Spectrum Brands Holdings, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management’s discussion of the financial results, liquidity and other key items related to our performance and should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report. The following is a combined report of SBH and SB/RH, and the following discussion includes SBH and certain matters related to SB/RH as signified below. Unless the context indicates otherwise, the terms the “Company,” “we,” “our” or “us” are used to refer to SBH and its subsidiaries and SB/RH and its subsidiaries, collectively. Business Overview The following section provides a general description of our business as well as recent developments for the years ended September 30, 2022 and 2021, which we believe are important to understanding our results of operations, financial condition, and understanding anticipated future trends. Refer to Item 1 - Business and Note 1 – Description of Business in Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for an overview of our business. For a discussion of our fiscal 2020 results, please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the Company's Annual Report on Form 10-K for the year ended September 30, 2021 filed with the SEC on November 23, 2021. Acquisitions, Divestitures and Other Business Development Initiatives The Company periodically evaluates strategic transactions that may result in the acquisition of a business or assets that qualify as a business combination, or a divestiture of a business or assets that may be recognized as either a component of continuing operations or discontinued operations, depending on the significance to the consolidated group. Acquisitions may impact the comparability of the consolidated or segment financial information, with the inclusion of the operating results for the acquired business in periods subsequent to acquisition date, the inclusion of acquired assets, both tangible and intangible (including goodwill), and the related amortization, depreciation or other non-cash purchase accounting adjustments of acquired assets. Divestitures may impact the comparability of the consolidated or segment financial information with the recognition of an impairment loss when held for sale, gain or loss on disposition, or change in classification to discontinued operations for a qualifying transactions. Moreover, the comparability of consolidated or segment financial information may be impacted by incremental costs to facilitate and effect such transactions and initiatives to integrate acquired business or separate divested operations and assets with the consolidated group. The following strategic transactions have been considered as having a significant impact on the comparability of the financial results on the consolidated financial statements and segment financial information. • Tristar Business Acquisition - On February 18, 2022, the Company acquired 100% of the Tristar Business that includes a portfolio of home appliances and cookware products sold under the PowerXL®, Emeril, and Copper Chef® brands. The net assets and operating results of the Tristar Business are included in the Consolidated Financial Statements and reported within the HPC reporting segment as of and for the year ended September 30, 2022, effective as of the transaction date. See Note 4 - Acquisitions in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for further detail. In addition to the transaction costs of $13.5 million to effect the close of the transaction, recognized during the year ended September 30, 2022, the Company incurred incremental costs to combine and integrate the acquired business with the HPC segment, primarily towards the integration of systems and processes, merger of commercial operations and supply chain, professional fees to facilitate in the consolidation of financial records, plus incremental retention costs for personnel supporting the transition and integration efforts. Costs attributable to the integration of the Tristar Business were initiated with the close of the transaction and are projecting to continue through the year ending September 30, 2023. • Rejuvenate Acquisition - On May 28, 2021, the Company acquired 100% of the membership interests in For Life Products, LLC ("FLP"), a manufacturer of household cleaning, maintenance, and restoration products sold under the Rejuvenate® brand. The net assets and operating results of FLP are included in the Consolidated Financial Statements and reported within the H&G reporting segment as of and for the years ended September 30, 2022 and 2021, effective as of the transaction date. See Note 4 - Acquisitions in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for further detail. In addition to the transaction costs of $5.3 million to effect the close of the transaction, recognized during the year ended September 30, 2021, the Company incurred incremental costs to combine and integrate the acquired business with the H&G segment, primarily towards the integration of systems and processes, transfer of inventory and integration of distribution with an existing H&G distribution center, retention costs for personnel supporting transition and integration efforts, plus incremental trade spend realized from the alignment of commercial operations practices and policies (recognized as a reduction in net sales). Costs attributable to the integration of the Rejuvenate business have been substantially complete. • Armitage Acquisition - On October 26, 2020, the Company completed the acquisition of Armitage Pet Care Ltd ("Armitage"), a pet treats and toys business in Nottingham, UK including a portfolio of brands that include the dog treats brand, Good Boy®, cat treats brand, Meowee!®, and Wildbird® bird feed products, among others, that are predominantly sold within the UK. The net assets and results of operations of Armitage are included in the Consolidated Financial Statements and reported within the GPC reporting segment as of and for the years ended September 30, 2022 and 2021, effective as of the transaction date. See Note 4 - Acquisitions in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report, for further detail. In addition to the transaction costs of $5.1 million to effect the close of the transaction recognized during the year ended September 30, 2021, the Company incurred incremental costs to combine and integrate the acquired business with the GPC segment, primarily towards the integration of systems and processes, transfer of inventory and integration to existing GPC supply chain and distribution centers within the EMEA region, plus retention costs for personnel supporting the transition and integration efforts. Costs attributable to the integration of the Armitage business have been substantially complete. • Omega Acquisition - On March 10, 2020, the Company acquired Omega Sea, LLC ("Omega"), a manufacturer and marketer of premium fish foods and consumable goods for the home and commercial aquarium markets, primarily consisting of the Omega brand. The net assets and results of operations of Omega are included in the Consolidated Financial Statements and reported within GPC segment as of and for the years ended September 30, 2022 and 2021. The Company incurred incremental costs to combine and integrate the acquired business within the GPC segment, primarily towards the integration of systems and process, transfer of inventory and production to an existing GPC facility, including related exit and disposal costs of the assumed leased facility, related start-up costs and operational inefficiencies attributable to the transferred production, plus retention costs for personnel supporting the transition and integration after the transaction date. Costs attributable to the integration of the Omega business have been substantially complete. 30 Table of Conten t s • HHI Divestiture - On September 8, 2021, the Company entered into an Asset and Stock Purchase Agreement ("ASPA") with ASSA ABLOY AB ("ASSA") to sell its HHI segment. The consummation of the transaction is pending and subject to customary conditions, including the absence of a material adverse effect of HHI and certain antitrust conditions or other governmental restrictions, amongst others. On September 15, 2022, the DOJ filed a complaint seeking to enjoin the transaction and block the acquisition of the HHI division by ASSA. The Company expects that the trial will occur in April 2023. Both the Company and ASSA have stated their disagreement with the DOJ's concerns. The Company and ASSA will jointly defend the transaction in the litigation. ASSA has also announced that, to resolve all the alleged competitive concerns surrounding the acquisition of HHI, it has initiated a process to sell its Emtek and its smart residential business in the U.S. and Canada. The Company continues to recognize the HHI division as held for sale and as a component of our discontinued operations and are reported separately for all periods presented. The parties are committed to closing the HHI transaction and the Company and ASSA both continue to expect that they will obtain all the required governmental clearances and will close the HHI transaction. See Note 3 - Divestitures in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for further detail. The Company has incurred incremental costs attributable to the pending transaction, primarily consisting of legal and professional fees to effect the realization of the ASPA, facilitate antitrust or other governmental restrictions to consummate the transaction, preparation for separation of systems and processes supporting the divested business and enabling functions under a transition services agreement ("TSA"), plus incremental retention costs for personnel supporting the transition efforts. Incremental costs are expected to be incurred through the consummation of the pending transaction to support TSA processes and mitigation following the close of the sale, which are expected to be incurred for a transition period of approximately 12-24 months following the close of the transaction. • HPC Separation - The Company has entered into various initiatives to facilitate a strategic separation of the Company's ownership in the HPC segment in the most advantageous way to realize value for both the HPC business through a spin, merger or other strategic transaction and the retained GPC and H&G businesses of the Company. Costs are primarily attributable to legal and professional fees incurred to assess strategic opportunities, evaluate transaction considerations for a potential separation, including tax and compliance implications to the consolidated group, costs directly attributable to the legal entity separation and transfer of net assets of the HPC operations from commingled operations of the Company, plus the segregation of systems and processes. The realization of the transaction, if any, is likely not to occur until after completion of the HHI divestiture discussed above. Costs attributable to the initiative are expected to be incurred until a transaction is realized or otherwise cancelled. • Coevorden Operations - On March 29, 2020, the Company completed the sale of its dog and cat food ("DCF") production facility and distribution center in Coevorden, Netherlands with United Petfood Producers NV ("UPP"). See Note 3 - Divestitures included in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further detail. Following the separation of the Coevorden Operations, the Company has incurred incremental costs attributable to a tolling charge for the continued production of DCF products through a three-year manufacturing agreement with the buyer entered into concurrently with the sale, rent charges associated with the transferred warehouse operated by the Company during an 18-month transition period following the sale, plus costs to facilitate the transfer of the warehouse operations to the buyer and the movement of inventory and distribution center operations from the Coevorden facility to a new distribution center supporting GPC operations in EMEA. Incremental costs attributable to the tolling arrangement are expected to be completed in March 2023. The following is a summary of costs attributable to strategic transactions and business development costs for the respective projects during the years ended September 30, 2022 and 2021. In addition to the initiatives discussed above, the Company regularly engages in other business development initiatives that may incur incremental costs which may not result in a realized transaction or are less significant, and therefore have been separately disclosed and recognized as other project costs. (in millions) 2022 2021 Tristar Business acquisition and integration $ 24.3 $ 0.1 Rejuvenate acquisition and integration 6.8 10.8 Armitage acquisition and integration 1.4 10.9 Omega integration 4.6 1.3 HHI divestiture 6.3 9.6 HPC separation initiatives 19.1 14.2 Coevorden operations separation 8.8 11.6 Other project costs 1.0 5.4 Total $ 72.3 $ 63.9 Reported as: Net sales $ 0.7 $ — Cost of goods sold 9.4 6.9 General & administrative expense 57.9 57.0 Other non-operating expense, net 4.3 — Restructuring and Optimization Initiatives We continually seek and develop operating strategies to improve our operational efficiency, match our capacity and product costs to market demand and better utilize our manufacturing and distribution resources in order to reduce costs, increase revenues, and maintain or increase our current profit margins. We have undertaken various initiatives to reduce manufacturing and operating costs, which may have a significant impact on the comparability of financial results on the consolidated financial statements. These changes and updates are inherently difficult and are made even more difficult by current global economic conditions. Our ability to achieve the anticipated cost savings and other benefits from such operating strategies may be affected by a number of other macro-economic factors such as COVID-19, or inflation and increased interest rates, many of which are beyond our control. The following initiatives have been considered as having a significant impact on the comparability of the financial results on the consolidated financial statements and segment financial information. • Fiscal 2022 Restructuring - During the year ended September 30, 2022, the Company entered into a new initiative in response to changes observed within consumer products and retail markets, continued inflationary cost pressures and headwinds, resulting in the realization of a headcount reduction. See Note 5 - Restructuring Charges in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further detail on related exit or disposal costs attributable to this initiative. Costs attributable to the initiative are substantially complete as of September 30, 2022. 31 Table of Conten t s • Global ERP Transformation - During the year ended September 30, 2021, the Company entered into a SAP S/4 HANA ERP transformation project to upgrade and implement our enterprise-wide operating systems to SAP S/4 HANA on a global basis. This is a multi-year project that includes various costs, including software configuration and implementation costs that would be recognized as either capital expenditures or deferred costs in accordance with applicable accounting policies, with certain costs recognized as operating expense associated with project development and project management costs, and professional services with business partners engaged towards planning, design and business process review that would not qualify as software configuration and implementation costs. The Company has substantially completed the design phase of the project and has moved into the build phase. Costs are anticipated to be incurred through various deployments expected through September 30, 2024. • GPC Distribution Transition - During the year ended September 30, 2021, the GPC segment entered into an initiative to update its supply chain and distribution operations within the U.S. to address capacity needs, optimize and improve fill rates attributable to recent growth in the business and consumer demand, and improve overall operational effectiveness and throughput. The initiative includes the transition of its third party logistics (3PL) service provider at its existing distribution center, incorporating new facilities into the distribution footprint by expanding warehouse capacity and securing additional space to support long-term distribution and fulfillment, plus updating engagement and processes with suppliers and its transportation and logistics handlers. Incremental costs include one-time transition, implementation and start-up cost with the new 3PL service provider, including the integration of provider systems and technology, incentive-based compensation to maintain performance during transition, duplicative and redundant costs, and incremental costs for various disruptions in the operations during the transition period including supplemental transportation and storage costs, incremental detention and demurrage costs. See Note 5 - Restructuring Charges in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further detail on costs attributable to the program. Additionally, the Company experienced an increase in customer fines and penalties during the transition period (recognized as a reduction in net sales). Costs attributable to the initiative are substantially complete as of September 30, 2022. • Global Productivity Improvement Program - During the year ended September 30, 2019, the Company initiated a company-wide, multi-year program, consisting 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. With the Company’s divestitures of GBL and GAC during the year ended September 30, 2019, the project focus included the transition of the Company’s continuing operations in a post-divestiture environment and exiting of TSAs, which were fully exited in January 2022. The initiative included review of global processes and organization design and structures, headcount reductions and transfers, and rightsizing the Company’s shared operations and commercial business strategy and exit of certain internal production to third-party suppliers, among others, resulting in the recognition of severance benefits and other exit and disposal costs to facilitate such activity. See Note 5 - Restructuring Charges in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further detail on costs attributable to the program. Costs attributable to the initiative are substantially complete as of September 30, 2022. • HPC Brand Portfolio Transitions - In light of the acquisition of the Tristar Business and the PowerXL® brand, the Company has initiated a project within its HPC segment to assess and evaluate the current utilization of tradenames and brands across its portfolio of home and kitchen appliance products. The project will require incremental costs to facilitate potential transitions of branded product offerings on global basis, including investment with our supply base and retail partners to manage inventory and transition new branded products to market. Costs are anticipated to be incurred through September 30, 2025. • Russia Closing Initiative - The Company initiated the closing of its in-country commercial operations in Russia supporting the HPC segment, and is assessing other commercial activity directly impacted by the Russia-Ukraine conflict. The Company has recognized impairment costs of inventory and receivables that are at risk of recoverability as the Company has discontinued importing products directly into Russia, impairment of long-lived assets and expected lease termination costs. The initiative also includes costs for severance and other exit and disposal costs to facilitate such activity. See Note 5 - Restructuring Charges in the Notes to the Consolidated Financial Statements included elsewhere in this Annual report for further detail on exit and disposal costs attributable to the program. Cost attributable to the initiative are expected to be incurred through September 30, 2023. The following is a summary of impact to operating results attributable to restructuring initiatives and other optimization projects, incurred for the respective projects during the years ended September 30, 2022 and 2021. In addition to the projects and initiatives discussed above, the Company regularly incurs cost and engages in less significant restructuring initiatives and optimization engagements that individually are not substantial and occur over a shorter time period (generally less than 12 months). (in millions) 2022 2021 Fiscal 2022 restructuring $ 9.8 $ — Global ERP transformation 13.1 4.3 GPC distribution center transition 35.8 15.2 Global productivity improvement program 5.1 21.2 HPC brand portfolio transitions 1.3 — Russia closing initiative 1.9 — Other project costs 11.1 2.0 Total $ 78.1 $ 42.7 Reported as: Net sales $ 5.0 $ 3.7 Cost of goods sold 1.0 1.3 Selling expense 31.3 11.5 General & administrative expense 40.8 26.2 32 Table of Conten t s Refinancing Activity The following recent financing activity has a significant impact on the comparability of financial results on the consolidated financial statements. • During the year ended September 30, 2022, the Company entered into the third amendment to the Amended and Restated Credit Agreement (the "Credit Agreement") that provides for incremental capacity on the Revolver Facility of $500 million that was used to support the acquisition of the Tristar Business and the continuing operations and working capital requirements of the Company. Borrowings under the incremental capacity are subject to a borrowing rate which is subject to SOFR 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, with an increase by 25 basis points 270 days after the effective date of the third amendment and an additional 25 basis points on each 90 day anniversary of such date. • During the year ended September 30, 2021, the Company completed its offering of $500.0 million aggregate principal amount of its 3.875% Notes and entered into a new Term Loan Facility in the aggregate principal amount of $400.0 million on March 3, 2021. The Company also redeemed $250.0 million of the 6.125% Notes and $550.0 million of the 5.75% Notes, with a call premium of $23.4 million and non-cash write-off of unamortized debt issuance costs of $7.9 million recognized as interest expense. See Note 12 - Debt in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for additional detail regarding debt and refinancing activity. Russia-Ukraine Conflict The impacts of the Russia-Ukraine conflict and the sanctions imposed by other nations in response to the conflict are evolving and may have an impact on the Company's consolidated operations and cash flow attributable to operations and distribution within the region. The Company does not maintain a significant level of operations within Ukraine and has discontinued importing goods and initiated the closing of its HPC operations within Russia. The Company does not maintain material assets within Russia, which mostly consist of working capital associated with the in-country distribution operations. The Company has adjusted our risks associated with the collectability and realizable value for working capital within the region. The Company continues to evaluate its strategy and existing operations within the surrounding territory as matters evolve. Depending on the strategic directions taken within the region and results from closing our HPC operations in Russia, there may be incremental costs or potential impairments to remediate. COVID-19 The COVID-19 pandemic and the resulting regulations have caused economic and social disruptions that contribute to ongoing uncertainties and may have an impact on the operations, cash flow and net assets of the Company. Such impacts may include, but are not limited to, volatility of demand for our products; disruptions and cost implications in manufacturing and supply arrangements; inability of third parties to meet obligations under existing arrangements; and significant changes to the political and economic environments in which we manufacture, sell, and distribute our products. The Company expects a significant continuing inflationary environment, marked with higher manufacturing, employment, and logistics costs as well as continued constraints with transportation and supply chain disruptions. Additionally, there have also been changes in consumer needs and spending during the COVID-19 pandemic, and while we experienced an increase in demand for our products resulting from changes driven by the pandemic, our teams continue to monitor demand shifts and there can be no assurance as to the level of demand that will continue to prevail in future periods. We believe the severity and duration of the COVID-19 pandemic to be uncertain and may contribute to retail volatility and consumer purchase behavior changes. The COVID-19 pandemic has not had a materially negative impact on the Company’s liquidity position and we have not observed any material impairments. We continue to actively monitor our global cash and liquidity, and if necessary, could reinitiate mitigating efforts to manage non-critical spending and assess operating spend to preserve cash and liquidity. We expect the ultimate significance of the impact on our financial condition, results of operations, and cash flows will be dictated by the length of time that such circumstances continue, which will ultimately depend on the unforeseeable duration and severity of the COVID-19 pandemic, the emergence of variants and the effectiveness of vaccines against these variants, and any governmental and public actions taken in response. Inflation and Supply Chain Constraint s Our business continues to experience challenges towards product availability to meet customer demand. We have experienced increased labor shortages in the wake of the COVID-19 pandemic resulting in transportation and supply chain disruptions. Together with labor shortages and higher demand for talent, the current economic environment is driving higher wages. Our ability to meet labor needs, control wage and labor-related costs and minimize labor disruptions will be key to our success of operating our business and executing our business strategies. Furthermore, our business is operating in an inflationary environment, which has negatively impacted our gross margin rates. We are unable to predict how long the current inflationary environment, including increased energy costs, will continue. Additionally, we have experienced further supply chain disruptions from unanticipated shutdowns in our supply base and limitations within transportation and logistics impacting availability and increasing freight costs within the overall global supply chain. We expect the economic environment to remain uncertain as we navigate the current geopolitical environment, the COVID-19 pandemic, labor challenges, supply chain constraints and the current inflationary environment, including increasing energy and commodity prices. 33 Table of Conten t s Non-GAAP Measurements Our consolidated and segment results contain non-GAAP metrics such as organic net sales and Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization). While we believe organic net sales and Adjusted EBITDA are useful supplemental information, such adjusted results are not intended to replace our financial results in accordance with Accounting Principles Generally Accepted in the United States (“GAAP”) and should be read in conjunction with those GAAP results. Organic Net Sales. We define organic net sales as net sales excluding the effect of changes in foreign currency exchange rates and/or impact from acquisitions (where applicable). We believe this non-GAAP measure provides useful information to investors because it reflects regional and segment performance from our activities without the effect of changes in currency exchange rate and/or acquisitions. We use organic net sales as one measure to monitor and evaluate our regional and segment performance. Organic growth is calculated by comparing organic net sales to net sales in the prior year. The effect of changes in currency exchange rates is determined by translating the period’s net sales using the currency exchange rates that were in effect during the prior comparative period. Net sales are attributed to the geographic regions based on the country of destination. We exclude net sales from acquired businesses in the current year for which there are no comparable sales in the prior period. The following is a reconciliation of net sales to organic net sales of SBH and SB/RH for the year ended September 30, 2022 compared to net sales for the year ended September 30, 2021: September 30, 2022 Net Sales September 30, 2021 Variance (in millions, except %) Net Sales Effect of Changes in Currency Net Sales Excluding Effect of Changes in Currency Effect of Acquisitions Organic Net Sales HPC $ 1,370.1 $ 59.0 $ 1,429.1 $ (189.7) $ 1,239.4 $ 1,260.1 $ (20.7) (1.6 %) GPC 1,175.3 35.9 1,211.2 (8.8) 1,202.4 1,129.9 72.5 6.4 % H&G 587.1 — 587.1 (26.6) 560.5 608.1 (47.6) (7.8 %) Total $ 3,132.5 $ 94.9 $ 3,227.4 $ (225.1) $ 3,002.3 $ 2,998.1 $ 4.2 0.1 % 34 Table of Conten t s Adjusted EBITDA. Adjusted EBITDA is a non-GAAP metric used by management that we believe provides useful information to investors because it reflects the ongoing operating performance and trends of our segments, excluding certain non-cash based expenses and/or non-recurring items during each of the comparable periods. It also facilitates comparisons between peer companies since interest, taxes, depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA is also used for determining compliance with the Company’s debt covenants. See Note 12 - Debt in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for additional detail. 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 consists of costs associated with long-term compensation arrangements that generally consist of non-cash stock based compensation. During the year ended September 30, 2021, compensation costs included incentive bridge awards previously issued due to changes in the Company's Long-Term Incentive Plan ('LTIP") that allowed for cash based payment upon employee election but do not quality for share based compensation, which were fully vested in November 2020. See Note 18 - Share Based Compensation in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for further details; • Incremental amounts attributable to strategic transactions and business development initiatives including, but not limited to, the acquisition or divestitures of a business, costs to effect and facilitate a transaction, including such cost to integrate or separate the respective business. These amounts are excluded from our performance metrics as they are reflective of incremental investment by the Company towards business development activities, incremental costs attributable to such transactions and are not considered recurring or reflective of the continuing ongoing operations of the consolidated group or segments; • Incremental amounts realized towards restructuring and optimization projects including, but not limited to, costs towards the development and implementation of strategies to optimize operations and improve efficiency, reduce costs, increase revenues, increase or maintain our current profit margins, including recognition of one-time exit or disposal costs. These amounts are excluded from our ongoing performance metrics as they are reflective of incremental investment by the Company towards significant initiatives controlled by management, incremental costs directly attributable to such initiatives, indirect impact or disruption to operating performance during implementation, and are not considered recurring or reflective of the continuing ongoing operations of the consolidated group or segments; • Unallocated shared costs associated with discontinued operations from certain shared and center-led administrative functions supporting 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 3 - Divestitures in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further details; • Non-cash purchase accounting adjustments recognized in earnings from continuing operations subsequent to an acquisition, including, but not limited to, the costs attributable to the step-up in inventory value and the incremental value in operating lease assets with below market rent, among others; • Non-cash gain from the remeasurement of the contingent consideration liability recognized during the year ended September 30, 2022, associated with the Tristar Business acquisition. See Note 4 - Acquisitions in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further details; • Non-cash asset impairments or write-offs realized and recognized in earnings from continuing operations; • Gains attributable to the Company’s investment in Energizer common stock. During the year ended September 30, 2021, the Company sold its remaining shares in Energizer common stock. See Note 7 – Fair Value of Financial Instruments in Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, 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 years ended September 30, 2022 and 2021. See Note 20 – Commitments and Contingencies in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further detail; • Early settlement on certain foreign currency cash flow hedges in our EMEA region prior to their stated maturity due to changes in the Company's legal entity organizational structure and forecasted purchasing strategy of HPC finished goods inventory within the region, resulting in the recognition of realized gains during the third quarter ended July 3, 2022, plus the proforma effect of assumed losses following the early settlement date for the subsequent settlement periods through the original stated maturities. See Note 14- Derivatives in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for further details; • Incremental costs recognized by the HPC segment attributable to the realization of product recalls initiated by the Company during the year ended September 30, 2022. See Note 20 - Commitments and Contingencies in Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for further details; and • Other adjustments primarily attributable to (1) costs associated with Salus operations as they are not considered a components of the continuing commercial products company and (2) other key executive severance related costs (3) asset write-off for exit of certain GPC brands within China during year ended September 30, 2022, and (4) write-off of cost based investment previously held by the GPC segment during the year ended September 30, 2022. 35 Table of Conten t s The following is a reconciliation of net income (loss) from continuing operations to Adjusted EBITDA and Adjusted EBITDA margin for SBH and its segments for the year ended September 30, 2022. (in millions) HPC GPC H&G Corporate Consolidated Net income (loss) from continuing operations $ 25.4 $ 75.2 $ 57.2 $ (234.8) $ (77.0) Income tax benefit — — — (13.3) (13.3) Interest expense — — — 99.4 99.4 Depreciation 12.4 14.8 7.2 14.6 49.0 Amortization 16.3 22.6 11.4 — 50.3 EBITDA 54.1 112.6 75.8 (134.1) 108.4 Share and incentive based compensation — — — 10.2 10.2 Tristar Business acquisition and integration 24.3 — — — 24.3 Rejuvenate integration — — 6.8 — 6.8 Armitage integration — 1.4 — — 1.4 Omega production integration — 4.6 — — 4.6 HHI divestiture — — — 6.3 6.3 HPC separation initiatives — — — 19.1 19.1 Coevorden operations divestiture — 8.8 — — 8.8 Fiscal 2022 restructuring initiatives 4.9 3.6 0.7 0.6 9.8 Global ERP transformation — — — 13.1 13.1 GPC distribution center transition — 35.8 — — 35.8 Global productivity improvement program 2.4 0.8 — 1.9 5.1 Russia closing initiatives 1.9 — — — 1.9 HPC brand portfolio transitions 1.3 — — — 1.3 Other project costs 0.5 0.1 — 11.5 12.1 Unallocated shared costs — — — 27.6 27.6 Non-cash purchase accounting adjustments 8.3 — — — 8.3 Gain from remeasurement of contingent consideration liability (28.5) — — — (28.5) Legal and environmental — — 1.5 — 1.5 Early settlement of foreign currency cash flow hedges (5.1) — — — (5.1) HPC product recall 5.5 — — — 5.5 Salus and other adjustments — 0.9 1.4 2.5 4.8 Adjusted EBITDA $ 69.6 $ 168.6 $ 86.2 $ (41.3) $ 283.1 Net Sales $ 1,370.1 $ 1,175.3 $ 587.1 $ — $ 3,132.5 Adjusted EBITDA Margin 5.1 % 14.3 % 14.7 % — 9.0 % 36 Table of Conten t s The following is a reconciliation of net income (loss) from continuing operations to Adjusted EBITDA and Adjusted EBITDA margin for SBH and its segments for the year ended September 30, 2021. (in millions) HPC GPC H&G Corporate Consolidated Net income (loss) from continuing operations $ 46.1 $ 127.7 $ 83.7 $ (242.2) $ 15.3 Income tax benefit — — — (26.4) (26.4) Interest expense — — — 116.5 116.5 Depreciation 13.8 15.4 8.1 14.6 51.9 Amortization 30.2 23.8 11.1 — 65.1 EBITDA 90.1 166.9 102.9 (137.5) 222.4 Share and incentive based compensation — — — 29.4 29.4 Tristar Business acquisition — — — 0.1 0.1 Rejuvenate acquisition and integration — — 10.8 — 10.8 Armitage acquisition and integration — 10.9 — — 10.9 Omega production integration — 1.3 — — 1.3 HHI divestiture — — — 9.6 9.6 HPC separation initiatives — — — 14.2 14.2 Coevorden operations divestiture — 11.6 — — 11.6 Global ERP transformation — — — 4.3 4.3 GPC distribution center transition — 15.2 — — 15.2 Global productivity improvement program 8.0 2.4 0.4 10.4 21.2 Other project costs 4.5 0.4 — 2.5 7.4 Unallocated shared costs — — — 26.9 26.9 Non-cash purchase accounting adjustments — 3.4 3.9 — 7.3 Gain on Energizer investment — — — (6.9) (6.9) Legal and environmental — — 6.0 — 6.0 Salus and other adjustments — — — 0.1 0.1 Adjusted EBITDA $ 102.6 $ 212.1 $ 124.0 $ (46.9) $ 391.8 Net Sales $ 1,260.1 $ 1,129.9 $ 608.1 $ — $ 2,998.1 Adjusted EBITDA Margin 8.1 % 18.8 % 20.4 % — 13.1 % 37 Table of Conten t s The following is a reconciliation of net income (loss) from continuing operations to Adjusted EBITDA and Adjusted EBITDA margin for SB/RH and its segments for the year ended September 30, 2022. (in millions) HPC GPC H&G Corporate Consolidated Net income (loss) from continuing operations $ 25.4 $ 75.2 $ 57.2 $ (232.8) $ (75.0) Income tax benefit — — — (12.9) (12.9) Interest expense — — — 99.8 99.8 Depreciation 12.4 14.8 7.2 14.6 49.0 Amortization 16.3 22.6 11.4 — 50.3 EBITDA 54.1 112.6 75.8 (131.3) 111.2 Share and incentive based compensation — — — 9.1 9.1 Tristar Business acquisition and integration 24.3 — — — 24.3 Rejuvenate integration — — 6.8 — 6.8 Armitage integration — 1.4 — — 1.4 Omega production integration — 4.6 — — 4.6 HHI divestiture — — — 6.3 6.3 HPC separation initiatives — — — 19.1 19.1 Coevorden operations divestiture — 8.8 — — 8.8 Fiscal 2022 restructuring initiatives 4.9 3.6 0.7 0.6 9.8 Global ERP transformation — — — 13.1 13.1 GPC distribution center transition — 35.8 — — 35.8 Global productivity improvement program 2.4 0.8 — 1.9 5.1 Russia closing initiatives 1.9 — — — 1.9 HPC brand portfolio transitions 1.3 — — — 1.3 Other project costs 0.5 0.1 — 11.5 12.1 Unallocated shared costs — — — 27.6 27.6 Non-cash purchase accounting adjustments 8.3 — — — 8.3 Gain from remeasurement of contingent consideration liability (28.5) — — — (28.5) Legal and environmental — — 1.5 — 1.5 Early settlement of foreign currency cash flow hedges (5.1) — — — (5.1) HPC product recall 5.5 — — — 5.5 Other — 0.9 1.4 2.2 4.5 Adjusted EBITDA $ 69.6 $ 168.6 $ 86.2 $ (39.9) $ 284.5 Net Sales $ 1,370.1 $ 1,175.3 $ 587.1 $ — $ 3,132.5 Adjusted EBITDA Margin 5.1 % 14.3 % 14.7 % — 9.1 % 38 Table of Conten t s The following is a reconciliation of net income (loss) from continuing operations to Adjusted EBITDA and Adjusted EBITDA margin for SB/RH and its segments for the year ended September 30, 2021. (in millions) HPC GPC H&G Corporate Consolidated Net income (loss) from continuing operations $ 46.1 $ 127.7 $ 83.7 $ (240.2) $ 17.3 Income tax benefit — — — (25.0) (25.0) Interest expense — — — 116.8 116.8 Depreciation 13.8 15.4 8.1 14.6 51.9 Amortization 30.2 23.8 11.1 — 65.1 EBITDA 90.1 166.9 102.9 (133.8) 226.1 Share and incentive based compensation — — — 27.7 27.7 Tristar Business acquisition — — — 0.1 0.1 Rejuvenate acquisition and integration — — 10.8 — 10.8 Armitage acquisition and integration — 10.9 — — 10.9 Omega production integration — 1.3 — — 1.3 HHI divestiture — — — 9.6 9.6 HPC separation initiatives — — — 14.2 14.2 Coevorden operations divestiture — 11.6 — — 11.6 Global ERP transformation — — — 4.3 4.3 GPC distribution center transition — 15.2 — — 15.2 Global productivity improvement program 8.0 2.4 0.4 10.4 21.2 Other project costs 4.5 0.4 — 2.5 7.4 Unallocated shared costs — — — 26.9 26.9 Non-cash purchase accounting adjustments — 3.4 3.9 — 7.3 Gain on Energizer investment — — — (6.9) (6.9) Legal and environmental — — 6.0 — 6.0 Other — — — 0.1 0.1 Adjusted EBITDA $ 102.6 $ 212.1 $ 124.0 $ (44.9) $ 393.8 Net Sales $ 1,260.1 $ 1,129.9 $ 608.1 $ — $ 2,998.1 Adjusted EBITDA Margin 8.1 % 18.8 % 20.4 % — 13.1 % 39 Table of Conten t s Consolidated Results of Operations The following section provides an analysis of our operations for the years ended September 30, 2022 and 2021. For a discussion of our fiscal 2020 results, please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the Company's Annual Report on Form 10-K for the year ended September 30, 2021 filed with the SEC on November 23, 2021. SBH The following is summarized consolidated results of operations for SBH for the years ended September 30, 2022 and 2021, respectively: (in millions, except %) 2022 2021 Variance Net sales $ 3,132.5 $ 2,998.1 $ 134.4 4.5 % Gross profit 990.4 1,034.6 (44.2) (4.3 %) Gross profit margin 31.6 % 34.5 % (290) bps Operating expenses $ 967.2 $ 937.5 $ 29.7 3.2 % Interest expense 99.4 116.5 (17.1) (14.7 %) Other non-operating expense (income), net 14.1 (8.3) 22.4 n/m Income tax benefit (13.3) (26.4) 13.1 (49.6 %) Net (loss) income from continuing operations (77.0) 15.3 (92.3) n/m Income from discontinued operations, net of tax 149.7 174.3 (24.6) (14.1 %) Net income 72.7 189.6 (116.9) (61.7 %) n/m = not meaningful Net Sales. The following is a summary of net sales by segment for the years ended September 30, 2022 and 2021 and the principal components of changes in net sales for the respective periods. (in millions, except %) 2022 2021 Variance HPC $ 1,370.1 $ 1,260.1 $ 110.0 8.7 % GPC 1,175.3 1,129.9 45.4 4.0 % H&G 587.1 608.1 (21.0) (3.5 %) Net Sales $ 3,132.5 $ 2,998.1 134.4 4.5 % (in millions) 2022 Net Sales for the year ended September 30, 2021 $ 2,998.1 Increase due to acquisition 225.1 Increase in GPC 72.5 Decrease in HPC (20.7) Decrease in H&G (47.6) Foreign currency impact, net (94.9) Net Sales for the year ended September 30, 2022 $ 3,132.5 Gross Profit. Gross profit and gross profit margin for the year ended September 30, 2022 decreased primarily due to accelerated freight and input cost inflation pacing ahead of pricing actions taken during the year, increased costs attributable to constrained supply chain and lower volumes compared to the prior year which benefited from reopening trends and stimulus spending. Operating Expenses. Operating expenses for the year ended September 30, 2022 increased due to higher selling expenses of $79.1 million from higher distribution and transportation costs, increase in warehousing and inventory management costs, operating inefficiencies from labor inflation and turnover, and decrease in general and administrative costs of $17.8 million primarily from reduction in incentive related compensation costs and cost saving initiatives during the second half of the year, partially offset by increased expenses towards strategic transaction and other restructuring related initiatives during the year, plus realized gain of $28.5 million from the contingent consideration liability associated with the Tristar Business acquisition. See Note 4 - Acquisitions in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for additional detail. Interest Expense. Interest expense for the year ended September 30, 2022, decreased due to one-time refinancing charges in the prior year, offset by a higher level of outstanding borrowings on the Revolver Facility used to fund the Tristar Business acquisitions and working capital requirements with increased borrowing rates on variable rate debt. See Note 12 - Debt in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report. Other Non-Operating Expense, Net. Other non-operating expense, net for the year ended September 30, 2022 increased due to unfavorable foreign currency exchange rates, primarily from the weakening of the British Pound and Euro, with realized gains in the prior year from our previously held investment in Energizer common stock, which was sold in January 2021. See Note 7 - Fair Value of Financial Instruments in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for additional detail. Income Taxes. The effective tax rate was 14.8% for the year ended September 30, 2022 compared to 237.8% for the year ended September 30, 2021. Our annual effective tax rate is significantly impacted by income earned outside the U.S. that is subject to U.S. tax including the U.S. tax on global intangible low taxed income, certain nondeductible expenses, state income taxes, and foreign rates that differ from the U.S. federal statutory rate. The tax expense for the year ended September 30, 2022 was significantly impacted by a valuation allowance increase and share based compensation. Pretax income from continuing operations in the year ended September 30, 2021 was close to breakeven and therefore many items have a sizeable impact on the effective tax rate. The tax expense for the year ended September 30, 2021 was also significantly impacted by valuation allowance release, tax expense due to an increase to the United Kingdom's future tax rate, and tax benefits from retroactive law changes for global intangible low taxed income. See Note 16 – Income Taxes in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for additional detail. 40 Table of Conten t s Income From Discontinued Operations. Discontinued operations primarily reflects the income from the discontinued operations of the HHI business and the incremental changes to tax and legal indemnifications associated with the Company's previous divestitures of its Global Batteries and Lighting ("GBL") and Global Auto Care ("GAC") divisions. Income from discontinued operations attributable to the HHI business decreased during the year ended September 30, 2022 due to lower sales volume following post-pandemic volumes in the prior year, increasing inflationary costs and higher freight spend outpacing pricing actions taken during the year, partially offset by lower depreciation and amortization while held for sale. See Note 3 - Divestitures in Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for additional detail. SB/RH The following is summarized consolidated results of operations for SB/RH for the years ended September 30, 2022 and 2021: (in millions, except %) 2022 2021 Variance Net sales $ 3,132.5 $ 2,998.1 $ 134.4 4.5 % Gross profit 990.4 1,034.6 (44.2) (4.3 %) Gross profit margin 31.6 % 34.5 % (290) bps Operating expenses $ 964.5 $ 933.8 $ 30.7 3.3 % Interest expense 99.8 116.8 (17.0) (14.6 %) Other non-operating expense (income), net 14.0 (8.3) 22.3 n/m Income tax benefit (12.9) (25.0) 12.1 (48.4 %) Net (loss) income from continuing operations (75.0) 17.3 (92.3) n/m Income from discontinued operations, net of tax 149.7 174.3 (24.6) (14.1 %) Net income 74.7 191.6 (116.9) (61.0 %) n/m = not meaningful For the years ended September 30, 2022 and 2021, the change in net sales, gross profit and gross profit margin, operating expenses, interest expense and other non-operating expenses (income) are primarily attributable to changes in SBH previously discussed. Income from discontinued operations is attributable to SBH previously discussed. The effective tax rate was 14.6% for the year ended September 30, 2022 compared to 324.7% for the year ended September 30, 2021. The change in tax rate is primarily attributable to the changes in SBH previously discussed. Segment Financial Data This section provides an analysis of our results of reportable segments for the years ended September 30, 2022 and 2021. For a discussion of our fiscal 2020 results, please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the Company's Annual Report on Form 10-K for the year ended September 30, 2021 filed with the SEC on November 23, 2021. Home & Personal Care (HPC) (in millions, except %) 2022 2021 Variance Net sales $ 1,370.1 $ 1,260.1 $ 110.0 8.7 % Operating income 30.2 46.4 (16.2) (34.9) % Operating income margin 2.2 % 3.7 % (150) bps Adjusted EBITDA $ 69.6 $ 102.6 $ (33.0) (32.2 %) Adjusted EBITDA margin 5.1 % 8.1 % (300) bps Net sales for the year ended September 30, 2022 increased due to acquisition sales from the Tristar Business of $189.7 million, with significant unfavorable foreign currency impact of $59.0 million, predominantly impacting EMEA sales due to the weakening of the British Pound and Euro, and resulting in a decrease in organic net sales of $20.7 million, or 1.6%. The decrease is be attributable to lower category demand compared to prior year reopening trends and reduced replenishment orders in the second half of the year driven by high retail inventory levels, partially offset by positive pricing adjustments on inflationary costs, strong market growth in LATAM driven by higher consumer demand and expanded distribution and post-pandemic gains in garment care product categories. Operating income, adjusted EBITDA and margins for the year ended September 30, 2022 decreased due to accelerated freight and input cost inflation ahead of incremental pricing actions taken during the year, incremental distribution and inventory management costs due to supply chain challenges, negative impact of foreign currency with the weakening of the British Pound and Euro, with incremental transaction and integration related costs attributable to the Tristar Business acquisition and related non-cash purchase accounting adjustments further impacting operating income and margin, partially offset by the recognition of a $28.5 million gain from the remeasurement of contingent consideration liability associated with the Tristar Business acquisition. See Note 4 -Acquisitions for further detail on Tristar Business acquisition. 41 Table of Conten t s Global Pet Care (GPC) (in millions, except %) 2022 2021 Variance Net sales $ 1,175.3 $ 1,129.9 $ 45.4 4.0 % Operating income 78.3 129.9 (51.6) (39.7 %) Operating income margin 6.7 % 11.5 % (480) bps Adjusted EBITDA $ 168.6 $ 212.1 $ (43.5) (20.5 %) Adjusted EBITDA margin 14.3 % 18.8 % (450) bps Net sales for the year ended September 30, 2022 increased with greater demand in dog chews and treats and aquatic consumables partially offset by lower sales on hard goods and aquatic equipment fueled by new hobbyist that entered the category during the pandemic. Pricing adjustments implemented during the year to address inflationary costs positively impacted net sales with improved fulfillment following transitions at our U.S. distribution center, partially mitigated by a temporary shut-down of key supplier manufacturing facilities and supply chain capacity constraints impacting fulfillment earlier in the fiscal year and the weakening of the British Pound and Euro negatively impacting EMEA sales. Organic net sales increased $72.5 million, or 6.4% excluding significant unfavorable foreign exchange impact of $35.9 million and acquisition sales from Armitage of $8.8 million. Operating income, adjusted EBITDA and margins for the year ended September 30, 2022 decreased due to higher freight and input cost inflation ahead of pricing actions, additional distribution and inventory management costs, operating cost inefficiencies from distribution transitions and labor turnover, unfavorable product mix, and negative impact of foreign currency with the weakening of the British Pound and Euro, with incremental costs to facilitate the transition of its U.S. distribution operations further impacting operating income and margin. Home & Garden (H&G) (in millions, except %) 2022 2021 Variance Net sales $ 587.1 $ 608.1 $ (21.0) (3.5 %) Operating income 57.3 83.7 (26.4) (31.5 %) Operating income margin 9.8 % 13.8 % (400) bps Adjusted EBITDA $ 86.2 $ 124.0 $ (37.8) (30.5 %) Adjusted EBITDA margin 14.7 % 20.4 % (570) bps Net sales for the year ended September 30, 2022 decreased primarily from unfavorable weather conditions across the U.S. with a cold, wet start to the season and excess heat and drought conditions late in the season driving down demand, most significantly impacting repellent products, and reducing POS and foot traffic at home center retailers which adversely impacted sales across all categories, increased retail inventory levels and reduced retailer replenishment orders. Net sales were positively impacted by pricing adjustments implemented during the year to address inflationary costs and acquisition sales from Rejuvenate of $26.6 million. Organic net sales decreased $47.6 million, or 7.8%, excluding acquisition sales. Operating income, adjusted EBITDA and margins for the year ended September 30, 2022 decreased due to lower volumes, higher freight and input cost inflation outpacing pricing actions taken during the year and unfavorable product mix. Liquidity and Capital Resources This section provides a discussion of our financial condition and an analysis of our cash flows for the years ended September 30, 2022 and 2021. For a discussion of our fiscal 2020 results, please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the Company's Annual Report on Form 10-K for the year ended September 30, 2021 filed with the SEC on November 23, 2021. This section also provides a discussion of our contractual operations and other commercial commitments as well as our ability to fund future commitments and operating activities through sources of capital as of September 30, 2022. The following is a summary of the Company’s net cash flows from continuing operations for the years ended September 30, 2022 and 2021: SBH SB/RH (in millions) 2022 2021 2022 2021 Operating activities $ (231.5) $ 89.2 $ (263.5) $ 81.7 Investing activities $ (335.9) $ (400.7) $ (335.9) $ (400.7) Financing activities $ 490.7 $ (206.9) $ 523.1 $ (197.1) Cash flows from operating activities Cash flows from operating activities by SBH continuing operations for the year ended September 30, 2022 decreased $320.7 million due to a decrease in operating results with an increase in cash towards inflationary costs on raw materials and products, labor and freight, and increased supply chain costs contributing to higher inventory levels, plus increase in cash paid towards strategic transactions and other restructuring related initiatives. Cash flows used in SB/RH continuing operations decreased $345.2 million primarily due to the SBH items previously discussed. Cash flows from investing activities Cash flows used in investing activities by SBH continuing operations for the year ended September 30, 2022 decreased $64.8 million primarily due to the decrease in cash used for acquisitions, net of cash acquired, for the purchase of the Tristar Business of $272.1 million compared to the purchase of Armitage and Rejuvenate for $429.9 million in the prior year, offset by the net proceeds from the sale of Energizer common stock of $73.1 million in the prior year, with an increase in capital expenditures of $20.4 million predominantly due to incremental investment in updating the Company's enterprise-wide operating systems. Cash flow used in investing activities for SB/RH continuing operations decreased due to the SBH items previously discussed. 42 Table of Conten t s Cash flows from financing activities Cash flows provided by financing activities by SBH continuing operations increased $697.6 million for the year ended September 30, 2022 primarily due to increased borrowings on the Revolver Facility to support the Tristar Business acquisition and working capital requirements, partially offset by an increase in stock repurchase activity earlier in the year and higher share based stock award withholding payments from the vesting of LTIP grants. During the year ended September 30, 2022, the Company realized $740.0 million of proceeds from the Revolver Facility with amortizing payment on other outstanding debt of $12.7 million. Refer to Note 12 - Debt in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information. During the year ended September 30, 2022 the Company repurchased $134.0 million of treasury stock at an average cost of $97.34, primarily through the Company's 10b5-1 repurchase plan. There was no issuance of common stock, other than through the Company's share-based compensation plan and which is recognized as a non-cash financing activity. See Note 17 - Shareholder's Equity and Note 18 - Share Based Compensation in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information. Cash dividend payments decreased due to lower shares outstanding with a consistent quarterly dividend rate of $0.42 per shares. Cash flows from financing activities for SB/RH continuing operations for the year ended September 30, 2022 are highly dependent upon the financing cash flow activity of SBH. Liquidity Outlook Our ability to generate significant cash flow from operating activities coupled with our expected ability to access the credit markets, enables us to execute our growth strategies and return value to our shareholders. Our ability to make principal and interest payments on borrowings under our debt agreements and our ability to fund planned capital expenditures will depend on the ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions. Based upon our current level of operations, existing cash balances, the anticipated proceeds from HHI divestitures and availability under our credit facility, we expect cash flows from operations to be sufficient to meet our operating and capital expenditure requirements for at least the next 12 months. Additionally, we believe the availability under our credit facility and access to capital markets are sufficient to achieve our longer-term strategic plans. As of September 30, 2022, the Company had borrowing availability of $342.4 million, net of outstanding letters of credit of $17.6 million, under our credit facility. Liquidity and capital resources of SB/RH are highly dependent upon the cash flow activities of SBH. Short-term financing needs primarily consist of working capital requirements, restructuring initiatives, capital spending, and periodic principal and interest payments on our long-term debt. Long-term financing needs depend largely on potential growth opportunities, including acquisition activity, repayment or refinancing of our long-term obligations, and repurchases of our common stock. We may, from time-to-time, seek to repurchase shares of our common stock. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, and other factors. During the fourth quarter ended September 30, 2021, SBH entered into a $150 million rule 10b5-1 repurchase to facilitate daily market share repurchases through September 2022 or until the cap was reached or agreement was terminated. The Company completed share repurchases under its $150 million rule 10b5-1 repurchase plan during the year ended September 30, 2022. On August 16, 2022, the Inflation Reduction Act of 2022 ("IRD") was enacted into law which imposes a 1% excise tax on stock repurchases made after December 31, 2022. See Note 17 - Shareholder's Equity in Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information. Our long-term liquidity may be influenced by our ability to borrow additional funds, renegotiate existing debt, and raise equity under terms that are favorable to us. We also have long-term obligations associated with defined benefit plans with expected minimum required contributions that are not considered significant to the consolidated group. We maintain a capital structure that we believe provides us with sufficient access to credit markets. When combined with strong levels of cash flow from operations, our capital structure has provided the flexibility necessary to pursue strategic growth opportunities and return value to our shareholders. The Company’s access to capital markets and financing costs may depend on the Company’s credit ratings. None of the Company’s current borrowings are subject to default or acceleration as a result of a downgrading of credit ratings, although a downgrade of the Company’s credit ratings could increase fees and interest charges on future borrowings. At September 30, 2022, we were in compliance with all covenants under the Credit Agreement and the indentures governing the 5.75% Notes due July 15, 2025, the 4.00% Notes due October 1, 2026, the 5.00% Notes due October 1, 2029, the 5.50% Notes due July 15, 2030, and the 3.875% Notes due March 15, 2031. Subsequent to the year ended September 30, 2022, on November 17, 2022, the Company entered into an amendment to the Credit Agreement to temporarily increase the maximum consolidated total net leverage ratio permitted to be no greater than 7.0 to 1.0, before returning to 6.0 to 1.0 at the earliest of (i) September 29, 2023, or (ii) 10 business days after the closing of the HHI divestiture or receipt of the related termination fee. A portion of our cash balance is located outside the U.S. given our international operations. We manage our worldwide cash requirements centrally by reviewing available cash balances across our worldwide group and the cost effectiveness with which this cash can be accessed. We generally repatriate cash from non-U.S. subsidiaries, provided the cost of the repatriation is not considered material. The counterparties that hold our deposits consist of major financial institutions. At September 30, 2022, we believe there is approximately $40-60 million of foreign cash available for repatriation. The majority of our business is not considered seasonal with a year round selling cycle that is overall consistent during the fiscal year with the exception of our H&G segment. H&G sales typically peak during the first six months of the calendar year (the Company's second and third fiscal quarters) due to customer seasonal purchasing patterns and the timing of promotional activity. This seasonality requires the Company to ship large quantities of product ahead of peak consumer buying season that can impact cash flow demands to meet manufacturing and inventory requirements earlier in the fiscal year, as well as extended credit terms and/or promotional discounts throughout the peak season. From time to time, the Company enters into factoring agreements and customers' supply chain financing arrangements to provide for the sale of certain trade receivables to unrelated third-party financial institutions. The factored receivables are accounted for as a sale without recourse, and the balance of the receivables sold are removed from the Consolidated Balance Sheet at the time of the sales transaction, with the proceeds received recognized as an operating cash flow. Amounts received from customers for factored receivables are recognized as a payable and remitted to the factor based upon the terms of the factoring agreements. The Company has factored certain of its trade receivables as of and during the year ended September 30, 2022. Additionally, the Company facilitates a voluntary supply chain financing program to provide certain of its suppliers with the opportunity to sell receivables due from the Company (the Company's trade payables) to an unrelated third-party financial institution under the sole discretion of the supplier and the participating financial institution. There are no guarantees provided by the Company or its subsidiaries and we do not enter into any agreements with the suppliers regarding their participation. The Company's responsibility is limited to payments on the original terms negotiated with its suppliers, regardless of whether the suppliers sell their receivables to the financial institution, and continue to be recognized as accounts payable on the Company's Consolidated Statement of Financial Position with cash flow activity recognized as an operating cash flow. 43 Table of Conten t s The COVID-19 pandemic has not, as of the date of this report, materially impacted our operations or demand for our products and has not had a materially negative impact on the Company’s liquidity position. The Company has realized supply chain disruptions which has impacted our cash flow to facilitate increased investment in inventory to ensure timely supply to meet customer demands along with shortened payment dates for some suppliers to account for longer shipping cycles. There can be no assurance that it won't have a material negative impact on us in the future. Nonetheless, we continue to actively monitor our global cash balances and liquidity, and if necessary, could reinitiate mitigating efforts to manage non-critical capital spend and assess operating spend to preserve cash and liquidity, including the suspension of our share repurchase activity. During the year ended September 30, 2022, we experienced an increased demand on cash requirements and liquidity due to inflationary costs and economic trends realized during the year and have taken measures to reduce operating costs and non-critical capital spend, which we expect to continue into the following year. Despite these increased demands, we continue to generate operating cash flows to meet our short-term liquidity needs, along with our other tools previously discussed to manage working capital requirements throughout the fiscal year. We expect to maintain access to the capital markets, although there can be no assurance of our ability to do so. However, the spread of COVID-19 has led to disruption and volatility in the global capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future. Debt obligations Our debt obligations, excluding finance leases, have varying maturity dates with no material outstanding principal payments due within the following 12 months. Our Term Loan Facility is subject to quarterly amortizing payments of $1.0 million. Refer to Note 12 - Debt in the notes to the Consolidated Financial Statements included elsewhere in this Annual Report for expiration dates and maturity schedules on outstanding debt obligations for the following 5 years and thereafter. In addition to the outstanding principal on our debt, we anticipate annual interest payments of $175.2 million in the aggregate and includes interest under our: (i) Term Loan of $21.7 million, subject to variable interest rates based upon annualized rate of 5.54%, (ii) Revolver Facility of $54.1 million, subject to variable interest rates, based upon an annualized rate of 6.59% and outstanding balance based on projected utilization of the Revolver Facility during the following 12 months; (iii) 5.75% Notes of $25.9 million; (iv) 4.00% Notes of $16.9 million; (v) 5.00% Notes of $15.0 million; (vi) 5.50% Notes of $16.5 million; (vii) 3.875% Notes of $19.4 million; and (viii) interest of approximately $5.8 million attributable to finance leases. Interest on the notes is payable semi-annually in arrears and interest under the Term Loan and Revolver Facility is payable on various interest payment dates as provided in the Credit Agreement. Lease obligations The Company enters into leases primarily pertaining to real estate for manufacturing facilities, distribution centers, office space, warehouses, and various equipment including automobiles, machinery, computers, and office equipment, amongst others. Lease obligations with a term in excess of 12 months are recognized on the Company's Consolidated Statement of Financial Position. See Note 13 - Leases of Notes to the Consolidated Financial Statement included elsewhere in the Annual Report for further detail, including maturity schedule on outstanding finance and operating lease obligations for the following 5 years and thereafter, including imputed interest not reflected on the Consolidated Statements of Financial Position. Employee benefit plan obligations The Company and its subsidiaries are sponsors to various defined benefit pension plans covering some of its employees that provide post-employment benefits of stated amounts for each year of service, including a number of other non-U.S. pension arrangements, including various retirement and termination benefit plans, some of which are covered by local law or coordinated with government-sponsored plans. The Company's recognizes an actuarial determined unfunded projected benefit obligation recognized as Other Long-Term Liabilities on the Company's Consolidated Statement of Financial Position, net fair value of dedicated plan assets. See Note 15 - Employee Benefit Plans of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further detail included projected payments towards the future obligation for the following 5 years and thereafter. The Company anticipates that benefit obligations will be predominantly paid through dedicated plan assets. Future contributions to defined benefit plans are not expected to be material to the operations and cash flow for the Company. Other commitments and obligations Other commitments and obligations include an outstanding mandatory repatriation tax liability of $16.9 million that is payable over the next 4 years, with $2.2 million due and payable in the next 12 months but will be offset by previous payments and credits. The remaining balance due is net of refundable tax credits and overpayments that must be applied to the mandatory tax installments, and due to the credits and overpayments, the Company does not expect to make an additional payment for mandatory repatriation until Fiscal 2025. See Note 16 - Income Taxes of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report. Our Consolidated Statements of Financial Position also includes reserves for uncertain tax positions; however, it is not possible to predict or estimate the amount and timing of payments for uncertain tax positions and those liabilities have been excluded from the obligations above. The Company cannot reasonably predict the ultimate outcome of income tax audits currently in progress for certain of our companies. It is reasonably possible that during the next 12 months, some portion of our unrecognized tax benefits could be recognized. See Note 16 – Income Taxes of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for additional discussion on uncertain tax positions. The Company has recognized other payables associated with indemnifications following divestitures, including tax indemnifications, that we cannot reasonably predict the ultimate outcome of our obligation; however it is reasonably possible that during the next 12 months, some portion of our indemnification payable could be recognized. As of September 30, 2022, there are $7.0 million of indemnification liabilities recognized as Other Current Accruals and $15.3 million recognized as Other Long-Term Liabilities on the Consolidated Statement of Financial Position. See Note 3 – Divestitures of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report. 44 Table of Conten t s Guarantor Statements - SB/RH SBI has issued the 5.75% Notes under the 2025 Indenture, the 4.00% Notes under the 2026 Indenture, the 5.00% Notes under the 2029 Indenture, the 5.50% Notes under the 2030 Indenture, and the 3.875% Notes under the 2031 Indentures (collectively, the “Notes”). The Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by SB/RH and SBI’s domestic subsidiaries. The Notes and the related guarantees rank equally in right of payment with all of SBI and the guarantors’ existing and future senior indebtedness and rank senior in right of payment to all of SBI and the guarantors’ future indebtedness that expressively provide for its subordination to the Notes and the related guarantees. Non-guarantor subsidiaries primarily consist of SBI’s foreign subsidiaries. The following financial information consists of summarized financial information of the Obligor, presented on a combined basis. The “Obligor” consists of the financial statements of SBI as the debt issuer, SB/RH as a parent guarantor, and the domestic subsidiaries of SBI as subsidiary guarantors. Intercompany balances and transactions between SBI and the guarantors have been eliminated. Investments in non-guarantor subsidiaries and the earnings or losses from those non-guarantor subsidiaries have been excluded. (in millions) 2022 Statement of Operations Data Third-party net sales $ 1,955.8 Intercompany net sales to non-guarantor subsidiaries 14.4 Total net sales 1,970.2 Gross profit 551.2 Operating loss (190.4) Net loss from continuing operations (263.2) Net loss (174.7) Net loss attributable to controlling interest (174.7) Statement of Financial Position Data Current Assets $ 2,634.4 Noncurrent Assets 2,169.9 Current Liabilities 1,634.1 Noncurrent Liabilities 3,423.4 The Obligor’s amounts due from, due to the non-guarantor subsidiaries as of September 30, 2022 are as follows: (in millions) 2022 Statement of Financial Position Data Current receivables from non-guarantor subsidiaries $ 8.1 Long-term receivable from non-guarantor subsidiaries 74.6 Current payable to non-guarantor subsidiaries 311.2 Long-term debt with non-guarantor subsidiaries 2.0 45 Table of Conten t s Critical Accounting Policies and Estimates Our Consolidated Financial Statements have been prepared in accordance with GAAP and fairly present our financial position and results of operations. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its accounting estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances and evaluates its estimates on an ongoing basis. The following section identifies and summarizes those accounting policies considered by management to be the most critical to understanding the judgments that are involved in the preparation of our consolidated financial statements and the uncertainties that could impact our results of operations, financial position and cash flows. The application of these accounting policies requires judgment and use of assumptions as to future events and outcomes that are uncertain and, as a result, actual results could differ from these estimates. Refer to Note 2 - Significant Accounting Policies and Practices of Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for all relevant accounting policies. Goodwill, Intangible Assets and Other Long-Lived Assets The Company’s goodwill, intangible assets and tangible fixed assets are stated at historical cost, net of depreciation and amortization, less any provision for impairment. Intangible and tangible assets with determinable lives are amortized or depreciated on a straight line basis over estimated useful lives. Refer to Note 2 - Significant Accounting Policies and Practices of Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for more information about useful lives. On an annual basis, during the fourth quarter of the fiscal year, or more frequently if triggering events occur, the Company tests for impairment of goodwill by either performing a qualitative assessment or quantitative test for some or all reporting units. Our reporting units are consistent with our operating segments. See Note 21 - Segment Information of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further discussion of operating and reporting segments. The Company evaluates qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. In performing a qualitative assessment, the Company considers events and circumstances, including, but not limited to macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in market value, composition or carrying amount of a reporting unit's net asset, and considering change in the market price of the Company's common stock. If we determine that it is more likely than not the carrying value is greater than the fair value of a reporting unit after assessing the totality of facts and circumstances, a quantitative assessment is performed to determine the reporting unit fair value and measure the impairment. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded for the difference between the fair value of the reporting unit goodwill and its carrying value. The estimated fair value represents the amount at which a reporting unit could be bought or sold in a current transaction between willing parties on an arms-length basis. In estimating the fair value of the reporting unit, we use a discounted cash flows methodology, which requires us to estimate future revenues, expenses, and capital expenditures and make assumptions about our weighted average cost of capital and perpetuity growth rate, among other variables. We test the aggregate estimated fair value of our reporting units by comparison to our total market capitalization, including both equity and debt capital. For the year ended September 30, 2022, we did not recognize an impairment of goodwill. In addition to goodwill, the Company has indefinite-lived intangible assets that consist of acquired tradenames. On an annual basis, during the Company’s fourth quarter, or more frequently if triggering events occur, the Company tests for impairment by either performing a qualitative assessment or quantitative test for some or all indefinite-lived intangible assets. The Company evaluates qualitative factors to determine whether it is more likely than not that the fair value of the indefinite lived intangible assets is less than its carrying amount. In performing a qualitative assessment, the Company considers events and circumstances including, but not limited to, macroeconomic conditions, industry and market conditions, cost factors, changes in strategy and overall financial performance. If we determine that it is more likely than not the carrying value is greater than the fair value of an indefinite lived intangible asset, a quantitative assessment is performed to determine the fair value and measure the impairment. If the fair value is less than its carrying value, an impairment loss is recorded for the excess. The fair value of indefinite-lived intangible assets is determined using an income approach, the relief-from-royalty methodology, which requires us to make estimates and assumptions about future revenues, royalty rates, and the discount rate, among others. For the year ended September 30, 2022, we did not recognize an impairment of indefinite-lived intangible assets. While we have not recognized an impairment of goodwill or intangible assets during the year ended September 30, 2022, we have identified a potential risk of impairment associated with the HPC reporting unit goodwill, with a carrying cost of $108.1 million as of September 30, 2022, and the Rejuvenate® tradename, with a carrying cost of $119.1 million as of September 30, 2022. We do not anticipate that these assets will be subject to future impairment based upon our projections and forecasts used in evaluating the current market value but cannot guarantee that no future impairment will be realized. The risk of future impairment for the HPC reporting unit is based upon the results realized during year ended September 30, 2022, macro-economic headwinds from inflationary costs and foreign currency fluctuations, retail and consumer spending activity, and risks associated with the Tristar Business integration and branding strategy transitions. The risk of future impairment for the Rejuvenate® tradename is based upon the results realized during the year ended September 30, 2022, and dependency upon the timing and realization of market expansion milestones and synergies associated with the acquired business. The Company also reviews other definite-lived intangible assets and tangible fixed assets for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Circumstances such as the discontinuation of a product or product line, a sudden or consistent decline in the sales forecast for a product, changes in technology or in the way an asset or asset group is being used, a history of operating or cash flow losses or an adverse change in legal factors or in the business climate, among others, may trigger an impairment review. If such indicators are present, the Company performs undiscounted cash flow analyses to determine if impairment exists. The asset value would be deemed impaired if the undiscounted cash flows expected to be generated by the asset or asset group did not exceed its carrying value. If impairment is determined to exist, any related impairment loss is calculated based on fair value. For the year ended September 30, 2022, there was no impairment of definite-lived intangible assets or tangible fixed assets. A considerable amount of judgment and assumptions are required in performing the impairment tests, principally in determining the fair value of each reporting unit and assets subject to impairment testing. While the Company has not recognized an impairment for its goodwill, intangible assets or other long-lived assets, the assessment requires the consideration of a significant level of judgement and subjectivity, including the use of prospective financial information, which may be impacted by changes in the economic environment, future strategic business decisions, political, legal or regulatory conditions, competitive or market risk factors not readily identifiable or present, or other changes that may negatively impact prospective revenue generation or cash flow. Such changes may not be determinable, but could adversely impact the fair value of the its reporting unit goodwill, intangible assets or other long-lived assets and increase the risk of impairment, particularly associated with those assets recently acquired through a business without generating excess value since the initial acquisition. The Company believes its judgments and assumptions are reasonable, but different assumptions could change the estimated fair value, increasing the risk of impairment and potentially additional impairment charges could be required. The Company is subject to financial statement risk in the event that business or economic conditions unexpectedly decline and impairment is realized. See Note 11 - Goodwill and Intangible Assets of the Notes to the Consolidated Financial Statements elsewhere included in this Annual Report. 46 Table of Conten t s Income Taxes The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and recording the related deferred tax assets and liabilities. The Company assesses its income tax positions and records tax liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available for reporting. For those income tax positions where it is more likely than not that a tax benefit will be sustained upon conclusion of an examination, the Company has recorded a reserve based upon the largest amount of tax benefit having a cumulatively greater than 50% likelihood of being realized upon ultimate settlement with the applicable taxing authority assuming that it has full knowledge of all relevant information. For those income tax positions where it is more likely than not that a tax benefit will not be sustained, the Company did not recognize a tax benefit. As of September 30, 2022, the total amount of unrecognized tax benefits, including interest and penalties, that if not recognized would affect the effective tax rate in future periods was $100.9 million. Our effective tax rate includes the impact of income tax reserves and changes to those reserves when considered appropriate. A number of years may elapse before a particular matter for which we have established a reserve is finally resolved. Unfavorable settlement of any particular issue may require the use of cash or a reduction in our net operating loss carryforwards or tax credits. Favorable resolution would be recognized as a reduction to the effective rate in the year of resolution. The Company recognizes deferred tax assets and liabilities for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating losses, tax credit, and other carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company does not adjust its measurement for proposed future tax rate changes that have not yet been enacted into law. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical losses, projected future taxable income, expected timing of the reversals of existing temporary differences, and ongoing prudent and feasible tax planning strategies. We base these estimates on projections of future income, including tax planning strategies, in certain jurisdictions. Changes in industry conditions and other economic conditions may impact our ability to project future income. Should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period we make that determination. As of September 30, 2022, we have U.S. federal net operating loss carryforwards (“NOLs”) of $1,382.3 million, with a federal tax benefit of $290.3 million and future tax benefits related to state NOLs of $77.8 million. Our total valuation allowance for the tax benefit of deferred tax assets that may not be realized is $337.4 million at September 30, 2022. Of this amount, $257.5 million relates to U.S. net deferred tax assets and $79.9 million relates to foreign net deferred tax assets. We estimate that $154.4 million of valuation allowance related to domestic deferred tax assets cannot be released regardless of the amount of domestic operating income generated due to prior period ownership changes that limit the amount of NOLs and credits we can use. As of September 30, 2022, we have provided no significant residual U.S. taxes on earnings not yet taxed in the U.S. As of September 30, 2022, we project $2.0 million of additional tax from non-U.S. withholding and other taxes expected to be incurred on repatriation of foreign earnings. See Note 16 - Income Taxes of the Notes to the Consolidated Financial Statements elsewhere included in this Annual Report. New Accounting Pronouncements See Note 2 – Significant Accounting Policies and Practices of Notes to the Consolidated Financial Statements elsewhere included in this Annual Report for information about recent accounting pronouncements not yet adopted.