ( 614.9 ) $ ( 235.2 ) $ 1,324.7 $ 8.7 $ 1,333.4
Net loss from continuing operations — ( 30.1 ) — ( 30.1 ) — ( 30.1 )
Income from discontinued operations, net of tax — 38.4 — 38.4 0.4 38.8
Other comprehensive income, net of tax — — 4.0 4.0 0.1 4.1
Restricted stock issued and related tax withholdings ( 24.3 ) — — ( 24.3 ) — ( 24.3 )
Share based compensation 8.2 — — 8.2 — 8.2
Dividends paid to parent — ( 119.2 ) — ( 119.2 ) — ( 119.2 )
Balances at January 2, 2022 $ 2,158.7 $ ( 725.8 ) $ ( 231.2 ) $ 1,201.7 $ 9.2 $ 1,210.9
Three Month Period Ended January 3, 2021 (in millions) Other
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Loss Total
Shareholder's
Equity Non-
controlling
Interest Total Equity
Balances at September 30, 2020 $ 2,154.1 $ ( 614.2 ) $ ( 284.6 ) $ 1,255.3 $ 9.9 $ 1,265.2
Net income from continuing operations — 15.1 — 15.1 1.0 16.1
Income (loss) from discontinued operations, net of tax — 57.4 — 57.4 ( 0.2 ) 57.2
Other comprehensive income, net of tax — — 16.2 16.2 0.4 16.6
Restricted stock issued and related tax withholdings ( 7.1 ) — — ( 7.1 ) — ( 7.1 )
Share based compensation 7.5 — — 7.5 — 7.5
Dividends paid to parent — ( 60.1 ) — ( 60.1 ) — ( 60.1 )
Dividends paid by subsidiary to NCI — — — — ( 1.0 ) ( 1.0 )
Balances at January 3, 2021 $ 2,154.5 $ ( 601.8 ) $ ( 268.4 ) $ 1,284.3 $ 10.1 $ 1,294.4
See accompanying notes to the condensed consolidated financial statements
10
Table of Contents
SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Cash Flows
For the three month periods ended January 2, 2022 and January 3, 2021
(unaudited)
Three Month Periods Ended
(in millions) January 2, 2022 January 3, 2021
Cash flows from operating activities
Net income $ 8.7 $ 73.3
Income from discontinued operations, net of tax 38.8 57.2
Net (loss) income from continuing operations ( 30.1 ) 16.1
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization 25.4 27.1
Share based compensation 5.6 6.4
Gain on equity investment — ( 6.0 )
Amortization of debt issuance costs and debt discount 1.4 1.4
Inventory acquisition step-up — 0.8
Deferred tax benefit ( 27.1 ) ( 13.1 )
Net changes in operating assets and liabilities ( 263.5 ) ( 148.0 )
Net cash used by operating activities from continuing operations ( 288.3 ) ( 115.3 )
Net cash (used) provided by operating activities from discontinued operations ( 15.3 ) 0.7
Net cash used by operating activities ( 303.6 ) ( 114.6 )
Cash flows from investing activities
Purchases of property, plant and equipment ( 14.1 ) ( 7.6 )
Proceeds from disposal of property, plant and equipment 0.1 0.1
Business acquisitions, net of cash acquired — ( 129.8 )
Proceeds from sale of equity investment — 60.5
Net cash used by investing activities from continuing operations ( 14.0 ) ( 76.8 )
Net cash used by investing activities from discontinued operations ( 5.0 ) ( 4.2 )
Net cash used by investing activities ( 19.0 ) ( 81.0 )
Cash flows from financing activities
Payment of debt ( 3.2 ) ( 53.6 )
Proceeds from issuance of debt 465.0 0.1
Payment of cash dividends to parent ( 119.2 ) ( 60.1 )
Net cash provided (used) by financing activities from continuing operations 342.6 ( 113.6 )
Net cash used by financing activities from discontinued operations ( 0.4 ) ( 1.4 )
Net cash provided (used) by financing activities 342.2 ( 115.0 )
Effect of exchange rate changes on cash and cash equivalents ( 2.5 ) 5.8
Net change in cash, cash equivalents and restricted cash 17.1 ( 304.8 )
Cash, cash equivalents, and restricted cash, beginning of period 188.3 529.7
Cash, cash equivalents, and restricted cash, end of period $ 205.4 $ 224.9
Supplemental disclosure of cash flow information
Cash paid for interest associated with continued operations $ 14.7 $ 16.9
Cash paid for interest associated with discontinued operations $ 12.1 $ 11.4
Cash paid for taxes associated with continued operations $ 6.6 $ 6.2
Cash paid for taxes associated with discontinued operations $ 6.4 $ 2.0
Non cash investing activities
Acquisition of property, plant and equipment through finance leases $ 0.2 $ 0.1
See accompanying notes to the condensed consolidated financial statements
11
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
This report is a combined report of Spectrum Brands Holdings, Inc. (“SBH”) and SB/RH Holdings, LLC (“SB/RH”) (collectively, the “Company”). The notes to the condensed consolidated financial statements that follow include both consolidated SBH and SB/RH Notes, unless otherwise indicated below.
NOTE 1– BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Fiscal Period-End
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company and its majority owned subsidiaries in accordance with accounting principles for interim financial information generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations. It is management’s opinion, however, that all material adjustments have been made which are necessary for a fair financial statement presentation. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021.
SBH’s and SB/RH’s fiscal year ends September 30 and the Company reports its results using fiscal quarters whereby each three month quarterly reporting period is approximately thirteen weeks in length and ends on a Sunday. The exceptions are the first quarter, which begins on October 1, and the fourth quarter, which ends on September 30. As a result, the fiscal period end date for the three month periods included within this Quarterly Report for the Company are January 2, 2022 and January 3, 2021.
Newly Adopted Accounting Standards
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . The new standard simplifies the accounting for income taxes by removing certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The new standard also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years and was adopted by the Company on October 1, 2021. The adoption did not have a material impact on the Company's condensed consolidated financial statements.
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, which adds implementation guidance to clarify certain optional expedients in Topic 848. The ASU can be adopted no later than December 31, 2022 with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance.
Transaction related charges
Transaction related charges consist of transaction costs from (1) a qualifying strategic transaction or business development opportunity, including an acquisition or divestiture, whether or not consummated, associated with the purchase or sale of net assets or equity interest of a business such as a business combination, equity investment, joint venture or purchase or sale of non-controlling interest; (2) subsequent integration related project costs directly associated with an acquisition including realized costs for the integration of acquired operations into the Company’s shared service platforms, termination of redundant or duplicative positions and locations, operations and/or products, employee transition costs, professional fees, and other post business combination expenses; and (3) divestiture support and separation costs consisting of incremental costs incurred to facilitate separation of a divested business or operation, including the development of shared service operations impacted by a separation, including impacts to shared platforms and personnel impacted by the transaction. Qualifying cost types include, but are not limited to, banking, advisory, legal, accounting, valuation, or other professional fees; and including impairment loss on existing assets considered duplicative or redundant and directly attributable to the respective transactions. See Note 2 - Divestitures and Note 3 – Acquisitions for further discussion. The following table summarizes transaction related charges incurred by the Company during the three month periods ended January 2, 2022 and January 3, 2021:
Three Month Periods Ended
(in millions) January 2, 2022 January 3, 2021
HHI divestiture and separation $ 4.3 $ —
Rejuvenate acquisition and integration 4.3 —
Armitage acquisition and integration 0.7 4.8
Other 5.6 14.2
Total transaction related charges $ 14.9 $ 19.0
12
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 2 – DIVESTITURES
The following table summarizes the components of Income from Discontinued Operations, Net of Tax in the accompanying Condensed Consolidated Statements of Income for the three month periods ended January 2, 2022 and January 3, 2021:
Three Month Periods Ended
(in millions) January 2, 2022 January 3, 2021
Income from discontinued operations before income taxes - HHI $ 60.0 $ 94.1
Loss from discontinued operations before income taxes - Other ( 0.3 ) ( 0.3 )
Interest on corporate debt allocated to discontinued operations 10.4 12.7
Income from discontinued operations before income taxes 49.3 81.1
Income tax expense from discontinued operations 10.5 23.9
Income from discontinued operations, net of tax 38.8 57.2
Income (loss) from discontinued operations, net of tax attributable to noncontrolling interest 0.4 ( 0.2 )
Income from discontinued operations, net of tax attributable to controlling interest $ 38.4 $ 57.4
Interest from corporate debt allocated to discontinued operations includes interest on Term Loans required to be paid down using proceeds received on disposal on sale of a business, and interest expense from corporate debt not directly attributable to or related to other operations based on the ratio of net assets of the disposal group held for sale to the consolidated net assets plus consolidated debt, excluding debt assumed in transaction, required to be repaid, or directly attributable to other operations of the Company. Corporate debt, including Term Loans required to be paid down, are not classified as held for sale as they are not directly attributable to the identified disposal group.
HHI
On September 8, 2021, the Company entered into a definitive Asset and Stock Purchase Agreement (the "ASPA") with ASSA ABLOY AB ("ASSA") to sell its HHI segment for cash proceeds of $ 4.3 billion, subject to customary purchase price adjustments. The Company's assets and liabilities associated with the HHI disposal group have been classified as held for sale and the respective operations have been classified as discontinued operations and reported separately for all periods presented.
The ASPA provides that ASSA will purchase the equity of certain subsidiaries of the Company, and acquire certain assets and assume certain liabilities of other subsidiaries used or held for the purpose of the HHI business. The Company and ASSA have made customary representations and warranties and have agreed to customary covenants relating to the acquisition. Among other things, prior to the consummation of the acquisition, the Company will be subject to certain business conduct restrictions with respect to its operation of the HHI business. The Company and ASSA have agreed to indemnify each other for losses arising from certain breaches of the ASPA and for certain other matters. In particular, the Company has agreed to indemnify ASSA for certain liabilities relating to the assets retained by the Company, and ASSA has agreed to indemnify the Company for certain liabilities assumed by ASSA, in each case as described in the ASPA. The Company and ASSA have agreed to enter into related agreements ancillary to the acquisition that will become effective upon the consummation of the acquisition, including a customary transition services agreement and reverse transition services agreement.
The consummation of the acquisition is subject to certain customary conditions, including, among other things, (i) the absence of a material adverse effect on HHI, (ii) the expiration or termination of required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iii) the receipt of certain other antitrust approvals in certain specified foreign jurisdictions (the conditions contained in (ii) and (iii) together, the “Antitrust Conditions”), (iv) the accuracy of the representations and warranties of the parties generally subject to a customary material adverse effect standard (as described in the ASPA) or other customary materiality qualifications), (v) the absence of governmental restrictions on the consummation of the acquisition in certain jurisdictions, and (vi) material compliance by the parties with their respective covenants and agreements under the ASPA. The consummation of the transaction is not subject to any financing condition. The Company is engaged with antitrust regulators in the ongoing regulatory review of the transaction and the Company is currently working to respond to such regulators' requests for additional information. Although the timing and outcome of the regulatory process cannot be predicted, the Company currently expects the merger review process to last for several months. As such, though there can be no assurance when the transaction will close, if at all, the Company does not expect the transaction to close before June 2022.
The ASPA also contains certain termination rights, including the right of either party to terminate the ASPA if the consummation of the acquisition has not occurred on or before December 8, 2022 (the “Termination Date”). Further, if the acquisition has not been consummated by the Termination Date and all conditions precedent to ASSA's obligation to consummate the acquisition have otherwise been satisfied except for one or more of the Antitrust Conditions, then ASSA would be required to pay the Company a termination fee of $ 350 million.
13
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 2 – DIVESTITURES (continued)
The following table summarizes the assets and liabilities of the HHI disposal group classified as held for sale as of January 2, 2022 and September 30, 2021:
(in millions)
January 2, 2022 September 30, 2021
Assets
Trade receivables, net $ 84.7 $ 130.2
Other receivables 9.3 12.1
Inventories 399.5 332.2
Prepaid expenses and other current assets 38.2 39.1
Property, plant and equipment, net 150.1 143.5
Operating lease assets 66.1 55.5
Deferred charges and other 8.7 11.7
Goodwill 711.1 710.9
Intangible assets, net 374.9 374.8
Total assets of business held for sale $ 1,842.6 $ 1,810.0
Liabilities
Current portion of long-term debt $ 1.4 $ 1.5
Accounts payable 203.2 206.6
Accrued wages and salaries 24.0 41.7
Other current liabilities 70.3 75.9
Long-term debt, net of current portion 54.3 54.4
Long-term operating lease liabilities 54.8 48.6
Deferred income taxes 7.9 7.8
Other long-term liabilities 15.4 17.8
Total liabilities of business held for sale $ 431.3 $ 454.3
The following table summarizes the components of income from discontinued operations before income taxes associated with the HHI divestiture in the accompanying Condensed Consolidated Statements of Operations for the three month periods ended January 2, 2022 and January 3, 2021:
(in millions)
January 2, 2022 January 3, 2021
Net sales $ 374.7 $ 408.7
Cost of goods sold 245.0 240.8
Gross profit 129.7 167.9
Operating expenses 67.2 70.2
Operating income 62.5 97.7
Interest expense 0.9 0.8
Other non-operating expense, net 1.6 2.8
Income from discontinued operations before income taxes $ 60.0 $ 94.1
Beginning in September 2021, the Company ceased the recognition of depreciation and amortization of long-lived assets associated with the HHI disposal group classified as held for sale. Interest expense consists of interest from debt directly attributable to HHI operations that primarily consist of interest from finance leases. No impairment loss was recognized on the assets held for sale as the purchase price of the business less estimated cost to sell is more than its carrying value.
The following table presents significant non-cash items and capital expenditures of discontinued operations from the HHI divestiture:
(in millions)
January 2, 2022 January 3, 2021
Depreciation and amortization $ — $ 8.6
Share and incentive based compensation $ 2.8 $ 1.1
Purchases of property, plant and equipment $ 5.0 $ 4.2
14
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 2 – DIVESTITURES (continued)
Other
Income from discontinued operations before income taxes - Other includes incremental pre-tax loss on sale for changes to tax and legal indemnifications and other agreed-upon funding under the acquisition agreement for sale and divestiture of its Global Batteries & Lighting ("GBL") and Global Auto Care ("GAC") divisions to Energizer Holdings, Inc. ("Energizer") during the year ended September 30, 2019. The Company and Energizer agreed to indemnify each other for losses arising from certain breaches of the acquisition agreement and for certain other matters. The Company has agreed to indemnify for certain liabilities relating to the assets retained, and Energizer agreed to indemnify the Company for certain liabilities assumed, in each case as described in the acquisition agreements. As of January 2, 2022 and September 30, 2021, the Company recognized $ 28.4 million and $ 36.5 million, respectively, related to indemnification payables in accordance with the acquisition agreements, including $ 10.8 million and $ 17.3 million, respectively, within Other Current Liabilities, primarily attributable to current income tax indemnifications, and $ 17.6 million and $ 19.2 million, respectively, within Other Long-Term Liabilities on the Company’s Condensed Consolidated Statements of Financial Position, primarily attributable to income tax indemnifications associated with previously recognized uncertain tax benefits. Subsequently, effective January 2, 2020, Energizer closed its divestitures of the European based Varta® consumer battery business in the EMEA region to Varta AG and transferred all respective rights and indemnifications attributable to the Varta® consumer battery business provided by the GBL sale to Varta AG.
The Company entered into a series of transaction service agreements ("TSA") and reverse TSAs with Energizer to support various shared back office administrative functions including finance, sales and market, information technology, human resources, real estate and supply chain, customer service and procurement. TSAs associated with the Varta® consumer battery business were transferred to Varta AG as part of the subsequent divestiture by Energizer. Charges associated with TSAs are recognized as bundled service costs under a fixed fee structure by the respective service or function and geographic location, including one-time pass-through charges for warehousing, freight, amongst others, with variable expiration dates up 24 months. Charges associated with TSAs and reverse TSAs are recognized as a reduction to or increase in the respective operating costs as a component of operating expense or cost of goods sold depending upon the functions supported by or provided to the Company. Additionally, due to the commingled nature of the shared administrative functions, cash would be received and/or paid on behalf of the respective counterparty's operations, resulting in cash flow being commingled with operating cash flow of the Company which would settle on a net basis with TSA charges. During the three month period ended January 3, 2021, the Company recognized net loss of $ 1.8 million, consisting of TSA charges of $ 0.8 million and reverse TSA costs of $ 2.6 million. The Company had exited all outstanding TSAs and reverse TSAs in January 2021.
NOTE 3 - ACQUISITIONS
Rejuvenate Acquisition
On May 28, 2021, the Company acquired all ownership interests in For Life Products, LLC ("FLP") for a purchase price of $ 301.5 million. FLP is a leading manufacturer of household cleaning, maintenance, and restoration products sold under the Rejuvenate® brand. The net assets and operating results of FLP, since the acquisition date of May 28, 2021, are included in the Company’s Condensed Consolidated Statements of Income and reported within the H&G reporting segment for the three month periods ended January 2, 2022.
The Company has recorded an allocation of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the May 28, 2021 acquisition date. The excess of the purchase price over the fair value of the net tangible assets and identifiable intangible assets of $ 147.0 million was recorded as goodwill, which is deductible for tax purposes. Goodwill includes value associated with profits earned from market and expansion capabilities, synergies from integration and streamlining operational activities, the going concern of the business and the value of the assembled workforce.
The calculation of purchase price and purchase price allocation is as follows:
(in millions) Amount
Cash consideration $ 301.5
(in millions) Purchase Price Allocation
Cash and cash equivalents $ 1.4
Trade receivables, net 10.2
Inventories 15.4
Prepaid expenses and other current assets 0.3
Property, plant and equipment, net 0.4
Goodwill 147.0
Intangible assets, net 128.7
Accounts payable ( 1.7 )
Accrued wages and salaries ( 0.1 )
Other current liabilities ( 0.1 )
Net assets acquired $ 301.5
The values allocated to intangible assets and the weighted average useful lives are as follows:
(in millions) Carrying Amount Weighted Average Useful Life (Years)
Tradenames $ 119.0 Indefinite
Customer relationships 8.4 14 years
Technology 1.3 11 years
Total intangibles acquired $ 128.7
15
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 3 - ACQUISITIONS (continued)
The Company performed a valuation of the acquired inventories, tradenames, technology, and customer relationships. The fair value measurements are based on significant inputs not observable in the market, and therefore, represent Level 3 measurements. The following is a summary of significant inputs to the valuation:
Inventory – Acquired inventory consists of branded finished goods that were valued based on the comparative sales method, which estimates the expected sales price of the finished goods inventory, reduced for all costs expected to be incurred in its completion or disposition and a profit on those costs.
Tradename – The Company valued the tradename, Rejuvenate®, using an income approach, the relief-from-royalty method. Under this method, the asset value was determined by estimating the hypothetical royalties that would have to be paid if the tradename was not owned. A royalty rate of 12 % for valuation of Rejuvenate® was selected based on consideration of several factors, including prior transactions, related trademarks and tradenames, other similar trademark licensing, and transaction agreements and the relative profitability and perceived contribution of the tradename. The discount rate applied to the projected cash flow was 10.5 % based on the a weighted-average cost of capital for the overall business. The resulting discounted cash flows were then tax-effected at the applicable statutory rate.
Customer relationships – The Company valued customer relationships using the multi-period excess earnings method under market participant distributor method of the income approach. In determining the fair value of the customer relationships, the multi-period excess earnings approach values the intangible asset at the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges. Only expected sales from current customers were used, which are estimated using average annual expected growth rate of 4 %. The Company assumed a customer attrition rate of 5 %, which is supported by historical attrition rates. The discount rate applied to the projected cash flow was 10.5 % and income taxes were estimated at the applicable statutory rate.
Technology – The Company valued technology using an income approach, the relief-from-royalty method. Under this method, the asset value was determined by estimating the hypothetical royalties that would have to be paid if the technology was not owned. A royalty rate of 3 % was selected based on consideration of several factors, including prior transactions, related licensing agreements and the importance of the technology and profit levels, among other considerations. The discount rate applied to the projected cash flow was 10.5 % and income taxes were estimated at the applicable statutory rate.
Pro forma results have not been presented as the Rejuvenate acquisition is not considered individually significant to the consolidated results of the Company.
Armitage Acquisition
On October 26, 2020, the Company acquired all of the stock of Armitage Pet Care Ltd ("Armitage") for approximately $ 187.7 million. Armitage is a premium pet treats and toys business headquartered in Nottingham, United Kingdom, including a portfolio of brands that include Armitage's dog treats brand, Good Boy®, cat treats brand, Meowee!® and Wildbird®, bird feed products, among others, that are predominantly sold within the United Kingdom. The net assets and operating results of Armitage, since the acquisition date of October 26, 2020, are included in the Company’s Condensed Consolidated Statements of Income and reported within the GPC reporting segment for the three month periods ended January 2, 2022.
The Company has recorded an allocation of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the October 26, 2020 acquisition date. The excess of the purchase price over the fair value of the net tangible assets and identifiable intangible assets of $ 90.7 million was recorded as goodwill, which is not deductible for foreign tax purposes. Goodwill includes value associated with profits earned from market and expansion capabilities, synergies from integration and streamlining operational activities, the going concern of the business and the value of the assembled workforce.
The calculation of purchase price and purchase price allocation is as follows:
(in millions) Amount
Cash paid $ 187.7
Debt assumed 51.0
Cash consideration $ 136.7
(in millions) Purchase Price Allocation
Cash and cash equivalents $ 6.9
Trade receivables, net 16.7
Other receivables 1.9
Inventories 16.3
Prepaid expenses and other current assets 0.2
Property, plant and equipment, net 3.0
Operating lease assets 0.1
Deferred charges and other 0.9
Goodwill 90.7
Intangible assets, net 88.6
Accounts payable ( 9.2 )
Accrued wages and salaries ( 1.5 )
Other current liabilities ( 7.0 )
Long-term debt, net of current portion ( 51.0 )
Long-term operating lease liabilities ( 0.1 )
Deferred income taxes ( 18.0 )
Other long-term liabilities ( 1.8 )
Net assets acquired $ 136.7
16
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 3 - ACQUISITIONS (continued)
The values allocated to intangible assets and the weighted average useful lives are as follows:
(in millions) Carrying Amount Weighted Average Useful Life (Years)
Tradenames $ 74.3 Indefinite
Customer relationships 14.3 12 years
Total intangibles acquired $ 88.6
The Company performed a valuation of the acquired inventories, tradenames, and customer relationships. The fair value measurements are based on significant inputs not observable in the market, and therefore, represent Level 3 measurements. The following is a summary of significant inputs to the valuation:
Inventory - Acquired inventory consists of branded finished goods that were valued based on the comparative sales method, which estimates the expected sales price of the finished goods inventory, reduced for all costs expected to be incurred in its completion or disposition and a profit on those costs.
Tradenames - The Company valued the tradenames, the Good Boy® brand and the Wildbird® and Other brand portfolio, using an income approach, the relief-from-royalty method. Under this method, the asset value was determined by estimating the hypothetical royalties that would have to be paid if the tradenames were not owned. Royalty rates of 8 % for valuation of Good Boy® and 3 % for Wildbird® and Other were selected based on consideration of several factors, including prior transactions, related trademarks and tradenames, other similar trademark licensing, and transaction agreements and the relative profitability and perceived contribution of the tradenames. The discount rate applied to the projected cash flow was 11 % based on a weighted-average cost of capital for the overall business. The resulting discounted cash flows were then tax-effected at the applicable statutory rate.
Customer relationships - The Company valued customer relationships using an income and cost approach, the avoided cost and lost profits method. The underlying premise of the method is that the economic value of the asset can be estimated based on consideration of the total costs that would be avoided by having this asset in place. These costs primarily consider the costs that would be incurred to re-create the customer relationships in terms of employee salaries and the revenues and associated profits forgone due to the absence of the relationships for a period of time.
Pro forma results have not been presented as the Armitage acquisition is not considered individually significant to the consolidated results of the Company.
NOTE 4 - RESTRUCTURING AND RELATED CHARGES
Global Productivity Improvement Program – During the year ended September 30, 2019, the Company initiated a company-wide, multi-year program, which consists of various restructuring related initiatives to redirect resources and spending to drive growth, identify cost savings and pricing opportunities through standardization and optimization, develop organizational and operating optimization, and reduce overall operational complexity across the Company. Since the announcement of the project and completion of the Company’s divestitures of GBL and GAC during the year ended September 30, 2019, the project focus includes the transitioning of the Company’s continuing operations in a post-divestiture environment and separation from Energizer TSAs and reverse TSAs. Refer to Note 2 – Divestitures for further discussion of continuing involvement with Energizer. The initiative includes review of global processes and organization design and structures; headcount reductions and transfers; and rightsizing the Company’s shared operations and commercial business strategy in certain regions and local jurisdictions; among others. Total cumulative costs incurred associated with the project were $ 154.0 million as of January 2, 2022, with approximately $ 1.7 million forecasted in the foreseeable future. The project costs are anticipated to be incurred through the fiscal year ending September 30, 2022.
GPC Edwardsville 3PL Transition - During the year ended September 30, 2021, the GPC segment entered into an initiative to transition its third party logistics (3PL) service provider at its Edwardsville, IL distribution center to optimize its operations and improve fill rates to meet customer requirements and handle projected growth. Costs incurred to facilitate the transition of service providers include one-time implementation and start-up costs with the new service provider, including the integration of the provider systems and technology, incremental compensation and incentive-based compensation to maintain performance during the transition period, duplicative and redundant costs between providers, and incremental costs for various disruptions in the operations during the transition period, including supplemental transportation and storage costs as the new 3PL operations are fully integrated and transitioned. Total cumulative costs incurred associated with the project were $ 21.8 million as of January 2, 2022, with approximately $ 3.7 million forecasted in the foreseeable future. The project costs are anticipated to be incurred through the first half of the fiscal year ending September 30, 2022.
SAP S/4 HANA ERP Transformation - During the year ended September 30, 2021, the Company began an initiative to transform its enterprise-wide operating system to SAP S/4 HANA. The initiative is a multi-year project that will include various project costs, including software configuration and implementation costs that would be recognized as a capital expenditure or deferred cost in accordance with applicable accounting policies. Certain restructuring related costs associated with the initiative include project development and management costs, and professional services with business partners engaged towards planning, design and business process review that would not qualify as software implementation costs. The Company is currently in the planning and design stage of the project. Total cumulative costs incurred associated with the project were $ 6.7 million as of January 2, 2022 with approximately $ 10.1 million forecasted in the foreseeable future. The project is a multi-year implementation with various phases that will be realized throughout the project timeline, depending upon business unit and/or jurisdiction, and is anticipated to be incurred through September 30, 2024.
Other Restructuring Activities – The Company may enter into small, less significant initiatives and restructuring related activities to reduce costs and improve margins throughout the organization. Individually these activities are not substantial and occur over a shorter time period (generally less than 12 months).
17
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 4 - RESTRUCTURING AND RELATED CHARGES (continued)
The following summarizes restructuring and related charges for the three month periods ended January 2, 2022 and January 3, 2021:
Three Month Periods Ended
(in millions)
January 2, 2022 January 3, 2021
Global productivity improvement program $ 1.8 $ 9.0
GPC Edwardsville 3PL transition 10.3 —
SAP S/4 HANA ERP transformation 2.9 —
Other restructuring activities 2.4 —
Total restructuring and related charges $ 17.4 $ 9.0
Reported as:
Cost of goods sold $ 0.3 $ 0.1
Operating expense 17.1 8.9
The following is a summary of restructuring and related charges for the three month periods ended January 2, 2022 and January 3, 2021, cumulative costs for current restructuring initiatives, and estimated future costs to be incurred as of January 2, 2022, by cost type.
(in millions) Termination
Benefits Other
Costs Total
For the three month period ended January 2, 2022 $ 0.6 $ 16.8 $ 17.4
For the three month period ended January 3, 2021 2.9 6.1 9.0
Cumulative costs through January 2, 2022 29.7 152.8 182.5
Estimated future costs to be incurred — 15.5 15.5
The following is a rollforward of the accrual related to all restructuring and related activities, included within Other Current Liabilities, by cost type for the three month period ended January 2, 2022.
(in millions) Termination
Benefits Other
Costs Total
Accrual balance at September 30, 2021 $ 4.6 $ 5.6 $ 10.2
Provisions 0.5 5.3 5.8
Cash expenditures ( 0.7 ) — ( 0.7 )
Non-cash items ( 1.3 ) 0.6 ( 0.7 )
Accrual balance at January 2, 2022 $ 3.1 $ 11.5 $ 14.6
The following summarizes restructuring and related charges by segment for the three month periods ended January 2, 2022 and January 3, 2021, cumulative costs incurred through January 2, 2022, and estimated future costs to be incurred by the Company’s segments:
(in millions) HPC GPC H&G Corporate Total
For the three month period ended January 2, 2022 $ 0.6 $ 11.4 $ — $ 5.4 $ 17.4
For the three month period ended January 3, 2021 2.6 1.5 — 4.9 9.0
Cumulative costs through January 2, 2022 21.1 52.4 2.7 106.3 182.5
Estimated future costs to be incurred 0.7 4.2 — 10.6 15.5
18
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 5 – REVENUE RECOGNITION
The Company generates all of its revenue from contracts with customers. The following table disaggregates our revenue for the three month periods ended January 2, 2022 and January 3, 2021, by the Company’s key revenue streams, segments and geographic region (based upon destination):
Three Month Period Ended January 2, 2022 Three Month Period Ended January 3, 2021
(in millions)
HPC
GPC
H&G
Total
HPC
GPC
H&G
Total
Product Sales
NA
$ 127.4 $ 187.4 $ 72.6 $ 387.4 $ 142.6 $ 178.1 $ 80.3 $ 401.0
EMEA
159.4 94.4 — 253.8 167.5 81.3 — 248.8
LATAM
68.6 4.7 2.4 75.7 42.4 4.0 1.7 48.1
APAC
21.7 11.2 — 32.9 22.3 9.1 — 31.4
Licensing
2.6 2.7 0.3 5.6 3.7 1.8 0.3 5.8
Other
— 1.8 — 1.8 — 1.1 — 1.1
Total Revenue
$ 379.7 $ 302.2 $ 75.3 $ 757.2 $ 378.5 $ 275.4 $ 82.3 $ 736.2
The Company has a broad range of customers including many large mass retail customers. During the three month period ended January 2, 2022 and January 3, 2021, there were two large retail customers each exceeding 10% of consolidated Net Sales and representing 33.0 % and 33.8 % of consolidated Net Sales, respectively.
A significant portion of our product sales from our HPC segment, primarily in the NA and LATAM regions, are subject to the continued use and access to the Black and Decker® brand (B&D) through a license agreement with Stanley Black and Decker. The license agreement was recently renewed through June 30, 2025, including a sell-off period from April 1, 2025 to June 30, 2025 whereby the Company can continue to sell and distribute but no longer produce products subject to the License Agreement. Net sales from B&D product sales consist of $ 129.4 million and $ 111.6 million for the three month periods ended January 2, 2022 and January 3, 2021, respectively. All other significant brands and tradenames used in the Company’s commercial operations are directly owned and not subject to further restrictions.
In the normal course of business, the Company may allow customers to return product or take credit for product returns per the provisions in a sale agreement. Estimated product returns are recorded as a reduction in reported revenues at the time of sale based upon historical product return experience, adjusted for known trends, to arrive at the amount of consideration expected to be received. The allowance for product returns as of January 2, 2022, and September 30, 2021 was $ 13.3 million and $ 11.8 million, respectively.
NOTE 6 - RECEIVABLES AND CONCENTRATION OF CREDIT RISK
The allowance for uncollectible receivables as of January 2, 2022 and September 30, 2021 was $ 6.1 million and $ 6.7 million, respectively. The Company has a broad range of customers including many large mass retail customers. As of January 2, 2022 there were no large retail customers exceeding 10% of consolidated Net Trade Receivables. As of September 30, 2021, there was one large retail customer exceeding 10% of consolidated Net Trade Receivables and representing 14.7 % of consolidated Net Trade Receivables.
NOTE 7 - INVENTORIES
Inventories consist of the following:
(in millions)
January 2, 2022 September 30, 2021
Raw materials
$ 87.7 $ 66.1
Work-in-process
11.0 8.3
Finished goods
549.7 488.4
$ 648.4 $ 562.8
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
(in millions) January 2, 2022 September 30, 2021
Land, buildings and improvements $ 83.3 $ 83.5
Machinery, equipment and other 384.4 383.0
Finance leases 145.9 146.1
Construction in progress 36.9 28.8
Property, plant and equipment 650.5 641.4
Accumulated depreciation ( 390.1 ) ( 381.2 )
Property, plant and equipment, net $ 260.4 $ 260.2
Depreciation expense from property, plant and equipment for the three month periods ended January 2, 2022 and January 3, 2021 was $ 12.2 million and $ 13.0 million, respectively.
19
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 9 - GOODWILL AND INTANGIBLE ASSETS
Goodwill consists of the following:
(in millions)
GPC
H&G
Total
As of September 30, 2021 $ 524.6 $ 342.6 $ 867.2
Foreign currency impact ( 0.4 ) — ( 0.4 )
As of January 2, 2022 $ 524.2 $ 342.6 $ 866.8
The carrying value of indefinite-lived intangibles and definite-lived intangibles assets subject to amortization and accumulated amortization are as follows:
January 2, 2022 September 30, 2021
(in millions) Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net
Amortizable Intangible Assets:
Customer relationships $ 618.0 $ ( 359.7 ) $ 258.3 $ 619.6 $ ( 352.3 ) $ 267.3
Technology assets 75.3 ( 27.0 ) 48.3 75.3 ( 25.8 ) 49.5
Tradenames 158.5 ( 145.5 ) 13.0 158.4 ( 141.9 ) 16.5
Total Amortizable Intangible Assets 851.8 ( 532.2 ) 319.6 853.3 ( 520.0 ) 333.3
Indefinite-lived Intangible Assets - Tradenames 869.6 — 869.6 870.8 — 870.8
Total Intangible Assets $ 1,721.4 $ ( 532.2 ) $ 1,189.2 $ 1,724.1 $ ( 520.0 ) $ 1,204.1
There were no triggering events and no impairments of goodwill and intangible assets identified during the three month period ended January 2, 2022.
Amortization expense from the intangible assets for the three month periods ended January 2, 2022 and January 3, 2021 was $ 13.3 million and $ 14.1 million, respectively. Excluding the impact of any future acquisitions, dispositions or changes in foreign currency, the Company estimates annual amortization expense of intangible assets for the next five fiscal years will be as follows:
(in millions) Amortization
2022 $ 49.2
2023 40.1
2024 40.1
2025 38.0
2026 36.4
20
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 10 - DEBT
Debt consists of the following:
January 2, 2022 September 30, 2021
(in millions) Amount Rate Amount Rate
Spectrum Brands Inc.
Revolver Facility, variable rate, expiring June 30, 2025 $ 465.0 3.4 % $ — — %
Term Loan Facility, variable rate, due March 3, 2028 397.0 2.5 % 398.0 2.5 %
5.75 % Notes, due July 15, 2025
450.0 5.8 % 450.0 5.8 %
4.00 % Notes, due October 1, 2026
482.2 4.0 % 492.9 4.0 %
5.00 % Notes, due October 1, 2029
300.0 5.0 % 300.0 5.0 %
5.50 % Notes, due July 15, 2030
300.0 5.5 % 300.0 5.5 %
3.875 % Notes, due March 15, 2031
500.0 3.9 % 500.0 3.9 %
Obligations under finance leases 100.0 5.1 % 101.9 4.9 %
Total Spectrum Brands, Inc. debt 2,994.2 2,542.8
Unamortized discount on debt ( 0.9 ) ( 0.9 )
Debt issuance costs ( 34.3 ) ( 35.6 )
Less current portion ( 12.1 ) ( 12.0 )
Long-term debt, net of current portion $ 2,946.9 $ 2,494.3
The Revolver Facility is subject to either adjusted LIBOR plus margin ranging from 1.75 % to 2.75 % per annum, or base rate plus margin ranging from 0.75 % to 1.75 % per annum. The LIBOR borrowings are subject to a 0.75 % LIBOR floor. Our Revolver Facility allows for the LIBOR rate to be phased out and replaced with the Secured Overnight Financing Rate and therefore we do not anticipate a material impact by the expected upcoming LIBOR transition. As a result of borrowings and payments under the Revolver Facility, the Company had borrowing availability of $ 116.0 million at January 2, 2022, net of outstanding letters of credit of $ 19.0 million.
The Term Loan Facility is subject to a rate per annum equal to either (1) the LIBO Rate (as defined in the Amended Credit Agreement), subject to a 0.50 % floor, adjusted for statutory reserves, plus a margin of 2.00 % per annum or (2) the Alternate Base Rate (As defined in the Amended Credit Agreement), plus a margin of 1.00 % per annum.
Credit Agreement
On December 10, 2021, the Company entered into the second amendment (the "Amended Credit Agreement") to the Amended and Restated Credit Agreement (the "Credit Agreement") dated as of June 30, 2020. The Amended Credit Agreement includes certain modified terms from the existing Credit Agreement to provide for an alternate rate of interest to the Eurocurrency Rate applicable to Revolving Loans and Letters of Credit in Euro and Pounds Sterling. Pursuant to the Amended Credit Agreement, Sterling Overnight Index Average ("SONIA") replaced LIBO Rate as a reference rate for Revolving Loans and Letters of Credit denominated in Pounds Sterling and Euro Interbank Offered Rate ("EURIBOR") replaced LIBO Rate as a reference rate for Revolving Loans and Letters of Credit denominated in Euro. The Company currently has no borrowing under the Revolver Facility denominated in Euro or Pounds Sterling.
21
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 11 – LEASES
The Company has leases primarily pertaining to manufacturing facilities, distribution centers, office space, warehouses, automobiles, machinery, computers, and office equipment that expire at various times through June 30, 2035 . We have identified embedded operating leases within certain logistic agreements for warehouses and information technology services arrangements and recognized assets identified in the arrangements as part of operating right-of-use ("ROU") assets on the Company’s Condensed Consolidated Statements of Financial Position as of January 2, 2022 and September 30, 2021. We elected to exclude certain supply agreements that contain embedded leases for manufacturing facilities or dedicated manufacturing lines from our ROU asset and liability calculation based on the insignificant impact to our financial statements.
The following is a summary of the leases recognized on the Company’s Condensed Consolidated Statements of Financial Position as of January 2, 2022 and September 30, 2021:
(in millions) Line Item January 2, 2022 September 30, 2021
Assets
Operating Operating lease assets $ 56.3 $ 56.5
Finance Property, plant and equipment, net 81.9 84.2
Total leased assets $ 138.2 $ 140.7
Liabilities
Current
Operating Other current liabilities $ 19.1 $ 17.4
Finance Current portion of long-term debt 8.1 7.9
Long-term
Operating Long-term operating lease liabilities 42.6 44.5
Finance Long-term debt, net of current portion 91.9 94.0
Total lease liabilities $ 161.7 $ 163.8
As of January 2, 2022, the Company had no commitments related to leases executed that have not yet commenced.
The Company records its operating lease expense and amortization of finance lease ROU assets within Cost of Goods Sold or Operating Expenses in the Condensed Consolidated Statements of Income depending on the nature and use of the underlying asset. The Company records its finance interest cost within Interest Expense in the Condensed Consolidated Statements of Income.
The components of lease costs recognized in the Condensed Consolidated Statements of Income for the three month periods ended January 2, 2022 and January 3, 2021 are as follows:
Three Month Periods Ended
(in millions) January 2, 2022 January 3, 2021
Operating lease cost $ 5.2 $ 3.8
Finance lease cost
Amortization of leased assets 2.7 3.1
Interest on lease liability 1.3 1.5
Variable lease cost 2.3 2.3
Total lease cost $ 11.5 $ 10.7
During the three month periods ended January 2, 2022 and January 3, 2021, the Company recognized income attributable to leases and sub-leases of $ 0.5 million and $ 0.6 million, respectively. Income from leases and sub-leases is recognized as Other Non-Operating Income in the Condensed Consolidated Statements of Income.
The following is a summary of the Company’s cash paid for amounts included in the measurement of lease liabilities recognized in the Condensed Consolidated Statement of Cash Flow, including supplemental non-cash activity related to operating leases, for the three month periods ending January 2, 2022 and January 3, 2021:
Three Month Periods Ended
(in millions) January 2, 2022 January 3, 2021
Operating cash flow from operating leases $ 5.4 $ 3.4
Operating cash flows from finance leases 1.3 1.5
Financing cash flows from finance leases 2.1 2.7
Supplemental non-cash flow disclosure
Acquisition of operating lease asset through lease obligations 4.8 7.3
22
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 11 – LEASES (continued)
The following is a summary of weighted-average lease term and discount rate at January 2, 2022 and September 30, 2021:
January 2, 2022 September 30, 2021
Weighted average remaining lease term
Operating leases 4.4 years 4.6 years
Finance leases 10.2 years 10.4 years
Weighted average discount rate
Operating leases 4.1 % 4.3 %
Finance leases 5.1 % 4.9 %
At January 2, 2022, future lease payments under operating and finance leases were as follows:
(in millions) Finance Leases Operating Leases
2022 remaining balance $ 9.5 $ 16.0
2023 13.5 19.9
2024 13.3 10.6
2025 11.9 7.5
2026 11.7 5.2
Thereafter 70.2 8.8
Total lease payments 130.1 68.0
Amount representing interest ( 30.1 ) ( 6.3 )
Total minimum lease payments $ 100.0 $ 61.7
23
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 12 - DERIVATIVES
Derivative financial instruments are used by the Company principally in the management of its foreign currency exchange rates. The Company does not hold or issue derivative financial instruments for trading purposes.
Cash Flow Hedges
The Company periodically enters into forward foreign exchange contracts to hedge a portion of the risk from forecasted foreign currency denominated third party and intercompany sales or payments. These obligations generally require the Company to exchange foreign currencies for U.S. Dollars, Euros, Pound Sterling, Canadian Dollars, Australian Dollars, or Japanese Yen. These foreign exchange contracts are cash flow hedges of fluctuating foreign exchange related to sales of product or inventory purchases. Until the sale or purchase is recognized, the fair value of the related hedge is recorded in Accumulated Other Comprehensive Income ("AOCI") and as a derivative hedge asset or liability, as applicable. At the time the sale or purchase is recognized, the fair value of the related hedge is reclassified as an adjustment to Net Sales or purchase price variance in Cost of Goods Sold on the Condensed Consolidated Statements of Income. At January 2, 2022, the Company had a series of foreign exchange derivative contracts outstanding through June 30, 2023. The derivative net loss estimated to be reclassified from AOCI into earnings over the next 12 months is $ 2.5 million, net of tax. At January 2, 2022 and September 30, 2021, the Company had foreign exchange derivative contracts designated as cash flow hedges with a notional value of $ 299.6 million and $ 279.9 million, respectively.
The following table summarizes the impact of designated cash flow hedges and the pre-tax gain (loss) recognized in the Condensed Consolidated Statements of Income for the three month periods ended January 2, 2022 and January 3, 2021, respectively:
Loss in OCI Reclassified Gain (Loss) to Continuing Operations
For the three month periods ended (in millions) January 2, 2022 January 3, 2021 Line Item January 2, 2022 January 3, 2021
Foreign exchange contracts $ ( 0.8 ) $ ( 13.3 ) Cost of goods sold $ 2.1 $ ( 2.6 )
Derivative Contracts Not Designated as Hedges for Accounting Purposes
The Company periodically enters into foreign exchange forward contracts to economically hedge a portion of the risk from third party and intercompany payments resulting from existing obligations. These obligations generally require the Company to exchange foreign currencies for U.S. Dollars, Canadian Dollars, Euros, Pounds Sterling, Australian Dollars, Polish Zlotys, Mexican Pesos, or Japanese Yen, among others. These foreign exchange contracts are fair value hedges of a related liability or asset recorded in the accompanying Condensed Consolidated Statements of Financial Position. The gain or gain on the derivative hedge contracts is recorded in earnings as an offset to the change in value of the related liability or asset at each period end. At January 2, 2022, the Company had a series of forward exchange contracts outstanding through July 20, 2022. At January 2, 2022 and September 30, 2021, the Company had $ 178.4 million and $ 198.4 million, respectively, of notional value of such foreign exchange derivative contracts outstanding.
The following summarizes the impact of derivative instruments on the accompanying Condensed Consolidated Statements of Income for the three month periods ended January 2, 2022 and January 3, 2021, pre-tax:
Three month Periods Ended (in millions) Line Item January 2, 2022 January 3, 2021
Foreign exchange contracts Other non-operating expense (income) $ ( 1.2 ) $ ( 3.9 )
Fair Value of Derivative Instruments
The fair value of the Company’s outstanding derivative contracts recorded in the Condensed Consolidated Statements of Financial Position is as follows:
(in millions) Line Item January 2, 2022 September 30, 2021
Derivative Assets
Foreign exchange contracts - designated as hedge Other receivables $ 3.6 $ 5.2
Foreign exchange contracts - designated as hedge Deferred charges and other — 0.9
Foreign exchange contracts - not designated as hedge Other receivables 0.5 0.7
Total Derivative Assets $ 4.1 $ 6.8
Derivative Liabilities
Foreign exchange contracts - designated as hedge Accounts payable $ 0.1 $ 0.1
Foreign exchange contracts - designated as hedge Other long term liabilities 0.3 —
Foreign exchange contracts - not designated as hedge Accounts payable 0.8 2.4
Total Derivative Liabilities $ 1.2 $ 2.5
The Company is exposed to the risk of default by the counterparties with which it transacts and generally does not require collateral or other security to support financial instruments subject to credit risk. The Company monitors counterparty credit risk on an individual basis by periodically assessing each counterparty’s credit rating exposure. The maximum loss due to credit risk equals the fair value of the gross asset derivatives that are concentrated with certain domestic and foreign financial institution counterparties. The Company considers these exposures when measuring its credit reserve on its derivative assets, which were not significant as of January 2, 2022.
The Company’s standard contracts do not contain credit risk related contingent features whereby the Company would be required to post additional cash collateral because of a credit event. However, the Company is typically required to post collateral in the normal course of business to offset its liability positions. As of January 2, 2022, and September 30, 2021, there was no cash collateral outstanding and no posted standby letters of credit related to such liability positions.
24
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 12 – DERIVATIVES (continued)
Net Investment Hedge
SBI has € 425.0 million aggregate principle amount of 4.00 % Notes designated as a non-derivative economic hedge, or net investment hedge, of the translation of the Company’s net investments in Euro denominated subsidiaries at the time of issuance. The hedge effectiveness is measured on the beginning balance of the net investment and re-designated every three months. Any gains and losses attributable to the translation of the Euro denominated debt designated as net investment hedge are recognized as a component of foreign currency translation within AOCI, and gains and losses attributable to the translation of the undesignated portion are recognized as foreign currency translation gains or losses within Other Non-Operating Expense (Income). As of January 2, 2022, the full principal amount was designated as a net investment hedge and considered fully effective. The following summarizes the gain (loss) from the net investment hedge recognized in Other Comprehensive Income for the three month periods ended January 2, 2022 and January 3, 2021, pre-tax:
Three Month Periods Ended (in millions) January 2, 2022 January 3, 2021
Net investment hedge $ 10.6 $ ( 21.5 )
Net gains or losses from the net investment hedge are reclassified from AOCI into earnings upon a liquidation event or deconsolidation of Euro denominated subsidiaries.
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has not changed the valuation techniques used in measuring the fair value of any financial assets and liabilities during the year. The carrying value and estimated fair value of financial and derivative instruments as of January 2, 2022 and September 30, 2021 according to the fair value hierarchy are as follows:
January 2, 2022 September 30, 2021
(in millions) Level 1 Level 2 Level 3 Fair Value Carrying
Amount Level 1 Level 2 Level 3 Fair Value Carrying
Amount
Derivative Assets $ — $ 4.1 $ — $ 4.1 $ 4.1 $ — $ 6.8 $ — $ 6.8 $ 6.8
Derivative Liabilities — 1.2 — 1.2 1.2 — 2.5 — 2.5 2.5
Debt — 3,040.7 — 3,040.7 2,959.0 — 2,628.2 — 2,628.2 2,506.3
The fair value measurements of the Company’s debt represent non-active market exchanged traded securities which are valued at quoted input prices that are directly observable or indirectly observable through corroboration with observable market data. See Note 10 – Debt for additional detail on outstanding debt of SBH and SB/RH. See Note 12 – Derivatives for additional detail on derivative assets and liabilities.
The carrying value of cash and cash equivalents, receivables, accounts payable and short term debt approximate fair value based on the short-term nature of these assets and liabilities. Goodwill, intangible assets and other long-lived assets are tested annually or more frequently if an event occurs that indicates an impairment loss may have been incurred using fair value measurements with unobservable inputs (Level 3).
During the three month period ended January 3, 2021, the Company held equity investments in Energizer common stock valued at quoted market prices, recognizing unrealized income from changes in fair value and realized income from the sale of its investment, plus dividend income on the Condensed Consolidated Statements of Income. The Company sold its remaining investment in Energizer common stock in January 2021. The following is a summary of income recognized as a component of Other Non-Operating Income in the Company's Condensed Consolidated Statements of Income:
Three Month Period Ended
(in millions) January 3, 2021
Unrealized gain on equity investments held $ 0.8
Realized gain on equity investments sold 5.2
Gain on equity investments 6.0
Dividend income from equity investments 0.2
Gain from equity investments $ 6.2
25
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 14 - EMPLOYEE BENEFIT PLANS
The net periodic benefit cost for defined benefit plans for the three month periods ended January 2, 2022 and January 3, 2021 are as follows:
U.S. Plans Non U.S. Plans
(in millions) January 2, 2022 January 3, 2021 January 2, 2022 January 3, 2021
Three Month Periods Ended
Service cost $ 0.1 $ 0.1 $ 0.4 $ 0.4
Interest cost 0.5 0.5 0.6 0.5
Expected return on assets ( 0.8 ) ( 0.9 ) ( 1.2 ) ( 1.0 )
Recognized net actuarial loss 0.2 0.3 0.8 0.8
Net periodic benefit cost $ — $ — $ 0.6 $ 0.7
Weighted average assumptions
Discount rate 2.70 % 2.46 % 1.00 - 2.00 %
0.70 - 1.75 %
Expected return on plan assets 5.00 % 6.00 % 0.99 - 4.06 %
0.70 - 3.40 %
Rate of compensation increase N/A N/A 2.50 %
2.25 %
Contributions to our pension and defined benefit plans, including discretionary amounts, for the three month periods ended January 2, 2022 and January 3, 2021 were $ 1.0 million and $ 2.7 million, respectively .
NOTE 15 – SHAREHOLDER’S EQUITY
Share Repurchases
The Company has a share repurchase program that is executed through purchases made from time to time either in the open market or otherwise. On May 4, 2021, the Board of Directors approved a $ 1 billion common stock repurchase program and terminated the previously approved share repurchase program. The authorization is effective for 36 months. As part of the share repurchase programs, the Company purchased treasury shares in open market purchases at market fair value, private purchases from Company employees, significant shareholders or beneficial interest owners at fair value and through an accelerated share repurchase (“ASR”) agreement with a third-party financial institution.
The following summarizes the activity of common stock repurchases under the programs for the three month periods ended January 2, 2022 and January 3, 2021:
January 2, 2022 January 3, 2021
Three Month Periods Ended
(in millions except per share data)
Number of
Shares
Repurchased
Average
Price
Per Share
Amount
Number of
Shares
Repurchased
Average
Price
Per Share
Amount
Open Market Purchases 1.1 $ 97.44 $ 110.0 — $ — $ —
Private Purchases — — — 0.6 65.27 42.3
Total Purchases 1.1 $ 97.44 $ 110.0 0.6 $ — $ 42.3
During the fourth quarter ended September 30, 2021, SBH entered into a $ 150.0 million rule 10b5-1 repurchase plan to facilitate daily market share repurchases through September 16, 2022, until the cap is reached or until the plan is terminated. As of January 2, 2022 $ 125.9 million had been repurchased pursuant to the 10b5-1 repurchase plan.
26
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 16 - SHARE BASED COMPENSATION
Share based compensation expense is recognized as General and Administrative Expenses on the Condensed Consolidated Statements of Income. The following is a summary of share based compensation expense for the three month periods ended January 2, 2022 and January 3, 2021 for SBH and SB/RH, respectively.
Three Month Periods Ended
(in millions) January 2, 2022 January 3, 2021
SBH $ 5.6 $ 6.4
SB/RH $ 5.6 $ 6.4
The Company recognizes share based compensation expense from the issuance of its Restricted Stock Units (“RSUs”), primarily under its Long-Term Incentive Plan ("LTIP"), based on the fair value of the awards, as determined by the market price of the Company’s shares of common stock on the designated grant date and recognized on a straight-line basis over the requisite service period of the awards. Certain RSUs are time-based grants that provide for either 3-year cliff vesting or graded vesting depending upon the vesting conditions and forfeitures provided by the grant. Certain RSUs are performance-based awards that are dependent upon achieving specified financial metrics (adjusted EBITDA, return on adjusted equity, and/or adjusted free cash flow) over a designated period of time. Additionally, the Company regularly issues individual RSU awards under its equity plan to its Board members and individual employees for recognition, incentive, or retention purposes, when needed, which are primarily conditional upon time-based service conditions and included as a component of share-based compensation.
The following is a summary of the activity in the Company RSUs during the three month period ended January 2, 2022:
SBH SB/RH
(in millions, except per share data) Units Weighted
Average
Grant Date
Fair Value Fair
Value
at Grant
Date Units Weighted
Average
Grant Date
Fair Value Fair
Value
at Grant
Date
Time-based grants
Vesting in less than 24 months 0.05 $ 97.01 $ 4.8 0.04 $ 97.01 $ 3.7
Vesting in more than 24 months 0.06 97.01 5.7 0.06 97.01 5.7
Total time-based grants 0.11 $ 97.01 $ 10.5 0.10 $ 97.01 $ 9.4
Performance-based grants
Vesting in more than 24 months 0.17 $ 97.01 $ 16.5 0.17 $ 97.01 $ 16.5
Total performance-based grants 0.17 $ 97.01 $ 16.5 0.17 $ 97.01 $ 16.5
Total grants 0.28 $ 97.01 $ 27.0 0.27 $ 97.01 $ 25.9
SBH SB/RH
(in millions, except per share data) Units Weighted
Average
Grant Date
Fair Value Fair
Value
at Grant
Date Units Weighted
Average
Grant Date
Fair Value Fair
Value
at Grant
Date
At September 30, 2021 1.46 $ 64.00 $ 93.2 1.43 $ 63.85 $ 91.6
Granted 0.28 97.01 27.0 0.27 97.01 25.9
Forfeited ( 0.01 ) 64.08 ( 0.2 ) ( 0.01 ) 64.08 ( 0.2 )
Vested ( 0.60 ) 55.10 ( 33.4 ) ( 0.58 ) 54.36 ( 31.7 )
At January 2, 2022 1.13 $ 76.95 $ 86.6 1.11 $ 76.78 $ 85.6
The remaining unrecognized pre-tax compensation cost for SBH and SB/RH at January 2, 2022 was $ 55.8 million and $ 54.8 million, respectively.
27
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 17 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The changes in the components of accumulated other comprehensive income (loss), net of taxes, was as follows:
(in millions) Foreign Currency Translation Derivative Instruments Defined Benefit Pension Total
Balance at September 30, 2021
$ ( 194.8 ) $ 6.4 $ ( 46.9 ) $ ( 235.3 )
Other comprehensive income before reclassification 6.8 1.2 0.6 8.6
Net reclassification for (gain) loss to income from continuing operations — ( 2.1 ) 1.0 ( 1.1 )
Net reclassification for gain to income from discontinued operations — ( 0.5 ) — ( 0.5 )
Other comprehensive income (loss) before tax 6.8 ( 1.4 ) 1.6 7.0
Deferred tax effect ( 4.5 ) 4.5 ( 2.9 ) ( 2.9 )
Other comprehensive income (loss), net of tax 2.3 3.1 ( 1.3 ) 4.1
Less: other comprehensive income from discontinued operations attributable to non-controlling interest 0.1 — — 0.1
Other comprehensive income (loss) attributable to controlling interest 2.2 3.1 ( 1.3 ) 4.0
Balance as of January 2, 2022
$ ( 192.6 ) $ 9.5 $ ( 48.2 ) $ ( 231.3 )
(in millions) Foreign Currency Translation Derivative Instruments Defined Benefit Pension Total
Balance at September 30, 2020
$ ( 226.6 ) $ 3.6 $ ( 61.7 ) $ ( 284.7 )
Other comprehensive income (loss) before reclassification 19.4 ( 12.4 ) ( 2.2 ) 4.8
Net reclassification for loss to income from continuing operations — 2.6 1.1 3.7
Net reclassification for loss to income from discontinued operations — 0.1 — 0.1
Other comprehensive income (loss) before tax 19.4 ( 9.7 ) ( 1.1 ) 8.6
Deferred tax effect 5.3 2.5 0.2 8.0
Other comprehensive income (loss), net of tax 24.7 ( 7.2 ) ( 0.9 ) 16.6
Less: other comprehensive income from continuing operations attributable to non-controlling interest 0.1 — — 0.1
Less: other comprehensive income from discontinued operations attributable to non-controlling interest 0.3 — — 0.3
Other comprehensive income (loss) attributable to controlling interest 24.3 ( 7.2 ) ( 0.9 ) 16.2
Balance at January 3, 2021
$ ( 202.3 ) $ ( 3.6 ) $ ( 62.6 ) $ ( 268.5 )
NOTE 18 - INCOME TAXES
The effective tax rate for the three month periods ended January 2, 2022 and January 3, 2021 was as follows:
Three Month Periods Ended
Effective tax rate January 2, 2022 January 3, 2021
SBH 34.7 % ( 34.9 ) %
SB/RH 34.5 % ( 32.6 ) %
The estimated annual effective tax rate applied to the three month period ended January 2, 2022 differs from the US federal statutory rate of 21 % principally due to income earned outside the U.S. that is subject to U.S. tax, including the U.S. tax on global intangible low taxed income (“GILTI”), certain nondeductible expenses, foreign rates that differ from the US federal statutory rate, and state income taxes. The Company has U.S. net operating loss carryforwards, which do not allow it to take advantage of the foreign-derived intangible income deduction. The Company’s federal effective tax rate on GILTI is therefore 21 %.
During the three month period ended January 2, 2022, the Company recorded a $ 3.2 million tax benefit as an adjustment to the estimated benefit recorded in Fiscal 2021 for the Final Regulations issued under Internal Revenue Code Section 951A relating to the treatment of income that is subject to a high rate of tax under the GILTI regime. The Company completed and filed the amended return implementing these Regulations during the three month period ending January 2, 2022. The Company also recorded a $ 2.5 million tax benefit during the three month period ended January 2, 2022 for windfalls associated with the vesting of share compensation during the quarter. The Company generated a pretax loss on continuing operations in the fiscal quarter, so additional discrete tax benefits result in an increase to the quarter’s tax rate.
As of January 2, 2022, and September 30, 2021, there was $ 1.8 million of income tax receivable and $ 8.0 million of income taxes payable, respectively, with its parent company, on the SB/RH Condensed Consolidated Statements of Financial Position, calculated as if SB/RH were a separate taxpayer.
28
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 19 - COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various litigation matters generally arising out of the ordinary course of business. Based on information currently available, the Company does not believe that any additional matters or proceedings presently pending will have a material adverse effect on its results of operations, financial condition, liquidity or cash flows.
Shareholder Litigation. On July 12, 2019, an amended consolidated class action complaint filed earlier in 2018 was filed in the United States District Court for the Western District of Wisconsin (the “Court”) by the Public School Teachers’ Pension & Retirement Fund of Chicago and the Cambridge Retirement against Spectrum Brands’ Legacy, Inc. (“Spectrum Legacy”). The complaint alleges that the defendants violated the Securities Exchange Act of 1934. The amended complaint added HRG Group, Inc. (“HRG”), the predecessor to the Company, as a defendant and asserted additional claims against the Company on behalf of a purported class of HRG shareholders. The class period of the consolidated amended complaint is from January 26, 2017 to November 19, 2018, and the plaintiffs seek an unspecified amount of compensatory damages, interest, attorneys’ and expert fees and costs. During the year ended September 30, 2020, the Company reached a proposed settlement resulting in an insignificant loss, net of third-party insurance coverage and payment, pending final approval by the Court. In February 2021, the Court declined to approve the proposed settlement without prejudice because the Court determined that as a procedural matter the plaintiff’s counsel had not taken the appropriate actions to be appointed to represent the purported class of HRG shareholders. The court subsequently appointed separate counsel to represent the HRG shareholder class. In August 2021, the Company reached an agreement in principle, subject to final documentation and approval of the Court, to settle the claims of the Spectrum Legacy class, the cost of which has been defrayed by third-party insurance. In October 2021, the Company reached an agreement in principle, subject to final documentation and approval of the Court, to settle the claims of the HRG class, the cost of which has been defrayed by third-party insurance.
Environmental. The Company has provided for an estimated cost of $ 10.7 million and $ 11.3 million as of January 2, 2022 and September 30, 2021, respectively, associated with environmental remediation activities at some of its current and former manufacturing sites, included in Other Long-Term Liabilities on the Condensed Consolidated Statements of Financial Position. The Company believes that any additional liability in excess of the amounts provided that may result from resolution of these matters, will not have a material adverse effect on the consolidated financial condition, results of operations, or cash flows of the Company.
Product Liability. The Company may be named as a defendant in lawsuits involving product liability claims. The Company has recorded and maintains an estimated liability in the amount of management’s estimate for aggregate exposure for such liabilities based upon probable loss from loss reports, individual cases, and losses incurred but not reported. As of January 2, 2022 and September 30, 2021, the Company recognized $ 3.3 million and $ 3.0 million in product liability, respectively, included in Other Current Liabilities on the Condensed Consolidated Statements of Financial Position. The Company believes that any additional liability in excess of the amounts provided that may result from resolution of these matters will not have a material adverse effect on the consolidated financial condition, results of operations or cash flows of the Company.
Product Warranty . The Company recognizes an estimated liability for standard warranty on certain products when we recognize revenue on the sale of the warranted products. Estimated warranty costs incorporate replacement parts, products and delivery, and are recorded as a cost of goods sold at the time of product shipment based on historical and projected warranty claim rates, claims experience and any additional anticipated future costs on previously sold products. The Company recognized $ 0.4 million of warranty accruals as of January 2, 2022 and September 30, 2021, respectively, included in Other Current Liabilities on the Condensed Consolidated Statements of Financial Position.
29
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 20 - SEGMENT INFORMATION
Net sales relating to the segments for the three month periods ended January 2, 2022 and January 3, 2021 are as follows:
Three Month Periods Ended
(in millions) January 2, 2022 January 3, 2021
HPC $ 379.7 $ 378.5
GPC 302.2 275.4
H&G 75.3 82.3
Net sales $ 757.2 $ 736.2
The Chief Operating Decision Maker of the Company uses Adjusted EBITDA as the primary operating metric in evaluating the business and making operating decisions. EBITDA is calculated by excluding the Company’s income tax expense, interest expense, depreciation expense and amortization expense (from intangible assets) from net income. Adjusted EBITDA further excludes:
• Stock based compensation costs consist of costs associated with long-term incentive compensation arrangements that generally consist of non-cash, stock-based compensation. During the three month period ended January 3, 2021, compensation costs included incentive bridge awards previously issued due to changes in the Company’s LTIP that allowed for cash based payment upon employee election but do not qualify for shared-based compensation, which were fully vested in November 2020. See Note 16 - Share Based Compensation for further details;
• Restructuring and related charges consist of project costs associated with the restructuring initiatives across the Company's segments. See Note 4 - Restructuring and Related Charges for further details;
• Transaction related charges are attributable to costs from qualifying strategic transaction or business opportunities, including an acquisition or divestiture, whether or not consummated, subsequent integration related project costs, divestiture support and incremental separation costs. See Note 1 – Basis of Presentation & Significant Accounting Policies for further details;
• Unallocated shared costs associated with discontinued operations from certain shared and center-led administrative functions the Company's business units excluded from income from discontinued operations as they are not a direct cost of the discontinued business but a result of indirect allocations, including but not limited to, information technology, human resources, finance and accounting, supply chain, and commercial operations. Amounts attributable to unallocated shared costs would be mitigated through subsequent strategic or restructuring initiatives, TSAs, elimination of extraneous costs, or re-allocations or absorption of existing continuing operations following the completed sale of the discontinued operations. See Note 2 - Divestitures for further details;
• Non-cash purchase accounting inventory adjustments recognized in earnings from continuing operations subsequent to an acquisition;
• Non-cash asset impairments or write-offs realized and recognized in earnings from continuing operations;
• Gains attributable to the Company investment in Energizer common stock during the three month period ended January 3, 2021, which the Company subsequently sold its remaining shares in January 2021. See Note 13 – Fair Value of Financial Instruments for further details;
• Incremental reserves for non-recurring litigation or environmental remediation activity including the proposed settlement on outstanding litigation matters at our H&G division attributable to significant and unusual nonrecurring claims with no previous history or precedent recognized during the three month period ended January 3, 2021 and the subsequent remeasurement during the three month period ended January 2, 2022;
• Incremental costs realized under a three-year tolling agreement entered into with the buyer in consideration with the divestiture of the Coevorden Operations on March 29, 2020, for the continued production of dog and cat food products purchased to support the GPC commercial operations and distribution in Europe; and
• Other adjustments are primarily attributable to (1) incremental fines and penalties realized for delayed shipments following the transition of third-party logistics service provider in GPC during the three month period ended January 2, 2022; and (2) costs associated with Salus as they are not considered a component of the continuing commercial products company;
30
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 20 - SEGMENT INFORMATION (continued)
Segment Adjusted EBITDA for the reportable segments for SBH for the three month periods ended January 2, 2022 and January 3, 2021, are as follows:
Three Month Periods Ended
SBH (in millions) January 2, 2022 January 3, 2021
HPC $ 27.4 $ 50.9
GPC 38.7 53.6
H&G ( 7.3 ) 10.4
Total Segment Adjusted EBITDA 58.8 114.9
Corporate 9.5 9.0
Interest expense 21.8 23.1
Depreciation and amortization 25.4 27.1
Share and incentive based compensation 5.6 6.9
Restructuring and related charges 17.4 9.0
Transaction related charges 14.9 19.0
Unallocated shared costs 6.8 6.7
Inventory acquisition step-up — 0.8
Gain on Energizer investment — ( 6.0 )
Legal and environmental remediation reserves ( 0.5 ) 6.0
Coevorden tolling related charges 1.5 1.6
Other 2.6 0.1
(Loss) income from continuing operations before income taxes $ ( 46.2 ) $ 11.6
Segment Adjusted EBITDA for reportable segments for SB/RH for the three month periods ended January 2, 2022 and January 3, 2021 are as follows:
Three Month Periods Ended
SB/RH (in millions)
January 2, 2022 January 3, 2021
HPC $ 27.4 $ 50.9
GPC 38.7 53.6
H&G ( 7.3 ) 10.4
Total Segment Adjusted EBITDA 58.8 114.9
Corporate 9.3 8.5
Interest expense 21.8 23.2
Depreciation and amortization 25.4 27.1
Share and incentive based compensation 5.6 6.9
Restructuring and related charges 17.4 9.0
Transaction related charges 14.9 19.0
Unallocated shared costs 6.8 6.7
Inventory acquisition step-up — 0.8
Gain on Energizer investment — ( 6.0 )
Legal and environmental remediation reserves ( 0.5 ) 6.0
Coevorden tolling related charges 1.5 1.6
Other 2.5 —
(Loss) income from continuing operations before income taxes $ ( 45.9 ) $ 12.1
31
Table of Contents
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 21 - EARNINGS PER SHARE – SBH
The reconciliation of the numerator and denominator of the basic and diluted earnings per share calculation and the anti-dilutive shares for the three month periods ended January 2, 2022 and January 3, 2021 are as follows:
Three Month Periods Ended
(in millions, except per share amounts)
January 2, 2022 January 3, 2021
Numerator
Net (loss) income from continuing operations attributable to controlling interest $ ( 30.2 ) $ 14.7
Income from discontinued operations attributable to controlling interest 38.4 57.4
Net income attributable to controlling interest $ 8.2 $ 72.1
Denominator
Weighted average shares outstanding - basic 41.3 42.9
Dilutive shares — 0.1
Weighted average shares outstanding - diluted 41.3 43.0
Earnings per share
Basic earnings per share from continuing operations $ ( 0.73 ) $ 0.34
Basic earnings per share from discontinued operations 0.93 1.34
Basic earnings per share $ 0.20 $ 1.68
Diluted earnings per share from continuing operations $ ( 0.73 ) $ 0.34
Diluted earnings per share from discontinued operations 0.93 1.34
Diluted earnings per share $ 0.20 $ 1.68
Weighted average number of anti-dilutive shares excluded from denominator 0.2 —
NOTE 22 - SUBSEQUENT EVENT
On February 3, 2022, the Company entered into a definitive agreement to acquire the home appliances and cookware categories of Tristar Products, Inc. (the "Tristar Business") for a purchase price of $ 325 million, in cash, at closing, up to $ 100 million if certain gross profit targets are achieved in calendar year 2022, and another $ 25 million if certain other gross profit targets are achieved in calendar year 2023. The transaction is expected to close within the next 90 days. The acquisition of the Tristar Business will be funded by a combination of cash on hand and a $ 500 million incremental loan incurred as a new tranche under the Company's existing credit agreement.
32
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.