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, 2024 filed with the SEC on November 15, 2024 (the "2024 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 Quarterly Report, and in Item 1A. Risk Factors and "Forward-Looking Statements" included within our 2024 Annual Report. Unless the context indicates otherwise, the term the "Company," "we," "us," or "our" are used to refer to Spectrum Brands Holdings, Inc. and its subsidiaries collectively. Non-GAAP Measurements Our consolidated and segment results contain non-GAAP metrics such as organic net sales, adjusted EBITDA 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 (where 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 period. The following is a reconciliation of reported net sales to organic net sales for the three month period ended December 29, 2024 compared to net sales for the three month period ended December 31, 2023: Three Month Periods Ended (in millions, except %) December 29, 2024 Net Sales Effect of Changes in Currency Organic Net Sales Net Sales December 31, 2023 Variance GPC $ 260.0 $ (0.8) $ 259.2 $ 276.9 $ (17.7) (6.4) % H&G 92.1 — 92.1 72.0 20.1 27.9 % HPC 348.1 5.9 354.0 343.3 10.7 3.1 % Total $ 700.2 $ 5.1 $ 705.3 $ 692.2 13.1 1.9 % Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and adjusted EBITDA margin are non-GAAP metrics used by management, which we believe are useful to investors to measure the operational strength and performance of our business. These metrics provide investors additional information about our operating profitability for certain non-cash items, non-routine items we do not expect to continue at the same level in the future, as well as other items not core to our continuing operations. By providing these measures, together with a reconciliation of the most directly comparable GAAP measure, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives, as securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities, and they are regularly used by management and our board of directors for internal purposes in evaluating our business performance, making budgeting decisions, and comparing our performance against other peer companies using similar measures. They 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 also excludes certain non-cash adjustments including share based compensation (see Note 10 - Share Based Compensation in the Notes to the Condensed Consolidated Financial Statements for further detail); impairment charges on property, plant and equipment, right of use lease assets, and goodwill and other intangible assets, (See Note 4- Property, Plant and Equipment and Note 5 - Goodwill and Intangible Assets in the Notes to the Condensed Consolidated Financial Statements for further detail, as applicable); gain or loss from the early extinguishment of debt through the repurchase or early redemption of debt (See Note 6 - Debt in the Notes to the Condensed Consolidated Financial Statements for further detail, as applicable); and purchase accounting adjustments recognized in income subsequent to an acquisition attributable to the step-up in value on assets acquired, including, but not limited to, inventory or lease assets. Additionally, the Company will further recognize adjustments from adjusted EBITDA for other costs, gains and losses that are considered significant, non-recurring, or otherwise not supporting the continuing operations and revenue generating activity of the segment or Company, including but not limited to, exit and disposal activities, or incremental costs associated with strategic transactions, restructuring and optimization initiatives such as the acquisition or divestiture of a business, related integration or separation costs, or the development and implementation of strategies to optimize or restructure the Company and its operations. Adjusted EBITDA margin is adjusted EBITDA as a percentage of reported net sales. 19 Table of Contents The following is a reconciliation of Net Income From Continuing Operations to Adjusted EBITDA and Adjusted EBITDA margin for the three month periods ended December 29, 2024 and December 31, 2023. (in millions, except %) December 29, 2024 December 31, 2023 Net income from continuing operations $ 24.6 $ 17.5 Income tax expense 11.8 12.4 Interest expense 6.2 19.2 Depreciation 14.0 14.4 Amortization 10.5 11.1 Share based compensation 4.7 3.9 Non-cash impairment charges — 4.0 Non-cash purchase accounting adjustments — 0.5 Gain from early extinguishment of debt — (4.7) Exit and disposal costs 0.5 0.5 HHI separation costs 1 0.8 1.3 HPC separation initiatives 1 1.3 0.3 Global ERP transformation 1 2.5 3.0 HPC product recall 2 — (0.7) Litigation costs 3 0.8 1.2 Other 4 0.1 0.4 Adjusted EBITDA $ 77.8 $ 84.3 Net sales $ 700.2 $ 692.2 Net income from continuing operations margin 3.5 % 2.5 % Adjusted EBITDA margin 11.1 % 12.2 % ________________________________________ 1 Incremental costs associated with strategic transactions, restructuring and optimization initiatives, including, but not limited to, the acquisition or divestiture of a business, related integration or separation costs, or the development and implementation of strategies to optimize or restructure operations. Refer to Strategic Transactions, Restructuring and Optimization Initiatives discussion within the Business Overview section for further detail. 2 Incremental net costs from product recalls in the HPC segment. See Note 13 - Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements for further detail. 3 Litigation costs primarily associated with the Tristar Business acquisition. See Note 13 - Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements for further detail. 4 Other is attributable to other strategic transaction, restructuring and optimization initiatives, and key executive severance and other one-time compensatory costs during the prior year. 20 Table of Contents Overview For additional discussion and overview of the business, please refer to Item 1. Business , and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2024 Annual Report. Recent Developments 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 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 is a summary of costs attributable to strategic transactions and business development costs that are considered as potentially having a significant impact on the comparability of the financial results on the consolidated financial statements and segment financial information, for the respective projects during the three month periods ended December 29, 2024 and December 31, 2023: (in millions) December 29, 2024 December 31, 2023 HHI separation costs 1 $ 0.8 $ 1.3 HPC separation initiatives 2 1.3 0.3 Global ERP transformation 3 2.5 3.0 Other project costs 4 0.2 0.2 Total $ 4.8 $ 4.8 Reported as: Selling, general & administrative $ 4.8 $ 4.8 ________________________________________ 1 Costs attributable to the HHI divestiture effective June 2023 consisting of subsequent costs to facilitate separation and transition of systems and processes subject to transition services agreements (“TSAs”). Costs are expected to be incurred through the transition period of up to 24 months following the close of the transaction as the Company exits TSAs. 2 Costs attributable to efforts to facilitate a strategic separation of the HPC segment either through a spin, merger or sale, consisting of legal and professional fees to facilitate transaction opportunities and diligence, consult on tax and compliance implications, legal entity restructurings, system and process segregation, carve-out financials and the confidential filing of a Form 10 registration statement in July 2024. Costs are expected to be incurred until a transaction is realized. 3 Costs attributable to a multi-year transformation project to upgrade and implement our enterprise-wide operating systems to SAP S/4 HANA on a global basis, including project management and professional services for planning, design, and business process review that do not qualify as software configuration and implementation costs recognized as capital expenditures or deferred costs under applicable accounting principles. Costs are anticipated to be incurred through various deployments through September 30, 2025. 4 Other costs are attributable to distribution center transitions. Exit and Disposal Activity The Company periodically recognizes exit and disposal costs primarily consisting of severance and contract termination costs that may be attributable to a reorganization or restructuring of the Company, cost savings initiatives, or in consideration of a recent strategic transaction. Such actions result in the recognition of costs to the Company that are considered incremental and not reflective of the continuing operating costs of the business and may impact the comparability of the consolidated business and its segments. During the three months ended December 29, 2024 and December 31, 2023, exit and disposal costs were $0.5 million, primarily consisting of accrued termination costs and recognized within Selling, General & Administrative Expense within the Condensed Consolidated Statements of Income . Refinancing Activity Financing activity during and between comparable periods may have a significant impact on the comparability of financial results on the condensed consolidated financial statements. • On May 23, 2024, the Company completed its offering of $350.0 million principal amount of 3.375% Exchangeable Senior Notes due June 1, 2029 (the “Exchangeable Notes”), recognizing $11.8 million of fees and expenses which were capitalized as debt issuance costs and will be amortized over the term of the Exchangeable Notes. • Concurrent with the issuance of the Exchangeable Notes, the Company completed a tender offer on the aggregate outstanding principal balance of the 4.00% Senior Notes due 2026 (the “2026 Notes”), the 5.00% Senior Notes due 2029, the 5.50% Senior Notes due 2030, and the 3.875% Senior Notes due 2031 (the “2031 Notes”) (collectively, the “Tendered Notes”) and redeemed the remaining outstanding principal balance of the 2026 Notes, resulting in the reduction of the principal debt balance of $1,174.4 million and recognition of a loss on early extinguishment of $2.2 million during the third quarter of the prior year. • During the year ended September 30, 2024, the Company repurchased outstanding bonds in the open market at a discount resulting in the recognition of a gain on extinguishment of $4.7 million in the prior period ended December 31, 2023. 21 Table of Contents Consolidated Results of Operations The following is summarized consolidated results of operations for the three month periods ended December 29, 2024 and December 31, 2023. (in millions, except %) December 29, 2024 December 31, 2023 Variance Net sales $ 700.2 $ 692.2 $ 8.0 1.2 % Gross profit 257.8 244.9 12.9 5.3 % Selling, general & administrative 213.1 219.9 (6.8) (3.1) % Interest expense 6.2 19.2 (13.0) (67.7) % Interest income (2.6) (23.4) 20.8 n/m Gain from early extinguishment of debt — (4.7) 4.7 n/m Other non-operating expense, net 4.7 4.0 0.7 17.5 % Income tax expense 11.8 12.4 (0.6) (4.8) % Net income from continuing operations 24.6 17.5 7.1 40.6 % (Loss) income from discontinued operations, net of tax (0.8) 11.7 (12.5) n/m Net income 23.8 29.2 (5.4) (18.5) % n/m = not meaningful Net Sales. The following is a summary of net sales by segment for the three month periods ended December 29, 2024 and December 31, 2023, and the principal components of changes in net sales between the respective periods. (in millions, except %) December 29, 2024 December 31, 2023 Variance GPC $ 260.0 $ 276.9 $ (16.9) (6.1) % H&G 92.1 72.0 20.1 27.9 % HPC 348.1 343.3 4.8 1.4 % Net Sales $ 700.2 $ 692.2 8.0 1.2 % Three month periods ended (in millions, except %) GPC H&G HPC TOTAL Amount Percent Amount Percent Amount Percent Amount Percent Volume $ (15.6) (5.6) % $ 17.0 23.6 % $ 7.9 2.3 % $ 9.3 1.3 % Price (2.1) (0.8) % 3.1 4.3 % 2.8 0.8 % 3.8 0.5 % Foreign Currency 0.8 0.3 % — — % (5.9) (1.7) % (5.1) (0.7) % Total $ (16.9) (6.1) % $ 20.1 27.9 % $ 4.8 1.4 % $ 8.0 1.2 % Organic $ (17.7) (6.4) % $ 20.1 27.9 % $ 10.7 3.1 % $ 13.1 1.9 % Refer to the S egment Financial Data section below for further discussion on net sales results. Gross Profit. The following is a summary of the gross profit and gross profit margin for the three month periods ended December 29, 2024 and December 31, 2023, respectively, and the principal factors contributing to the change between the respective periods. (in millions, except %) December 29, 2024 December 31, 2023 Variance Gross profit $ 257.8 $ 244.9 $ 12.9 5.3 % Gross profit margin 36.8 % 35.4 % 140 bps (in millions, except margin) Gross Profit Margin Price $ 3.9 40 bps Mix 1.8 20 bps Volume 3.0 30 bps Cost changes 0.7 10 bps Product recalls (0.8) (10) bps Foreign exchange rates 4.3 50 bps Total $ 12.9 140 bps Gross profit and margin increased due to the increase in sales volume, cost improvements and favorable transaction foreign currency partially offset by ocean freight inflation and higher tariffs due to the expiration of exemptions for certain product lines. 22 Table of Contents Selling, General & Administrative. The following summarizes the selling, general & administrative costs for the three month periods ended December 29, 2024 and December 31, 2023, respectively, including amounts as a percentage of net sales for each respective period. Three month periods ended (in millions, except %) December 29, 2024 % of Net Sales December 31, 2023 % of Net Sales Variance Sales, marketing & advertising $ 79.4 11.3 % $ 71.9 10.4 % $ 7.5 10.4 % Distribution 60.1 8.6 % 63.3 9.1 % (3.2) (5.1) % General & administrative 62.6 8.9 % 74.1 10.7 % (11.5) (15.5) % Research & development 5.7 0.8 % 5.5 0.8 % 0.2 3.6 % Strategic transaction, restructuring and optimization 5.3 0.8 % 5.1 0.7 % 0.2 3.9 % Total selling, general & administrative $ 213.1 30.4 % $ 219.9 31.8 % (6.8) (3.1) % Selling, general & administrative expenses decreased due to reduced overhead from cost savings initiatives offset by continued investment in marketing and advertising. Sales, marketing and advertising costs increased due to the Company's investment towards brand focused marketing and advertising initiatives across all segments to drive top line growth. Distribution costs decreased due to cost reduction and optimization within distribution centers. General & administrative costs decreased due to lowered overhead costs from cost improvement initiatives and a tradename impairment recognized in the prior year. Research & development costs were consistent between periods. Strategic transaction, restructuring and optimization costs, inclusive of exit & disposal costs, were consistent between periods. Interest Expense. Interest expense decreased during the three month periods due to reduced debt borrowings and lower average borrowing rates following previously discussed refinancing activity in the prior year. Interest Income. Interest income decreased due to lower balance in term deposits following previously discussed refinancing activity in the prior year. Gain From Early Extinguishment of Debt. During the three month period ended December 31, 2023, the Company recognized net gain from extinguishment of debt associated with previously discussed debt repurchase activity. There was no comparable activity during the three month period ended December 29, 2024. Other Non-Operating Expense, Net. Other non-operating expense is primarily 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, state income taxes, and certain nondeductible expenses. Income From Discontinued Operations. Income from discontinued operations primarily reflect changes to indemnifications associated with divested businesses. 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 the Company. Segment Financial Data Global Pet Care (in millions, except %) December 29, 2024 December 31, 2023 Variance Net sales $ 260.0 $ 276.9 $ (16.9) (6.1) % Adjusted EBITDA 51.5 52.7 (1.2) (2.3) % Adjusted EBITDA margin 19.8 % 19.0 % 80 bps Net sales decreased with an organic net sales decrease of $17.7 million, or 6.4%, excluding a favorable foreign currency impact of $0.8 million, from lower volumes, mainly in North America (“NA”) due to the pull forward of sales into the prior fiscal year in advance of the S4/Hana ERP implementation in October 2024 and overall slower retail sales during the period. Slower retail sales in NA was impacted by category softness in the Aquatics product category and consumer trade downs negatively impacting in the Companion Animal product category at retail. Overall sales decline was offset by an increase in Europe, Middle East and Africa (“EMEA”) sales with positive momentum in e-commerce for the Dog and Cat Food product category and further expansion of the Good Boy® brand with distribution outside of the United Kingdom and introduction of new products. Adjusted EBITDA decreased due to volume decrease with inflationary pressures in ocean freight and continued brand-focused investments with a margin increase from favorable mix and operational productivity. Home & Garden (in millions, except %) December 29, 2024 December 31, 2023 Variance Net sales $ 92.1 $ 72.0 $ 20.1 27.9 % Adjusted EBITDA 9.3 (0.7) 10.0 n/m Adjusted EBITDA margin 10.1 % (1.0) % 1,110 bps n/m = not meaningful Net sales and organic net sales increased due to higher distribution from earlier seasonal inventory build up for some retailers with improved placement and retail display strategy in anticipation of the upcoming season, primarily within our Controls and Repellent product categories, plus an increase in Household pest control products from a relatively warmer fall season extending retailer and consumer demand. Net sales were also benefited by the pull forward of sales into the current period due to a S4/Hana ERP implementation for H&G in January 2025 to ensure seasonal supply during the go-live. Adjusted EBITDA and margin increased due to higher volume, cost improvements and favorable trade variances offset by an increase in brand-focused investments and some inflation. Home and Personal Care (in millions, except %) December 29, 2024 December 31, 2023 Variance Net sales $ 348.1 $ 343.3 $ 4.8 1.4 % Adjusted EBITDA 26.7 26.7 — — % Adjusted EBITDA margin 7.7 % 7.8 % (10) bps Net sales increased with an organic net sales increase of $10.7 million, or 3.1%, excluding an unfavorable foreign currency impact of $5.9 million. The increase is due to increased volume in the Personal Care product category with growth in e-commerce distribution globally and new listings at traditional retail in NA. The Home Appliances product category in EMEA also benefited from expanded distribution through e-commerce and new product listings while NA sales were negatively impacted by slower distribution and competitive pressures in traditional retail. Sales in Latin America were negatively impacted by distribution challenges within the region while gaining new distribution wins with product launches in the Personal Care product category. Adjusted EBITDA has remained flat with higher sales volumes and the benefit of cost improvement initiatives and favorable foreign currency offset by continued brand-focused investments, inflation in ocean freight, and expiration of tariff exclusions on certain product lines. Liquidity and Capital Resources The following is a summary of cash flow from continuing operations for the three month periods ended December 29, 2024 and December 31, 2023, respectively. (in millions) December 29, 2024 December 31, 2023 Operating activities $ (71.9) $ 18.1 Investing activities (5.9) 133.6 Financing activities (97.3) (439.8) Cash Flows from Operating Activities Cash flows from operating activities by continuing operations decreased $90.0 million, due to increased cash flow used in working capital, primarily attributable to inventory build up in H&G and timing of operational cash receipts from HPC holiday season, and lower interest income, offset by improved operating results, lower spending on strategic transaction, restructuring and optimization initiatives and lower cash interest. Cash Flows from Investing Activities Cash flows from investing activities for continuing operations decreased $139.5 million due to the decreased short term investment activity from the reduction of term deposits following previously discussed refinancing activity in the prior year. Cash Flows from Financing Activities Cash flows from financing activities for continuing operations increased $342.5 million primarily from lower debt repayment and share repurchases activity. During the three month periods ended December 29, 2024 and December 31, 2023, the Company made cash dividend payments of $13.2 million, or $0.47 per share, and $14.1 million, or $0.42 per share, respectively, which decreased due to the lower outstanding shares following treasury share repurchases. 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. Based upon our current and anticipated level of operations, existing cash balances, and availability under our credit facility, we expect cash flows from operations to be sufficient to meet our operating and capital expenditure requirements for at least the next 12 months. It is not unusual for our business to experience negative operating cash flow during the first quarter of the fiscal year due to the operating calendar with our customers and the seasonality of our working capital. Additionally, we believe the availability under our credit facility and access to capital markets are sufficient to achieve our longer-term strategic plans. As of December 29, 2024, the Company had a total cash and cash equivalents of $179.9 million and borrowing availability of $490.8 million, net of outstanding letters of credit of $9.2 million, under our credit facility with a total liquidity of $670.7 million. 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. As of December 29, 2024, we were in compliance with all covenants under the Credit Agreement and the indentures governing the 3.375% Notes, due June 1, 2029 and the 3.875% Notes, due March 15, 2031. 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, repayment or refinancing of our long-term obligations, and share repurchase activity, amongst others. 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. The Company substantially decreased its outstanding debt with the receipt of proceeds from the completion of the HHI divestiture in June 2023 through various redemptions and repurchase transactions. The Company may make additional repayments on its remaining outstanding debt obligations in the future, which may include repayments, redemptions, repurchases, refinancing or exchanges of its outstanding Senior Notes, any of which will be dependent on various factors, including market conditions. Any such repurchases may be effected 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 continued to repurchase shares of common stock as further detailed in Note 9 – Shareholders’ Equity in the Notes to the Condensed Consolidated Financial Statements . 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. 23 Table of Contents A portion of our cash balance is located outside the U.S. given our international operations. We manage our worldwide cash requirements centrally by reviewing available cash balances across our worldwide group and the cost effectiveness with which this cash can be accessed. We generally repatriate cash from non-U.S. subsidiaries, provided the cost of the repatriation is not considered material. The counterparties that hold our deposits consist of major financial institutions. The majority of our business is not considered seasonal with a year round selling cycle that is overall consistent during the fiscal year with the exception of our H&G segment. H&G sales typically peak during the first six months of the calendar year (the Company's second and third fiscal quarters) due to customer seasonal purchasing patterns and the timing of promotional activity. This seasonality requires the Company to ship large quantities of products ahead of peak consumer buying season that can impact cash flow demands to meet manufacturing and inventory requirements earlier in the fiscal year, as well as extended credit terms and/or promotional discounts throughout the peak season. From time to time the Company enters into factoring agreements and customers' supply chain financing arrangements to provide for the sale of certain trade receivables to unrelated third-party financial institutions. The factored receivables are accounted for as a sale without recourse, and the balance of the receivables sold are removed from the Condensed Consolidated Balance Sheet at the time of the sales transaction, with the proceeds received recognized as an operating cash flow. Amounts received from customers for factored receivables are recognized as a payable and remitted to the factor based upon terms of the factoring agreements. The Company discontinued its receivable factoring activity in the prior year but may factor receivables in the future which will be dependent on various factors. Additionally, the Company facilitates a voluntary supply chain financing program to provide certain of its suppliers with the opportunity to sell receivables due from the Company (the Company's trade payables) to an unrelated third-party financial institution under the sole discretion of the supplier and the participating financial institution. There are no guarantees provided by the Company or its subsidiaries and we do not enter into any agreements with the suppliers regarding their participation. The Company's responsibility is limited to payments on the original terms negotiated with its suppliers, regardless of whether the suppliers sell their receivables to the financial institution and continue to be recognized as Accounts Payable on the Company's Condensed Consolidated Balance Sheet with cash flow activity recognized as an operating cash flow. We do not believe the level of supplier based financing to be material. 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 2024 Annual Report. New Accounting Pronouncements See Note 1 – Basis of Presentation and Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements for information about accounting pronouncements that are newly adopted and recent accounting pronouncements not yet adopted. 24 Table of Contents Guarantor Statements Spectrum Brands, Inc. (“SBI”) has issued the 3.375% Notes, due June 1, 2029, under the 2029 Indenture and the 3.875% Exchangeable Notes, due March 15, 2031, under the 2031 Indentures (collectively, the “Notes”). The Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Spectrum Brands Holdings, Inc., as parent guarantor, 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. See Note 11 - Debt within the Notes to the Consolidated Financial Statements within the 2024 Annual Report. 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, Spectrum Brands Holdings, Inc. as the 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 29, 2024 September 30, 2024 Statements of Operations Data Third party net sales $ 372.8 $ 1,829.4 Intercompany net sales to non-guarantor subsidiaries 13.2 22.8 Net sales 386.0 1,852.2 Gross profit 130.7 662.3 Operating (loss) income (10.2) 22.2 Net loss from continuing operations (21.5) (23.6) Net loss (22.3) (6.1) Net loss attributable to controlling interest (22.3) (6.1) Statements of Financial Position Data Current Assets $ 1,138.9 $ 1,228.0 Noncurrent Assets 3,968.8 3,989.6 Current Liabilities 854.4 901.6 Noncurrent Liabilities 920.0 930.9 The Obligor’s amounts due from, due to the non-guarantor subsidiaries as of December 29, 2024 and September 30, 2024 are as follows: (in millions) December 29, 2024 September 30, 2024 Statements of Financial Position Data Current receivables from non-guarantor subsidiaries $ 122.8 $ 125.4 Long-term receivable from non-guarantor subsidiaries 29.0 30.7 Current payable to non-guarantor subsidiaries 20.8 59.7 Long-term debt with non-guarantor subsidiaries 17.6 20.2 25 Table of Contents