Spectrum Brands Holdings, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction 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 the Condensed Consolidated Financial Statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q. Unless the context indicates otherwise, the term the “Company,” “we,” “our,” or “us” are used to refer to Spectrum Brands Holdings, Inc. and its subsidiaries ("SBH") and SB/RH Holdings, LLC and its subsidiaries (“SB/RH”), collectively. Business Overview The Company is a diversified global branded consumer products company. We manage the businesses in three vertically integrated, product-focused segments: (i) Home and Personal Care (“HPC”), (ii) Global Pet Care (“GPC”), and (iii) Home and Garden (“H&G”). The Company manufactures, markets and/or distributes its products globally in the North America (“NA”), Europe, Middle East & Africa (“EMEA”), Latin America (“LATAM”) and Asia-Pacific (“APAC”) regions through a variety of trade channels, including retailers, wholesalers and distributors. We enjoy strong name recognition in our regions under our various brands and patented technologies across multiple product categories. Global and geographic strategic initiatives and financial objectives are determined at the corporate level. Each segment is responsible for implementing defined strategic initiatives and achieving certain financial objectives and has a president responsible for sales and marketing initiatives and financial results for all product lines within that segment, on a global basis. The segments are supported through center-led shared service operations and enabling functions consisting of finance and accounting, information technology, legal, human resources, supply chain, and commercial operations. See Note 17 – Segment Information included in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report for more information pertaining to segments of continuing operations. The following is an overview of the consolidated business, by segment, summarizing product types and brands: Segment Products Brands HPC Home Appliances: Small kitchen appliances including toaster ovens, coffeemakers, slow cookers, air fryers, blenders, hand mixers, grills, food processors, juicers, toasters, irons, kettles, bread makers, cookware, and cookbooks. Home Appliances: Black & Decker®, Russell Hobbs®, George Foreman®, PowerXL®, Emeril Legasse®, Copper Chef ®, Toastmaster®, Juiceman®, Farberware®, and Breadman® Personal Care : Hair dryers, flat irons and straighteners, rotary and foil electric shavers, personal groomers, mustache and beard trimmers, body groomers, nose and ear trimmers, women's shavers, and haircut kits. Personal Care: Remington® GPC Companion Animal: Rawhide chews, dog and cat clean-up, training, health and grooming products, small animal food and care products, rawhide-free dog treats, and wet and dry pet food for dogs and cats. Companion Animal: 8IN1® (8-in-1), Dingo®, Nature's Miracle®, Wild Harvest™, Littermaid®, Jungle®, Excel®, FURminator®, IAMS® (Europe only), Eukanuba® (Europe only), Healthy-Hide®, DreamBone®, SmartBones®, ProSense®, Perfect Coat®, eCOTRITION®, Birdola®, Good Boy®, Meowee!®, Wildbird®, and Wafcol® Aquatics: Consumer and commercial aquarium kits, stand-alone tanks; aquatics equipment such as filtration systems, heaters and pumps; and aquatics consumables such as fish food, water management and care. Aquatics: Tetra®, Marineland®, Whisper®, Instant Ocean®, GloFish®, OmegaOne® and OmegaSea® H&G Household: Household pest control solutions such as spider and scorpion killers; ant and roach killers; flying insect killers; insect foggers; wasp and hornet killers; and bedbug, flea and tick control products. Household: Hot Shot®, Black Flag®, Real-Kill®, Ultra Kill®, The Ant Trap® (TAT), and Rid-A-Bug®. Controls: Outdoor insect and weed control solutions, and animal repellents such as aerosols, granules, and ready-to-use sprays or hose-end ready-to-sprays. Controls: Spectracide®, Garden Safe®, Liquid Fence®, and EcoLogic®. Repellents: Personal use pesticides and insect repellent products, including aerosols, lotions, pump sprays and wipes, yard sprays and citronella candles. Repellents: Cutter® and Repel®. Cleaning: Household surface cleaning, maintenance, and restoration products, including bottled liquids, mops, wipes and markers. Cleaning: Rejuvenate® On September 8, 2021, the Company entered into a definitive Asset and Stock Purchase Agreement (the "Purchase Agreement") 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 HHI have been classified as held for sale, and the respective operations have been classified as discontinued operations and reported separately for all periods presented. HHI consists of residential locksets and door hardware, including knobs, levers, deadbolts, handle sets, and electronic and connected locks under the Kwikset®, Weiser®, Baldwin®, Tell Manufacturing®, and EZSET® brands; kitchen and bath faucets and accessories under the Pfister® brand; and builders' hardware consisting of hinges, metal shapes, security hardware, rack and sliding door hardware, and gate hardware under the National Hardware® and FANAL® brands. Refer to Note 2 - Divestitures included in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report, for further discussion pertaining the HHI divestiture. All brands and tradenames are directly owned by the Company with the exception of the Black & Decker® ("B&D") and Emeril Legasse® ("Emeril") brands used by the HPC segment. The Company has a trademark license agreement (the "License Agreement") with Stanley Black & Decker ("SBD") pursuant to which we license the B&D brand in North America, Latin America (excluding Brazil) and the Caribbean for four core categories of household appliances within the Company's HPC segment: beverage products, food preparation products, garment care products and cooking products. The License Agreement has a term ending 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. Under the terms of the License Agreement, we agree to pay SBD royalties based on a percentage of sales, with minimum annual royalty payments of $15.0 million, with the exception of the minimum annual royalty will no longer be applied effective January 1, 2024, through the expiration of the agreement. The License Agreement also requires us to comply with maximum annual return rates for products. Subsequent to the completion of the License Agreement, there are no non-competition provisions or restrictions provided following its expiration. See Note 4 – Revenue Recognition included in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report for further detail on revenue concentration from B&D branded products. 28 Table of Contents Pursuant to the Emeril License, the Company licenses the Emeril brands within the US, Canada, Mexico, and the United Kingdom for certain designated product categories of household appliances within the HPC segment, including small kitchen food preparation products, indoor and outdoor grills and grill accessories, and cookbooks. The Emeril License has a current expiration of December 31, 2023, with options for one-year renewal periods following the initial expiration through December 31, 2025. Under the terms of the agreement, we agreed to pay the license holder a percentage of sales, with minimum annual royalty payments of $1.6 million, increasing to $1.8 million in subsequent renewal periods. SB/RH is a wholly owned subsidiary of SBH. Spectrum Brands, Inc. (“SBI”), a wholly-owned subsidiary of SB/RH incurred certain debt guaranteed by SB/RH and domestic subsidiaries of SBI. See Note 9 – Debt included in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report for more information pertaining to debt. The reportable segments of SB/RH are consistent with the segments of SBH. 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 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 condensed 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 Company’s condensed consolidated financial statements and reported within the HPC reporting segment for the three month period ended January 1, 2023 effective as of the transaction date. During the three month period ended January 1, 2023, 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 consolidate financial records, plus incremental retention costs for personnel supporting the transition and integration efforts. Costs attributable to the integration of the Tristar Business are projecting to continue through the year ending September 30, 2023. • HPC Separation - The Company has initiated projects 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 as a standalone appliance business either through a spin, merger or sale of the business and the retained GPC and H&G businesses of the consolidated group. Costs are primarily attributable to legal and professional fees incurred to assess opportunities, evaluate transaction considerations for a separation, including potential 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 the 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. Costs attributable to the initiative are expected to be incurred until a transaction is realized or otherwise canceled. • 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. On December 2, 2022, ASSA announced an agreement to sell its Emtek and the Smart Residential Business in the U.S. and Canada to Fortune Brand, which are believed to resolve any conceivable competitive concerns of the DOJ. 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 2 - Divestitures in the Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly 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. • 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"). 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 during the prior year. Incremental costs attributable to the three-year tolling arrangement are expected to be completed in March 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 Company’s condensed consolidated financial statements and reported within the H&G reporting segment for the three month periods ended January 1, 2023 and January 2, 2022. During the three month period ended January 2, 2022, 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 to an existing H&G distribution center, retention costs for personnel supporting transition and integration efforts. Costs attributable to the integration of the Rejuvenate business were completed in the prior year. 29 Table of Contents • 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, United Kingdom, 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 United Kingdom. The net assets and results of operations of Armitage are included in the Company’s condensed consolidated financial statements and reported within the GPC reporting segment for the three month periods ended January 1, 2023 and January 2, 2022. During the three month period ended January 2, 2022, 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 were completed in the prior year. • 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 Company's condensed consolidated financial statements and reported within GPC segment for the three month periods ended January 1, 2023 and January 2, 2022. The Company incurred incremental costs to combine and integrate the acquired business within the GPC segment, primarily towards the integration of systems and processes, 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 were completed in the prior year. The following is a summary of costs attributable to strategic transactions and business development costs for the respective projects during three month periods ended January 1, 2023 and January 2, 2022. 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. Three Month Periods Ended (in millions) January 1, 2023 January 2, 2022 Tristar acquisition and integration $ 5.7 $ 1.7 HPC separation initiatives 2.4 1.7 HHI divestiture 1.5 4.3 Coevorden operations separation 1.3 3.2 Rejuvenate integration — 4.3 Armitage integration — 0.7 Omega integration — 0.9 Other project costs 0.2 0.5 Total $ 11.1 $ 17.3 Reported as: Cost of goods sold $ 1.3 $ 1.8 General & administrative expense 9.8 15.5 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 increase or maintain 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 condensed 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, or inflation 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 condensed 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. Substantially all costs associated with the initiative had been recognized in the prior year with amounts during the three month period ended January 1, 2023 due to change in estimates, headcounts and timing of communication. See Note 3 - Restructuring Charges in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report for further detail on related exit or disposal costs attributable to this initiative. • 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. • 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 potential investment with our supply base and retail partners to manage inventory and transition new branded products to market. 30 Table of Contents • Russia Closing Initiative - The Company initiated an assessment of its in-country commercial operations in Russia, predominantly supporting the HPC segment, and other commercial activity directly impacted by the Russia-Ukraine conflict. The Company has recognized impairment costs on inventory and receivables that are at risk of recoverability as the Company has discontinued importing products directly into Russia, has suspended its commercial activity and has begun liquidating remaining assets. Additionally, the initiative is subject to exit and disposal costs for severance benefits of personnel associated with the operations. See Note 3 - Restructuring Charges in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report for further detail on related exit or disposal costs attributable to this initiative. Costs are anticipated to be incurred through September 30, 2023. • 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. 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 were completed during the year ended 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 includes 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 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 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. Costs attributable to the initiative were completed during the year ended September 30, 2022. The following is a summary of impact to operating results attributable to restructuring initiatives and other optimization projects, incurred for the respective projects during three month periods ended January 1, 2023 and January 2, 2022. In addition to the projects and initiatives discussed above, the Company regularly incurs cost and engages in less significant restructuring and optimization initiatives that individually are not substantial and occur over a shorter time period (generally less than 12 months). Three Month Periods Ended (in millions) January 1, 2023 January 2, 2022 Fiscal 2022 restructuring $ 0.6 $ — Global ERP transformation 1.6 2.9 HPC brand portfolio transitions 1.0 — Russia closing initiative 2.9 — GPC distribution center transition — 12.8 Global productivity improvement program — 1.8 Other project costs 2.9 1.6 Total $ 9.0 $ 19.1 Reported as: Net sales $ — $ 2.5 Cost of goods sold 0.4 — Selling expense — 10.3 General & administrative expense 8.6 6.3 Financing Activity Financing activity during and between comparable periods may have a significant impact on the comparability of financial results on the condensed consolidated financial statements. • On November 17, 2022, the Company entered into the fourth 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. The Company incurred $2.3 million in connection with the fourth amendment, which has been recognized as interest expense for the three month period ended January 1, 2023. • During the year ended September 30, 2022, the Company entered into the third amendment to 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. See Note 9 - Debt in the Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report for additional detail regarding debt and financing activity. 31 Table of Contents 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 does not maintain material assets within Russia, which mostly consist of working capital associated with the in-country distribution operations. In response to matters within the territory, we have adjusted our risks associated with the collectability and realizable value for working capital within the region and we have initiated the closing of the in-country commercial operations in Russia. Inflation and Supply Chain Constraint s While certain aspects of our financial results have been favorably impacted by increased demand attributable to the COVID-19 pandemic, in addition to favorable consumer conditions, including incremental financial assistance provided by various government agencies, our business continues to experience challenges towards product availability to meet customer demand. We experienced increased labor shortages in the wake of the COVID-19 pandemic along with increased freight and distribution costs from transportation and logistics and disruptions within our supply chain. 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 experiencing an inflationary environment, which has negatively impacted our gross margin rates. In response to inflation, our segments have taken pricing actions to address rising costs and mitigate impacts to our margins. We are unable to predict how long the current inflationary environment, including increased energy costs, will continue. We expect the economic environment to remain uncertain as we navigate the current geopolitical environment, post-pandemic volatility, labor challenges, supply chain constraints and the current inflationary environment, including increasing energy and commodity prices. 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”) and adjusted EBITDA margin. 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 impact from acquisitions (when applicable). We believe this non-GAAP measure provides useful information to investors because it reflects regional and operating segment performance from our activities without the effect of changes in currency exchange rates and 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 year. The following is a reconciliation of reported net sales to organic net sales for the three month periods ended January 1, 2023 compared to net sales for the three month periods ended January 2, 2022: Three Month Periods Ended (in millions, except %) January 1, 2023 Net Sales Effect of Changes in Currency Net Sales Excluding Effect of Changes in Currency Effect of Acquisitions Organic Net Sales Net Sales January 2, 2022 Variance HPC $ 364.4 $ 25.7 $ 390.1 $ (67.8) $ 322.3 $ 379.7 $ (57.4) (15.1) % GPC 277.5 13.9 291.4 — 291.4 302.2 (10.8) (3.6) % H&G 71.4 — 71.4 — 71.4 75.3 (3.9) (5.2) % Total $ 713.3 $ 39.6 $ 752.9 $ (67.8) $ 685.1 $ 757.2 (72.1) (9.5) % 32 Table of Contents Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures used by management, which we believe provide useful information to investors because they reflect 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. They also facilitate 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. 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. See Note 13 – Share Based Compensation in the Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly 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 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 in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly 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 reduction in the contingent consideration liability recognized during the three month period ended January 1, 2023, associated with the Tristar Business acquisition in the prior year on February 18, 2022; • Non-cash asset impairments or write-offs realized and recognized in earnings from continuing operations; • Impact from the early settlement of foreign currency cash flow hedges in the prior year, resulting in subsequent assumed losses at the original stated maturities of foreign currency cash flow hedges in our EMEA region that were settled early in the prior year 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 excluded gains in the prior year intended to mitigate costs through the year ending September 30, 2023. • Incremental costs recognized by the HPC segment attributable to the realization of product recalls initiated by the Company in the prior year. See Note 16 - Commitments and Contingencies in Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for further details; and • 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 with remeasurements during the three month period ended January 2, 2022; and • Other adjustments are primarily attributable to: (1) costs associated with Salus as they are not considered a component of the continuing commercial products company; (2) key executive severance related costs; (3) impairment charges from the exit of certain operating leases at our HPC segment; and (4) insurable losses and cost recovery associated with hurricane damages at a key supplier of our Glofish business and loss realized from misapplied funds during the three month period ended January 1, 2023. Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of reported net sales for the respective period and segment. 33 Table of Contents The following is a reconciliation of net income to Adjusted EBITDA for the three month periods ended January 1, 2023 and January 2, 2022, for SBH. SPECTRUM BRANDS HOLDINGS, INC. (in millions) HPC GPC H&G Corporate Consolidated Three Month Period Ended January 1, 2023 Net (loss) income from continuing operations $ (4.2) $ 23.0 $ (7.2) $ (51.6) $ (40.0) Income tax benefit — — — (12.1) (12.1) Interest expense — — — 33.4 33.4 Depreciation 3.2 3.7 1.8 3.5 12.2 Amortization 2.1 5.5 2.8 — 10.4 EBITDA 1.1 32.2 (2.6) (26.8) 3.9 Share based compensation — — — 3.3 3.3 Tristar integration 5.7 — — — 5.7 HHI divestiture — — — 1.5 1.5 HPC separation initiatives — — — 2.4 2.4 Coevorden operations separation — 1.3 — — 1.3 Fiscal 2022 restructuring — — 0.2 0.4 0.6 Global ERP transformation — — — 1.6 1.6 HPC brand portfolio transitions 1.0 — — — 1.0 Russia closing initiatives 2.9 — — — 2.9 Other project costs — 0.8 — 2.3 3.1 Unallocated shared costs — — — 6.3 6.3 Non-cash purchase accounting adjustments 0.5 — — — 0.5 Gain from remeasurement of contingent consideration liability (1.5) — — — (1.5) Early settlement of foreign currency cash flow hedges 2.6 — — — 2.6 HPC product recall 0.3 — — — 0.3 Salus and other 0.6 2.9 — 0.8 4.3 Adjusted EBITDA $ 13.2 $ 37.2 $ (2.4) $ (8.2) $ 39.8 Net Sales $ 364.4 $ 277.5 $ 71.4 $ — $ 713.3 Adjusted EBITDA Margin 3.6 % 13.4 % (3.4) % — 5.6 % Three Month Period Ended January 2, 2022 Net income (loss) from continuing operations $ 19.0 $ 11.7 $ (15.8) $ (45.1) $ (30.2) Income tax benefit — — — (16.0) (16.0) Interest expense — — — 21.8 21.8 Depreciation 3.1 3.5 1.8 3.8 12.2 Amortization 4.7 5.7 2.9 — 13.3 EBITDA 26.8 20.9 (11.1) (35.5) 1.1 Share based compensation — — — 5.6 5.6 Tristar acquisition — — — 1.7 1.7 Rejuvenate integration — — 4.3 — 4.3 Armitage integration — 0.7 — — 0.7 Omega integration — 0.9 — — 0.9 HPC separation initiatives — — — 1.7 1.7 HHI divestiture — — — 4.3 4.3 Coevorden operations separation — 3.2 — — 3.2 Global ERP transformation — — — 2.9 2.9 GPC distribution center transition — 12.8 — — 12.8 Global productivity improvement program 0.5 0.2 — 1.1 1.8 Other project costs 0.1 — — 2.0 2.1 Unallocated shared costs — — — 6.8 6.8 Legal and environmental remediation reserves — — (0.5) — (0.5) Salus and other — — — (0.1) (0.1) Adjusted EBITDA $ 27.4 $ 38.7 $ (7.3) $ (9.5) $ 49.3 Net Sales $ 379.7 $ 302.2 $ 75.3 $ — $ 757.2 Adjusted EBITDA margin 7.2 % 12.8 % (9.7) % — 6.5 % 34 Table of Contents The following is a reconciliation of net income to Adjusted EBITDA for the three month periods ended January 1, 2023 and January 2, 2022, for SB/RH. SB/RH HOLDINGS, LLC (in millions) HPC GPC H&G Corporate Consolidated Three Month Period Ended January 1, 2023 Net (loss) income from continuing operations $ (4.2) $ 23.0 $ (7.2) $ (51.4) $ (39.8) Income tax benefit — — — (12.2) (12.2) Interest expense — — — 33.4 33.4 Depreciation 3.2 3.7 1.8 3.5 12.2 Amortization 2.1 5.5 2.8 — 10.4 EBITDA 1.1 32.2 (2.6) (26.7) 4.0 Share based compensation — — — 3.1 3.1 Tristar integration 5.7 — — — 5.7 HHI divestiture — — — 1.5 1.5 HPC separation initiatives — — — 2.4 2.4 Coevorden operations separation — 1.3 — — 1.3 Fiscal 2022 restructuring — — 0.2 0.4 0.6 Global ERP transformation — — — 1.6 1.6 HPC brand portfolio transitions 1.0 — — — 1.0 Russia closing initiatives 2.9 — — — 2.9 Other project costs — 0.8 — 2.3 3.1 Unallocated shared costs — — — 6.3 6.3 Non-cash purchase accounting adjustments 0.5 — — — 0.5 Gain from remeasurement of contingent consideration liability (1.5) — — — (1.5) Early settlement of foreign currency cash flow hedges 2.6 — — — 2.6 HPC product recall 0.3 — — — 0.3 Other 0.6 2.9 — 0.8 4.3 Adjusted EBITDA $ 13.2 $ 37.2 $ (2.4) $ (8.3) $ 39.7 Net Sales $ 364.4 $ 277.5 $ 71.4 $ — $ 713.3 Adjusted EBITDA margin 3.6 % 13.4 % (3.4) % — 5.6 % Three Month Period Ended January 2, 2022 Net income (loss) from continuing operations $ 19.0 $ 11.7 $ (15.8) $ (45.0) $ (30.1) Income tax benefit — — — (15.8) (15.8) Interest expense — — — 21.8 21.8 Depreciation 3.1 3.5 1.8 3.8 12.2 Amortization 4.7 5.7 2.9 — 13.3 EBITDA 26.8 20.9 (11.1) (35.2) 1.4 Share based compensation — — — 5.6 5.6 Tristar acquisition — — — 1.7 1.7 Rejuvenate integration — — 4.3 — 4.3 Armitage integration — 0.7 — — 0.7 Omega integration — 0.9 — — 0.9 HPC separation initiatives — — — 1.7 1.7 HHI divestiture — — — 4.3 4.3 Coevorden operations separation — 3.2 — — 3.2 Global ERP transformation — — — 2.9 2.9 GPC distribution center transition — 12.8 — — 12.8 Global productivity improvement program 0.5 0.2 — 1.1 1.8 Other project costs 0.1 — — 2.0 2.1 Unallocated shared costs — — — 6.8 6.8 Legal and environmental remediation reserves — — (0.5) — (0.5) Other — — — (0.2) (0.2) Adjusted EBITDA $ 27.4 $ 38.7 $ (7.3) $ (9.3) $ 49.5 Net Sales $ 379.7 $ 302.2 $ 75.3 $ — $ 757.2 Adjusted EBITDA margin 7.2 % 12.8 % (9.7) % — 6.5 % 35 Table of Contents Consolidated Results of Operations The following is summarized consolidated results of operations for SBH for the three month periods ended January 1, 2023 and January 2, 2022. (in millions, except %) Three Month Periods Ended Variance January 1, 2023 January 2, 2022 Net sales $ 713.3 $ 757.2 $ (43.9) (5.8) % Gross profit 201.9 219.3 (17.4) (7.9) % Gross profit margin 28.3 % 29.0 % (70) bps Operating expenses $ 222.1 $ 243.1 $ (21.0) (8.6) % Interest expense 33.4 21.8 11.6 53.2 % Other non-operating (income) expense, net (1.5) 0.6 (2.1) n/m Income tax benefit (12.1) (16.0) 3.9 (24.4) % Net loss from continuing operations (40.0) (30.2) (9.8) 32.5 % Income from discontinued operations, net of tax 19.5 38.8 (19.3) (49.7) % Net (loss) income (20.5) 8.6 (29.1) n/m n/m = not meaningful Net Sales. The following is a summary of net sales by segment for the three month periods ended January 1, 2023 and January 2, 2022, and the principal components of changes in net sales for the respective periods. (in millions, except %) Three Month Periods Ended Variance January 1, 2023 January 2, 2022 HPC $ 364.4 $ 379.7 $ (15.3) (4.0) % GPC 277.5 302.2 (24.7) (8.2) % H&G 71.4 75.3 (3.9) (5.2) % Net Sales $ 713.3 $ 757.2 (43.9) (5.8) % (in millions) Three Month Periods Ended Net Sales for the period ended January 2, 2022 $ 757.2 Decrease in GPC (10.8) Decrease in HPC (57.4) Decrease in H&G (3.9) Acquisition sales 67.8 Foreign currency impact, net (39.6) Net Sales for the period ended January 1, 2023 $ 713.3 Gross Profit. Gross profit and gross profit margin for the three month period decreased primarily due to lower sales volume offset by improved pricing compared to prior year, plus the realization of higher inventoried costs accumulated in the prior year and an unfavorable mix to reduce excess inventory levels. Operating Expenses. Operating expenses for the three month period decreased due to a decrease in selling expenses of $15.0 million from a reduction in distribution and transportation costs with improved operating effectiveness and initiatives from the prior year to reduce operating spend; with a decrease in general and administrative expenses of $4.6 million from operating spend initiatives and lower cost towards strategic transactions and restructurings, plus a gain of $1.5 million from the remeasurement of the contingent consideration liability associated with the Tristar Business acquisition. Interest Expense. Interest expense for the three month period increased due to a higher level of outstanding borrowings on the Revolver Facility with increased borrowing rates on variable rate debt plus an incremental $2.3 million for the amendment to the Credit Agreement to temporarily increase the maximum consolidated total net leverage ratio during the year ending September 30, 2023. See Note 9 – Debt in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional detail. Other Non-Operating (Income) Expense, Net. Other non-operating income for the three month period increased due to changes in foreign currency compared to the prior year. Income Taxes. Our estimated annual effective tax rate was impacted for the three month period 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, and foreign rates that differ from the U.S. federal statutory rate. Income From Discontinued Operations. Income or loss attributable to discontinued operations primarily reflect the income from the discontinued operations of the HHI segment. Income from discontinued operations attributable to the HHI segment decreased during the three month period ended January 1, 2023, due to lower volumes offset by pricing increases to address inflationary costs and freight spend. See Note 2 -Divestitures in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional detail. Noncontrolling Interest. The net income attributable to noncontrolling interest reflects the share of the net income of our subsidiaries, which are not wholly-owned, attributable to the accounting interest. Such amount varies in relation to such a subsidiary’s net income or loss for the period and the percentage interest not owned by SBH. 36 Table of Contents SB/RH The following is summarized consolidated results of operations for SB/RH for the three month periods ended January 1, 2023 and January 2, 2022: (in millions, except %) Three Month Periods Ended Variance January 1, 2023 January 2, 2022 Net sales $ 713.3 $ 757.2 $ (43.9) (5.8) % Gross profit 201.9 219.3 (17.4) (7.9) % Gross profit margin 28.3 % 29.0 % (70) bps Operating expenses $ 222.0 $ 242.8 $ (20.8) (8.6) % Interest expense 33.4 21.8 11.6 53.2 % Other non-operating (income) expense, net (1.5) 0.6 (2.1) n/m Income tax benefit (12.2) (15.8) 3.6 (22.8) % Net loss from continuing operations (39.8) (30.1) (9.7) 32.2 % Income from discontinued operations, net of tax 19.5 38.8 (19.3) (49.7) % Net (loss) income (20.3) 8.7 (29.0) n/m n/m = not meaningful The changes in SB/RH for the three month periods are primarily attributable to the changes in SBH previously discussed. Segment Financial Data Home and Personal Care (in millions, except %) Three Month Periods Ended Variance January 1, 2023 January 2, 2022 Net sales $ 364.4 $ 379.7 $ (15.3) (4.0) % Operating (loss) income (4.3) 20.4 (24.7) n/m Operating (loss) income margin (1.2 %) 5.4 % (660) bps Adjusted EBITDA $ 13.2 $ 27.4 $ (14.2) (51.8) % Adjusted EBITDA margin 3.6 % 7.2 % (360) bps n/m = not meaningful Net sales decreased due to slower product category retail sales with an increasingly competitive landscape and high retail inventory levels limiting replenishment orders during the holiday season. Prior year pricing adjustments positively impacted net sales compared to the prior year. Sale volumes in EMEA were further impacted by Russia-Ukraine war and closing of our Russia commercial operations. Organic net sales decreased 57.4 million, excluding acquisition sales of $67.8 million and an unfavorable foreign currency impact of $25.7 million. Operating income, adjusted EBITDA and margins decreased due to lower volume, the realization of higher inventoried costs accumulated in the prior year and unfavorable foreign currency in our EMEA markets, partially mitigated through cost savings to reduce operating expenses initiated in the prior year. Operating income was further impacted by incremental costs towards the integration of the Tristar Business, dissolution of the Russia commercial operations and strategic investment to transition the segment brand portfolio. Global Pet Care (in millions, except %) Three Month Periods Ended Variance January 1, 2023 January 2, 2022 Net sales $ 277.5 $ 302.2 $ (24.7) (8.2) % Operating income 22.7 12.3 10.4 84.6 % Operating income margin 8.2 % 4.1 % 410 bps Adjusted EBITDA $ 37.2 $ 38.7 $ (1.5) (3.9) % Adjusted EBITDA margin 13.4 % 12.8 % 60 bps Net sales decreased from higher retail inventory levels limiting replenishment orders and lower retail sales in certain categories, primarily with pet specialty retailers, offset by new positive pricing adjustments in EMEA and impact of prior year price increases. Sales and distribution for the chews & treats category continue to grow from the prior year with declines in other hard goods and aquatic environments as we compare to prior year elevated levels. EMEA sales were negatively impacted by unfavorable foreign exchange rates and lower aquatic sales offset by growth in companion animal sales including dog & cat food. Organic net sales decreased $10.8 million, or 3.6%, excluding unfavorable foreign currency impact of $13.9 million Operating income and margin increased due to lower distribution costs compared to prior year disruptions, positive pricing adjustments and operating expense savings initiatives, offset by lower volumes and unfavorable foreign currency exchange. Adjusted EBITDA decreased due to lower volume with margin increase due to pricing adjustments and operating expense savings. Home and Garden (in millions, except %) Three Month Periods Ended Variance January 1, 2023 January 2, 2022 Net sales $ 71.4 $ 75.3 $ (3.9) (5.2) % Operating loss (7.2) (15.7) 8.5 (54.1) % Operating loss margin (10.1) % (20.8) % 1,070 bps Adjusted EBITDA $ (2.4) $ (7.3) $ 4.9 (67.1) % Adjusted EBITDA margin (3.4) % (9.7) % 630 bps Net sales decreased primarily due to higher retail inventory reducing replenishment needs and lower early seasonal inventory investment across most all pest control product categories, offset by positive pricing adjustments initiated in the prior year. Cleaning products realized year-over-year growth with increased distribution and price increases following integration related disruption in the prior year. Operating loss improvement with increases in adjusted EBITDA and margins for the three month period were due to pricing, operational performance and annualization of operating cost savings initiatives from the prior year, plus higher integration costs in the prior year following the Rejuvenate acquisition further benefiting operating income. Liquidity and Capital Resources The following is a summary of the SBH and SB/RH cash flows from continuing operations for the three month periods ended January 1, 2023 and January 2, 2022, respectively. SBH SB/RH Three Month Periods Ended (in millions) January 1, 2023 January 2, 2022 January 1, 2023 January 2, 2022 Operating activities $ (57.0) $ (255.8) $ (67.6) $ (288.3) Investing activities $ (10.0) $ (14.0) $ (10.0) $ (14.0) Financing activities $ 56.8 $ 310.0 $ 67.3 $ 342.6 Cash Flows from Operating Activities Cash flows used in SBH's continuing operations decreased $198.8 million, primarily due to the reduction of cash used towards working capital compared to the prior year, primarily with the reduced purchasing and overall reduction of inventory compared to the prior year spending and higher supply chain costs, plus a decrease in cash paid towards strategic transactions and restructuring initiatives. Cash flows used in SB/RH continuing operations decreased $220.7 million primarily due to the items previously discussed above. Cash Flows from Investing Activities Cash flows used in investing activities for SBH continuing operations decreased $4.0 million, primarily from reduced capital expenditures. Cash flows used in investing activities of SB/RH decreased due to the items previously discussed. Cash Flows from Financing Activities Cash flows provided by financing activities for continuing operations decreased $253.2 million primarily due to the decrease in incremental borrowings required from the Revolver Facility offset by the lower treasury share repurchases. During the three month period ended January 1, 2023, the Company realized $90.0 million of proceeds from the Revolver Facility with amortizing payments on other outstanding debt of $3.3 million. Refer to Note 9 – Debt in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for more information on debt borrowings. During the three month period ended January 1, 2023, the Company did not repurchase any treasury stock. There was no issuance of common stock, other than through the Company’s share-based compensation plans and which is recognized as a non-cash financing activity. See Note 12 – Shareholders’ Equity and Note 13 - Share Based Compensation in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for further detail. During the three month periods ended January 1, 2023 and January 2, 2022, SBH made cash dividend payments of $17.1 million and $17.3 million, respectively, or $0.42 per share. Cash flows from financing activity of SB/RH decreased $275.3 million and is highly dependent upon the financing cash flow activities of SBH. Liquidity Outlook Our ability to generate 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. We believe the negative operating cash flow recognized for the three month period ended January 1, 2023, is not indicative of the ongoing near-term operations of the Company and based upon our current and anticipated level of operations, existing cash balances, the anticipated proceeds from the HHI divestiture 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. It is not unusual for our business to experience negative operating cash flow during the first quarter of the fiscal year due to the operating calendar with our customers and the seasonality of our working capital. 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 January 1, 2023, the Company had borrowing availability of $252.5 million, net of outstanding letters of credit, 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, capital spending, periodic principal and interest payments on our long-term debt, and initiatives to support restructuring, integration or other related projects. Long-term financing needs depend largely on potential growth opportunities, including acquisition activity and repayment or refinancing of our long-term obligations. 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. 37 Table of Contents We may, from time to time, seek to repurchase shares of our common stock. During the three month period ended January 1, 2023, the Company did not repurchased any shares. See Note 12 – Shareholders’ Equity in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for further detail. Any repurchase activity will be dependent on prevailing market conditions, liquidity requirements and other factors. 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 January 1, 2023, 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. On November 17, 2022, the Company entered into the fourth 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. 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 products 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 Condensed 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 terms of the factoring agreements. The Company factored certain of its trade receivables during the three month period ending January 1, 2023. 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 Condensed Consolidated Balance Sheet with cash flow activity recognized as an operating cash flow. During the three month period ended January 1, 2023, there have been no material changes to our debt obligations, lease obligations, employee benefit obligations or other contractual obligations or commercial commitments previously discussed in our Annual Report on Form 10-K for the year ended September 30, 2022, other than the increased revolver capacity and borrowings under the Company's Credit Agreement, which have a maturity date of June 30, 2025 and are subject to repayment or re-borrowing by the Company without penalty. See Note 9 – Debt in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for further detail. We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Critical Accounting Policies and Estimates There have been no material changes to our critical accounting estimates as discussed in our Annual Report on Form 10-K for the year ended September 30, 2022. New Accounting Pronouncements See Note 1 – Basis of Presentation and Significant Accounting Policies in Notes to the Condensed Consolidated Financial Statements elsewhere included in this Quarterly Report for information about accounting pronouncements that are newly adopted and recent accounting pronouncements not yet adopted. 38 Table of Contents 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. Three Month Period Ended Year Ended (in millions) January 1, 2023 September 30, 2022 Statements of Operations Data Third party net sales $ 421.4 $ 1,955.8 Intercompany net sales to non-guarantor subsidiaries 2.6 14.4 Net sales 424.0 1,970.2 Gross profit 105.0 551.2 Operating loss (53.1) (190.4) Net loss from continuing operations (72.7) (263.2) Net loss (64.9) (174.7) Net loss attributable to controlling interest (64.9) (174.7) Statements of Financial Position Data Current Assets $ 2,562.9 $ 2,634.4 Noncurrent Assets 2,182.2 2,169.9 Current Liabilities 1,600.8 1,634.1 Noncurrent Liabilities 3,523.8 3,423.4 The Obligor’s amounts due from, due to the non-guarantor subsidiaries as of January 1, 2023 and September 30, 2022 are as follows: (in millions) January 1, 2023 September 30, 2022 Statements of Financial Position Data Current receivables from non-guarantor subsidiaries $ 25.7 $ 8.1 Long-term receivable from non-guarantor subsidiaries 97.6 74.6 Current payable to non-guarantor subsidiaries 357.3 311.2 Long-term debt with non-guarantor subsidiaries 2.1 2.0