Spectrum Brands Holdings, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction The following is management’s discussion of the financial results, liquidity and other key items related to our performance and should be read in conjunction with the Condensed Consolidated Financial Statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q ("the Quarterly Report") and our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 filed with the SEC on November 21, 2023 (the "2023 Annual Report"). The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs and involve risks, uncertainties, and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contributed these differences include those discussed within "Forward Looking Statements" included elsewhere in this interim report, and in Item 1A. Risk Factors and "Forward-Looking Statements" included within our 2023 Annual Report. Unless the context indicates otherwise, the term the “Company,” “we,” “our,” or “us” are used to refer to Spectrum Brands Holdings, Inc. and its subsidiaries ("SBH") and SB/RH Holdings, LLC and its subsidiaries (“SB/RH”), collectively. Non-GAAP Measurements Our consolidated and segment results contain non-GAAP metrics such as organic net sales, adjusted EBITDA (“Earnings Before Interest, Taxes, Depreciation, Amortization”) and adjusted EBITDA margin. While we believe organic net sales and adjusted EBITDA are useful supplemental information, such adjusted results are not intended to replace our financial results in accordance with Accounting Principles Generally Accepted in the United States (“GAAP”) and should be read in conjunction with those GAAP results. Organic Net Sales. We define organic net sales as net sales excluding the effect of changes in foreign currency exchange rates and impact from acquisitions (when applicable). We believe this non-GAAP measure provides useful information to investors because it reflects regional and operating segment performance from our activities without the effect of changes in currency exchange rates and acquisitions. We use organic net sales as one measure to monitor and evaluate our regional and segment performance. Organic growth is calculated by comparing organic net sales to net sales in the prior year. The effect of changes in currency exchange rates is determined by translating the current period net sales using the currency exchange rates that were in effect during the prior comparative period. Net sales are attributed to the geographic regions based on the country of destination. We exclude net sales from acquired businesses in the current year for which there are no comparable sales in the prior year. The following is a reconciliation of reported net sales to organic net sales for the three month period ended December 31, 2023 compared to net sales for the three month period ended January 1, 2023: Three Month Periods Ended (in millions, except %) December 31, 2023 Net Sales Effect of Changes in Currency Organic Net Sales Net Sales January 1, 2023 Variance GPC $ 276.9 $ (5.0) $ 271.9 $ 277.5 $ (5.6) (2.0) % H&G 72.0 — 72.0 71.4 0.6 0.8 % HPC 343.3 (6.7) 336.6 364.4 (27.8) (7.6) % Total $ 692.2 $ (11.7) $ 680.5 $ 713.3 (32.8) (4.6) % 25 Table of Contents Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures used by management, which we believe provide useful information to investors because they reflect ongoing operating performance and trends of our segments, excluding certain non-cash based expenses and/or non-recurring items during each of the comparable periods. They also facilitate comparisons between peer companies since interest, taxes, depreciation, and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA is also used for determining compliance with the Company’s debt covenants. EBITDA is calculated by excluding the Company’s income tax expense, interest expense, depreciation expense and amortization expense (from intangible assets) from net income. Adjusted EBITDA further excludes: • 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 12 – Share Based Compensation in the Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report, for further details; • Incremental amounts attributable to strategic transactions, restructuring and optimization 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, development and implementation of strategies to optimize operations, reduce costs, increase revenues, improve profit margins, including recognition of one-time exit or disposal costs. These amounts are excluded from our performance metrics as they are reflective of incremental investment by the Company towards strategic initiatives and business development activities, incremental costs directly attributable to such initiatives and are not considered recurring or reflective of the continuing ongoing operations of the consolidated group or segments; • 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 associated with the Tristar Business acquisition; • 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, when applicable; • Incremental costs recognized by the HPC segment attributable to the realization of product recalls initiated in the prior year. See Note 15 - Commitments and Contingencies in Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for further details; • Incremental reserves for non-recurring litigation or environmental remediation activity attributable to significant and unusual nonrecurring matters with no previous history or precedent; • Unallocated shared costs associated with discontinued operations from certain shared and center-led administrative functions, through the close of the HHI divestiture on June 20, 2023; 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. Subsequent to the close of the HHI divestiture, amounts attributable to unallocated shared costs would be mitigated through income from TSAs, subsequent strategic or restructuring initiatives, elimination of extraneous costs, or re-allocations or absorption of existing continuing operations. See Note 2 – Divestitures in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report for further details; • Impact from the early settlement of foreign currency cash flow hedges, resulting in assumed losses at the original stated maturities of foreign currency cash flow hedges in our EMEA region that were settled early 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 excluded gains intended to mitigate costs during the year ending September 30, 2023; and • Other adjustments primarily attributable to: (1) key executive severance and other one-time compensatory costs; and (2) non-recurring unusual insurable losses. Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of reported net sales for the respective period and segment. 26 Table of Contents The following is a reconciliation of net income to Adjusted EBITDA for SBH, by segment, for the three month period ended December 31, 2023. (in millions) GPC H&G HPC Corporate Consolidated Net income (loss) from continuing operations $ 43.5 $ (5.5) $ 15.9 $ (36.4) $ 17.5 Income tax expense — — — 12.4 12.4 Interest expense — — — 19.2 19.2 Depreciation 3.6 1.9 2.7 6.2 14.4 Amortization 5.6 2.9 2.6 — 11.1 EBITDA 52.7 (0.7) 21.2 1.4 74.6 Share based compensation — — — 3.9 3.9 HHI separation costs — — — 1.3 1.3 HPC separation initiatives — — — 0.3 0.3 Fiscal 2023 restructuring 0.1 — 0.4 — 0.5 Global ERP transformation — — — 3.0 3.0 Other project costs (0.1) — 0.1 — — Non-cash purchase accounting adjustments — — 0.5 — 0.5 Impairment of intangible assets — — 4.0 — 4.0 Legal and environmental — — 1.2 — 1.2 HPC product recall — — (0.7) — (0.7) Gain from debt repurchase — — — (4.7) (4.7) Other — — — 0.4 0.4 Adjusted EBITDA $ 52.7 $ (0.7) $ 26.7 $ 5.6 $ 84.3 Net sales $ 276.9 $ 72.0 $ 343.3 $ — $ 692.2 Adjusted EBITDA margin 19.0 % (1.0) % 7.8 % — 12.2 % The following is a reconciliation of net income to Adjusted EBITDA for SBH, by segment, for the three month period ended January 1, 2023. (in millions) GPC H&G HPC Corporate Consolidated Net income (loss) from continuing operations $ 23.0 $ (7.2) $ (4.2) $ (51.6) $ (40.0) Income tax benefit — — — (12.1) (12.1) Interest expense — — — 33.4 33.4 Depreciation 3.7 1.8 3.2 3.5 12.2 Amortization 5.5 2.8 2.1 — 10.4 EBITDA 32.2 (2.6) 1.1 (26.8) 3.9 Share based compensation — — — 3.3 3.3 Tristar integration — — 5.7 — 5.7 HHI divestiture and separation costs — — — 1.5 1.5 HPC separation initiatives — — — 2.4 2.4 Fiscal 2022 restructuring — 0.2 — 0.4 0.6 Russia closing initiatives — — 2.9 — 2.9 Global ERP transformation — — — 1.6 1.6 Other project costs 2.1 — 1.0 2.3 5.4 Unallocated shared costs — — — 6.3 6.3 Non-cash purchase accounting adjustments — — 0.5 — 0.5 Gain from remeasurement of contingent consideration liability — — (1.5) — (1.5) Early settlement of foreign currency cash flow hedges — — 2.6 — 2.6 HPC Product Recall — — 0.3 — 0.3 Other 2.9 — 0.6 0.8 4.3 Adjusted EBITDA $ 37.2 $ (2.4) $ 13.2 $ (8.2) $ 39.8 Net sales $ 277.5 $ 71.4 $ 364.4 $ — $ 713.3 Adjusted EBITDA margin 13.4 % (3.4) % 3.6 % — 5.6 % 27 Table of Contents The following is a reconciliation of net income to Adjusted EBITDA for SB/RH, by segment, for the three month period ended December 31, 2023. (in millions) GPC H&G HPC Corporate Consolidated Net income (loss) from continuing operations $ 43.5 $ (5.5) $ 15.9 $ (35.7) $ 18.2 Income tax expense — — — 12.2 12.2 Interest expense — — — 19.2 19.2 Depreciation 3.6 1.9 2.7 6.2 14.4 Amortization 5.6 2.9 2.6 — 11.1 EBITDA 52.7 (0.7) 21.2 1.9 75.1 Share based compensation — — — 3.8 3.8 HHI separation costs — — — 1.3 1.3 HPC separation initiatives — — — 0.3 0.3 Fiscal 2023 restructuring 0.1 — 0.4 — 0.5 Global ERP transformation — — — 3.0 3.0 Other project costs (0.1) — 0.1 — — Non-cash purchase accounting adjustments — — 0.5 — 0.5 Impairment of intangible assets — — 4.0 — 4.0 Legal and environmental — — 1.2 — 1.2 HPC product recall — — (0.7) — (0.7) Gain from debt repurchase — — — (4.7) (4.7) Other — — — 0.3 0.3 Adjusted EBITDA $ 52.7 $ (0.7) $ 26.7 $ 5.9 $ 84.6 Net Sales $ 276.9 $ 72.0 $ 343.3 $ — $ 692.2 Adjusted EBITDA margin 19.0 % (1.0) % 7.8 % — 12.2 % The following is a reconciliation of net income to Adjusted EBITDA for SB/RH, by segment, for the three month period ended January 1, 2023. (in millions) GPC H&G HPC Corporate Consolidated Net income (loss) from continuing operations $ 23.0 $ (7.2) $ (4.2) $ (51.4) $ (39.8) Income tax benefit — — — (12.2) (12.2) Interest expense — — — 33.4 33.4 Depreciation 3.7 1.8 3.2 3.5 12.2 Amortization 5.5 2.8 2.1 — 10.4 EBITDA 32.2 (2.6) 1.1 (26.7) 4.0 Share based compensation — — — 3.1 3.1 Tristar integration — — 5.7 — 5.7 HHI divestiture and separation costs — — — 1.5 1.5 HPC separation initiatives — — — 2.4 2.4 Fiscal 2022 restructuring — 0.2 — 0.4 0.6 Russia closing initiatives — — 2.9 — 2.9 Global ERP transformation — — — 1.6 1.6 Other project costs 2.1 — 1.0 2.3 5.4 Unallocated shared costs — — — 6.3 6.3 Non-cash purchase accounting adjustments — — 0.5 — 0.5 Gain from remeasurement of contingent consideration liability — — (1.5) — (1.5) Early settlement of foreign currency cash flow hedges — — 2.6 — 2.6 HPC product recall — — 0.3 — 0.3 Other 2.9 — 0.6 0.8 4.3 Adjusted EBITDA $ 37.2 $ (2.4) $ 13.2 $ (8.3) $ 39.7 Net Sales $ 277.5 $ 71.4 $ 364.4 $ — $ 713.3 Adjusted EBITDA margin 13.4 % (3.4) % 3.6 % — % 5.6 % 28 Table of Contents Overview The Company is a diversified global branded consumer products company. We manage the businesses in three vertically integrated, product-focused segments: (i) Global Pet Care (“GPC”), (ii) Home and Garden (“H&G”), and (iii) Home and Personal Care (“HPC”). The Company manufactures, markets and/or distributes its products globally in the North America (“NA”), Europe, Middle East & Africa (“EMEA”), Latin America (“LATAM”) and Asia-Pacific (“APAC”) regions through a variety of trade channels, including retailers, wholesalers and distributors. We enjoy strong name recognition in our regions under our various brands and patented technologies across multiple product categories. Global and geographic strategic initiatives and financial objectives are determined at the corporate level. Each segment is responsible for implementing defined strategic initiatives and achieving certain financial objectives and has a president responsible for sales and marketing initiatives and financial results for all product lines within that segment on a global basis. The segments are supported through center-led shared service operations and enabling functions consisting of finance and accounting, information technology, legal, human resources, supply chain, and commercial operations. The following is an overview of the consolidated business, by segment, summarizing product categories and brands: Segment Product Categories Brands GPC Companion Animal: Rawhide chews, dog and cat clean-up, training, health and grooming products, small animal food and care products, rawhide-free dog and cat treats, and wet and dry pet food for dogs and cats. Companion Animal: Good'n'Fun®, DreamBone®, GOOD BOY®, SmartBones®, IAMS® (Europe only), EUKANUBA® (Europe only), Nature's Miracle®, FURminator®, Dingo®, 8IN1® (8-in-1), Meowee!®, and Wild Harvest TM. Aquatics: Consumer and commercial aquarium kits, stand-alone tanks; aquatics equipment such as filtration systems, heaters and pumps; and aquatics consumables such as fish food, water management and care. Aquatics: Tetra®, Marineland®, GloFish®, OmegaSea®, Instant Ocean®, H&G Household: Household pest control solutions such as spider and scorpion killers; ant and roach killers; flying insect killers; insect foggers; wasp and hornet killers; and bedbug, flea and tick control products. Household: Hot Shot®, Black Flag®, EcoLogic®, Real-Kill®, Ultra Kill®, The Ant Trap® (TAT), and Rid-A-Bug®. Controls: Outdoor insect and weed control solutions, and animal repellents such as aerosols, granules, and ready-to-use sprays or hose-end ready-to-sprays. Controls: Spectracide®, Garden Safe®, Liquid Fence®. Repellents: Personal use pesticides and insect repellent products, including aerosols, lotions, pump sprays and wipes, yard sprays and citronella candles. Repellents: Cutter® and Repel®. Cleaning: Household surface cleaning, maintenance, and restoration products, including bottled liquids, mops, wipes and markers. Cleaning: Rejuvenate® HPC Kitchen & Home Appliances: Small kitchen appliances including toaster ovens, coffeemakers, slow cookers, air fryers, blenders, hand mixers, grills, food processors, juicers, toasters, irons, kettles, bread makers, cookware, and cookbooks. Kitchen & Home Appliances: Black + Decker®, Russell Hobbs®, PowerXL®, George Foreman®, Emeril Legasse®, Copper Chef ®, Toastmaster®, Juiceman®, Farberware®, and Breadman® Personal Care : Hair dryers, flat irons and straighteners, rotary and foil electric shavers, personal groomers, mustache and beard trimmers, body groomers, nose and ear trimmers, women's shavers, and haircut kits. Personal Care: Remington® SB/RH is a wholly owned subsidiary of SBH. Spectrum Brands, Inc. (“SBI”), a wholly-owned subsidiary of SB/RH, incurred certain debt guaranteed by SB/RH and domestic subsidiaries of SBI. See Note 8 – Debt included in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report for more information pertaining to debt. The reportable segments of SB/RH are consistent with the segments of SBH. See Note 16 – Segment Information included in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report for more information pertaining to segments of continuing operations. Strategic transactions, restructuring and optimization initiatives The Company periodically evaluates and enters into strategic transactions that may result in the acquisition or divestiture of a business which impacts the comparability of the financial results of the consolidated group and or segments. Additionally, we develop and enter into restructuring and optimization initiatives to improve efficiencies and utilization to reduce costs, increase revenues and improve margins, which may have a significant impact on the comparability of financial results on the condensed consolidated financial statements. These changes and updates are inherently difficult and are made even more difficult by current global economic conditions. Our ability to achieve the anticipated cost savings and other benefits from such operating strategies may be affected by a number of other macro-economic factors, or inflation and increased interest rates, many of which are beyond our control. Moreover, the comparability of financial information may be impacted by incremental amounts attributable to such strategic transactions, restructuring and optimization initiatives. The following strategic decisions have been considered as having a significant impact on the comparability of the financial results on the condensed consolidated financial statements and segment financial information. • HHI Divestiture - On June 20, 2023, the Company completed its divestiture of its HHI segment. See Note 2 - Divestitures in the Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report for further detail. The Company has incurred incremental project costs attributable to the divestiture, consisting of legal and professional fees to effect the realization and close of the transaction, separation and transition of systems and processes supporting the divested business and operations of enabling functions within a transition services agreement ("TSA"), plus incremental retention costs for personnel supporting such transition efforts. Incremental costs are expected to be incurred for a transition period of approximately 12-24 months following the close of the transaction. • HPC Separation Initiatives - The Company has initiated projects to facilitate a strategic separation of the Company's HPC segment in the most advantageous way to realize value for both the HPC business as a standalone appliance business either through a spin, merger or sale of the business and the retained GPC and H&G businesses of the consolidated group. Costs are primarily attributable to legal and professional fees incurred to assess opportunities, evaluate transaction considerations, including potential tax and compliance implications to the consolidated group, costs directly attributable to the legal entity separation and transfer of net assets of the HPC operations from the commingled operations of the Company, plus the segregation of systems and processes. Costs attributable to the initiative are expected to be incurred until a transaction is realized or otherwise canceled. 29 Table of Contents • Tristar Business Acquisition - During the year ended September 30, 2021, the Company acquired 100% of the Tristar Business that includes a portfolio of home appliances and cookware products sold under the PowerXL®, Emeril Lagasse®, and Copper Chef® brands. The Company incurred incremental costs to combine and integrate the acquired business with the HPC segment, primarily towards the integration of systems and processes, merger of commercial operations and supply chain, professional fees to consolidate financial records, plus incremental retention costs for personnel supporting the transition and integration efforts. • Global ERP Transformation - During the year ended September 30, 2021, the Company entered into a SAP S/4 HANA ERP transformation project to upgrade and implement our enterprise-wide operating systems to SAP S/4 HANA on a global basis. This is a multi-year project that includes various costs, including software configuration and implementation costs that would be recognized as either capital expenditures or deferred costs in accordance with applicable accounting policies, with certain costs recognized as operating expense associated with project development and project management costs, and professional services engaged towards planning, design and business process review that do not qualify as software configuration and implementation costs. The Company has substantially completed the build phase and initiated a pilot deployment in the prior year with subsequent deployments planned later this year. Costs are anticipated to be incurred through various deployments expected through September 30, 2025. • Fiscal 2023 and 2022 Restructuring - During the years ended September 30, 2023 and 2022, the Company entered into initiatives in response to continuing pressures within the consumer products and retail markets and adjusted strategic initiatives within certain segments, resulting in the realization of of headcount reductions. Substantially all costs associated with the initiatives have been recognized in prior periods and any subsequent amounts are attributable to changes in estimates, headcounts and timing of communication. • Russia Closing Initiative - During the year ended September 30, 2022, the Company initiated the close of its commercial operations in Russia, predominantly supporting the HPC segment. The Company recognized impairment costs on working capital assets such as inventory and receivables that were not considered recoverable due to the restriction and suspension of commercial activity in Russia and has substantially liquidated all assets. Remaining costs primarily consist of administrative cost to dissolve the entity. In addition to the initiatives discussed above, the Company regularly engages in other initiatives that may incur incremental costs which may not result in a realized transaction or are less significant initiatives and therefore have been separately disclosed and recognized as other project costs. The following is a summary of incremental costs for the three month periods ended December 31, 2023 and January 1, 2023. (in millions) December 31, 2023 January 1, 2023 HHI divestiture and separation costs $ 1.3 $ 1.5 HPC separation initiatives 0.3 2.4 Tristar integration — 5.7 Global ERP transformation 3.0 1.6 Fiscal 2023 restructuring 0.5 — Fiscal 2022 restructuring — 0.6 Russia closing initiative — 2.9 Other project costs — 5.4 Total $ 5.1 $ 20.1 Reported as: Cost of goods sold $ — $ 1.7 Selling, general and administrative 5.1 18.4 Financing Activity Financing activity during and between comparable periods may have a significant impact on the comparability of financial results on the condensed consolidated financial statements. • Following the close of the HHI divestiture on June 20, 2023, the Company repaid its outstanding term loan and all outstanding borrowings with the Revolver Facility under the Credit Agreement, and terminated the Incremental Revolving Credit Facility Tranche, along with the remaining aggregate principal of its 5.750% Senior Notes due 2025 in full at the redemptions price and repurchased a portion of its remaining outstanding Senior Notes. During the three month period ended December 31, 2023, the Company repurchased $179.0 million of its outstanding bonds at a discount, recognizing a gain of $4.7 million. • During the three month period ended December 31, 2023, the Company entered into the Second Amended and Restated Credit Agreement (the "Credit Agreement"), refinancing the Company's previous credit agreement, extending maturity to October 19, 2028 and reduced capacity of the Revolver Facility to $500.0 million. See Note 8 - Debt in the Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report for additional detail regarding debt and financing activity. 30 Table of Contents Inflation, Supply Chain and Macroeconomic Environment. The Company has experienced an inflationary environment on a global basis in the wake of the COVID-19 pandemic, geopolitical instability and supply chain constraints such as labor shortages, increased freight and distribution costs from transportation and logistics, higher commodity costs, rising energy pricing, and foreign currency volatility. Together with labor shortages and higher demand for talent, the current economic environment is driving higher wages. Our ability to meet labor needs, control wage and labor-related costs and minimize labor disruptions will be key to our success of operating our business and executing our business strategies. In response to inflation, our segments have taken pricing actions to address rising costs and foreign currency fluctuations to mitigate impacts to our margins. We can provide no assurance that such mitigation will be available in the future. While we have seen more stability in the recent economic environment and have not experienced significant disruption in our recent operating results, the risks of future negative impacts due to transportation, logistical or supply constraints remain present, and the Company could continue to experience corresponding incremental costs and margin pressures. We are unable to predict how long the current environment will continue and we expect the economic environment to remain uncertain as we navigate the current geopolitical environment, post-pandemic volatility, labor challenges, changes in supply chain and the overall current economic environment. The Company does not maintain a significant level of operations within the territories directly affected by the Russia-Ukraine war and the Israel-Hamas war, including the Middle East, and we had previously closed the commercial operations within Russia to reduce risk and exposure, but the economic sanctions and hostilities attributable to such conflicts may negatively impact ours and our customers' financial viability and supply chains, which may negatively impact us, supply chain demands, or the demands or economic viability of our customers in other parts of the world. Consolidated Results of Operations The following is summarized consolidated results of operations for SBH for the three month periods ended December 31, 2023 and January 1, 2023. (in millions, except %) December 31, 2023 January 1, 2023 Variance Net sales $ 692.2 $ 713.3 $ (21.1) (3.0) % Gross profit 244.9 201.9 43.0 21.3 % Gross profit margin 35.4 % 28.3 % 710 bps Operating expenses $ 219.9 $ 222.1 $ (2.2) (1.0) % Interest expense 19.2 33.4 (14.2) (42.5) % Interest income (23.4) (0.1) (23.3) n/m Gain from debt repurchase (4.7) — (4.7) n/m Other non-operating expense (income), net 4.0 (1.4) 5.4 n/m Income tax expense (benefit) 12.4 (12.1) 24.5 n/m Net income (loss) from continuing operations 17.5 (40.0) 57.5 n/m Income from discontinued operations, net of tax 11.7 19.5 (7.8) (40.0) % Net income (loss) 29.2 (20.5) 49.7 n/m n/m = not meaningful Net Sales. The following is a summary of net sales by segment for the three month periods ended December 31, 2023 and January 1, 2023, and the principal components of changes in net sales for the respective periods. (in millions, except %) December 31, 2023 January 1, 2023 Variance GPC $ 276.9 $ 277.5 $ (0.6) (0.2) % H&G 72.0 71.4 0.6 0.8 % HPC 343.3 364.4 (21.1) (5.8) % Net Sales $ 692.2 $ 713.3 (21.1) (3.0) % (in millions) Three Month Periods Ended Net Sales for the period ended January 1, 2023 $ 713.3 Decrease in GPC (5.6) Increase in H&G 0.6 Decrease in HPC (27.8) Foreign currency impact, net 11.7 Net Sales for the period ended December 31, 2023 $ 692.2 Gross Profit. Gross profit and margin increased due to cost improvements and inflated inventoried costs that were realized in the prior year, partially offset by lower volumes.. Operating Expenses. Operating expenses decreased due to improved costs and utilization of distribution centers, reduced initiative spending on integration and restructuring, partially offset with incremental investment in brand marketing and advertising. Interest Expense. Interest expense decreased due to reduced debt borrowings and average borrowing rates following the HHI divestiture in the prior year. Interest Income. Interest income increased primarily due to interest realized on cash proceeds received from the closing of the HHI divestiture in the prior year. Gain from debt repurchase. The Company recognized income from the discount realized on the repurchase of debt. See Note 8 - Debt in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional detail. 31 Table of Contents Other Non-Operating Expense (Income), Net. Other non-operating income increased due to changes in foreign currency compared to the prior year. Income Taxes. Our estimated annual effective tax rate was impacted by income earned outside the U.S. that is subject to U.S. tax, including the U.S. tax on global intangible low taxed income and certain nondeductible expenses. Income From Discontinued Operations. Income or loss attributable to discontinued operations in the prior period primarily reflect the income from the discontinued operations of the HHI segment as the divestiture was completed in the prior year on June 20, 2023. Income attributable to discontinued operations in the current period primarily reflect changes to indemnifications associated with the divested businesses. See Note 2 -Divestitures in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional detail. Noncontrolling Interest. The net income attributable to noncontrolling interest reflects the share of the net income of our subsidiaries, which are not wholly-owned, attributable to the accounting interest. Such amount varies in relation to such a subsidiary’s net income or loss for the period and the percentage interest not owned by SBH. SB/RH The following is summarized consolidated results of operations for SB/RH for the three month periods ended December 31, 2023 and January 1, 2023: (in millions, except %) December 31, 2023 January 1, 2023 Variance Net sales $ 692.2 $ 713.3 $ (21.1) (3.0) % Gross profit 244.9 201.9 43.0 21.3 % Gross profit margin 35.4 % 28.3 % 710 bps Operating expenses $ 219.4 $ 222.0 $ (2.6) (1.2) % Interest expense 19.2 33.4 (14.2) (42.5) % Interest income (23.4) (0.1) (23.3) n/m Gain from debt repurchase (4.7) — (4.7) n/m Other non-operating expense (income), net 4.0 (1.4) 5.4 n/m Income tax expense (benefit) 12.2 (12.2) 24.4 n/m Net income (loss) from continuing operations 18.2 (39.8) 58.0 n/m Income from discontinued operations, net of tax 11.7 19.5 (7.8) (40.0) % Net income (loss) 29.9 (20.3) 50.2 n/m n/m = not meaningful The changes in SB/RH for the three month periods are primarily attributable to the changes in SBH previously discussed. Segment Financial Data Global Pet Care (in millions, except %) Three Month Periods Ended Variance December 31, 2023 January 1, 2023 Net sales $ 276.9 $ 277.5 $ (0.6) (0.2) % Operating income 43.9 22.7 21.2 93.4 % Operating income margin 15.9 % 8.2 % 770 bps Adjusted EBITDA $ 52.7 $ 37.2 $ 15.5 41.7 % Adjusted EBITDA margin 19.0 % 13.4 % 560 bps Net sales decreased primarily from softness in the global aquatics category, lower NA sales from the exit of non-strategic categories such as waste management and lower margin SKUs, and lower foot traffic and sales in the pet specialty channels, partially offset by an increase in dog and cat food and companion animal volume in EMEA and sales growth in e-commerce. Organic net sales decreased $5.6 million, or 2.0%, excluding a favorable foreign currency impact of $5.0 million. Operating income, adjusted EBITDA and margins increased due to lower cost inventory compared to prior year, favorable product and channel mix, and savings from prior year cost reduction initiatives, partially offset by lower volumes and increased advertising investments. Home & Garden (in millions, except %) Three Month Periods Ended Variance December 31, 2023 January 1, 2023 Net sales $ 72.0 $ 71.4 $ 0.6 0.8 % Operating loss (5.5) (7.2) 1.7 (23.6) % Operating loss margin (7.6) % (10.1) % 250 bps Adjusted EBITDA $ (0.7) $ (2.4) $ 1.7 (70.8) % Adjusted EBITDA margin (1.0) % (3.4) % 240 bps Net sales increased due to higher sales from the Controls product category where late warmer fall weather extended the selling season and and retailer reorder patterns improved compared to the prior year, partially offset by softness in consumer demand for some product lines within the cleaning category. Operating loss, adjusted EBITDA, and margins improved due to higher sales, manufacturing efficiencies carrying into the fiscal year, positive pricing, and operating cost reductions from cost improvement initiatives, partially offset by additional investments in product innovation and advertising. Home and Personal Care (in millions, except %) Three Month Periods Ended Variance December 31, 2023 January 1, 2023 Net sales $ 343.3 $ 364.4 $ (21.1) (5.8) % Operating income (loss) 16.5 (4.3) 20.8 n/m Operating income (loss) margin 4.8 % (1.2 %) 600 bps Adjusted EBITDA $ 26.7 $ 13.2 $ 13.5 102.3 % Adjusted EBITDA margin 7.8 % 3.6 % 420 bps n/m = not meaningful Net sales decreased due to reduced placements in NA from the prior year, category decline in small kitchen appliances and exit of certain small kitchen appliance SKUs, mitigated through international sales growth across personal care and small kitchen appliances categories and higher volume through e-commerce, plus opportunistic sales when a competitor filed for bankruptcy. Organic net sales for the three month period decreased $27.8 million, or 7.6%, excluding a favorable foreign currency impact of $6.7 million. Operating income, Adjusted EBITDA and margins increased due to lower cost inventory compared to the prior year, cost improvement initiatives, realization of operating spend improvements initiated in the prior year, offset by lower volume and negative mix. Operating income was further benefited by lower costs on restructuring and integration initiatives. Liquidity and Capital Resources The following is a summary of the SBH and SB/RH cash flows from continuing operations for the three month periods ended December 31, 2023 and January 1, 2023, respectively. SBH SB/RH Three Month Periods Ended (in millions) December 31, 2023 January 1, 2023 December 31, 2023 January 1, 2023 Operating activities $ 18.1 $ (57.0) $ 1.8 $ (67.6) Investing activities 133.6 (10.0) 133.6 (10.0) Financing activities (439.8) 56.8 (423.4) 67.3 Cash Flows from Operating Activities Cash flows provided by SBH's continuing operations increased $75.1 million, primarily due to the lower operating costs, interest income, reduced receivables factoring, and diminished spending on strategic and restructuring initiatives. Cash flows provided by SB/RH continuing operations increased $69.4 million primarily due to the items previously discussed above. Cash Flows from Investing Activities Cash flows provided by investing activities for SBH continuing operations increased $143.6 million, primarily from the investment activity of short-term investments. Cash flows provided by investing activities of SB/RH is due to the items previously discussed. Cash Flows from Financing Activities Cash flows used by financing activities for continuing operations increased $496.6 million primarily due to the pay down of debt and treasury share repurchases. Refer to Note 8 – Debt in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for more information on debt borrowings. See Note 11 – Shareholders’ Equity in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for more information on share repurchase activity. There was no issuance of common stock, other than through the Company’s share-based compensation plans and which is recognized as a non-cash financing activity. During the three month periods ended December 31, 2023 and January 1, 2023, SBH made cash dividend payments of $14.1 million, or $0.42 per share, and $17.1 million, or $0.42 per share, respectively. Cash flows used by financing activity of SB/RH increased $490.7 million and is highly dependent upon the financing cash flow activities of SBH. 32 Table of Contents Liquidity Outlook Our ability to generate cash flow from operating activities coupled with our expected ability to access the credit markets, enables us to execute our growth strategies and return value to our shareholders. Our ability to make principal and interest payments on borrowings under our debt agreements and our ability to fund planned capital expenditures will depend on the ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions. We believe the operating cash flow based upon our current and anticipated level of operations, existing cash balances, and availability under our credit facility to be sufficient to meet our operating and capital expenditure requirements for at least the next 12 months. It is not unusual for our business to experience negative operating cash flow during the first quarter of the fiscal year due to the operating calendar with our customers and the seasonality of our working capital. Additionally, we believe the availability under our credit facility and access to capital markets are sufficient to achieve our longer-term strategic plans. As of December 31, 2023, the Company had borrowing availability of $486.9 million, net of outstanding letters of credit, under our credit facility. Liquidity and capital resources of SB/RH are highly dependent upon the cash flow activities of SBH. Short-term financing needs primarily consist of working capital requirements, capital spending, periodic principal and interest payments on our long-term debt, and initiatives to support restructuring, integration or other strategic projects. Long-term financing needs depend largely on potential growth opportunities, including acquisition activity and repayment or refinancing of our long-term obligations. Our long-term liquidity may be influenced by our ability to borrow additional funds, renegotiate existing debt, and raise equity under terms that are favorable to us. We also have long-term obligations associated with defined benefit plans with expected minimum required contributions that are not considered significant to the consolidated group. During the three month period ended December 31, 2023, the Company completed additional repurchases of Senior Notes available for sale on the open market, at a discount. See Note 8 - Debt in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for further detail. The Company may continue to make repayments on its debt obligations in the future, which may include repayments, redemptions, repurchases, refinancings or exchanges of our outstanding Senior Notes, any of which will be dependent on various factors, including market conditions. Any such repurchases may be affected through a variety of means, including privately negotiated transactions, market transactions, tender offers, redemptions or as otherwise required or permitted by the instruments covering the Company's outstanding indebtedness. The Company has also continued to repurchase common shares through open market purchases during the three month period ended December 31, 2023. See Note 11 – Shareholders’ Equity in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for further detail. We may, from time to time, seek to repurchase additional shares of our common stock and any further repurchase activity will be dependent on prevailing market conditions, liquidity requirements and other factors. During the three month period ended December 31, 2023, we entered into a $200.0 million rule 10b5-1 repurchase plan to facilitate daily market share repurchases through November 15, 2024, until the cap is reached or until the plan is terminated. As of December 31, 2023, there has been $11.1 million repurchased pursuant to the 10b5-1 repurchase plan. As of December 31, 2023, the Company had a high level of cash reserves, as compared to the prior year, due to the cash proceeds from the HHI divestiture. The Company has temporarily invested a portion of its cash in short-term investments until such expenditures are considered required or necessary to the Company in executing its strategic plans and initiatives, including any further debt reduction and share buybacks. We maintain a capital structure that we believe provides us with sufficient access to credit markets. When combined with strong levels of cash flow from operations, our capital structure has provided the flexibility necessary to pursue strategic growth opportunities and return value to our shareholders. The Company’s access to capital markets and financing costs may depend on the Company’s credit ratings. None of the Company’s current borrowings are subject to default or acceleration as a result of a downgrading of credit ratings, although a downgrade of the Company’s credit ratings could increase fees and interest charges on future borrowings. At December 31, 2023, we were in compliance with all covenants under the Credit Agreement and the indentures governing the 4.00% Notes, due October 1, 2026; the 5.00% Notes, due October 1, 2029; the 5.50% Notes due July 15, 2030; and the 3.875% Notes, due March 15, 2031. A portion of our cash balance is located outside the U.S. given our international operations. We manage our worldwide cash requirements centrally by reviewing available cash balances across our worldwide group and the cost effectiveness with which this cash can be accessed. We generally repatriate cash from non-U.S. subsidiaries, provided the cost of the repatriation is not considered material. The counterparties that hold our deposits consist of major financial institutions. The majority of our business is not considered seasonal with a year round selling cycle that is overall consistent during the fiscal year with the exception of our H&G segment. H&G sales typically peak during the first six months of the calendar year (the Company's second and third fiscal quarters) due to customer seasonal purchasing patterns and the timing of promotional activity. This seasonality may require the Company to ship large quantities of products ahead of peak consumer buying season that can impact cash flow demands to meet manufacturing and inventory requirements earlier in the fiscal year, as well as extended credit terms and/or promotional discounts throughout the peak season. From time to time the Company enters into factoring agreements and customers' supply chain financing arrangements to provide for the sale of certain trade receivables to unrelated third-party financial institutions. The factored receivables are accounted for as a sale without recourse, and the balance of the receivables sold are removed from the Condensed Consolidated Balance Sheet at the time of the sales transaction, with the proceeds received recognized as an operating cash flow. Amounts received from customers for factored receivables are recognized as a payable and remitted to the factor based upon terms of the factoring agreements. The Company has temporarily suspended most of its receivable factoring activity and intends to terminate the remainder when contractually possible during the 2024 fiscal year. Additionally, the Company facilitates a voluntary supply chain financing program to provide suppliers with the opportunity to sell receivables due from the Company (the Company's trade payables) to an unrelated third-party financial institution under the sole discretion of the supplier and the participating financial institution. There are no guarantees provided by the Company or its subsidiaries and we do not enter into any agreements with the suppliers regarding their participation. The Company's responsibility is limited to payments on the original terms negotiated with its suppliers, regardless of whether the suppliers sell their receivables to the financial institution and continue to be recognized as accounts payable on the Company's Condensed Consolidated Balance Sheet with cash flow activity recognized as an operating cash flow. Other than the changes to debt obligations previously noted, there have been no material changes to our debt obligations, lease obligations, employee benefit obligations, or other contractual obligations or commercial commitments previously disclosed. We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Critical Accounting Policies and Estimates There have been no material changes to our critical accounting estimates as discussed in our 2023 Annual Report. 33 Table of Contents New Accounting Pronouncements See Note 1 – Basis of Presentation and Significant Accounting Policies in Notes to the Condensed Consolidated Financial Statements elsewhere included in this Quarterly Report for information about accounting pronouncements that are newly adopted and recent accounting pronouncements not yet adopted. Guarantor Statements – SB/RH SBI has issued the 4.00% Notes under the 2026 Indenture, the 5.00% Notes under the 2029 Indenture, the 5.50% Notes under the 2030 Indenture, and the 3.875% Notes under the 2031 Indentures (collectively, the “Notes”). The Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by SB/RH and SBI’s domestic subsidiaries. The Notes and the related guarantees rank equally in right of payment with all of SBI and the guarantors’ existing and future senior indebtedness and rank senior in right of payment to all of SBI and the guarantors’ future indebtedness that expressively provide for its subordination to the Notes and the related guarantees. Non-guarantor subsidiaries primarily consist of SBI’s foreign subsidiaries. The following financial information consists of summarized financial information of the Obligor, presented on a combined basis. The “Obligor” consists of the financial statements of SBI as the debt issuer, SB/RH as a parent guarantor, and the domestic subsidiaries of SBI as subsidiary guarantors. Intercompany balances and transactions between SBI and the guarantors have been eliminated. Investments in non-guarantor subsidiaries and the earnings or losses from those non-guarantor subsidiaries have been excluded. Three Month Period Ended Year Ended (in millions) December 31, 2023 September 30, 2023 Statements of Operations Data Third party net sales $ 386.1 $ 1,842.1 Intercompany net sales to non-guarantor subsidiaries 2.9 11.1 Net sales 389.0 1,853.2 Gross profit 130.7 542.1 Operating loss (16.5) (322.5) Net (loss) income from continuing operations (23.9) 0.1 Net (loss) income (12.2) 2,006.3 Net (loss) income attributable to controlling interest (12.2) 2,006.3 Statements of Financial Position Data Current Assets $ 2,382.0 $ 2,773.6 Noncurrent Assets 1,954.7 1,974.9 Current Liabilities 1,171.1 1,398.6 Noncurrent Liabilities 1,701.0 1,868.2 The Obligor’s amounts due from, due to the non-guarantor subsidiaries as of December 31, 2023 and September 30, 2023 are as follows: (in millions) December 31, 2023 September 30, 2023 Statements of Financial Position Data Current receivables from non-guarantor subsidiaries $ 36.8 $ 37.6 Long-term receivable from non-guarantor subsidiaries 109.9 104.0 Current payable to non-guarantor subsidiaries 64.0 283.1 Long-term debt with non-guarantor subsidiaries 2.1 2.0