Item 1. Financial Statements
Item 1. Financial Statements
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Financial Position
As of April 2, 2023 and September 30, 2022
(unaudited)
(in millions)
April 2, 2023 September 30, 2022
Assets
Cash and cash equivalents $ 327.8 $ 243.7
Trade receivables, net 305.5 247.4
Other receivables 101.3 95.7
Inventories 585.6 780.6
Prepaid expenses and other current assets 51.5 51.2
Current assets of business held for sale 1,799.6 1,816.7
Total current assets 3,171.3 3,235.3
Property, plant and equipment, net 268.7 263.8
Operating lease assets 129.7 82.5
Deferred charges and other 106.1 38.7
Goodwill 968.5 953.1
Intangible assets, net 1,140.7 1,202.2
Total assets $ 5,785.0 $ 5,775.6
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 13.1 $ 12.3
Accounts payable 495.9 453.1
Accrued wages and salaries 28.1 28.4
Accrued interest 37.0 27.6
Other current liabilities 200.7 203.0
Current liabilities of business held for sale 401.8 463.7
Total current liabilities 1,176.6 1,188.1
Long-term debt, net of current portion 3,175.6 3,144.5
Long-term operating lease liabilities 104.9 56.0
Deferred income taxes 75.0 60.1
Other long-term liabilities 63.8 57.8
Total liabilities 4,595.9 4,506.5
Commitments and contingencies (Note 16)
Shareholders' equity
Common stock 0.5 0.5
Additional paid-in capital 2,016.2 2,032.5
Accumulated earnings 252.6 362.1
Accumulated other comprehensive loss, net of tax ( 272.9 ) ( 303.1 )
Treasury stock ( 814.2 ) ( 828.8 )
Total shareholders' equity 1,182.2 1,263.2
Non-controlling interest 6.9 5.9
Total equity 1,189.1 1,269.1
Total liabilities and equity $ 5,785.0 $ 5,775.6
See accompanying notes to the condensed consolidated financial statements
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SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Income
For the three and six month periods ended April 2, 2023 and April 3, 2022
(unaudited)
Three Month Periods Ended Six Month Periods Ended
(in millions, except per share)
April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
Net sales $ 729.2 $ 807.8 $ 1,442.5 $ 1,565.0
Cost of goods sold 514.7 552.2 1,026.1 1,090.1
Gross profit 214.5 255.6 416.4 474.9
Selling 133.1 149.8 264.4 296.1
General and administrative 86.2 105.7 170.8 195.0
Research and development 5.2 8.2 11.4 15.8
Impairment of intangible assets 67.0 — 67.0 —
Total operating expenses 291.5 263.7 513.6 506.9
Operating loss ( 77.0 ) ( 8.1 ) ( 97.2 ) ( 32.0 )
Interest expense 31.6 24.7 65.0 46.4
Other non-operating expense (income), net 1.2 ( 0.9 ) ( 0.3 ) ( 0.3 )
Loss from continuing operations before income taxes ( 109.8 ) ( 31.9 ) ( 161.9 ) ( 78.1 )
Income tax benefit ( 34.8 ) ( 6.8 ) ( 46.9 ) ( 22.8 )
Net loss from continuing operations ( 75.0 ) ( 25.1 ) ( 115.0 ) ( 55.3 )
Income from discontinued operations, net of tax 21.4 41.1 40.9 79.9
Net (loss) income ( 53.6 ) 16.0 ( 74.1 ) 24.6
Net income from continuing operations attributable to non-controlling interest 0.1 — 0.3 —
Net income from discontinued operations attributable to non-controlling interest — 0.1 0.2 0.5
Net (loss) income attributable to controlling interest $ ( 53.7 ) $ 15.9 $ ( 74.6 ) $ 24.1
Amounts attributable to controlling interest
Net loss from continuing operations attributable to controlling interest $ ( 75.1 ) $ ( 25.1 ) $ ( 115.3 ) $ ( 55.3 )
Net income from discontinued operations attributable to controlling interest 21.4 41.0 40.7 79.4
Net (loss) income attributable to controlling interest $ ( 53.7 ) $ 15.9 $ ( 74.6 ) $ 24.1
Earnings Per Share
Basic earnings per share from continuing operations $ ( 1.83 ) $ ( 0.61 ) $ ( 2.82 ) $ ( 1.35 )
Basic earnings per share from discontinued operations 0.52 1.00 1.00 1.94
Basic earnings per share $ ( 1.31 ) $ 0.39 $ ( 1.82 ) $ 0.59
Diluted earnings per share from continuing operations $ ( 1.83 ) $ ( 0.61 ) $ ( 2.82 ) $ ( 1.35 )
Diluted earnings per share from discontinued operations 0.52 1.00 1.00 1.94
Diluted earnings per share $ ( 1.31 ) $ 0.39 $ ( 1.82 ) $ 0.59
Dividend per share $ 0.42 $ 0.42 $ 0.84 $ 0.84
Weighted Average Shares Outstanding
Basic 41.0 40.8 40.9 41.1
Diluted 41.0 40.8 40.9 41.1
See accompanying notes to the condensed consolidated financial statements
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SPECTRUM BRANDS HOLDINGS, INC
Condensed Consolidated Statements of Comprehensive Income
For the three and six month periods ended April 2, 2023 and April 3, 2022
(unaudited)
Three Month Periods Ended
Six Month Periods Ended
(in millions)
April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
Net (loss) income $ ( 53.6 ) $ 16.0 $ ( 74.1 ) $ 24.6
Other comprehensive (loss) income
Foreign currency translation adjustment
Foreign currency translation gain (loss) 27.1 ( 13.5 ) 87.6 ( 17.4 )
Unrealized (loss) gain from net investment hedge ( 12.5 ) 11.9 ( 46.4 ) 22.5
Foreign currency translation adjustment before tax 14.6 ( 1.6 ) 41.2 5.1
Deferred tax effect 3.7 ( 3.1 ) 12.5 ( 7.6 )
Foreign currency translation adjustment, net 18.3 ( 4.7 ) 53.7 ( 2.5 )
Unrealized (loss) gain on derivative instruments
Unrealized (loss) gain on hedging activity before reclassification ( 7.1 ) 6.4 ( 32.5 ) 7.6
Net reclassification for loss (gain) to income from continuing operations 4.9 ( 1.5 ) 2.4 ( 3.6 )
Net reclassification for gain to income from discontinued operations ( 0.1 ) ( 0.7 ) ( 0.1 ) ( 1.2 )
Unrealized (loss) gain on hedging instruments after reclassification ( 2.3 ) 4.2 ( 30.2 ) 2.8
Deferred tax effect 0.7 ( 1.0 ) 7.8 3.5
Net unrealized (loss) gain on hedging derivative instruments ( 1.6 ) 3.2 ( 22.4 ) 6.3
Defined benefit pension (loss) gain
Defined benefit pension gain (loss) before reclassification 0.1 1.0 ( 2.1 ) 1.7
Net reclassification for (gain) loss to income from continuing operations ( 0.7 ) 1.0 0.2 2.0
Defined benefit pension (loss) gain after reclassification ( 0.6 ) 2.0 ( 1.9 ) 3.7
Deferred tax effect 0.1 ( 0.6 ) 1.3 ( 3.5 )
Net defined benefit pension (loss) gain ( 0.5 ) 1.4 ( 0.6 ) 0.2
Net change to derive comprehensive income for the period 16.2 ( 0.1 ) 30.7 4.0
Comprehensive (loss) income ( 37.4 ) 15.9 ( 43.4 ) 28.6
Comprehensive income (loss) from continuing operations attributable to non-controlling interest 0.1 ( 0.1 ) 0.3 ( 0.1 )
Comprehensive income from discontinuing operations attributable to non-controlling interest 0.1 — 0.2 0.1
Comprehensive (loss) income attributable to controlling interest $ ( 37.6 ) $ 16.0 $ ( 43.9 ) $ 28.6
See accompanying notes to the condensed consolidated financial statements
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SPECTRUM BRANDS HOLDINGS, INC
Condensed Consolidated Statements of Shareholders' Equity
For the six month period ended April 2, 2023
(unaudited)
Common Stock Additional
Paid-in
Capital Accumulated
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
Shareholders'
Equity Non-
controlling
Interest Total
Equity
(in millions) Shares Amount
Balances at September 30, 2022 40.8 $ 0.5 $ 2,032.5 $ 362.1 $ ( 303.1 ) $ ( 828.8 ) $ 1,263.2 $ 5.9 $ 1,269.1
Net (loss) income from continuing operations — — — ( 40.3 ) — — ( 40.3 ) 0.3 ( 40.0 )
Income from discontinued operations, net of tax — — — 19.4 — — 19.4 0.1 19.5
Other comprehensive income, net of tax — — — — 14.2 — 14.2 0.3 14.5
Restricted stock issued and related tax withholdings 0.2 — ( 25.1 ) — — 14.6 ( 10.5 ) — ( 10.5 )
Share based compensation — — 4.1 — — — 4.1 — 4.1
Dividends declared — — — ( 17.3 ) — — ( 17.3 ) — ( 17.3 )
Balances as of January 1, 2023 41.0 0.5 2,011.5 323.9 ( 288.9 ) ( 814.2 ) 1,232.8 6.6 1,239.4
Net (loss) income from continuing operations — — — ( 75.1 ) — — ( 75.1 ) 0.1 ( 75.0 )
Income from discontinued operations, net of tax — — — 21.4 — — 21.4 — 21.4
Other comprehensive income, net of tax — — — — 16.0 — 16.0 0.2 16.2
Share based compensation — — 4.7 — — — 4.7 — 4.7
Dividends declared — — — ( 17.6 ) — — ( 17.6 ) — ( 17.6 )
Balances at April 2, 2023 41.0 $ 0.5 $ 2,016.2 $ 252.6 $ ( 272.9 ) $ ( 814.2 ) $ 1,182.2 $ 6.9 $ 1,189.1
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SPECTRUM BRANDS HOLDINGS, INC
Condensed Consolidated Statements of Shareholders' Equity
For the six month period ended April 3, 2022
(unaudited)
Common Stock Additional
Paid-in
Capital Accumulated
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
Shareholders'
Equity Non-
controlling
Interest Total
Equity
(in millions) Shares Amount
Balances at September 30, 2021 41.8 $ 0.5 $ 2,063.8 $ 359.9 $ ( 235.3 ) $ ( 717.0 ) $ 1,471.9 $ 7.1 $ 1,479.0
Net loss from continuing operations — — — ( 30.2 ) — — ( 30.2 ) — ( 30.2 )
Income from discontinued operations, net of tax — — — 38.4 — — 38.4 0.4 38.8
Other comprehensive income, net of tax — — — — 4.0 — 4.0 0.1 4.1
Treasury stock repurchases ( 1.1 ) — — — — ( 110.0 ) ( 110.0 ) — ( 110.0 )
Restricted stock issued and related tax withholdings 0.3 — ( 46.6 ) — — 22.2 ( 24.4 ) — ( 24.4 )
Share based compensation — — 8.3 — — — 8.3 — 8.3
Dividends declared — — — ( 17.7 ) — — ( 17.7 ) — ( 17.7 )
Balances as of January 2, 2022 41.0 0.5 2,025.5 350.4 ( 231.3 ) ( 804.8 ) 1,340.3 7.6 1,347.9
Net loss from continuing operations — — — ( 25.1 ) — — ( 25.1 ) — ( 25.1 )
Income from discontinued operations, net of tax — — — 41.0 — — 41.0 0.1 41.1
Other comprehensive loss, net of tax — — — — — — — ( 0.1 ) ( 0.1 )
Treasury stock repurchases ( 0.2 ) — — — — ( 24.0 ) ( 24.0 ) — ( 24.0 )
Restricted stock issued and related tax withholdings — — ( 0.1 ) — — — ( 0.1 ) — ( 0.1 )
Share based compensation — — 7.8 — — — 7.8 — 7.8
Dividends declared — — — ( 17.6 ) — — ( 17.6 ) — ( 17.6 )
Dividends paid by subsidiary to non-controlling interest — — — — — — — ( 1.3 ) ( 1.3 )
Balances as of April 3, 2022 40.8 $ 0.5 $ 2,033.2 $ 348.7 $ ( 231.3 ) $ ( 828.8 ) $ 1,322.3 $ 6.3 $ 1,328.6
See accompanying notes to the condensed consolidated financial statements
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SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
For the six month periods ended April 2, 2023 and April 3, 2022
(unaudited)
Six Month Periods Ended
(in millions) April 2, 2023 April 3, 2022
Cash flows from operating activities
Net (loss) income $ ( 74.1 ) $ 24.6
Income from discontinued operations, net of tax 40.9 79.9
Net loss from continuing operations ( 115.0 ) ( 55.3 )
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation 24.1 24.4
Amortization 20.9 26.7
Share based compensation 7.7 12.2
Impairment of intangible assets 67.0 —
Impairment of equipment and leases 4.5 —
Amortization of debt issuance costs and debt discount 4.0 3.1
Gain from remeasurement of contingent consideration liability ( 1.5 ) —
Non-cash purchase accounting adjustments 0.9 3.5
Deferred tax benefit ( 62.0 ) ( 43.7 )
Net changes in operating assets and liabilities 198.0 ( 183.1 )
Net cash provided (used) by operating activities from continuing operations 148.6 ( 212.2 )
Net cash provided by operating activities from discontinued operations 29.0 5.3
Net cash provided (used) by operating activities 177.6 ( 206.9 )
Cash flows from investing activities
Purchases of property, plant and equipment ( 25.9 ) ( 24.3 )
Proceeds from disposal of property, plant and equipment — 0.1
Business acquisitions, net of cash acquired — ( 314.3 )
Other investing activity — ( 0.1 )
Net cash used by investing activities from continuing operations ( 25.9 ) ( 338.6 )
Net cash used by investing activities from discontinued operations ( 7.9 ) ( 12.4 )
Net cash used by investing activities ( 33.8 ) ( 351.0 )
Cash flows from financing activities
Payment of debt ( 21.7 ) ( 6.5 )
Proceeds from issuance of debt — 775.0
Payment of debt issuance costs ( 2.3 ) ( 6.7 )
Treasury stock purchases — ( 134.0 )
Dividends paid to shareholders ( 34.4 ) ( 34.4 )
Share based award tax withholding payments, net of proceeds upon vesting ( 10.5 ) ( 24.5 )
Net cash (used) provided by financing activities from continuing operations ( 68.9 ) 568.9
Net cash used by financing activities from discontinued operations ( 0.7 ) ( 2.2 )
Net cash (used) provided by financing activities ( 69.6 ) 566.7
Effect of exchange rate changes on cash and cash equivalents 9.7 ( 3.0 )
Net change in cash, cash equivalents and restricted cash in continuing operations 83.9 5.8
Cash, cash equivalents, and restricted cash, beginning of period 243.9 190.0
Cash, cash equivalents, and restricted cash, end of period $ 327.8 $ 195.8
Supplemental disclosure of cash flow information
Cash paid for interest associated with continued operations $ 56.8 $ 50.9
Cash paid for interest associated with discontinued operations 29.9 30.2
Cash paid for taxes associated with continued operations 11.7 19.0
Cash paid for taxes associated with discontinued operations 13.5 10.1
Non cash investing activities
Acquisition of property, plant and equipment through finance leases $ 2.4 $ 0.5
Non cash financing activities
Issuance of shares through stock compensation plan $ 27.2 $ 33.4
See accompanying notes to the condensed consolidated financial statements
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SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Financial Position
As of April 2, 2023 and September 30, 2022
(unaudited)
(in millions) April 2, 2023 September 30, 2022
Assets
Cash and cash equivalents $ 326.6 $ 242.4
Trade receivables, net 305.5 247.4
Other receivables 191.2 183.1
Inventories 585.6 780.6
Prepaid expenses and other current assets 51.5 51.2
Current assets of business held for sale 1,799.6 1,816.7
Total current assets 3,260.0 3,321.4
Property, plant and equipment, net 268.7 263.8
Operating lease assets 129.7 82.5
Deferred charges and other 47.3 38.1
Goodwill 968.5 953.1
Intangible assets, net 1,140.7 1,202.2
Total assets $ 5,814.9 $ 5,861.1
Liabilities and Shareholder's Equity
Current portion of long-term debt $ 21.1 $ 12.3
Accounts payable 496.5 453.3
Accrued wages and salaries 28.1 28.4
Accrued interest 37.0 27.6
Other current liabilities 198.1 197.3
Current liabilities of business held for sale 401.8 463.7
Total current liabilities 1,182.6 1,182.6
Long-term debt, net of current portion 3,175.6 3,144.5
Long-term operating lease liabilities 104.9 56.0
Deferred income taxes 234.4 279.3
Other long-term liabilities 63.7 65.6
Total liabilities 4,761.2 4,728.0
Commitments and contingencies (Note 16)
Shareholder's equity
Other capital 2,162.4 2,164.6
Accumulated deficit ( 844.4 ) ( 736.0 )
Accumulated other comprehensive loss, net of tax ( 272.8 ) ( 303.0 )
Total shareholder's equity 1,045.2 1,125.6
Non-controlling interest 8.5 7.5
Total equity 1,053.7 1,133.1
Total liabilities and equity $ 5,814.9 $ 5,861.1
See accompanying notes to the condensed consolidated financial statements
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SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Income
For the three and six month periods ended April 2, 2023 and April 3, 2022
(unaudited)
Three Month Periods Ended Six Month Periods Ended
(in millions) April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
Net sales $ 729.2 $ 807.8 $ 1,442.5 $ 1,565.0
Cost of goods sold 514.7 552.2 1,026.1 1,090.1
Gross profit 214.5 255.6 416.4 474.9
Selling 133.1 149.8 264.4 296.1
General and administrative 85.5 104.9 170.1 193.8
Research and development 5.2 8.2 11.4 15.8
Impairment of intangible assets 67.0 — 67.0 —
Total operating expenses 290.8 262.9 512.9 505.7
Operating loss ( 76.3 ) ( 7.3 ) ( 96.5 ) ( 30.8 )
Interest expense 31.7 24.8 65.1 46.7
Other non-operating expense (income), net 1.2 ( 0.9 ) ( 0.3 ) ( 0.4 )
Loss from continuing operations before income taxes ( 109.2 ) ( 31.2 ) ( 161.3 ) ( 77.1 )
Income tax benefit ( 34.0 ) ( 6.6 ) ( 46.3 ) ( 22.4 )
Net loss from continuing operations ( 75.2 ) ( 24.6 ) ( 115.0 ) ( 54.7 )
Income from discontinued operations, net of tax 21.9 41.1 41.4 79.9
Net (loss) income ( 53.3 ) 16.5 ( 73.6 ) 25.2
Net income from continuing operations attributable to non-controlling interest 0.1 — 0.3 —
Net income from discontinued operations attributable to non-controlling interest — 0.1 0.2 0.5
Net (loss) income attributable to controlling interest $ ( 53.4 ) $ 16.4 $ ( 74.1 ) $ 24.7
Amounts attributable to controlling interest
Net loss from continuing operations attributable to controlling interest $ ( 75.3 ) $ ( 24.6 ) $ ( 115.3 ) $ ( 54.7 )
Net income from discontinued operations attributable to controlling interest 21.9 41.0 41.2 79.4
Net (loss) income attributable to controlling interest $ ( 53.4 ) $ 16.4 $ ( 74.1 ) $ 24.7
See accompanying notes to the condensed consolidated financial statements
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SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Comprehensive Income
For the three and six month periods ended April 2, 2023 and April 3, 2022
(unaudited)
Three Month Periods Ended
Six Month Periods Ended
(in millions)
April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
Net (loss) income $ ( 53.3 ) $ 16.5 $ ( 73.6 ) $ 25.2
Other comprehensive (loss) income
Foreign currency translation adjustment
Foreign currency translation gain (loss) 27.1 ( 13.5 ) 87.6 ( 17.4 )
Unrealized (loss) gain from net investment hedge ( 12.5 ) 11.9 ( 46.4 ) 22.5
Foreign currency translation adjustment before tax 14.6 ( 1.6 ) 41.2 5.1
Deferred tax effect 3.7 ( 3.1 ) 12.5 ( 7.6 )
Foreign currency translation adjustment, net 18.3 ( 4.7 ) 53.7 ( 2.5 )
Unrealized (loss) gain on derivative instruments
Unrealized (loss) gain on hedging activity before reclassification ( 7.1 ) 6.4 ( 32.5 ) 7.6
Net reclassification for loss (gain) to income from continuing operations 4.9 ( 1.5 ) 2.4 ( 3.6 )
Net reclassification for gain to income from discontinued operations ( 0.1 ) ( 0.7 ) ( 0.1 ) ( 1.2 )
Unrealized (loss) gain on hedging instruments after reclassification ( 2.3 ) 4.2 ( 30.2 ) 2.8
Deferred tax effect 0.7 ( 1.0 ) 7.8 3.5
Net unrealized (loss) gain on hedging derivative instruments ( 1.6 ) 3.2 ( 22.4 ) 6.3
Defined benefit pension (loss) gain
Defined benefit pension gain (loss) before reclassification 0.1 1.0 ( 2.1 ) 1.7
Net reclassification for (gain) loss to income from continuing operations ( 0.7 ) 1.0 0.2 2.0
Defined benefit pension (loss) gain after reclassification ( 0.6 ) 2.0 ( 1.9 ) 3.7
Deferred tax effect 0.1 ( 0.6 ) 1.3 ( 3.5 )
Net defined benefit pension (loss) gain ( 0.5 ) 1.4 ( 0.6 ) 0.2
Net change to derive comprehensive income for the period 16.2 ( 0.1 ) 30.7 4.0
Comprehensive (loss) income ( 37.1 ) 16.4 ( 42.9 ) 29.2
Comprehensive income (loss) from continuing operations attributable to non-controlling interest 0.1 ( 0.1 ) 0.3 ( 0.1 )
Comprehensive income from discontinuing operations attributable to non-controlling interest 0.1 — 0.2 0.1
Comprehensive (loss) income attributable to controlling interest $ ( 37.3 ) $ 16.5 $ ( 43.4 ) $ 29.2
See accompanying notes to the condensed consolidated financial statements
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SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Shareholder's Equity
For the six month period ended April 2, 2023
(unaudited)
(in millions) Other
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Loss Total
Shareholder's
Equity Non-
controlling
Interest Total Equity
Balances at September 30, 2022 $ 2,164.6 $ ( 736.0 ) $ ( 303.0 ) $ 1,125.6 $ 7.5 $ 1,133.1
Net (loss) income from continuing operations — ( 40.1 ) — ( 40.1 ) 0.3 ( 39.8 )
Income from discontinued operations, net of tax — 19.4 — 19.4 0.1 19.5
Other comprehensive income, net of tax — — 14.2 14.2 0.3 14.5
Restricted stock issued and related tax withholdings ( 10.5 ) — — ( 10.5 ) — ( 10.5 )
Share based compensation 3.9 — — 3.9 — 3.9
Dividends paid to parent — ( 17.1 ) — ( 17.1 ) — ( 17.1 )
Balances as of January 1, 2023 2,158.0 ( 773.8 ) ( 288.8 ) 1,095.4 8.2 1,103.6
Net (loss) income from continuing operations — ( 75.3 ) — ( 75.3 ) 0.1 ( 75.2 )
Income from discontinued operations, net of tax — 21.9 — 21.9 — 21.9
Other comprehensive income, net of tax — — 16.0 16.0 0.2 16.2
Share based compensation 4.4 — — 4.4 — 4.4
Dividends paid to parent — ( 17.2 ) — ( 17.2 ) — ( 17.2 )
Balances as of April 2, 2023 $ 2,162.4 $ ( 844.4 ) $ ( 272.8 ) $ 1,045.2 $ 8.5 $ 1,053.7
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SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Shareholder's Equity
For the six month period ended April 3, 2022
(unaudited)
(in millions) Other
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Loss Total
Shareholder's
Equity Non-
controlling
Interest Total Equity
Balances at September 30, 2021 $ 2,174.8 $ ( 614.9 ) $ ( 235.2 ) $ 1,324.7 $ 8.7 $ 1,333.4
Net loss from continuing operations — ( 30.1 ) — ( 30.1 ) — ( 30.1 )
Income from discontinued operations, net of tax — 38.4 — 38.4 0.4 38.8
Other comprehensive income, net of tax — — 4.0 4.0 0.1 4.1
Restricted stock issued and related tax withholdings ( 24.3 ) — — ( 24.3 ) — ( 24.3 )
Share based compensation 8.2 — — 8.2 — 8.2
Dividends paid to parent — ( 119.2 ) — ( 119.2 ) — ( 119.2 )
Balances as of January 2, 2022 2,158.7 ( 725.8 ) ( 231.2 ) 1,201.7 9.2 1,210.9
Net loss from continuing operations — ( 24.6 ) — ( 24.6 ) — ( 24.6 )
Income from discontinued operations, net of tax — 41.0 — 41.0 0.1 41.1
Other comprehensive loss, net of tax — — — — ( 0.1 ) ( 0.1 )
Share based compensation 7.4 — — 7.4 — 7.4
Dividends paid to parent — ( 41.2 ) — ( 41.2 ) — ( 41.2 )
Dividends paid by subsidiary to non-controlling interest — — — — ( 1.3 ) ( 1.3 )
Balances as of April 3, 2022 $ 2,166.1 $ ( 750.6 ) $ ( 231.2 ) $ 1,184.3 $ 7.9 $ 1,192.2
See accompanying notes to the condensed consolidated financial statements
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SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Cash Flows
For the six month periods ended April 2, 2023 and April 3, 2022
(unaudited)
Six Month Periods Ended
(in millions) April 2, 2023 April 3, 2022
Cash flows from operating activities
Net (loss) income $ ( 73.6 ) $ 25.2
Income from discontinued operations, net of tax 41.4 79.9
Net loss from continuing operations ( 115.0 ) ( 54.7 )
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation 24.1 24.4
Amortization 20.9 26.7
Share based compensation 7.1 11.8
Impairment of equipment and leases 4.5 —
Impairment of intangible assets 67.0 —
Amortization of debt issuance costs and debt discount 4.0 3.1
Gain from contingent consideration liability ( 1.5 ) —
Non-cash purchase accounting adjustments 0.9 3.5
Deferred tax benefit ( 61.3 ) ( 43.3 )
Net changes in operating assets and liabilities 187.5 ( 216.1 )
Net cash provided (used) by operating activities from continuing operations 138.2 ( 244.6 )
Net cash provided by operating activities from discontinued operations 29.0 5.3
Net cash provided (used) by operating activities 167.2 ( 239.3 )
Cash flows from investing activities
Purchases of property, plant and equipment ( 25.9 ) ( 24.3 )
Proceeds from disposal of property, plant and equipment — 0.1
Business acquisitions, net of cash acquired — ( 314.3 )
Other investing activities — ( 0.1 )
Net cash used by investing activities from continuing operations ( 25.9 ) ( 338.6 )
Net cash used by investing activities from discontinued operations ( 7.9 ) ( 12.4 )
Net cash used by investing activities ( 33.8 ) ( 351.0 )
Cash flows from financing activities
Payment of debt ( 21.7 ) ( 6.5 )
Proceeds from issuance of debt — 775.0
Payment of debt issuance costs ( 2.3 ) ( 6.7 )
Payment of cash dividends to parent ( 34.4 ) ( 160.4 )
Net cash (used) provided by financing activities from continuing operations ( 58.4 ) 601.4
Net cash used by financing activities from discontinued operations ( 0.7 ) ( 2.2 )
Net cash (used) provided by financing activities ( 59.1 ) 599.2
Effect of exchange rate changes on cash and cash equivalents 9.7 ( 3.0 )
Net change in cash, cash equivalents and restricted cash 84.0 5.9
Cash, cash equivalents, and restricted cash, beginning of period 242.6 188.3
Cash, cash equivalents, and restricted cash, end of period $ 326.6 $ 194.2
Supplemental disclosure of cash flow information
Cash paid for interest associated with continued operations $ 56.8 $ 50.9
Cash paid for interest associated with discontinued operations 29.9 30.2
Cash paid for taxes associated with continued operations 11.7 19.0
Cash paid for taxes associated with discontinued operations 13.5 10.1
Non cash investing activities
Acquisition of property, plant and equipment through finance leases $ 2.4 $ 0.5
See accompanying notes to the condensed consolidated financial statements
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
This report is a combined report of Spectrum Brands Holdings, Inc. (“SBH”) and SB/RH Holdings, LLC (“SB/RH”) (collectively, the “Company”). The notes to the condensed consolidated financial statements that follow include both consolidated SBH and SB/RH Notes, unless otherwise indicated below.
NOTE 1– BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Fiscal Period-End
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company and its majority owned subsidiaries in accordance with accounting principles for interim financial information generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations. It is management’s opinion, however, that all material adjustments have been made which are necessary for a fair financial statement presentation. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022.
SBH’s and SB/RH’s fiscal year ends September 30 and the Company reports its results using fiscal quarters whereby each three month quarterly reporting period is approximately thirteen weeks in length and ends on a Sunday. The exceptions are the first quarter, which begins on October 1, and the fourth quarter, which ends on September 30. As a result, the fiscal period end date for the three and six month periods included within this Quarterly Report for the Company are April 2, 2023 and April 3, 2022, respectively.
Newly Adopted Accounting Standards
In March 2020, the FASB issued ASU 2020- 04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, which adds implementation guidance to clarify certain optional expedients in Topic 848. The adoption did not have a material impact on the consolidated financial statements.
Recently Issued Accounting Standards
In September 2022, the FASB issued ASU 2022-04, Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations to enhance transparency about the use of supplier finance programs. Under the ASU, the buyer in a supplier finance program is required to disclose information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. The amendments in ASU 2022-04 are effective for all entities for fiscal years beginning after December 15, 2022, including interim periods within those financial years, except for the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is evaluating the effect of adopting this new accounting guidance.
NOTE 2 – DIVESTITURES
The following table summarizes the components of Income from Discontinued Operations, Net of Tax in the accompanying Condensed Consolidated Statements of Income for the three and six month periods ended April 2, 2023 and April 3, 2022:
Three Month Periods Ended Six Month Periods Ended
(in millions) April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
Income from discontinued operations before income taxes – HHI $ 59.5 $ 71.0 $ 104.4 $ 130.9
Loss from discontinued operations before income taxes – Other ( 1.4 ) ( 3.1 ) ( 2.0 ) ( 3.4 )
Interest on corporate debt allocated to discontinued operations 17.8 11.0 34.0 21.4
Income from discontinued operations before income taxes 40.3 56.9 68.4 106.1
Income tax expense from discontinued operations 18.9 15.8 27.5 26.2
Income from discontinued operations, net of tax 21.4 41.1 40.9 79.9
Net income from discontinued operations attributable to noncontrolling interest — 0.1 0.2 0.5
Net income from discontinued operations attributable to controlling interest $ 21.4 $ 41.0 $ 40.7 $ 79.4
Interest from corporate debt allocated to discontinued operations includes interest expense from Term Loans required to be paid down using proceeds received on disposal on sale of a business, and interest expense from corporate debt not directly attributable to or related to other operations based on the ratio of net assets of the disposal group held for sale to the consolidated net assets of the Company plus consolidated debt, excluding debt assumed in the transaction, required to be repaid, or directly attributable to other operations of the Company. Corporate debt, including Term Loans required to be paid down, are not classified as held for sale as they are not directly attributable to the identified disposal group.
Hardware and Home Improvement ("HHI")
On September 8, 2021, the Company entered into a definitive Asset and Stock Purchase Agreement (the "ASPA") with ASSA ABLOY AB ("ASSA") to sell its HHI segment for cash proceeds of $ 4.3 billion, subject to customary purchase price adjustments (the "HHI Transaction"). The Company's assets and liabilities associated with the HHI disposal group have been classified as held for sale, and the respective operations have been classified as discontinued operations and reported separately for all periods presented.
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 2 – DIVESTITURES (continued)
The ASPA provides that ASSA will purchase the equity of certain subsidiaries of the Company, and acquire certain assets and assume certain liabilities of other subsidiaries used or held for the purpose of the HHI business. The Company and ASSA have made customary representations and warranties and have agreed to customary covenants relating to the acquisition. Among other things, prior to the consummation of the acquisition, the Company will be subject to certain business conduct restrictions with respect to its operation of the HHI business. The Company and ASSA have agreed to indemnify each other for losses arising from certain breaches of the ASPA and for certain other matters. In particular, the Company has agreed to indemnify ASSA for certain liabilities relating to the assets retained by the Company, and ASSA has agreed to indemnify the Company for certain liabilities assumed by ASSA, in each case as described in the ASPA. The Company and ASSA have agreed to enter into related agreements ancillary to the acquisition that will become effective upon the consummation of the acquisition, including a customary transition services agreement and providing for both forward and reverse transition services.
The consummation of the acquisition is subject to certain customary conditions, including, among other things, (i) the absence of a material adverse effect on HHI, (ii) the expiration or termination of required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iii) the receipt of certain other antitrust approvals in certain specified foreign jurisdictions (the conditions contained in (ii) and (iii) together, the “Antitrust Conditions”), (iv) the accuracy of the representations and warranties of the parties generally subject to a customary material adverse effect standard (as described in the ASPA) or other customary materiality qualifications), (v) the absence of governmental restrictions on the consummation of the acquisition in certain jurisdictions, and (vi) material compliance by the parties with their respective covenants and agreements under the ASPA. The consummation of the acquisition is not subject to any financing condition.
The ASPA also contains certain termination rights, including the right of either party to terminate the ASPA if the consummation of the acquisition has not occurred on or before December 8, 2022 (the “Termination Date”). Further, if the acquisition has not been consummated by the Termination Date and all conditions precedent to ASSA's obligation to consummate the acquisition have otherwise been satisfied except for one or more of the Antitrust Conditions, then ASSA would be required to pay the Company a termination fee of $ 350 million.
On July 14, 2022, the parties entered into an amendment to the ASPA (the “Amendment”) pursuant to which the Termination Date was extended to June 30, 2023. Except for the foregoing amendment to the Termination Date, the ASPA remains in full force and effect as written, including with respect to the termination fee of $ 350 million. On September 15, 2022, the Department of Justice ("DOJ") filed a complaint seeking to enjoin the transaction and block the acquisition of the HHI division by ASSA. 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 Brands in response to competitive concerns raised by the DOJ in their complaint. On May 5, 2023, the Company agreed to a stipulation with the DOJ to settle the DOJ's challenge of the HHI transaction, pursuant to which ASSA will proceed with the divestment of Emtek and its Smart Residential business in the U.S.and Canada to Fortune Brands. Approval of the Mexican competition authority is the only outstanding regulatory approval. The Company continues to recognize the HHI division as held for sale and as a component of our discontinued operations. The parties are committed to closing the HHI transaction, and the Company and ASSA both continue to expect that the HHI transaction will close on or prior to June 30, 2023.
The following table summarizes the assets and liabilities of the HHI disposal group classified as held for sale as of April 2, 2023 and September 30, 2022:
(in millions)
April 2, 2023 September 30, 2022
Assets
Trade receivables, net $ 143.4 $ 135.5
Other receivables 3.9 6.7
Inventories 286.9 327.1
Prepaid expenses and other current assets 34.2 33.1
Property, plant and equipment, net 176.2 166.6
Operating lease assets 64.2 63.6
Deferred charges and other 14.4 11.7
Goodwill 701.6 698.6
Intangible assets, net 374.8 373.8
Total assets of business held for sale $ 1,799.6 $ 1,816.7
Liabilities
Current portion of long-term debt $ 1.4 $ 1.4
Accounts payable 190.0 224.7
Accrued wages and salaries 22.4 32.7
Other current liabilities 67.1 79.9
Long-term debt, net of current portion 53.9 54.6
Long-term operating lease liabilities 42.7 46.9
Deferred income taxes 10.4 10.1
Other long-term liabilities 13.9 13.4
Total liabilities of business held for sale $ 401.8 $ 463.7
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 2 – DIVESTITURES (continued)
The following table summarizes the components of income from discontinued operations before income taxes associated with the HHI divestiture in the accompanying Condensed Consolidated Statements of Operations for the three and six month periods ended April 2, 2023 and April 3, 2022:
Three Month Periods Ended Six Month Periods Ended
(in millions)
April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
Net sales $ 383.3 $ 420.8 $ 746.1 $ 795.4
Cost of goods sold 253.3 275.4 498.0 520.4
Gross profit 130.0 145.4 248.1 275.0
Operating expenses 68.9 72.3 140.0 139.5
Operating income 61.1 73.1 108.1 135.5
Interest expense 0.8 0.8 1.7 1.7
Other non-operating expense, net 0.8 1.3 2.0 2.9
Income from discontinued operations before income taxes $ 59.5 $ 71.0 $ 104.4 $ 130.9
Beginning in September 2021, the Company ceased the recognition of depreciation and amortization of long-lived assets associated with the HHI disposal group classified as held for sale. Interest expense consists of interest from debt directly attributable to HHI operations that primarily consist of interest from finance leases. No impairment loss was recognized on the assets held for sale as the purchase price of the business less estimated cost to sell is more than its carrying value. The following table presents significant non-cash items and capital expenditures of discontinued operations from the HHI divestiture for the three and six month periods ended April 2, 2023 and April 3, 2022:
Three Month Periods Ended Six Month Periods Ended
(in millions)
April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
Share based compensation $ 0.3 $ 1.2 $ 1.1 $ 4.1
Purchases of property, plant and equipment 4.4 7.5 8.0 12.4
Other
Loss from discontinued operations before income taxes – other includes incremental pre-tax loss for changes to tax and legal indemnifications and other agreed-upon funding under the acquisition agreements for the sale and divestiture of the Global Batteries & Lighting ("GBL") and Global Auto Care ("GAC") divisions to Energizer Holdings, Inc. ("Energizer") during the year ended September 30, 2019. The Company and Energizer agreed to indemnify each other for losses arising from certain breaches of the acquisition agreement and for certain other matters, in each case as described in the acquisition agreements. Subsequently, effective January 2, 2020, Energizer closed its divestitures of the European based Varta® consumer battery business in the EMEA region to Varta AG and transferred all respective rights and indemnifications attributable to the Varta® consumer battery business provided by the GBL sale to Varta AG. As of April 2, 2023 and September 30, 2022, the Company recognized $ 24.6 million and $ 22.3 million, respectively, related to indemnification payables in accordance with the acquisition agreements, primarily attributable with uncertain tax benefit obligations and outstanding settlements with tax authorities that were transferred and indemnified in accordance with the acquisition agreement, including $ 9.0 million and $ 7.0 million within Other Current Liabilities, respectively, and $ 15.6 million and $ 15.3 million, within Other Long-Term Liabilities, respectively, on the Company’s Condensed Consolidated Statements of Financial Position.
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 3 – RESTRUCTURING CHARGES
During the three and six month periods ended April 2, 2023, the Company entered into a new initiative in response to the continuing pressures within the consumer products and retail markets and adjusted strategic initiatives within certain segments, resulting in the realization of another round of headcount reductions. Total cumulative exit and disposal costs associated with the initiative were $ 4.5 million. Substantially all exit and disposal charges associated with the initiative have been recognized.
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, and to facilitate changes in the management structure for enabling functions of the consolidated group, resulting in the realization of headcount reductions. Total cumulative exit and disposal costs associated with the initiative were $ 10.5 million. Substantially all exit and disposal costs associated, with the initiative have been recognized in the prior year with incremental costs realized during the three and six month periods ended April 2, 2023, which were attributable to changes in timing and accruals previously recognized since the initiative was established.
During the year ended September 30, 2022, the Company initiated the exit of its in-country commercial operations in Russia, predominantly supporting the HPC segment, including costs for severance and other exit and disposal activity to close the operations. Total cumulative exit and disposal costs associated with the initiative were $ 1.3 million. Substantially all exit and disposal costs associated with the initiative have been recognized.
The Company may enter into small, less significant initiatives to reduce costs and improve margins throughout the organization. Individually these activities are not substantial and occur over a shorter time period (generally less than 12 months).
The following summarizes restructuring charges for the three and six month periods ended April 2, 2023 and April 3, 2022:
Three Month Periods Ended Six Month Periods Ended
(in millions)
April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
Fiscal 2023 restructuring $ 4.5 $ — $ 4.5 $ —
Fiscal 2022 restructuring 0.1 — 0.6 —
Russia dissolution 0.1 — 0.7 —
GPC distribution center transition — 5.6 — 15.9
Global productivity improvement program — 2.3 — 4.1
Other project costs 0.1 8.5 1.0 13.8
Total restructuring charges $ 4.8 $ 16.4 $ 6.8 $ 33.8
Reported as:
Cost of goods sold $ 0.3 $ 1.2 $ 0.7 $ 1.5
Selling expense — 5.6 — 15.9
General and administrative expense 4.5 9.6 6.1 16.4
The following is a summary of restructuring charges by segment for the three and six month periods ended April 2, 2023 and April 3, 2022.
Three Month Periods Ended Six Month Periods Ended
(in millions) April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
HPC $ 2.5 $ 3.7 $ 3.2 $ 4.3
GPC 2.2 8.2 3.0 19.6
H&G — — 0.2 —
Corporate 0.1 4.5 0.4 9.9
Total restructuring charges $ 4.8 $ 16.4 $ 6.8 $ 33.8
The following is a summary of restructuring charges by cost type for the three and six month periods ended April 2, 2023 and April 3, 2022.
(in millions)
Termination
Benefits Other
Costs Total
For the three month period ended April 2, 2023 $ 4.4 $ 0.4 $ 4.8
For the three month period ended April 3, 2022 1.2 15.2 16.4
For the six month period ended April 2, 2023 5.7 1.1 6.8
For the six month period ended April 3, 2022 1.9 31.9 33.8
The following is a rollforward of the accrual for restructuring charges by cost type for the six month period ended April 2, 2023.
(in millions) Termination
Benefits Other
Costs Total
Accrual balance at September 30, 2022 $ 3.7 $ 0.3 $ 4.0
Provisions 4.9 — 4.9
Cash expenditures ( 4.7 ) ( 0.1 ) ( 4.8 )
Foreign currency and other 0.3 ( 0.1 ) 0.2
Accrual balance at April 2, 2023 $ 4.2 $ 0.1 $ 4.3
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 4 – REVENUE RECOGNITION
The Company generates all of its revenue from contracts with customers. The following table disaggregates our revenue for the three and six month periods ended April 2, 2023 and April 3, 2022, by the Company’s key revenue streams, segments and geographic region (based upon destination):
Three Month Period Ended April 2, 2023 Three Month Period Ended April 3, 2022
(in millions)
HPC
GPC
H&G
Total
HPC
GPC
H&G
Total
Product Sales
NA
$ 121.6 $ 186.4 $ 151.3 $ 459.3 $ 136.8 $ 182.2 $ 194.2 $ 513.2
EMEA
99.2 94.4 — 193.6 109.1 95.3 — 204.4
LATAM
38.8 4.5 1.5 44.8 51.5 4.5 1.7 57.7
APAC
17.4 7.4 — 24.8 16.2 9.0 — 25.2
Licensing
1.9 2.6 0.5 5.0 2.1 2.4 0.7 5.2
Service and other 0.3 1.4 — 1.7 0.4 1.7 — 2.1
Total Revenue
$ 279.2 $ 296.7 $ 153.3 $ 729.2 $ 316.1 $ 295.1 $ 196.6 $ 807.8
Six Month Period Ended April 2, 2023 Six Month Period Ended April 3, 2022
(in millions) HPC GPC H&G Total HPC GPC H&G Total
Product Sales
NA $ 286.1 $ 360.8 $ 220.2 $ 867.1 $ 264.2 $ 369.7 $ 266.9 $ 900.8
EMEA 236.5 181.0 — 417.5 268.5 189.7 — 458.2
LATAM 80.6 7.7 3.5 91.8 120.1 9.2 4.1 133.4
APAC 35.2 16.9 — 52.1 37.9 20.2 — 58.1
Licensing 4.3 5.0 0.9 10.2 4.7 5.1 0.9 10.7
Service and other 0.9 2.9 — 3.8 0.4 3.4 — 3.8
Total Revenue $ 643.6 $ 574.3 $ 224.6 $ 1,442.5 $ 695.8 $ 597.3 $ 271.9 $ 1,565.0
The Company has a broad range of customers, including many large mass retail customers. During the three month periods ended April 2, 2023 and April 3, 2022, there were two large retail customers, each exceeding 10% of consolidated Net Sales and representing 33.5 % and 33.3 % of consolidated Net Sales, respectively. During the six month periods ended April 2, 2023 and April 3, 2022, there were two large retail customers exceeding 10% of consolidated Net Sales and representing 34.8 % and 33.1 % of consolidated Net Sales, respectively.
A significant portion of our product sales from our HPC segment are subject to the continued use and access to the Black & Decker ("B&D") brand through a license agreement with Stanley Black and Decker. The license agreement was renewed through June 30, 2025, including a sell-off period from April 1, 2025 to June 30, 2025 whereby the Company can continue to sell and distribute but no longer produce products subject to the license agreement. Net sales from B&D product sales consisted of $ 85.1 million, or 11.7 % of consolidated net sales, and $ 98.0 million, or 12.1 % of consolidated Net Sales, for the three month periods ended April 2, 2023 and April 3, 2022, respectively. Net sales from B&D product sales consisted of $ 171.9 million, or 11.9 %, and $ 229.8 million, or 14.7 %, of consolidated Net Sales for the six month periods ended April 2, 2023 and April 3, 2022, respectively. All other significant brands and tradenames used in the Company’s commercial operations are directly owned and not subject to further restrictions.
In the normal course of business, the Company may allow customers to return products or take credit for product returns per the provisions in a sale agreement. Estimated product returns are recorded as a reduction in reported revenues at the time of sale based upon historical product return experience, adjusted for known trends, to arrive at the amount of consideration expected to be received. The allowance for product returns as of April 2, 2023 and September 30, 2022 was $ 14.0 million and $ 15.5 million, respectively.
NOTE 5 – RECEIVABLES AND CONCENTRATION OF CREDIT RISK
The allowance for credit losses on the Company's trade receivables as of April 2, 2023 and September 30, 2022 was $ 6.1 million and $ 7.3 million, respectively.
The Company has a broad range of customers, including many large mass retail customers. As of April 2, 2023, there was one large retail customer exceeding 10% of consolidated Net Trade Receivables and representing 19.7 % of consolidated Net Trade Receivables. As of September 30, 2022 there were two large retail customers exceeding 10% of consolidated Net Trade Receivables and representing 21.9 % of consolidated Net Trade Receivables.
NOTE 6 – INVENTORIES
Inventories consist of the following:
(in millions)
April 2, 2023 September 30, 2022
Raw materials
$ 75.2 $ 72.3
Work-in-process
7.2 10.5
Finished goods
503.2 697.8
Inventories $ 585.6 $ 780.6
18
SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
(in millions) April 2, 2023 September 30, 2022
Land, buildings and improvements $ 78.7 $ 75.7
Machinery, equipment and other 398.9 394.1
Finance leases 143.3 139.8
Construction in progress 69.0 54.7
Property, plant and equipment 689.9 664.3
Accumulated depreciation ( 421.2 ) ( 400.5 )
Property, plant and equipment, net $ 268.7 $ 263.8
Depreciation expense from property, plant, and equipment for the three month periods ended April 2, 2023 and April 3, 2022, was $ 11.9 million and $ 12.2 million, respectively; and for the six month periods ended April 2, 2023 and April 3, 2022 was $ 24.1 million and $ 24.4 million, respectively. During the three and six month periods ended April 2, 2023, the Company recognized a $ 2.7 million impairment charge on idle equipment associated with the early exit of a GPC warehouse lease, included as Selling Expense on the Condensed Consolidated Statements of Income.
NOTE 8 – GOODWILL AND INTANGIBLE ASSETS
Goodwill consists of the following:
(in millions)
HPC GPC
H&G
Total
As of September 30, 2022 $ 108.1 $ 502.4 $ 342.6 $ 953.1
Tristar Business acquisition adjustment 3.0 — — 3.0
Foreign currency impact — 12.4 — 12.4
As of April 2, 2023 $ 111.1 $ 514.8 $ 342.6 $ 968.5
During the three month period ended January 1, 2023, the Company recognized incremental adjustments to HPC goodwill attributable to changes to the preliminary valuation of net assets acquired associated with the acquisition of the Tristar Business, previously acquired on February 18, 2022, primarily associated with the valuation of reserves on trade receivables and deferred tax assets as of the acquisition date. The preliminary values recorded were determined based upon a valuation with estimates and assumptions used in such valuation that are subject to change within the measurement period (up to one year from the acquisition date). The one year measurement period has closed and there are no further adjustments on the valuation of acquired net assets. See Note 4 - Acquisitions in the Notes to the Consolidated Financial Statements within the Company's Annual Report on Form 10-K, released on November 22, 2022, for further discussion on the Tristar Business acquisition.
The carrying value and accumulated amortization of intangible assets are as follows:
April 2, 2023 September 30, 2022
(in millions) Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net
Amortizable intangible assets:
Customer relationships $ 638.2 $ ( 397.6 ) $ 240.6 $ 627.8 $ ( 373.9 ) $ 253.9
Technology assets 75.3 ( 33.4 ) 41.9 75.3 ( 30.8 ) 44.5
Tradenames 11.0 ( 6.1 ) 4.9 10.6 ( 5.1 ) 5.5
Total amortizable intangible assets 724.5 ( 437.1 ) 287.4 713.7 ( 409.8 ) 303.9
Indefinite-lived intangible assets – tradenames 853.3 — 853.3 898.3 — 898.3
Total Intangible Assets $ 1,577.8 $ ( 437.1 ) $ 1,140.7 $ 1,612.0 $ ( 409.8 ) $ 1,202.2
During the three and six month periods ended April 2, 2023, we identified triggering events for our Rejuvenate and PowerXL tradename intangible assets resulting in recognition of a $ 67.0 million impairment loss on intangible assets. The loss associated with the Rejuvenate tradename is primarily attributable to a shift in the projected timing and realization of future revenues associated with the acquired brand due to changes in strategic distribution opportunities as well as a change in the amount and timing of product innovations being introduced to customers by the H&G segment. The loss associated with the PowerXL tradename was primarily attributable to a decrease in projected future revenues associated with the brand driven by decrease in realized sales with expected continuation of retail inventory reduction, lower consumer demand, increased competition in product categories, and adverse macro-economic factors.
Amortization expense from the intangible assets for the three month periods ended April 2, 2023 and April 3, 2022 was $ 10.5 million and $ 13.5 million, respectively; and for the six month periods ended April 2, 2023 and April 3, 2022 was $ 20.9 million and $ 26.7 million, respectively.
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 8 - GOODWILL AND INTANGIBLE ASSETS (continued)
Excluding the impact of any future acquisitions, dispositions or changes in foreign currency, the Company estimates annual amortization expense of intangible assets for the next five fiscal years will be as follows:
(in millions) Amortization
2023 $ 42.0
2024 41.2
2025 38.8
2026 38.3
2027 37.8
NOTE 9 – DEBT
Debt with external lenders consists of the following:
April 2, 2023 September 30, 2022
(in millions) Amount Rate Amount Rate
Revolver Facility, variable rate, expiring June 30, 2025 $ 725.0 7.9 % $ 740.0 5.7 %
Term Loan Facility, variable rate, due March 3, 2028 392.0 7.1 % 394.0 5.2 %
5.75 % Notes, due July 15, 2025
450.0 5.8 % 450.0 5.8 %
4.00 % Notes, due October 1, 2026
463.5 4.0 % 417.1 4.0 %
5.00 % Notes, due October 1, 2029
300.0 5.0 % 300.0 5.0 %
5.50 % Notes, due July 15, 2030
300.0 5.5 % 300.0 5.5 %
3.875 % Notes, due March 15, 2031
500.0 3.9 % 500.0 3.9 %
Obligations under finance leases 91.1 6.0 % 92.7 5.1 %
Total Spectrum Brands, Inc. debt 3,221.6 3,193.8
Unamortized discount on debt ( 0.7 ) ( 0.8 )
Debt issuance costs ( 32.2 ) ( 36.2 )
Less current portion ( 13.1 ) ( 12.3 )
Long-term debt, net of current portion $ 3,175.6 $ 3,144.5
Our Revolver Facility has a total capacity of $ 1,100 million. Borrowings from the initial revolver capacity of $ 600 million are subject to either adjusted London Inter-Bank Offered Rate ("LIBOR") plus margin ranging from 1.75 % to 2.75 % per annum, or base rate plus margin ranging from 0.75 % to 1.75 % per annum; and borrowings under the incremental revolver capacity of $ 500 million, per the third amendment to the Amended and Restated Credit Agreement (the "Credit Agreement"), are subject to Secured Overnight Financing Rate ("SOFR") plus margin ranging from 1.75 % to 2.75 % per annum or base rate plus margin ranging from 0.75 % to 1.75 %. Effective November 3, 2022, the applicable margin increased 25 bps resulting in an increase to the SOFR margin ranging from 2.00 % to 3.00 % per annum or base rate plus margin ranging from 1.00 % to 2.00 %, with subsequent increases of 25 bps each 90-day anniversary after the initial step-up date. The LIBOR borrowings are subject to a 0.75 % LIBOR floor, and the SOFR borrowings are subject to a 0.50 % SOFR floor. Our Revolver Facility allows for the LIBOR rate to be phased out and replaced with the SOFR, and therefore we do not anticipate a material impact by the expected upcoming LIBOR transition. We expect the transition from the LIBOR rate to SOFR will be effective no later than the end of June 2023. As a result of borrowings and payments under the Revolver Facility, the Company had borrowing availability of $ 362.1 million at April 2, 2023, net of outstanding letters of credit of $ 12.9 million.
The Term Loan Facility is subject to a rate per annum equal to either (1) the LIBO Rate (as defined in the Credit Agreement), subject to a 0.50 % floor, adjusted for statutory reserves, plus a margin of 2.00 % per annum or (2) the Alternate Base Rate (as defined in the Credit Agreement), plus a margin of 1.00 % per annum.
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 six month period ended April 2, 2023.
SB/RH
In addition to debt with external lenders, SB/RH has an outstanding loan with a subsidiary of its Parent in the amount of $ 8.0 million, including cumulative interest, with a stated interest rate of 4.01 %, due March 15, 2024. The outstanding loan with the Parent is subject to termination or acceleration by the Parent and is included as Current Portion of Long-Term Debt on the SB/RH Condensed Consolidated Statement of Financial Position as of April 2, 2023.
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 10 – DERIVATIVES
Derivative financial instruments are used by the Company principally in the management of its foreign currency exchange rates. The Company does not hold or issue derivative financial instruments for trading purposes.
Cash Flow Hedges
The Company periodically enters into forward foreign exchange contracts to hedge a portion of the risk from forecasted foreign currency denominated third party and intercompany sales or payments. These obligations generally require the Company to exchange foreign currencies for Australian Dollars, Canadian Dollars, Euros, Japanese Yen, Pound Sterling, or U.S. Dollars. These foreign exchange contracts are cash flow hedges of fluctuating foreign exchange related to inventory purchases or the sale of product. Until the purchase or sale is recognized, the fair value of the related hedge is recorded in Accumulated Other Comprehensive Income ("AOCI") and as a derivative hedge asset or liability, as applicable. At the time the sale or purchase is recognized, the fair value of the related hedge is reclassified as an adjustment to purchase price variance in Cost of Goods Sold or Net Sales on the Condensed Consolidated Statements of Income. At April 2, 2023, the Company had a series of foreign exchange derivative contracts outstanding through September 2024. The derivative net loss estimated to be reclassified from AOCI into earnings over the next 12 months is $ 10.6 million, net of tax. At April 2, 2023 and September 30, 2022, the Company had foreign exchange derivative contracts designated as cash flow hedges with a notional value of $ 302.8 million and $ 289.5 million, respectively.
The following table summarizes the impact of designated cash flow hedges and the pre-tax gain (loss) recognized in the Condensed Consolidated Statements of Income for the three and six month periods ended April 2, 2023 and April 3, 2022, respectively:
Unrealized Gain (Loss) in OCI Before Reclassification Reclassified Gain (Loss) to Continuing Operations
For the three month periods ended (in millions) April 2, 2023 April 3, 2022 Line Item April 2, 2023 April 3, 2022
Foreign exchange contracts $ 0.1 $ 0.1 Net sales $ — $ —
Foreign exchange contracts ( 7.5 ) 4.7 Cost of goods sold ( 4.9 ) 1.5
Total $ ( 7.4 ) $ 4.8 $ ( 4.9 ) $ 1.5
Gain (Loss) in OCI Reclassified Gain (Loss) to Continuing Operations
For the six month periods ended (in millions)
April 2, 2023 April 3, 2022 Line Item April 2, 2023 April 3, 2022
Foreign exchange contracts $ 0.1 $ 0.1 Net sales $ 0.1 $ —
Foreign exchange contracts ( 33.2 ) 3.9 Cost of goods sold ( 2.5 ) 3.6
Total $ ( 33.1 ) $ 4.0 $ ( 2.4 ) $ 3.6
Derivative Contracts Not Designated as Hedges for Accounting Purposes
The Company periodically enters into foreign exchange forward contracts to economically hedge a portion of the risk from third party and intercompany payments resulting from existing obligations. These obligations generally require the Company to exchange foreign currencies for, among others, Australian Dollars, Canadian Dollars, Colombian Peso, Euros, Hungarian Forint, Japanese Yen, Mexican Pesos, Philippine Pesos, Polish Zloty, Pounds Sterling, Swiss Franc, Taiwanese Dollars, Turkish Lira, or U.S. Dollars. These foreign exchange contracts are fair value hedges of a related liability or asset recorded in the accompanying Condensed Consolidated Statements of Financial Position. The gain or loss on the derivative hedge contracts is recorded in earnings as an offset to the change in value of the related liability or asset at each period end. At April 2, 2023, the Company had a series of forward exchange contracts outstanding through March 2024. At April 2, 2023 and September 30, 2022, the Company had $ 596.7 million and $ 513.7 million, respectively, of notional value of such foreign exchange derivative contracts outstanding.
The following summarizes the impact of derivative instruments not designated as hedges for accounting purposes on the accompanying Condensed Consolidated Statements of Income for the three and six month periods ended April 2, 2023 and April 3, 2022, pre-tax:
Three Month Periods Ended Six Month Periods Ended
(in millions) Line Item April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
Foreign exchange contracts Other non-operating expense (income) $ ( 0.1 ) $ 0.2 $ ( 22.3 ) $ ( 0.9 )
Fair Value of Derivative Instruments
The fair value of the Company’s outstanding derivative contracts recorded in the Condensed Consolidated Statements of Financial Position is as follows:
(in millions) Line Item April 2, 2023 September 30, 2022
Derivative Assets
Foreign exchange contracts – designated as hedge Other receivables $ 1.1 $ 14.4
Foreign exchange contracts – designated as hedge Deferred charges and other — 0.4
Foreign exchange contracts – not designated as hedge Other receivables 10.7 7.4
Total Derivative Assets $ 11.8 $ 22.2
Derivative Liabilities
Foreign exchange contracts – designated as hedge Accounts payable $ 15.2 $ —
Foreign exchange contracts – designated as hedge Other long term liabilities 1.3 1.0
Foreign exchange contracts – not designated as hedge Accounts payable 10.3 5.0
Total Derivative Liabilities $ 26.8 $ 6.0
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 10 – DERIVATIVES (continued)
The Company is exposed to the risk of default by the counterparties with which it transacts and generally does not require collateral or other security to support financial instruments subject to credit risk. The Company monitors counterparty credit risk on an individual basis by periodically assessing each counterparty’s credit rating exposure. The maximum loss due to credit risk equals the fair value of the gross asset derivatives that are concentrated with certain domestic and foreign financial institution counterparties. The Company considers these exposures when measuring its credit reserve on its derivative assets, which were not significant as of April 2, 2023.
The Company’s standard contracts do not contain credit risk related contingent features whereby the Company would be required to post additional cash collateral because of a credit event. However, the Company is typically required to post collateral in the normal course of business to offset its liability positions. As of April 2, 2023 and September 30, 2022, there was no cash collateral outstanding and no posted standby letters of credit related to such liability positions.
Net Investment Hedge
Spectrum Brands, Inc. has € 425.0 million aggregate principal amount of 4.00 % Notes designated as a non-derivative economic hedge, or net investment hedge, of the translation of the Company’s net investments in Euro denominated subsidiaries at the time of issuance. The hedge effectiveness is measured on the beginning balance of the net investment and re-designated every three months. Any gains and losses attributable to the translation of the Euro denominated debt designated as net investment hedge are recognized as a component of foreign currency translation within AOCI, and gains and losses attributable to the translation of the undesignated portion are recognized as foreign currency translation gains or losses within Other Non-Operating Expense (Income). Net gains or losses from the net investment hedge are reclassified from AOCI into earnings upon a liquidation event or deconsolidation of Euro denominated subsidiaries. As of April 2, 2023, the full principal amount was designated as a net investment hedge and considered fully effective. The following summarizes the unrealized gain (loss) from the net investment hedge recognized in Other Comprehensive Income for the three and six month periods ended April 2, 2023 and April 3, 2022, pre-tax:
Three Month Periods Ended Six Month Periods Ended
Unrealized Gain (Loss) in OCI (in millions) April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
Net investment hedge $ ( 12.5 ) $ 11.9 $ ( 46.4 ) $ 22.5
NOTE 11 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has not changed the valuation techniques used in measuring the fair value of any financial assets and liabilities during the year. The carrying value and estimated fair value of financial instruments as of April 2, 2023 and September 30, 2022 according to the fair value hierarchy are as follows:
April 2, 2023 September 30, 2022
(in millions) Level 1 Level 2 Level 3 Fair Value Carrying
Amount Level 1 Level 2 Level 3 Fair Value Carrying
Amount
Derivative Assets $ — $ 11.8 $ — $ 11.8 $ 11.8 $ — $ 22.2 $ — $ 22.2 $ 22.2
Derivative Liabilities — 26.8 — 26.8 26.8 — 6.0 — 6.0 6.0
Debt — 3,026.0 — 3,026.0 3,188.7 — 2,815.9 — 2,815.9 3,156.8
The fair value measurements of the Company’s debt represent non-active market exchanged traded securities which are valued at quoted input prices that are directly observable or indirectly observable through corroboration with observable market data. See Note 9 – Debt for additional detail on outstanding debt. See Note 10 – Derivatives for additional detail on derivative assets and liabilities.
The carrying value of cash and cash equivalents, receivables, accounts payable and short term debt approximate fair value based on the short-term nature of these assets and liabilities. Goodwill, intangible assets and other long-lived assets are tested annually or more frequently if an event occurs that indicates an impairment loss may have been incurred using fair value measurements with unobservable inputs (Level 3).
NOTE 12 – SHAREHOLDERS' EQUITY
Share Repurchases
The Company has a share repurchase program that is executed through purchases made from time to time, either in the open market or otherwise. On May 4, 2021, the Board of Directors approved a $ 1 billion common stock repurchase program and terminated the previously approved share repurchase program. The authorization is effective for 36 months. As part of our share repurchase programs, the Company has purchased treasury shares in open market purchases at market fair value along with participating in private purchases from Company employees, significant shareholders and beneficial interest owners at fair value. The following summarizes the activity of common stock repurchases for the three and six month periods ended April 2, 2023 and April 3, 2022:
April 2, 2023 April 3, 2022
Three Month Periods Ended
(in millions except per share data)
Number of
Shares
Repurchased
Average
Price
Per Share
Amount
Number of
Shares
Repurchased
Average
Price
Per Share
Amount
Open Market Purchases — $ — $ — 0.2 $ 96.90 $ 24.0
April 2, 2023 April 3, 2022
Six Month Periods Ended
(in millions except per share data)
Number of
Shares
Repurchased Average
Price
Per Share Amount Number of
Shares
Repurchased Average
Price
Per Share Amount
Open Market Purchases — $ — $ — 1.3 $ 97.34 $ 134.0
22
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 13 – SHARE BASED COMPENSATION
The following is a summary of share based compensation expense included in net loss from continuing operations for the three and six month periods ended April 2, 2023 and April 3, 2022 for SBH and SB/RH, respectively.
Three Month Periods Ended Six Month Periods Ended
(in millions) April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
SBH $ 4.5 $ 6.6 $ 7.7 $ 12.2
SB/RH $ 4.0 $ 6.2 $ 7.1 $ 11.8
The Company recognizes share based compensation expense from the issuance of Restricted Stock Units (“RSUs”), primarily under its Long-Term Incentive Plan ("LTIP"). RSUs granted under the LTIP include time-based grants and performance-based grants. The Company regularly issues annual RSU grants under its LTIP during the first quarter of the fiscal year. Compensation cost is based on the fair value of the awards, as determined by the market price of the Company’s shares of common stock on the designated grant date and recognized on a straight-line basis over the requisite service period of the awards. Time-based RSU awards provide for either three year cliff vesting or graded vesting depending upon the vesting conditions and forfeitures provided by the grant. Performance-based RSU awards are dependent upon achieving specified financial metrics (adjusted EBITDA, return on adjusted equity, and/or adjusted free cash flow) by the end of the three year vesting period. The Company assesses the probability of achievement of the performance conditions and recognizes expense for the awards based on the probable achievement of such metrics. Additionally, the Company regularly issues individual RSU awards under its equity plan to its Board members and individual employees for recognition, incentive, or retention purposes, when needed, which are primarily conditional upon time-based service conditions, valued based on the fair value of the awards as determined by the market price of the Company's share of common stock on the designated grant price date and recognized as a component of share-based compensation on a straight-line basis over the requisite service period of the award. RSUs are subject to forfeiture if employment terminates prior to vesting with forfeitures recognized as they occur. RSUs have dividend equivalents credited to the recipient and are paid only to the extent the RSU vests and the related stock is issued. Shares issued upon exercise of RSUs are sourced from treasury shares when available.
The following is a summary of RSU grants issued during the six month period ended April 2, 2023:
SBH SB/RH
(in millions, except per share data) Units Weighted
Average
Grant Date
Fair Value Fair
Value
at Grant
Date Units Weighted
Average
Grant Date
Fair Value Fair
Value
at Grant
Date
Time-based grants
Vesting in less than 12 months 0.13 $ 56.51 $ 7.1 0.10 $ 58.52 $ 5.6
Vesting in more than 12 months 0.14 50.50 7.1 0.14 50.50 7.1
Total time-based grants 0.27 $ 53.36 $ 14.2 0.24 $ 53.77 $ 12.7
Performance-based grants 0.27 $ 50.63 $ 13.9 0.27 $ 50.63 $ 13.9
Total grants 0.54 $ 51.98 $ 28.1 0.51 $ 52.08 $ 26.6
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE INCOME
The change in the components of AOCI for the six month period ended April 2, 2023, was as follows:
(in millions) Foreign Currency Translation Derivative Instruments Defined Benefit Pension Total
Balance at September 30, 2022
$ ( 285.9 ) $ 16.8 $ ( 34.0 ) $ ( 303.1 )
Other comprehensive income (loss) before reclassification 26.6 ( 25.4 ) ( 2.3 ) ( 1.1 )
Net reclassification for (gain) loss to income from continuing operations — ( 2.5 ) 0.9 ( 1.6 )
Other comprehensive income (loss) before tax 26.6 ( 27.9 ) ( 1.4 ) ( 2.7 )
Deferred tax effect 8.8 7.2 1.2 17.2
Other comprehensive income (loss), net of tax 35.4 ( 20.7 ) ( 0.2 ) 14.5
Less: other comprehensive income from continuing operations attributable to non-controlling interest 0.2 — — 0.2
Less: other comprehensive income from discontinued operations attributable to non-controlling interest 0.1 — — 0.1
Other comprehensive income (loss) attributable to controlling interest 35.1 ( 20.7 ) ( 0.2 ) 14.2
Balance at January 1, 2023 ( 250.8 ) ( 3.9 ) ( 34.2 ) ( 288.9 )
Other comprehensive income (loss) before reclassification 14.6 ( 7.1 ) 0.1 7.6
Net reclassification for loss (gain) to income from continuing operations — 4.9 ( 0.7 ) 4.2
Net reclassification for (gain) to income from discontinued operations — ( 0.1 ) — ( 0.1 )
Other comprehensive income (loss) before tax 14.6 ( 2.3 ) ( 0.6 ) 11.7
Deferred tax effect 3.7 0.7 0.1 4.5
Other comprehensive income (loss), net of tax 18.3 ( 1.6 ) ( 0.5 ) 16.2
Less: other comprehensive loss from continuing operations attributable to non-controlling interest 0.1 — — 0.1
Less: other comprehensive income from discontinued operations attributable to non-controlling interest 0.1 — — 0.1
Other comprehensive income (loss) attributable to controlling interest 18.1 ( 1.6 ) ( 0.5 ) 16.0
Balance at April 2, 2023 $ ( 232.7 ) $ ( 5.5 ) $ ( 34.7 ) $ ( 272.9 )
The following table presents reclassifications of the gain (loss) on the Condensed Consolidated Statements of Income from AOCI for the periods indicated:
(in millions) Three Month Period Ended April 2, 2023 Six Month Period Ended April 2, 2023
Derivative Instruments Defined Benefit Pension Total Derivative Instruments Defined Benefit Pension Total
Net Sales $ — $ — $ — $ 0.1 $ — $ 0.1
Cost of goods sold ( 4.9 ) — ( 4.9 ) ( 2.5 ) — ( 2.5 )
Other non-operating expense (income), net — 0.7 0.7 — ( 0.2 ) ( 0.2 )
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE INCOME (continued)
The change in the components of AOCI for the six month period ended April 3, 2022, was as follows:
(in millions) Foreign Currency Translation Derivative Instruments Defined Benefit Pension Total
Balance at September 30, 2021
$ ( 194.8 ) $ 6.4 $ ( 46.9 ) $ ( 235.3 )
Other comprehensive income before reclassification 6.8 1.2 0.6 8.6
Net reclassification for (gain) loss to income from continuing operations — ( 2.1 ) 1.0 ( 1.1 )
Net reclassification for gain to income from discontinued operations — ( 0.5 ) — ( 0.5 )
Other comprehensive income (loss) before tax 6.8 ( 1.4 ) 1.6 7.0
Deferred tax effect ( 4.5 ) 4.5 ( 2.9 ) ( 2.9 )
Other comprehensive income (loss), net of tax 2.3 3.1 ( 1.3 ) 4.1
Less: other comprehensive income from continuing operations attributable to non-controlling interest 0.1 — — 0.1
Other comprehensive income (loss) attributable to controlling interest 2.2 3.1 ( 1.3 ) 4.0
Balance at January 2, 2022 ( 192.6 ) 9.5 ( 48.2 ) ( 231.3 )
Other comprehensive (loss) income before reclassification ( 1.6 ) 6.4 1.0 5.8
Net reclassification for (gain) loss to income from continuing operations — ( 1.5 ) 1.0 ( 0.5 )
Net reclassification for gain to income from discontinued operations — ( 0.7 ) — ( 0.7 )
Other comprehensive (loss) income before tax ( 1.6 ) 4.2 2.0 4.6
Deferred tax effect ( 3.1 ) ( 1.0 ) ( 0.6 ) ( 4.7 )
Other comprehensive (loss) income, net of tax ( 4.7 ) 3.2 1.4 ( 0.1 )
Less: other comprehensive loss from continuing operations attributable to non-controlling interest ( 0.1 ) — — ( 0.1 )
Other comprehensive (loss) income attributable to controlling interest ( 4.6 ) 3.2 1.4 —
Balance at April 3, 2022 $ ( 197.2 ) $ 12.7 $ ( 46.8 ) $ ( 231.3 )
The following table presents reclassifications of the gain (loss) on the Condensed Consolidated Statements of Income from AOCI for the periods indicated:
(in millions) Three Month Period Ended April 3, 2022 Six Month Period Ended April 3, 2022
Derivative Instruments Defined Benefit Pension Total Derivative Instruments Defined Benefit Pension Total
Cost of goods sold $ 1.5 $ — $ 1.5 $ 3.6 $ — $ 3.6
Other non-operating income, net — ( 1.0 ) ( 1.0 ) — ( 3.1 ) ( 3.1 )
Income from discontinued operations, net of tax 0.7 — 0.7 1.2 — 1.2
NOTE 15 – INCOME TAXES
The effective tax rate for the three and six month periods ended April 2, 2023 and April 3, 2022, was as follows:
Three Month Periods Ended Six Month Periods Ended
Effective tax rate April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
SBH 31.7 % 21.3 % 29.0 % 29.2 %
SB/RH 31.2 % 21.1 % 28.7 % 29.1 %
The estimated annual effective tax rate applied to the three and six month periods ended April 2, 2023, differs from the US federal statutory rate of 21 % principally due to income earned outside the U.S. that is subject to U.S. tax, including the U.S. tax on global intangible low taxed income (“GILTI”), certain nondeductible expenses, foreign currency impacts, and foreign rates that differ from the U.S. federal statutory rate. The Company has U.S. net operating loss carryforwards ("NOL"), which do not allow it to take advantage of the foreign-derived intangible income deduction. The Company’s federal effective tax rate on GILTI is therefore 21 %. During the six month period ended April 2, 2023, the Company recorded a discrete $ 16.8 million tax benefit related to the impairment of certain intangible assets. The Company generated a pretax loss on continuing operations for the three and six month periods ended April 2, 2023, so additional discrete tax benefits result in an increase to the tax rate.
As of April 2, 2023 and September 30, 2022, there was $ 1.0 million and $ 2.7 million of income taxes receivable from its parent company on the SB/RH Condensed Consolidated Statements of Financial Position, calculated as if SB/RH were a separate taxpayer.
25
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 16 – COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various litigation matters generally arising out of the ordinary course of business. Based on information currently available, the Company does not believe that any additional matters or proceedings presently pending will have a material adverse effect on its results of operations, financial condition, liquidity or cash flows.
Environmental Liability. The Company has realized commitments attributable to environmental remediation activities primarily associated with former manufacturing sites of the Company's HPC segment. In coordination with local and federal regulatory agencies, we have conducted testing on certain sites, which have resulted in the identification of contamination that has been attributed to historical activities at the properties, resulting in the realization of incremental costs to be assumed by the Company towards the remediation of these properties and the recognition of an environmental remediation liability. We have not conducted invasive testing at all sites and locations and have identified an environmental remediation liability to the extent such remediation requirements have been identified and are considered estimable.
As of April 2, 2023, there was an environmental remediation liability of $ 6.3 million, with $ 2.2 million included in Other Current Liabilities and $ 4.1 million included in Other Long-Term Liabilities on the Condensed Consolidated Statements of Financial Position. As of September 30, 2022, there was an environmental remediation liability of $ 8.8 million, with $ 4.7 million included in Other Current Liabilities and $ 4.1 million included in Other Long-Term Liabilities on the Condensed Consolidated Statements of Financial Position. The Company believes that any additional liability in excess of the amounts provided that may result from resolution of these matters will not have a material adverse effect on the consolidated financial condition, results of operations, or cash flows of the Company.
Product Liability. The Company may be named as a defendant in lawsuits involving product liability claims. The Company has recorded and maintains an estimated liability in the amount of management’s estimate for aggregate exposure for such liabilities based upon probable loss from loss reports, individual cases, and losses incurred but not reported. As of April 2, 2023 and September 30, 2022, the Company recognized $ 3.2 million and $ 3.4 million in product liability, respectively, included in Other Current Liabilities on the Condensed Consolidated Statements of Financial Position. The Company believes that any additional liability in excess of the amounts provided that may result from resolution of these matters will not have a material adverse effect on the consolidated financial condition, results of operations or cash flows of the Company.
Product Warranty . The Company recognizes an estimated liability for standard warranties on certain products when we recognize revenue on the sale of the warranted products. Estimated warranty costs incorporate replacement parts, products and delivery, and are recorded as a cost of goods sold at the time of product shipment based on historical and projected warranty claim rates, claims experience and any additional anticipated future costs on previously sold products. The Company recognized $ 0.3 million and $ 0.4 million of warranty accruals as of April 2, 2023 and September 30, 2022, respectively, included in Other Current Liabilities on the Condensed Consolidated Statements of Financial Position.
Product Safety Recall. During the year ended September 30, 2022, the HPC segment initiated voluntary product recalls in collaboration with the U.S. Consumer Product Safety Commission (" CPSC"), suspending sales of the affected products and issuing a stop sale with its customers. The Company has assessed the incremental costs attributable to the recall, including the anticipated returns from customers for existing retail inventory, write-off of inventory on hand, and other costs to facilitate the recall such as notification, shipping and handling, rework and destruction of affected products, as needed, and evaluated the probability of redemption. As a result, the Company recognized $ 8.4 million and $ 7.5 million as of April 2, 2023 and September 30, 2022, respectively, in Other Current Liabilities on the Consolidated Statement of Financial Position associated with the costs for the recalls. Additionally, the Company has indemnification provisions that are contractually provided by third parties for the affected products and as a result the Company has also recognized $ 8.2 million and $ 4.7 million as of April 2, 2023 and September 30, 2022, respectively, in Other Receivables on the Consolidated Statement of Financial Position related to recovery from such indemnification provisions.
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 17 – SEGMENT INFORMATION
Net sales relating to the segments for the three and six month periods ended April 2, 2023 and April 3, 2022, are as follows:
Three Month Periods Ended Six Month Periods Ended
(in millions) April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
HPC $ 279.2 $ 316.1 $ 643.6 $ 695.8
GPC 296.7 295.1 574.3 597.3
H&G 153.3 196.6 224.6 271.9
Net sales $ 729.2 $ 807.8 $ 1,442.5 $ 1,565.0
The Chief Operating Decision Maker of the Company uses Adjusted EBITDA as the primary operating metric in evaluating the business and making operating decisions. EBITDA is calculated by excluding the Company’s income tax expense, interest expense, depreciation expense and amortization expense (from intangible assets) from net income. Adjusted EBITDA further excludes:
• Share 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 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 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 six month period ended April 2, 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, including impairments from property, plant and equipment, operating and finance leases, and goodwill and other intangible assets;
• 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 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 with remeasurements during the six month period ended April 3, 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; and (3) insurable losses associated with hurricane damages at a key supplier of our Glofish business and loss realized from misapplied funds during the six month period ended April 2, 2023.
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 17 - SEGMENT INFORMATION (continued)
Segment Adjusted EBITDA for the reportable segments for SBH for the three and six month periods ended April 2, 2023 and April 3, 2022, are as follows:
Three Month Periods Ended Six Month Periods Ended
SBH (in millions) April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
HPC $ ( 1.9 ) $ 10.6 $ 11.3 $ 38.0
GPC 46.3 40.6 83.5 79.3
H&G 15.1 37.7 12.8 30.4
Total Segment Adjusted EBITDA 59.5 88.9 107.6 147.7
Corporate 8.5 9.9 16.8 19.4
Interest expense 31.6 24.7 65.0 46.4
Depreciation 11.9 12.2 24.1 24.4
Amortization 10.5 13.5 20.9 26.7
Share and incentive based compensation 4.5 6.6 7.7 12.2
Tristar acquisition and integration 4.0 12.7 9.7 14.4
HHI divestiture 1.4 1.2 2.9 5.5
HPC separation initiatives 1.1 3.0 3.5 4.7
Coevorden operations separation 1.4 2.1 2.7 5.3
Rejuvenate integration — 2.6 — 7.0
Armitage integration — 0.5 — 1.2
Omega integration — 0.5 — 1.4
Fiscal 2023 restructuring 4.5 — 4.5 —
Fiscal 2022 restructuring 0.1 — 0.6 —
Russia closing initiatives ( 0.1 ) — 2.8 —
Global ERP transformation 3.3 3.2 4.9 6.0
HPC brand portfolio transitions 0.5 — 1.4 —
GPC distribution center transition — 7.1 — 19.9
Global productivity improvement program — 2.3 — 4.1
Other project costs 4.6 8.2 7.8 10.2
Unallocated shared costs 6.3 6.9 12.5 13.8
Non-cash purchase accounting adjustments 0.5 3.5 0.9 3.5
Gain from remeasurement of contingent consideration liability — — ( 1.5 ) —
Impairment of equipment and operating leases 4.2 — 4.5 —
Impairment of intangible assets 67.0 — 67.0 —
Early settlement of foreign currency cash flow hedges 1.3 — 3.9 —
HPC product recall 1.6 — 1.9 —
Legal and environmental — — — ( 0.5 )
Salus and other 0.6 0.1 5.0 0.2
Loss from continuing operations before income taxes $ ( 109.8 ) $ ( 31.9 ) $ ( 161.9 ) $ ( 78.1 )
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 17 - SEGMENT INFORMATION (continued)
Segment Adjusted EBITDA for reportable segments for SB/RH for the three and six month periods ended April 2, 2023 and April 3, 2022, are as follows:
Three Month Periods Ended Six Month Periods Ended
SB/RH (in millions)
April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
HPC $ ( 1.9 ) $ 10.6 $ 11.3 $ 38.0
GPC 46.3 40.6 83.5 79.3
H&G 15.1 37.7 12.8 30.4
Total Segment Adjusted EBITDA 59.5 88.9 107.6 147.7
Corporate 8.3 9.6 16.7 18.9
Interest expense 31.7 24.8 65.1 46.7
Depreciation 11.9 12.2 24.1 24.4
Amortization 10.5 13.5 20.9 26.7
Share and incentive based compensation 4.0 6.2 7.1 11.8
Tristar acquisition and integration 4.0 12.7 9.7 14.4
HHI divestiture 1.4 1.2 2.9 5.5
HPC separation initiatives 1.1 3.0 3.5 4.7
Coevorden operations separation 1.4 2.1 2.7 5.3
Rejuvenate integration — 2.6 — 7.0
Armitage integration — 0.5 — 1.2
Omega integration — 0.5 — 1.4
Fiscal 2023 restructuring 4.5 — 4.5 —
Fiscal 2022 restructuring 0.1 — 0.6 —
Russia closing initiatives ( 0.1 ) — 2.8 —
Global ERP transformation 3.3 3.2 4.9 6.0
HPC brand portfolio transitions 0.5 — 1.4 —
GPC distribution center transition — 7.1 — 19.9
Global productivity improvement program — 2.3 — 4.1
Other project costs 4.6 8.2 7.8 10.2
Unallocated shared costs 6.3 6.9 12.5 13.8
Non-cash purchase accounting adjustments 0.5 3.5 0.9 3.5
Gain from remeasurement of contingent consideration liability — — ( 1.5 ) —
Impairment of equipment and operating leases 4.2 — 4.5 —
Impairment of intangible assets 67.0 — 67.0 —
Early settlement of foreign currency cash flow hedges 1.3 — 3.9 —
HPC product recall 1.6 — 1.9 —
Legal and environmental — — — ( 0.5 )
Other 0.6 — 5.0 ( 0.2 )
Loss from continuing operations before income taxes $ ( 109.2 ) $ ( 31.2 ) $ ( 161.3 ) $ ( 77.1 )
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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)
NOTE 18 – EARNINGS PER SHARE – SBH
The reconciliation of the numerator and denominator of the basic and diluted earnings per share calculation and the anti-dilutive shares for the three and six month periods ended April 2, 2023 and April 3, 2022, are as follows:
Three Month Periods Ended Six Month Periods Ended
(in millions, except per share amounts)
April 2, 2023 April 3, 2022 April 2, 2023 April 3, 2022
Numerator
Net loss from continuing operations attributable to controlling interest $ ( 75.1 ) $ ( 25.1 ) $ ( 115.3 ) $ ( 55.3 )
Net income from discontinued operations attributable to controlling interest 21.4 41.0 40.7 79.4
Net (loss) income attributable to controlling interest $ ( 53.7 ) $ 15.9 $ ( 74.6 ) $ 24.1
Denominator
Weighted average shares outstanding – basic 41.0 40.8 40.9 41.1
Dilutive shares — — — —
Weighted average shares outstanding – diluted 41.0 40.8 40.9 41.1
Earnings per share
Basic earnings per share from continuing operations $ ( 1.83 ) $ ( 0.61 ) $ ( 2.82 ) $ ( 1.35 )
Basic earnings per share from discontinued operations 0.52 1.00 1.00 1.94
Basic earnings per share $ ( 1.31 ) $ 0.39 $ ( 1.82 ) $ 0.59
Diluted earnings per share from continuing operations $ ( 1.83 ) $ ( 0.61 ) $ ( 2.82 ) $ ( 1.35 )
Diluted earnings per share from discontinued operations 0.52 1.00 1.00 1.94
Diluted earnings per share $ ( 1.31 ) $ 0.39 $ ( 1.82 ) $ 0.59
Weighted average number of anti-dilutive shares excluded from denominator 0.1 0.2 0.1 0.2
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.